##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 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: 000-50651
 SANTARUS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    33-0734433(I.R.S. Employer Identification No.)
 3721 Valley Centre Drive, Suite 400
San Diego, California(Address of Principal Executive Offices)
    
    92130(Zip Code)
 (858) 314-5700  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $0.0001 per share
    
    Nasdaq Global MarketSeries A Junior Participating Preferred
Stock Purchase Rights
    
    Nasdaq Global Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
   DOCUMENTS INCORPORATED BY REFERENCE
  
 *
    
    Excludes the common stock held by executive officers, directors and stockholders whose
ownership exceeded 10% of the registrants common stock outstanding at June 30, 2008. This
calculation does not reflect a determination that such persons are affiliates for any other
purposes.




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##### 



SANTARUS, INC.
 FORM 10-K  ANNUAL REPORT
For the Year Ended December 31, 2008
 Table of Contents
 PagePART IItem 1
    
    Business
    
    
    2Item 1A
    
    Risk Factors
    
    
    24Item 1B
    
    Unresolved Staff Comments
    
    
    45Item 2
    
    Properties
    
    
    45Item 3
    
    Legal Proceedings
    
    
    45Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    46PART IIItem 5
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    47Item 6
    
    Selected Financial Data
    
    
    48Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    50Item 7A
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    63Item 8
    
    Financial Statements and Supplementary Data
    
    
    64Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    64Item 9A
    
    Controls and Procedures
    
    
    64Item 9B
    
    Other Information
    
    
    67PART IIIItem 10
    
    Directors, Executive Officers and Corporate Governance
    
    
    68Item 11
    
    Executive Compensation
    
    
    68Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    68Item 13
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    68Item 14
    
    Principal Accountant Fees and Services
    
    
    68PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    69Signatures
    
    
    
    
    74EX-10.8EX-10.25EX-10.26EX-23.1EX-31.1EX-31.2EX-32.1
  i




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PART I
 Forward-Looking Statements
 ® ® ®
  Corporate Information
  ® ®
 1




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Item 1. Business
 Overview
 ® ® ®
 Santarus Portfolio
 Marketed Products
 Drug
    
    Partner
    
    Approved Indications
    
    StatusZegerid® Capsules and
Powder for Oral Suspension
(Rx  U.S.)
    
    
    
    Heartburn/GERD, Erosive
Esophagitis, Duodenal and
Gastric Ulcers, Upper GI
Bleeding
    
    MarketedGlumetza® Extended Release
Tablets
(Rx  U.S.)
    
    Depomed
    
    Type 2 Diabetes
    
    MarketedDevelopment Product CandidatesDrug
    
    Partner
    
    Potential Indications*
    
    StatusOTC Zegerid®
(U.S.)
    
    Schering-Plough
    
    Heartburn
    
    NDA submitted March 2008Zegerid® Tablet Formulation
(Rx  U.S.)
    
    
    
    Heartburn/GERD, Erosive
Esophagitis, Duodenal and
Gastric Ulcers
    
    NDA submitted January 2009Zegerid® Rx and OTC
(Ex  U.S.)**
    
    GSK
    
    Heartburn/GERD, Erosive
Esophagitis, Duodenal and
Gastric Ulcers
    
    Preparation of regulatory filings
ongoingBudesonide MMX®
(U.S.)
    
    Cosmo
    
    Mild or Moderate Active
Ulcerative Colitis
    
    Two phase III clinical trials ongoingRifamycin SV MMX®
(U.S.)
    
    Cosmo
    
    Travelers Diarrhea
    
    Initiation of phase III program
planned for first half of 2010
 
 *
    
    These potential indications will be subject to completion of any applicable product development and clinical programs and to approval by the FDA or
applicable foreign regulatory authorities.**
    
    GSK is also currently distributing and promoting Zegerid prescription products in Puerto Rico and the U.S. Virgin Islands. 2




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Currently Marketed Products
   Development Product Candidates
   Additional Strategic Alliances
  3




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Strategy
  
    
    Increasing Sales of Zegerid and Glumetza Brand Prescription Products.Our commercial
resources are focused on increasing market demand for, and sales of, Zegerid and Glumetza
brand prescription products. Our field sales organization currently promotes Zegerid
products to targeted gastroenterologists and primary care physicians. To leverage our
commercial capabilities and increase revenues, we entered into a promotion agreement for
the Glumetza products in July 2008, and our field sales organization began promoting these
products to targeted endocrinologists and primary care physicians in October 2008. We
believe that both the Zegerid and Glumetza brand products offer differentiated treatment
options for physicians and their patients and continue to represent an attractive market
opportunity.
    
    Advancing Our Lower GI Development Products.We are also focused on advancing the
development of the budesonide MMX and rifamycin SV MMX product candidates, which utilize
the patented MMX delivery technology developed by Cosmo. Budesonide MMX is an oral
corticosteroid and is currently being investigated in two phase III clinical trials for the
induction of remission of mild or moderate active ulcerative colitis. Rifamycin SV MMX is
a broad spectrum, semi-synthetic antibiotic, and has been investigated in a phase II
clinical program for travelers diarrhea. The MMX technology is designed to deliver a drug
substance directly to the colon. We believe the utilization of the MMX technology with
these product candidates may result in improved efficacy, while also reducing side effects
typically associated with systemic absorption. We were granted exclusive rights to
continue the development of these product candidates and, assuming regulatory approval, to
commercialize them in the U.S. under a strategic collaboration that we entered into with
Cosmo in December 2008.
    
    Maximizing the Value of Our Proprietary PPI Technology.In addition to our efforts
related to our Zegerid prescription products in the U.S., we are focused on maximizing the
value of our patented PPI technology in other pharmaceutical markets. We have licensed
exclusive rights to Schering-Plough to develop, manufacture and sell Zegerid brand OTC
products with the lower dosage strength of 20 mg of omeprazole in the U.S. and Canada. We
have also granted exclusive rights to GSK to commercialize prescription and OTC omeprazole
products in up to 114 specified countries within Africa, Asia, the Middle-East, and Central
and South America and to distribute Zegerid brand prescription products in Puerto Rico and
the U.S. Virgin Islands. We believe these arrangements and revenue sources have the
potential to add significant value to our company. In addition, we submitted an NDA to the
FDA in January 2009 for a new tablet formulation to add to our family of Zegerid
prescription products. We plan to continue to evaluate additional opportunities to expand
the commercialization of our PPI technology both within and outside the U.S.
    
    Expanding our Product Portfolio to Further Leverage our Commercial Capabilities through
Internal Development or Co-promotion, In-licensing or Acquisition of Marketed or Late-Stage
Proprietary Products.In the future, we also plan to expand our product portfolio to
further leverage our commercial capabilities, and we may explore arrangements for
additional marketed or late-stage products. We will concentrate our efforts on proprietary
products that would be complementary to our existing products and have attractive
commercial potential.
 Currently Marketed Products
 Zegerid Capsules and Zegerid Powder for Oral Suspension
  4




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
    
    Immediate Release All currently marketed PPIs in the U.S., other than Zegerid, are
available for oral use only in delayed-release, enteric-coated formulations. Our Zegerid
products utilize one or more antacids, instead of delayed-release, enteric coatings, to
protect the omeprazole from acid degradation. The antacids neutralize gastric acid, protect
the omeprazole from acid degradation and enable rapid absorption of the omeprazole, which,
in turn, allows the omeprazole to begin to inhibit acid production. For example, in our
pivotal pharmacokinetic/pharmacodynamic, or PK/PD, clinical trials evaluating Zegerid
Capsules and Zegerid Powder for Oral Suspension, maximal plasma levels of omeprazole were
attained in approximately 30 minutes, as compared with 1.5 hours or longer to reach peak
plasma levels for delayed-release omeprazole in the same trials.
    
    Duration of Acid Control While providing for immediate release, our Zegerid products
are also designed to provide a duration of acid control similar to delayed-release PPIs
and, thus, allow for once-daily dosing. For example, in our pivotal PK/PD clinical trials
evaluating Zegerid Capsules and Zegerid Powder for Oral Suspension, the products maintained
a median gastric pH above 4 ranging from 12.2 to 18.6 hours per day, depending on the
dosage strength and formulation, after repeated once-daily dosing.
    
    Nighttime and Daytime Acid Control Zegerid Powder for Oral Suspension has also
demonstrated effective acid control during the night when dosed at bedtime. For example,
in a PD clinical trial evaluating Zegerid Powder for Oral Suspension and delayed-release
PPI brands, Nexium® and Prevacid®, significantly fewer patients
treated with Zegerid experienced nocturnal acid breakthrough than when treated with the
comparator drugs. Nocturnal acid breakthrough was defined as gastric pH less than 4 for
more than one continuous hour between 10:00 pm and 6:00 am with once-daily PPI therapy.
Zegerid Capsules have also demonstrated significantly longer control of gastric acidity
over a 24-hour period, when dosed in the morning before breakfast. For example, in a PD
clinical trial evaluating the effects of morning dosing of each of Zegerid Capsules and
delayed-release PPI brands, Protonix® and Prevacid, on 24-hour gastric acid
control in patients with symptoms of GERD, the time that gastric pH was greater than 4 for
patients taking Zegerid was 14.3 hours compared with 10 hours for patients treated with
Protonix and 11.7 hours for patients treated with Prevacid.
    
    Variety of Formulations Our Zegerid products are currently marketed in capsule and
powder for oral suspension dosage forms. We have also recently submitted an NDA to the FDA
for a new tablet formulation of our Zegerid products, utilizing our patented PPI
technology. In addition to providing alternative formulations for use in the general adult
population, our powder for oral suspension formulation may address the needs of specific
patient populations, such as those who have difficulty swallowing capsules or tablets.
 5




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Upper Gastrointestinal Diseases and Disorders
      Glumetza Extended Release Tablets
    6




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Type 2 Diabetes
   ® ® ®
 Promotion Agreement with Depomed
     7




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Development Product Candidates
 Budesonide MMX
    8




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® ®
   Inflammatory Bowel Disease and Ulcerative Colitis
  ®
  9




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Rifamycin SV MMX
     Infections of the Colon and Travelers Diarrhea
 ® ® ®
  Strategic Collaboration with Cosmo
  License Agreement
  10




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Stock Issuance Agreement/Registration Rights Agreement
   11




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Zegerid Tablet
  Additional Strategic Alliances
  OTC License Agreement with Schering-Plough
     12




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License Agreement and Distribution Agreement with GSK
  License Agreement
   th
   13




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Distribution Agreement
  th
    Sales and Marketing
    14




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Contract Sales Organization Agreement with inVentiv
    Manufacturing and Distribution
   Zegerid Prescription Products
  15




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Glumetza Extended Release Tablets
  Budesonide MMX and Rifamycin SV MMX
  Distribution
  16




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Intellectual Property
    Zegerid Products and Related PPI Technology
   17




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Litigation with Par Pharmaceutical, Inc.
     18




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Exclusive License Agreement with the University of Missouri
   Glumetza Extended Release Tablets
   Budesonide MMX and Rifamycin SV MMX Product Candidates
  19




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Trademarks
 ® ®
 ®
 ® ®
 Competition
   
    
    branded PPI prescription products (such as Nexium®, Prevacid®,
Aciphex®and Protonix®);
    
    generic PPI prescription products (such as delayed-release omeprazole and
delayed-release pantoprazole);
    
    OTC PPI products (such as Prilosec OTC® and store-brand versions); and
    
    other prescription and/or OTC acid-reducing agents (such as histamine-2 receptor
antagonists and antacids).
 
   20




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Research and Development
   Government Regulation
   Clinical Testing and the FDA Approval Process
    21




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Section 505(b)(2) NDAs
    22




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®
 Other Regulatory Requirements
     23




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Employees
  Available Information
 www.santarus.com www.sec.gov
 
 Item 1A. Risk Factors
   
    
    whether we are able to increase market demand for, and sales of, our currently marketed
prescription products   Zegerid® (omeprazole/sodium bicarbonate) Capsules and
Powder for Oral Suspension and Glumetza® (metformin hydrochloride extended
release tablets);
    
    whether we are able to maintain patent protection for our products, including whether we
are successful in our litigation against Par Pharmaceutical, Inc., or Par, for infringement
of patents covering Zegerid Capsules and Zegerid Powder for Oral Suspension;
    
    whether we are successful in generating revenue under our strategic alliances, including
our over-the-counter, or OTC, license agreement with Schering-Plough Healthcare Products,
Inc., or Schering-Plough, and our license and distribution agreements with Glaxo Group
Limited, an affiliate of GlaxoSmithKline plc, or GSK; and
    
    whether we are successful in progressing the development and commercialization of our
development
products, including the budesonide MMX® and rifamycin SV MMX product candidates
and the new tablet formulation of our Zegerid prescription products, in a timely manner.
 24




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Risks Related to Our Business and Industry
 We depend on the commercial success of the Zegerid and Glumetza prescription products, and we
cannot be certain that we will be able to continue to increase sales of these products.
  
    
    successfully increase market demand for, and sales of, these products through the
promotional efforts of our own sales force, the contract sales representatives under our
agreement with inVentiv Commercial Services, LLC, or inVentiv, and any other promotional
arrangements that we may later establish;
    
    successfully maintain patent protection for these products, including whether we are
successful in the lawsuits we filed against Par for infringement of patents covering our
Zegerid Capsules and Zegerid Powder for Oral Suspension products;
    
    obtain greater acceptance of the products by physicians and patients and obtain and
maintain distribution at the retail level;
    
    maintain adequate levels of reimbursement coverage for our products from third-party
payors, particularly in light of the availability of other branded and generic competitive
products;
    
    establish and maintain agreements with wholesalers and distributors on commercially
reasonable terms; and
    
    maintain commercial manufacturing arrangements with third-party manufacturers as
necessary to meet commercial demand for the products.
   We may not generate adequate revenues under our promotion agreement for Glumetza products to
justify our level of promotional effort and expense under the agreement.
  25




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Our ability to generate revenues also depends on the success of our strategic alliances with GSK
and Schering-Plough, many aspects of which are out of our control.
     26




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Our budesonide MMX and rifamycin SV MMX product candidates will require significant development
activities and ultimately may not be approved by the FDA, and any failure or delays associated with
these activities or the FDAs approval of such products would increase our costs and time to
market.
       27




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Our pending NDA for the tablet formulation of our Zegerid prescription products may not be approved
by the FDA in a timely manner, or at all, which would adversely impact our ability to commercialize
this product.
  The markets in which we compete are intensely competitive and many of our competitors have
significantly more resources and experience, which may limit our commercial opportunity.
   
    
    developing prescription and OTC drugs;
    
    undertaking preclinical testing and human clinical trials;
    
    formulating and manufacturing drugs;
    
    obtaining FDA and other regulatory approvals of drugs; and
    
    launching, marketing, distributing and selling drugs.
  28




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Our currently marketed products compete with many other drug products, which could put downward
pressure on pricing and market share and limit our ability to generate revenues.
  
    
    branded PPI prescription products (such as Nexium®, Prevacid®,
Aciphex® and Protonix®);
    
    generic PPI prescription products (such as delayed-release omeprazole and
delayed-release pantoprazole);
    
    OTC PPI products (such as Prilosec OTC® and store-brand versions); and
    
    other prescription and/or OTC acid-reducing agents (such as histamine-2 receptor
antagonists and antacids).
 
  
    
    other branded immediate-release and extended-release metformin products (such as
Fortamet®, Glucophage® and Glucophage XR®);
    
    generic immediate-release and extended-release metformin products; and
    
    other prescription diabetes treatments.
   29




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Our reliance on third-party clinical investigators and clinical research organizations may result
in delays in completing, or a failure to complete, clinical trials or we may be unable to use the
clinical data gathered if they fail to comply with regulatory requirements or perform under our
agreements with them.
  We depend on a limited number of wholesaler customers for retail distribution of our Zegerid
products, and if we lose any of our significant wholesaler customers, our business could be harmed.
  We do not currently have any manufacturing facilities and instead rely on third-party
manufacturers.
    30




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Our reporting and payment obligations under the Medicaid rebate program and other governmental
purchasing and rebate programs are complex and may involve subjective decisions, and any failure to
comply with those obligations could subject us to penalties and sanctions, which in turn could have
a material adverse effect on our business and financial condition.
  Regulatory approval for our currently marketed products is limited by the FDA to those specific
indications and conditions for which clinical safety and efficacy have been demonstrated.
   31




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We are subject to ongoing regulatory review of our currently marketed products.
      32




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We are subject to new legislation, regulatory proposals and managed care initiatives that may
increase our costs of compliance and adversely affect our ability to market our products, obtain
collaborators and raise capital.
  We face a risk of product liability claims and may not be able to obtain adequate insurance.
  We rely on third parties to perform many necessary services for our commercial products, including
services related to the distribution, storage and transportation of our products.
  33




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If we are unable to attract and retain key personnel, our business will suffer.
   Risks Related to Our Intellectual Property
 The protection of our intellectual property rights is critical to our success and any failure on
our part to adequately maintain such rights would materially affect our business.
  Patents
   34




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Zegerid Products and Related PPI Technology
     Glumetza Extended Release Tablets
  35




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Budesonide MMX and Rifamycin SV MMX
   Trade Secrets and Proprietary Know-how
  Trademarks
 ® ®
  36




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The duration and any potential negative outcome in the ongoing patent litigation with Par could
adversely affect our financial condition and results of operations as it could result in the
introduction of generic products prior to the expiration of the patents for Zegerid Capsules and
Zegerid Powder for Oral Suspension, as well as in significant legal expenses and diversion of
management time.
     Third parties may choose to file patent infringement claims against us, which litigation would be
costly, time-consuming and distracting to management and could be materially adverse to our
business.
  37




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®
 Our Zegerid products depend on technology licensed from the University of Missouri and any loss of
our license rights would harm our business and seriously affect our ability to market our products.
   Risks Related to Our Financial Results and Need for Financing
 We have incurred significant operating losses since our inception, and we expect to incur
significant additional operating losses and may not attain and sustain profitability.
  38




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To the extent we need to raise additional funds in connection with the licensing or acquisition of
new products or to continue our operations, we may be unable to raise capital when needed.
     Our quarterly financial results are likely to fluctuate significantly due to uncertainties about
future sales levels for our currently marketed products and future costs associated with our
development products.
  39




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##### Table of Contents




    
    commercial success of the Zegerid and Glumetza prescription products;
    
    the outcome of, or other developments related to, our patent infringement suit against
Par involving Zegerid Capsules and Zegerid Powder for Oral Suspension;
    
    progress under the strategic alliances with GSK and Schering-Plough, including
Schering-Ploughs ability to obtain regulatory approval for a licensed OTC product;
    
    our ability to obtain regulatory approval for any future products we develop, including
the new tablet formulation of our Zegerid prescription products, for which an NDA was
submitted in January 2009;
    
    results of clinical trials and other development programs, including the ongoing and
planned clinical trials for the budesonide MMX and rifamycin SV MMX product candidates, and
our ability to establish safety and efficacy for our development products;
    
    interruption in the manufacturing or distribution of our products;
    
    timing of new product offerings, acquisitions, licenses or other significant events by
us, GSK, Schering-Plough or our competitors;
    
    legislative changes affecting the products we may offer or those of our competitors; and
    
    the effect of competing technological and market developments.
  Our current and any future indebtedness under our loan agreement with Comerica could adversely
affect our financial health.
  
    
    impair our ability to obtain additional financing in the future for working capital
needs, capital expenditures and general corporate purposes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    make it more difficult for us to satisfy other debt obligations we may incur in the
future;
    
    require us to dedicate a substantial portion of our cash flows from operations to the
payment of principal and interest on our indebtedness, thereby reducing the availability of
our cash flows to fund working capital needs, capital expenditures and other general
corporate purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
industry in which we operate;
    
    place us at a disadvantage compared to our competitors that have less indebtedness; and
    
    expose us to higher interest expense in the event of increases in interest rates because
our indebtedness under the loan agreement with Comerica bears interest at a variable rate.
 
 40




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Covenants in our loan agreement with Comerica may limit our ability to operate our business.
   Our results of operations and liquidity needs could be materially negatively affected by market
fluctuations and economic downturn.
   Negative conditions in the global credit markets may impair the liquidity of a portion of our
investment portfolio.
   41




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In connection with the reporting of our financial condition and results of operations, we are
required to make estimates and judgments which involve uncertainties, and any significant
differences between our estimates and actual results could have an adverse impact on our financial
position, results of operations and cash flows.
  Risks Related to the Securities Markets and Ownership of Our Common Stock
 Our stock price has been and may continue to be volatile, and our stockholders may not be able to
sell their shares at attractive prices.
   
    
    announcements concerning our commercial progress and activities, including sales trends,
or concerning our product development programs, results of our clinical trials or status of
our regulatory submissions;
    
    developments in our pending patent infringement suit against Par involving Zegerid
Capsules and Zegerid Powder for Oral Suspension;
    
    regulatory developments and related announcements in the U.S., including announcements
by the FDA, and foreign countries;
    
    other disputes or developments concerning proprietary rights, including patents and
trade secrets, litigation
matters, and our ability to patent or otherwise protect our products and technologies;
 42




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
    
    developments, including progress or delays, pursuant to our strategic alliances with GSK
and Schering-Plough;
    
    conditions or trends in the pharmaceutical and biotechnology industries;
    
    fluctuations in stock market prices and trading volumes of similar companies or of the
markets generally;
    
    changes in, or our failure to meet or exceed, investors and securities analysts
expectations;
    
    announcements of technological innovations or new commercial products by us or our
competitors;
    
    actual or anticipated fluctuations in our or our competitors quarterly or annual
operating results;
    
    announcements concerning borrowings under our loan agreement, takedowns under our
existing universal shelf registration statement or other developments relating to the loan
agreement, universal shelf registration statement or our other financing activities;
    
    our entering into licenses, strategic partnerships and similar arrangements, or the
termination of such arrangements;
    
    acquisition of products or businesses by us or our competitors;
    
    announcements made by, or events affecting, our strategic partners, our contract sales
force provider, our suppliers or other third parties that provide services to us;
    
    litigation and government inquiries; or
    
    economic and political factors, including wars, terrorism and political unrest.
 Our stock price could decline and our stockholders may suffer dilution in connection with future
issuances of equity or debt securities.
   43




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Future sales of our common stock by our stockholders may depress our stock price.
  We may become involved in securities or other class action litigation that could divert
managements attention and harm our business.
  Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent
a change in control, even if an acquisition would be beneficial to our stockholders, which could
adversely affect our stock price and prevent attempts by our stockholders to replace or remove our
current management.
   
    
    dividing our board of directors into three classes serving staggered three-year terms;
    
    prohibiting our stockholders from calling a special meeting of stockholders;
    
    permitting the issuance of additional shares of our common stock or preferred stock
without stockholder approval;
    
    prohibiting our stockholders from making certain changes to our certificate of
incorporation or bylaws except with 66 2/3% stockholder approval; and
    
    requiring advance notice for raising business matters or nominating directors at
stockholders meetings.
   44




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
     45




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Item 4. Submission of Matters to a Vote of Security Holders
  46




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 Market Information
  High
    
    LowYear Ended December 31, 2007First Quarter
    
    $
    8.15
    
    
    $
    6.11Second Quarter
    
    $
    7.96
    
    
    $
    4.82Third Quarter
    
    $
    5.83
    
    
    $
    1.93Fourth Quarter
    
    $
    2.80
    
    
    $
    1.90Year Ended December 31, 2008First Quarter
    
    $
    3.14
    
    
    $
    1.78Second Quarter
    
    $
    3.24
    
    
    $
    1.98Third Quarter
    
    $
    2.93
    
    
    $
    1.91Fourth Quarter
    
    $
    2.68
    
    
    $
    1.23
  Dividend Policy
  Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  47




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##### Table of Contents



Performance Graph
  Comparison of Cumulative Total Return on Investment
 Since April 1, 2004
 
 4/1/04
    
    
    12/31/04
    
    
    12/30/05
    
    
    12/29/06
    
    
    12/31/07
    
    
    12/31/08Santarus, Inc.
    
    $
    100.00
    
    
    $
    89.50
    
    
    $
    52.48
    
    
    $
    77.53
    
    
    $
    27.23
    
    
    $
    15.54Nasdaq Composite Index, U.S.
Companies
    
    $
    100.00
    
    
    $
    108.50
    
    
    $
    110.77
    
    
    $
    121.70
    
    
    $
    131.97
    
    
    $
    63.58Nasdaq Pharmaceuticals
Index
    
    $
    100.00
    
    
    $
    100.90
    
    
    $
    111.11
    
    
    $
    108.76
    
    
    $
    114.36
    
    
    $
    106.42
 
 Item 6. Selected Financial Data
  48




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##### Table of Contents



Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except per share amounts)Statement of Operations Data:Revenues:Product sales, net
    
    $
    101,220
    
    
    $
    79,403
    
    
    $
    45,980
    
    
    $
    13,667
    
    
    $
    634Promotion revenue
    
    
    9,837
    
    
    
    1,803
    
    
    
    
    
    
    
    
    
    
    
    License and royalty revenue
    
    
    19,144
    
    
    
    13,222
    
    
    
    3,263
    
    
    
    12,857
    
    
    
    714Total revenues
    
    
    130,201
    
    
    
    94,428
    
    
    
    49,243
    
    
    
    26,524
    
    
    
    1,348Costs and expenses:Cost of product sales
    
    
    7,345
    
    
    
    7,301
    
    
    
    4,927
    
    
    
    2,129
    
    
    
    1,968License fees and royalties
    
    
    22,257
    
    
    
    11,117
    
    
    
    6,437
    
    
    
    3,414
    
    
    
    5,089Research and development
    
    
    11,760
    
    
    
    6,849
    
    
    
    7,572
    
    
    
    11,292
    
    
    
    24,823Selling, general and administrative
    
    
    108,012
    
    
    
    116,503
    
    
    
    89,828
    
    
    
    79,391
    
    
    
    52,354Total costs and expenses
    
    
    149,374
    
    
    
    141,770
    
    
    
    108,764
    
    
    
    96,226
    
    
    
    84,234Loss from operations
    
    
    (19,173
    )
    
    
    (47,342
    )
    
    
    (59,521
    )
    
    
    (69,702
    )
    
    
    (82,886
    )Interest and other income, net
    
    
    1,190
    
    
    
    3,077
    
    
    
    3,055
    
    
    
    4,716
    
    
    
    1,391Loss before income taxes
    
    
    (17,983
    )
    
    
    (44,265
    )
    
    
    (56,466
    )
    
    
    (64,986
    )
    
    
    (81,495
    )Income tax expense
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (18,517
    )
    
    
    (44,265
    )
    
    
    (56,466
    )
    
    
    (64,986
    )
    
    
    (81,495
    )Accretion to redemption value of redeemable
convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,124
    )Net loss attributable to common stockholders
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )
    
    $
    (64,986
    )
    
    $
    (82,619
    )Basic and diluted net loss per share
    
    $
    (0.36
    )
    
    $
    (0.87
    )
    
    $
    (1.19
    )
    
    $
    (1.66
    )
    
    $
    (3.30
    )Weighted average shares outstanding used to
calculate basic and diluted net loss per
share
    
    
    51,835
    
    
    
    51,061
    
    
    
    47,355
    
    
    
    39,188
    
    
    
    25,017
 As of December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands)Balance Sheet Data:Cash, cash equivalents and short-term
investments
    
    $
    52,037
    
    
    $
    64,678
    
    
    $
    75,534
    
    
    $
    69,367
    
    
    $
    114,008Working capital
    
    
    3,734
    
    
    
    25,582
    
    
    
    59,010
    
    
    
    59,572
    
    
    
    94,346Total assets
    
    
    92,484
    
    
    
    85,344
    
    
    
    93,628
    
    
    
    79,935
    
    
    
    122,216Deferred revenue, less current portion
    
    
    2,436
    
    
    
    12,722
    
    
    
    15,444
    
    
    
    8,571
    
    
    
    11,429Long-term debt, less current portion
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Total stockholders equity
    
    
    9,323
    
    
    
    15,348
    
    
    
    46,305
    
    
    
    54,520
    
    
    
    85,843
 49




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##### Table of Contents



First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(in thousands, except per share amounts)Selected Quarterly Financial Data (unaudited):2008:Product sales, net
    
    $
    19,415
    
    
    $
    23,954
    
    
    $
    28,106
    
    
    $
    29,745Total revenues
    
    
    24,466
    
    
    
    36,005
    
    
    
    32,209
    
    
    
    37,521Cost of product sales
    
    
    1,695
    
    
    
    1,701
    
    
    
    1,924
    
    
    
    2,025Total costs and expenses
    
    
    32,646
    
    
    
    33,062
    
    
    
    36,338
    
    
    
    47,328Net income (loss)
    
    
    (7,619
    )
    
    
    3,205
    
    
    
    (3,952
    )
    
    
    (10,151
    )Basic and diluted net income (loss) per share
    
    
    (0.15
    )
    
    
    0.06
    
    
    
    (0.08
    )
    
    
    (0.19
    )2007:Product sales, net
    
    $
    17,027
    
    
    $
    18,800
    
    
    $
    19,527
    
    
    $
    24,049Total revenues
    
    
    18,958
    
    
    
    20,730
    
    
    
    26,458
    
    
    
    28,282Cost of product sales
    
    
    1,647
    
    
    
    1,663
    
    
    
    1,782
    
    
    
    2,209Total costs and expenses
    
    
    36,312
    
    
    
    34,427
    
    
    
    34,065
    
    
    
    36,966Net income (loss)
    
    
    (16,436
    )
    
    
    (12,936
    )
    
    
    (6,902
    )
    
    
    (7,991
    )Basic and diluted net loss per share
    
    
    (0.32
    )
    
    
    (0.25
    )
    
    
    (0.13
    )
    
    
    (0.16
    )
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis together with Selected Financial Data
and the financial statements and related notes included elsewhere in this Form 10-K . This
discussion may contain forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in any forward-looking statements as a
result of many factors, including those set forth in our filings with the Securities and Exchange
Commission.
 Overview
  ®
 ®
 ®
 50




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##### Table of Contents



Critical Accounting Policies
  Revenue Recognition
 Revenue Recognition
 Product Sales, Net.
 Revenue Recognition When Right of Return Exists.
  
    
    the number of and specific contractual terms of agreements with customers;
    
    estimated levels of inventory in the distribution channel;
    
    estimated remaining shelf life of products;
    
    analysis of prescription data gathered by a third-party prescription data provider;
    
    direct communication with customers;
    
    historical product returns, rebates and chargebacks;
    
    anticipated introduction of competitive products or generics;
    
    anticipated pricing strategy changes by us and/or our competitors; and
    
    the impact of state and federal regulations.
 51




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Promotion Revenue and License and Royalty Revenue.
 52




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##### Table of Contents



Revenue Arrangements with Multiple Deliverables
 Inventories and Related Reserves
 ®
 Stock-Based Compensation
 Share-Based Payment Accounting for
Stock-Based Compensation,
   53




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Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in
Conjunction with Selling Goods or Services
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Cost of product sales
    
    $
    95
    
    
    $
    207
    
    
    $
    124Research and development
    
    
    478
    
    
    
    899
    
    
    
    1,163Selling, general and administrative
    
    
    3,638
    
    
    
    10,644
    
    
    
    8,038Total
    
    $
    4,211
    
    
    $
    11,750
    
    
    $
    9,325
   Results of Operations
 Comparison of Years Ended December 31, 2008, 2007 and 2006
 Product Sales, Net.
 Promotion Revenue. ® ® 
 54




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##### Table of Contents



License and Royalty Revenue.
 
    
    In June 2008, we received a $2.5 million nonrefundable regulatory milestone relating to
FDA acceptance for filing of an NDA submitted by Schering-Plough for a Zegerid branded
omeprazole/sodium bicarbonate OTC product in a 20 mg dosage strength of omeprazole. In
August 2007, we received a nonrefundable $5.0 million milestone payment from
Schering-Plough relating to progress on clinical development strategy. We recognized the
payments of $2.5 million and $5.0 million in license and royalty revenue in 2008 and 2007,
respectively, due to the substantive nature of the milestones achieved. In November 2006,
we received a nonrefundable $15.0 million upfront license fee in connection with our
license agreement with Schering-Plough. The $15.0 million upfront payment is being
amortized to revenue on a straight-line basis over a 37-month period through the end of
2009, which represents the estimated period during which we have significant
responsibilities under the agreement.
    
    In December 2007, we received a nonrefundable $11.5 million upfront payment in
connection with our license and distribution agreements with GSK. To support GSKs initial
launch costs, we agreed to waive the first $2.5 million of aggregate royalties payable
under the agreements. Of the total $11.5 million upfront payment, the $2.5 million in
waived royalty obligations was recorded as deferred revenue and is being recognized as
revenue as the royalties are earned. The remaining $9.0 million was also recorded as
deferred revenue and is being amortized to revenue on a straight-line basis over an
18-month period, which represents the estimated period we are obligated to supply Zegerid
products to GSK for sale in Puerto Rico and the U.S. Virgin Islands under the distribution
agreement.
    
    In October 2004, we received a nonrefundable $15.0 million upfront payment in connection
with our non-exclusive agreement with Otsuka America Pharmaceutical Inc., or Otsuka
America, under which Otsuka America had been co-promoting Zegerid Capsules and Zegerid
Powder for Oral Suspension. The $15.0 million upfront payment was being amortized to
revenue on a straight-line basis over the 63-month contractual term through the end of
2009. On May 28, 2008, we agreed to terminate the co-promotion agreement effective as of
June 30, 2008. In connection with the termination, we amortized the remaining balance of
the $15.0 million up-front payment previously received from Otsuka America in October 2004
and recognized approximately $5.7 million in license and royalty revenue in 2008 associated
with this amortization.
 Cost of Product Sales.
 License Fees and Royalties.
 55




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Research and Development.
 56




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##### Table of Contents



® ®
  Selling, General and Administrative.
 Interest and Other Income, Net.
 57




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##### Table of Contents



Liquidity and Capital Resources
     The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment to FASB
Statement No. 115,
  58




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    One to
    
    
    Four toContractual Obligations
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Thereafter(in thousands)Operating leases
    
    $
    6,071
    
    
    $
    2,054
    
    
    $
    3,937
    
    
    $
    80
    
    
    $
    Other long-term contractual
obligations
    
    
    244
    
    
    
    74
    
    
    
    170
    
    
    
    
    
    
    
    Total
    
    $
    6,315
    
    
    $
    2,128
    
    
    $
    4,107
    
    
    $
    80
    
    
    $
    
  59




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##### Table of Contents



60




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##### Table of Contents



61




---



##### Table of Contents



Accounting Pronouncements
 Adoption of Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment to FASB Statement No. 115
 Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development Activities
 Pending Adoption of Recent Accounting Pronouncements
 Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property.
 Business Combinations
 62




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##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements (an amendment of Accounting Research Bulletin, or ARB, No. 51).
 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
     63




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Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   64




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Managements Report on Internal Control Over Financial Reporting
     65




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Report of Independent Registered Public Accounting Firm
 
        
 66




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Item 9B. Other Information
  67




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  68




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Documents filed as part of this report.
            Exhibits.
 ExhibitNumber
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation3.2(2)
    
    Amended and Restated Bylaws3.3(3)
    
    Certificate of Designations for Series A Junior Participating Preferred Stock4.1(3)
    
    Form of Common Stock Certificate4.2(4)
    
    Amended and Restated Investors Rights Agreement, dated April 30, 2003, among us and the parties
named therein4.3(4)
    
    Amendment No. 1 to Amended and Restated Investors Rights Agreement, dated May 19, 2003, among
us and the parties named therein4.4(4)
    
    Stock Restriction and Registration Rights Agreement, dated January 26, 2001, between us and The
Curators of the University of Missouri4.5(4)
    
    Form of Common Stock Purchase Warrant4.6(3)
    
    Rights Agreement, dated as of November 12, 2004, between us and American Stock Transfer & Trust
Company, which includes the form of Certificate of Designations of the Series A Junior
Participating Preferred Stock of Santarus, Inc. as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C4.7(5)
    
    First Amendment to Rights Agreement, dated April 19, 2006, between us and American Stock
Transfer & Trust Company4.8(6)
    
    Second Amendment to Rights Agreement, dated December 10, 2008, between us and American Stock
Transfer and Trust Company
 69




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##### Table of Contents



ExhibitNumber
    
    Description4.9(7)
    
    Warrant to Purchase Shares of Common Stock, dated February 3, 2006, issued by us to Kingsbridge
Capital Limited4.10(7)
    
    Registration Rights Agreement, dated February 3, 2006, between us and Kingsbridge Capital Limited4.11(8)
    
    Registration Rights Agreement, dated December 10, 2008, between us and Cosmo Technologies Limited10.1(4)
    
    Stock Purchase Agreement, dated January 26, 2001, between us and The Curators of the University
of Missouri10.2(4)
    
    Exclusive License Agreement, dated January 26, 2001, between us and The Curators of the
University of Missouri10.3(4)
    
    Amendment No. 1 to Exclusive License Agreement, dated February 21, 2003, between us and The
Curators of the University of Missouri10.4(9) 
    
    Amendment No. 2 to Exclusive License Agreement, dated August 20, 2007, between us and The
Curators of the University of Missouri10.5(4)
    
    Omeprazole Supply Agreement, dated September 25, 2003, among us, InterChem Trading Corporation
and Union Quimico Farmaceutica, S.A.10.6(10) 
    
    Amendment No. 1 to Omeprazole Supply Agreement, dated November 1, 2004, among us, InterChem
Trading Corporation and Union Quimico Farmaceutica, S.A.10.7(10) 
    
    Amendment No. 2 to Omeprazole Supply Agreement, dated July 11, 2007, among us, InterChem Trading
Corporation and Union Quimico Farmaceutica, S.A.10.8+
    
    Amendment No. 3 to Omeprazole Supply Agreement, dated December 17, 2008, among us, InterChem
Trading Corporation and Union Quimico Farmaceutica, S.A.10.9(11)
    
    Amended and Restated Manufacturing and Supply Agreement, dated December 19, 2006, between us and
Patheon Inc.10.10(12)
    
    Manufacturing and Supply Agreement, dated September 27, 2004, between us and OSG Norwich
Pharmaceuticals, Inc.10.11(12)
    
    Co-Promotion Agreement, dated October 4, 2004, between us and Otsuka America Pharmaceutical, Inc.10.12(13)
    
    Amendment No. 1 to Co-Promotion Agreement, dated January 6, 2006, between us and Otsuka America
Pharmaceutical, Inc.10.13(7)
    
    Common Stock Purchase Agreement, dated February 3, 2006, between us and Kingsbridge Capital
Limited10.14(14)
    
    Amended and Restated Loan and Security Agreement, dated as of July 11, 2008, between us and
Comerica Bank10.15(14)
    
    Amended and Restated LIBOR Addendum to Loan and Security Agreement, dated as of July 11, 2008,
between us and Comerica Bank10.16(15)
    
    OTC License Agreement, dated October 17, 2006, between us and Schering-Plough Healthcare
Products, Inc.10.17(16)
    
    Service Agreement, dated November 3, 2006, between us and Ventiv Commercial Services, LLC (d/b/a
inVentiv Commercial Services, LLC)10.18(10) 
    
    Amendment No. 1 to Service Agreement, dated June 15, 2007, between us and Ventiv Commercial
Services, LLC (d/b/a inVentiv Commercial Services, LLC)10.19(17)
    
    Amendment No. 2 to Service Agreement, dated October 6, 2008, between us and Ventiv Commercial
Services, LLC (d/b/a inVentiv Commercial Services, LLC)10.20(18)
    
    Co-Promotion Agreement, dated as of June 28, 2007, by and between us and Victory Pharma, Inc.10.21(9) 
    
    Co-Promotion Agreement, dated August 24, 2007, between us and C.B. Fleet Company, Incorporated10.22(19)
    
    Amendment No. 1 to Co-Promotion Agreement, dated May 6, 2008, between us and C.B. Fleet Company,
Incorporated10.23(20)
    
    License Agreement, dated November 30, 2007, between us and Glaxo Group Limited, an affiliate of
GlaxoSmithKline plc
 70




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##### Table of Contents



ExhibitNumber
    
    Description10.24(20)
    
    Distribution Agreement, dated November 30, 2007, between us and Glaxo Group Limited, an
affiliate of GlaxoSmithKline plc10.25+
    
    License Agreement, dated December 10, 2008, between us and Cosmo Technologies Limited10.26+
    
    Stock Issuance Agreement, dated December 10, 2008, between us and Cosmo Technologies Limited10.27(21)
    
    Promotion Agreement, dated July 21, 2008, between us and Depomed, Inc.10.28(4)
    
    Office Building Lease, dated August 24, 2001, between us and Torrey View Associates LP10.29(4)
    
    Irrevocable Stand-by Letter of Credit, dated August 24, 2001, issued by UBS Paine Webber Inc.10.30(22)
    
    Sublease, dated December 11, 2007, between us and Avnet, Inc.10.31(4)#
    
    Form of Indemnification Agreement between us and each of our directors and officers10.32(4)#
    
    1998 Stock Option Plan10.33(23)#
    
    Amendment to 1998 Stock Option Plan10.34(24)#
    
    Amended and Restated 2004 Equity Incentive Award Plan10.35(23)#
    
    Amendment No. 1 to Amended and Restated 2004 Equity Incentive Award Plan10.36(25)#
    
    Amendment No. 2 to Amended and Restated 2004 Equity Incentive Award Plan10.37(26)#
    
    Form of Stock Option Agreement under Amended and Restated 2004 Equity Incentive Award Plan10.38(27)#
    
    Form of Immediately Exerciseable Stock Option Agreement under Amended and Restated 2004 Equity
Incentive Award Plan10.39(28)#
    
    Amended and Restated Employee Stock Purchase Plan10.40(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Gerald T.
Proehl10.41(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Debra P.
Crawford10.42(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Julie A.
DeMeules10.43(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and William C.
Denby, III10.44(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Warren E. Hall10.45(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Michael D. Step10.46(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and E. David
Ballard, II, M.D.10.47(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Maria
Bedoya-Toro10.48(20)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and Carey J. Fox10.49(29)#
    
    2007 Bonus Plan10.50(30)#
    
    2008 Bonus Plan10.51(31)#
    
    2009 Bonus Plan23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under
the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under
the Securities Exchange Act of 193432.1*
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2004, filed with the Securities and
Exchange Commission on May 13, 2004. 71




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##### Table of Contents



(2)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on December 5, 2008.(3)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on November 17, 2004.(4)
    
    Incorporated by reference to our Registration Statement on Form
S-1, filed with the Securities and Exchange Commission on December
23, 2003, as amended (File No. 333-111515).(5)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on April 21, 2006.(6)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on December 15, 2008.(7)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on February 3, 2006.(8)
    
    Incorporated by reference to our Registration Statement on Form
S-3, filed with the Securities and Exchange Commission on January
20, 2009 (File No. 333-156806).(9)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2007, filed with the Securities
and Exchange Commission on November 2, 2007.(10)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007, filed with the Securities and
Exchange Commission on August 6, 2007.(11)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on December 21, 2006.(12)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004, filed with the Securities
and Exchange Commission on November 12, 2004.(13)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on January 6, 2006.(14)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on July 14, 2008.(15)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on October 18, 2006.(16)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on November 7, 2006.(17)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on October 7, 2008.(18)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on June 28, 2007.(19)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on May 7, 2008. 72




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##### Table of Contents



(20)
    
    Incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2007, filed with the Securities and
Exchange Commission on March 4, 2008.(21)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2008, filed with the Securities and
Exchange Commission on August 5, 2008.(22)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on December 13, 2007.(23)
    
    Incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2005, filed with the Securities and
Exchange Commission on March 7, 2006.(24)
    
    Incorporated by reference to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2004, filed with the Securities and
Exchange Commission on August 13, 2004.(25)
    
    Incorporated by reference to our Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on December
21, 2006.(26)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on February 8, 2005.(27)
    
    Incorporated by reference to our Current Report on Form 8-K, filed
with the Securities and Exchange Commission on February 16, 2005.(28)
    
    Incorporated by reference to our Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on December
18, 2007.(29)
    
    Incorporated by reference to our applicable Current Report on Form
8-K, filed with the Securities and Exchange Commission on December
21, 2006.(30)
    
    Incorporated by reference to our applicable Current Report on Form
8-K, filed with the Securities and Exchange Commission on February
22, 2008.(31)
    
    Incorporated by reference to our applicable Current Report on Form
8-K, filed with the Securities and Exchange Commission on February
24, 2009.
    
    Confidential treatment has been granted as to
certain portions, which portions have been omitted
and filed separately with the Securities and
Exchange Commission.+
    
    Application has been made to the Securities and
Exchange Commission to seek confidential treatment
of certain provisions. Omitted material for which
confidential treatment has been requested has been
filed separately with the Securities and Exchange
Commission.#
    
    Indicates management contract or compensatory plan.*
    
    These certifications are being furnished solely to
accompany this annual report pursuant to 18 U.S.C.
Section 1350, and are not being filed for purposes
of Section 18 of the Securities Exchange Act of
1934 and are not to be incorporated by reference
into any filing of Santarus, Inc., whether made
before or after the date hereof, regardless of any
general incorporation language in such filing. Financial Statement Schedule.
  73




---



##### Table of Contents



SIGNATURES
  SANTARUS, INC.Dated: March 5, 2009By:
    /s/ GERALD T. PROEHLGerald T. ProehlPresident and Chief Executive Officer  Name
    
    Title
    
    Date/s/ GERALD T. PROEHL

Gerald T. Proehl
    
    President, Chief Executive
Officer and Director(Principal Executive
Officer)
    
    March 5, 2009/s/ DEBRA P. CRAWFORD

Debra P. Crawford
    
    Senior Vice President and ChiefFinancial Officer(Principal Financial and
Accounting Officer)
    
    March 5, 2009/s/ DAVID F. HALE

David F. Hale
    
    Director(Chairman of the Board of
Directors)
    
    March 5, 2009/s/ DANIEL D. BURGESS

Daniel D. Burgess
    
    Director
    
    March 5, 2009/s/ MICHAEL G. CARTER, M.B., CH.B., F.R.C.P. (U.K.)

Michael G. Carter, M.B., Ch.B., F.R.C.P. (U.K.)
    
    Director
    
    March 5, 2009/s/ MICHAEL E. HERMAN

Michael E. Herman
    
    Director
    
    March 5, 2009/s/ TED W. LOVE, M.D.

Ted W. Love, M.D.
    
    Director
    
    March 5, 2009/s/ KENT SNYDER

Kent Snyder
    
    Director
    
    March 5, 2009
 74




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##### Table of Contents



SANTARUS, INC.
 INDEX TO FINANCIAL STATEMENTS
 PageAUDITED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
    
    
    F-2Balance Sheets as of December 31, 2008 and 2007
    
    
    F-3Statements of Operations for each of the years ended December 31, 2008, 2007 and 2006
    
    
    F-4Statements of Stockholders Equity for each of the years ended December 31, 2008, 2007 and 2006
    
    
    F-5Statements of Cash Flows for each of the years ended December 31, 2008, 2007 and 2006
    
    
    F-7Notes to Financial Statements
    
    
    F-8FINANCIAL STATEMENT SCHEDULESchedule II  Valuation and Qualifying Accounts
    
    
    F-31
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ Ernst & Young LLP 
 F-2




---



##### Table of Contents



Santarus, Inc.
Balance Sheets
(in thousands, except share and per share amounts)
 December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    49,886
    
    
    $
    58,382Short-term investments
    
    
    2,151
    
    
    
    6,296Accounts receivable, net
    
    
    13,366
    
    
    
    9,681Inventories, net
    
    
    5,230
    
    
    
    6,157Other current assets
    
    
    3,826
    
    
    
    2,340Total current assets
    
    
    74,459
    
    
    
    82,856Long-term restricted cash
    
    
    1,400
    
    
    
    1,400Long-term investments
    
    
    4,250
    
    
    
    Property and equipment, net
    
    
    988
    
    
    
    667Intangible assets, net
    
    
    11,250
    
    
    
    Other assets
    
    
    137
    
    
    
    421Total assets
    
    $
    92,484
    
    
    $
    85,344Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    53,109
    
    
    $
    37,355Allowance for product returns
    
    
    10,251
    
    
    
    5,947Current portion of deferred revenue
    
    
    7,365
    
    
    
    13,972Total current liabilities
    
    
    70,725
    
    
    
    57,274Deferred revenue, less current portion
    
    
    2,436
    
    
    
    12,722Long-term debt
    
    
    10,000
    
    
    
    Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value; 10,000,000 shares authorized at
December 31, 2008 and 2007; no shares issued and outstanding at
December 31, 2008 and 2007
    
    
    
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized at
December 31, 2008 and 2007; 57,799,588 and 51,315,485 shares issued
and outstanding at December 31, 2008 and 2007, respectively
    
    
    6
    
    
    
    5Additional paid-in capital
    
    
    331,831
    
    
    
    319,342Accumulated other comprehensive income
    
    
    2
    
    
    
    Accumulated deficit
    
    
    (322,516
    )
    
    
    (303,999
    )Total stockholders equity
    
    
    9,323
    
    
    
    15,348Total liabilities and stockholders equity
    
    $
    92,484
    
    
    $
    85,344
 See accompanying notes.
 F-3




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##### Table of Contents



Santarus, Inc.
Statements of Operations
(in thousands, except share and per share amounts)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Revenues:Product sales, net
    
    $
    101,220
    
    
    $
    79,403
    
    
    $
    45,980Promotion revenue
    
    
    9,837
    
    
    
    1,803
    
    
    
    License and royalty revenue
    
    
    19,144
    
    
    
    13,222
    
    
    
    3,263Total revenues
    
    
    130,201
    
    
    
    94,428
    
    
    
    49,243Costs and expenses:Cost of product sales
    
    
    7,345
    
    
    
    7,301
    
    
    
    4,927License fees and royalties
    
    
    22,257
    
    
    
    11,117
    
    
    
    6,437Research and development
    
    
    11,760
    
    
    
    6,849
    
    
    
    7,572Selling, general and
administrative
    
    
    108,012
    
    
    
    116,503
    
    
    
    89,828Total costs and expenses
    
    
    149,374
    
    
    
    141,770
    
    
    
    108,764Loss from operations
    
    
    (19,173
    )
    
    
    (47,342
    )
    
    
    (59,521
    )Interest and other income, net
    
    
    1,190
    
    
    
    3,077
    
    
    
    3,055Loss before income taxes
    
    
    (17,983
    )
    
    
    (44,265
    )
    
    
    (56,466
    )Income tax expense
    
    
    534
    
    
    
    
    
    
    
    Net loss
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )Basic and diluted net loss
per share
    
    $
    (0.36
    )
    
    $
    (0.87
    )
    
    $
    (1.19
    )Weighted average shares
outstanding used to
calculate basic and diluted
net loss per share
    
    
    51,835,482
    
    
    
    51,060,650
    
    
    
    47,355,050
 See accompanying notes.
 F-4




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##### Table of Contents



Santarus, Inc.
Statements of Stockholders Equity
(in thousands, except share amounts)
 AccumulatedotherAdditional
    
    
    
    
    
    
    comprehensive
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Deferred
    
    
    income
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    (loss)
    
    
    deficit
    
    
    equityBalance at December 31, 2005
    
    
    44,467,087
    
    
    $
    4
    
    
    $
    259,487
    
    
    $
    (1,699
    )
    
    $
    (4
    )
    
    $
    (203,268
    )
    
    $
    54,520Issuance of common stock upon exercise of
stock options, net of 10,187 unvested shares
repurchased
    
    
    402,221
    
    
    
    
    
    
    
    1,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,523Issuance of common stock under Committed
Equity Financing Facility, net of
issuance
costs
    
    
    5,401,787
    
    
    
    1
    
    
    
    36,259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,260Financing cost of warrant issued in connection
with Committed Equity Financing
Facility
    
    
    
    
    
    
    
    
    
    
    (1,282
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,282
    )Issuance of warrant in connection with
Committed Equity Financing Facility
    
    
    
    
    
    
    
    
    
    
    1,282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,282Issuance of common stock upon exercise of
warrants
    
    
    14,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock under employee
stock purchase plan
    
    
    444,695
    
    
    
    
    
    
    
    1,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,139Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    9,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,325Reclassification of deferred compensation due to
adoption of SFAS No. 123(R)
    
    
    
    
    
    
    
    
    
    
    (1,699
    )
    
    
    1,699
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,466
    )
    
    
    (56,466
    )Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,462
    )Balance at December 31, 2006
    
    
    50,730,622
    
    
    
    5
    
    
    
    306,034
    
    
    
    
    
    
    
    
    
    
    
    (259,734
    )
    
    
    46,305
 F-5




---



##### Table of Contents



AccumulatedotherAdditional
    
    
    
    
    
    
    comprehensive
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    Deferred
    
    
    income
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    (loss)
    
    
    deficit
    
    
    equityBalance at December 31, 2006
    
    
    50,730,622
    
    
    
    5
    
    
    
    306,034
    
    
    
    
    
    
    
    
    
    
    
    (259,734
    )
    
    
    46,305Issuance of common stock upon exercise of
stock options, net of 12,001 unvested shares
repurchased
    
    
    84,851
    
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    265Issuance of common stock under employee
stock purchase plan
    
    
    500,012
    
    
    
    
    
    
    
    1,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,293Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    11,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,750Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,265
    )
    
    
    (44,265
    )Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,265
    )Balance at December 31, 2007
    
    
    51,315,485
    
    
    
    5
    
    
    
    319,342
    
    
    
    
    
    
    
    
    
    
    
    (303,999
    )
    
    
    15,348Issuance of common stock upon exercise of
stock options
    
    
    101,158
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77Issuance of common stock under employee
stock purchase plan
    
    
    382,945
    
    
    
    
    
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    762Issuance of common stock at $1.24 per share
for technology license agreement
    
    
    6,000,000
    
    
    
    1
    
    
    
    7,439
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,440Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,211
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,211Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,517
    )
    
    
    (18,517
    )Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,515
    )Balance at December 31, 2008
    
    
    57,799,588
    
    
    $
    6
    
    
    $
    331,831
    
    
    $
    
    
    
    $
    2
    
    
    $
    (322,516
    )
    
    $
    9,323
 See accompanying notes.
 F-6




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##### Table of Contents



Santarus, Inc.
Statements of Cash Flows
(in thousands)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Operating activitiesNet loss
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    1,355
    
    
    
    587
    
    
    
    592Recognition of auction rate securities rights
    
    
    (1,457
    )
    
    
    
    
    
    
    Unrealized loss on trading securities
    
    
    1,507
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    4,211
    
    
    
    11,750
    
    
    
    9,325Issuance of common stock for technology license agreement
    
    
    7,440
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (3,686
    )
    
    
    (2,547
    )
    
    
    (4,471
    )Inventories, net
    
    
    928
    
    
    
    822
    
    
    
    (3,846
    )Other current assets
    
    
    (1,486
    )
    
    
    (1,096
    )
    
    
    9Other assets
    
    
    61
    
    
    
    (4
    )
    
    
    Accounts payable and accrued liabilities
    
    
    15,754
    
    
    
    14,820
    
    
    
    13,049Allowance for product returns
    
    
    4,304
    
    
    
    4,324
    
    
    
    (2,841
    )Deferred revenue
    
    
    (16,894
    )
    
    
    3,528
    
    
    
    11,737Net cash used in operating activities
    
    
    (6,480
    )
    
    
    (12,081
    )
    
    
    (32,912
    )Investing activitiesPurchases of short-term investments
    
    
    (4,488
    )
    
    
    (4,723
    )
    
    
    (4,384
    )Maturities of short-term investments
    
    
    2,929
    
    
    
    3,095
    
    
    
    9,189Long-term restricted cash
    
    
    1,400
    
    
    
    300
    
    
    
    250Purchases of property and equipment
    
    
    (696
    )
    
    
    (651
    )
    
    
    (59
    )Acquisition of intangible assets
    
    
    (12,000
    )
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (12,855
    )
    
    
    (1,979
    )
    
    
    4,996Financing activitiesProceeds from draw down on credit facility
    
    
    10,000
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    77
    
    
    
    265
    
    
    
    1,523Issuance of common stock, net
    
    
    762
    
    
    
    1,293
    
    
    
    37,399Payments on equipment notes payable
    
    
    
    
    
    
    
    
    
    
    (38
    )Net cash provided by financing activities
    
    
    10,839
    
    
    
    1,558
    
    
    
    38,884(Decrease) increase in cash and cash equivalents
    
    
    (8,496
    )
    
    
    (12,502
    )
    
    
    10,968Cash and cash equivalents at beginning of the year
    
    
    58,382
    
    
    
    70,884
    
    
    
    59,916Cash and cash equivalents at end of the year
    
    $
    49,886
    
    
    $
    58,382
    
    
    $
    70,884Supplemental disclosure of cash flow information:Interest paid
    
    $
    95
    
    
    $
    11
    
    
    $
    14Supplemental schedule of noncash investing
and financing activities:Issuance of warrant in connection with Committed Equity
Financing Facility
    
    $
    
    
    
    $
    
    
    
    $
    1,282
 See accompanying notes.
 F-7




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##### Table of Contents



SANTARUS, INC.
 NOTES TO FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization and Business
  Use of Estimates in the Preparation of Financial Statements
  Cash and Cash Equivalents
  Short-Term Investments
  Fair Value Measurements
  The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment to FASB Statement No. 115
 F-8




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##### Table of Contents



Fair Value Measurements
 
  Fair Value Measurements at Reporting Date UsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalMoney market funds
    
    $
    39,468
    
    
    $
    
    
    
    $
    
    
    
    $
    39,468U.S. government sponsored enterprise
securities
    
    
    
    
    
    
    12,206
    
    
    
    
    
    
    
    12,206Commercial paper
    
    
    
    
    
    
    1,763
    
    
    
    
    
    
    
    1,763Municipal debt obligations  auction
rate securities
    
    
    
    
    
    
    
    
    
    
    2,793
    
    
    
    2,793Auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    1,457
    
    
    
    1,457$
    39,468
    
    
    $
    13,969
    
    
    $
    4,250
    
    
    $
    57,687
   F-9




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##### Table of Contents



Year EndedDecember 31, 2008Long-term investments:Beginning balance
    
    $
    Transfers in
    
    
    4,300Unrealized loss included in net loss
    
    
    (1,507
    )Recognition of auction rate securities rights
    
    
    1,457Ending balance as of December 31, 2008
    
    $
    4,250
 Concentration of Credit Risk and Sources of Supply
   ®
 F-10




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##### Table of Contents



Inventories, Net
 ® ®
 Property and Equipment
  Intangible Assets, Net
  Accounting for the Impairment or Disposal of Long-Lived
Assets
 Revenue Recognition
 Revenue Recognition
 Product Sales, Net.
 F-11




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##### Table of Contents



Revenue Recognition When Right of Return Exists.
  
    
    the number of and specific contractual terms of agreements with customers;
    
    estimated levels of inventory in the distribution channel;
    
    estimated remaining shelf life of products;
    
    analysis of prescription data gathered by a third-party prescription data provider;
    
    direct communication with customers;
    
    historical product returns, rebates and chargebacks;
    
    anticipated introduction of competitive products or generics;
    
    anticipated pricing strategy changes by the Company and/or its competitors; and
    
    the impact of state and federal regulations.
    F-12




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##### Table of Contents



Promotion Revenue and License and Royalty Revenue. Revenue Arrangements with Multiple Deliverables
 Research and Development Expenses and License Fees
    F-13




---



##### Table of Contents



Patent Costs
  Shipping and Handling Costs
  Advertising Expense
  Stock-Based Compensation
 Share-Based Payment Accounting for
Stock-Based Compensation
  F-14




---



##### Table of Contents



Years Ended December 31,2008
    
    2007
    
    2006Stock Options:Risk-free interest rate
    
    
    1.5%  3.4%
    
    
    
    3.6%  4.9%
    
    
    
    4.6%  5.0%Expected volatility
    
    
    64%  68%
    
    
    
    60%
    
    
    
    60%Expected life of options (years)
    
    
    5.27  6.58
    
    
    
    5.27  6.08
    
    
    
    5.27  6.08Expected dividend yield
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase Plan:Risk-free interest rate
    
    
    0.1%  2.0%
    
    
    
    3.3%  5.0%
    
    
    
    4.8%  5.1%Expected volatility
    
    
    64%  68%
    
    
    
    60%
    
    
    
    60%Expected life of options (years)
    
    
    0.50
    
    
    
    0.50  2.00
    
    
    
    0.50  2.00Expected dividend yield
    
    
    
    
    
    
    
    
    
    
 Risk-Free Interest Rate.
 Expected Volatility.
 Expected Life of Options.
 Expected Dividend Yield.
 
 Comprehensive Income (Loss)
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Net loss
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )Unrealized gain on investments
    
    
    2
    
    
    
    
    
    
    
    4Comprehensive loss
    
    $
    (18,515
    )
    
    $
    (44,265
    )
    
    $
    (56,462
    )
 F-15




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##### Table of Contents



Net Loss Per Share
 Earnings Per Share
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Historical:Numerator:Net loss (in thousands)
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )Denominator:Weighted average common shares outstanding
    
    
    51,836,524
    
    
    
    51,064,953
    
    
    
    47,399,739Weighted average unvested common shares subject to repurchase
    
    
    (1,042
    )
    
    
    (4,303
    )
    
    
    (44,689
    )Denominator for basic and diluted net loss per share
    
    
    51,835,482
    
    
    
    51,060,650
    
    
    
    47,355,050Basic and diluted net loss per share
    
    $
    (0.36
    )
    
    $
    (0.87
    )
    
    $
    (1.19
    )Historical outstanding antidilutive securities not included
in diluted net loss per share calculation:Common stock subject to repurchase
    
    
    
    
    
    
    3,939
    
    
    
    29,208Options to purchase common stock
    
    
    11,915,568
    
    
    
    9,948,464
    
    
    
    6,543,006Stock warrants
    
    
    366,284
    
    
    
    366,284
    
    
    
    366,28412,281,852
    
    
    
    10,318,687
    
    
    
    6,938,498
 Segment Reporting
  Recent Accounting Pronouncements
 Adoption of Recent Accounting Pronouncements
 Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development Activities
 Pending Adoption of Recent Accounting Pronouncements
 Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property.
 F-16




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##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements (an amendment of Accounting Research Bulletin, or ARB, No. 51).
 2. Short-Term Investments
  Amortized
    
    
    
    
    
    
    UnrealizedCost
    
    
    Market Value
    
    
    GainDecember 31, 2008:U.S. government sponsored enterprise securities
    
    $
    2,149
    
    
    $
    2,151
    
    
    $
    2December 31, 2007:Municipal debt obligations
    
    $
    4,300
    
    
    $
    4,300
    
    
    $
    Corporate debt securities
    
    
    1,996
    
    
    
    1,996
    
    
    
    Total
    
    $
    6,296
    
    
    $
    6,296
    
    
    $
    
  F-17




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##### Table of Contents



3. Balance Sheet Details
  December 31,2008
    
    
    2007Raw materials
    
    $
    977
    
    
    $
    1,511Finished goods
    
    
    4,561
    
    
    
    4,8125,538
    
    
    
    6,323Allowance for excess and obsolete inventory
    
    
    (308
    )
    
    
    (166
    )$
    5,230
    
    
    $
    6,157
  December 31,2008
    
    
    2007Computer equipment and software
    
    $
    1,258
    
    
    $
    1,295Office equipment and furniture
    
    
    1,154
    
    
    
    1,074Leasehold improvements
    
    
    446
    
    
    
    3462,858
    
    
    
    2,715Less accumulated depreciation and amortization
    
    
    (1,870
    )
    
    
    (2,048
    )$
    988
    
    
    $
    667
   December 31,2008
    
    
    2007Accounts payable
    
    $
    6,102
    
    
    $
    5,180Accrued compensation and benefits
    
    
    6,862
    
    
    
    5,360Accrued rebates
    
    
    26,034
    
    
    
    19,479Accrued license fees and royalties
    
    
    4,038
    
    
    
    3,364Accrued research and development expenses
    
    
    4,126
    
    
    
    83Other accrued liabilities
    
    
    5,947
    
    
    
    3,889$
    53,109
    
    
    $
    37,355
 4. License Agreements
 University of Missouri
  F-18




---



##### Table of Contents



Schering-Plough Healthcare Products, Inc.
    Glaxo Group Limited
   F-19




---



##### Table of Contents



Cosmo Technologies Limited
 ®
   F-20




---



##### Table of Contents



5. Promotion Agreement with Depomed, Inc.
    F-21




---



##### Table of Contents



6. Co-Promotion Agreements
 Otsuka America Pharmaceutical, Inc.
  Victory Pharma, Inc.
  C.B. Fleet Company, Incorporated
 ® ® 
 F-22




---



##### Table of Contents



7. Long-Term Debt
   8. Commitments and Contingencies
 Leases
   F-23




---



##### Table of Contents



2009
    
    $
    2,0542010
    
    
    1,7372011
    
    
    1,2432012
    
    
    9572013
    
    
    80Thereafter
    
    
    Total minimum lease payments
    
    $
    6,071
  Other Long-Term Commitments
     Legal Proceedings
  F-24




---



##### Table of Contents



9. Stockholders Equity
 Authorized Shares
 ,
 Common Stock Offerings
  F-25




---



##### Table of Contents



Stockholder Rights Plan
  Warrants
  Stock Option Plans
   F-26




---



##### Table of Contents



WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    Value (inOptions
    
    Shares
    
    
    Price
    
    
    Term (years)
    
    
    thousands)Outstanding at January 1, 2008
    
    
    9,948,464
    
    
    $
    5.57Granted
    
    
    2,930,927
    
    
    
    2.32Exercised
    
    
    (101,158
    )
    
    
    0.76Forfeited
    
    
    (319,927
    )
    
    
    2.50Expired
    
    
    (542,738
    )
    
    
    7.32Outstanding at December 31, 2008
    
    
    11,915,568
    
    
    $
    4.82
    
    
    
    7.45
    
    
    $
    662Exercisable at December 31, 2008
    
    
    8,396,620
    
    
    $
    5.51
    
    
    
    6.84
    
    
    $
    662
  Accounting for Equity Investments that are Issued to Other than Employees for Acquiring
or in Conjunction with Selling Goods or Services
  Employee Stock Purchase Plan
  F-27




---



##### Table of Contents



Shares Reserved for Future Issuance
  December 31,2008
    
    2007Stock options issued and outstanding
    
    
    11,915,568
    
    
    
    9,948,464Authorized for future issuance under equity compensation plans
    
    
    2,919,148
    
    
    
    2,370,355Stock warrants outstanding
    
    
    366,284
    
    
    
    366,28415,201,000
    
    
    
    12,685,103
 10. 401(k) Plan
  11. Income Taxes
 Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes,
    Unrecognized tax benefits at January 1, 2008
    
    $
    Gross decreases related to prior year tax positions
    
    
    Gross increases related to current year tax positions
    
    
    1,728Settlements
    
    
    Lapse of statute of limitations
    
    
    Unrecognized tax benefits at December 31, 2008
    
    $
    1,728
  F-28




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##### Table of Contents



December 31,2008
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    77,052
    
    
    $
    Research and development credits
    
    
    3,510
    
    
    
    Capitalized research and development
    
    
    162
    
    
    
    177Depreciation and amortization
    
    
    5,285
    
    
    
    139Accrued rebates
    
    
    9,842
    
    
    
    7,367Deferred revenue
    
    
    4,101
    
    
    
    6,098Allowance for product returns
    
    
    3,876
    
    
    
    2,249Other
    
    
    6,662
    
    
    
    2,563Total deferred tax assets
    
    
    110,490
    
    
    
    18,593Valuation allowance
    
    
    (110,490
    )
    
    
    (18,593
    )Net deferred tax assets
    
    $
    
    
    
    $
    
 12. Quarterly Financial Information (unaudited)
  F-29




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##### Table of Contents



First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(in thousands, except per share amounts)2008:Product sales, net
    
    $
    19,415
    
    
    $
    23,954
    
    
    $
    28,106
    
    
    $
    29,745Total revenues
    
    
    24,466
    
    
    
    36,005
    
    
    
    32,209
    
    
    
    37,521Cost of product sales
    
    
    1,695
    
    
    
    1,701
    
    
    
    1,924
    
    
    
    2,025Total costs and expenses
    
    
    32,646
    
    
    
    33,062
    
    
    
    36,338
    
    
    
    47,328Net income (loss)
    
    
    (7,619
    )
    
    
    3,205
    
    
    
    (3,952
    )
    
    
    (10,151
    )Basic and diluted net income (loss) per share
    
    
    (0.15
    )
    
    
    0.06
    
    
    
    (0.08
    )
    
    
    (0.19
    )2007:Product sales, net
    
    $
    17,027
    
    
    $
    18,800
    
    
    $
    19,527
    
    
    $
    24,049Total revenues
    
    
    18,958
    
    
    
    20,730
    
    
    
    26,458
    
    
    
    28,282Cost of product sales
    
    
    1,647
    
    
    
    1,663
    
    
    
    1,782
    
    
    
    2,209Total costs and expenses
    
    
    36,312
    
    
    
    34,427
    
    
    
    34,065
    
    
    
    36,966Net income (loss)
    
    
    (16,436
    )
    
    
    (12,936
    )
    
    
    (6,902
    )
    
    
    (7,991
    )Basic and diluted net loss per share
    
    
    (0.32
    )
    
    
    (0.25
    )
    
    
    (0.13
    )
    
    
    (0.16
    )
 F-30




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##### Table of Contents



Schedule II  Valuation and Qualifying Accounts
(in thousands)
 DeductionsActual Cash
    
    Actual CashAdditions
    
    Discounts,
    
    Discounts,Provision
    
    Charged
    
    Chargebacks, and
    
    Chargebacks, andBalance at
    
    Related
    
    Against
    
    Other Discounts
    
    Other Discounts
    
    Balance atBeginning of
    
    to Current
    
    Balance Sheet
    
    Related to Current
    
    Related to Prior
    
    End ofPeriod
    
    Period Sales
    
    Accounts
    
    Period Sales
    
    Period Sales
    
    PeriodAllowance for cash discounts,
chargebacks, and other sales
discounts:For the year ended
 December 31, 2008
    
    $
    (1,527
    )
    
    $
    (14,051
    )
    
    $
    
    
    
    $
    11,484
    
    
    $
    846
    
    
    $
    (3,248
    )For the year ended
 December 31, 2007
    
    
    (687
    )
    
    
    (7,153
    )
    
    
    
    
    
    
    5,876
    
    
    
    437
    
    
    
    (1,527
    )For the year ended 
December 31, 2006
    
    
    (245
    )
    
    
    (3,175
    )
    
    
    100
    
    
    
    2,486
    
    
    
    147
    
    
    
    (687
    )
 AdditionsBalance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    
    
    
    
    End ofPeriod
    
    Expenses
    
    Deductions
    
    PeriodAllowance for excess and obsolete
inventory:For the year ended 
December 31, 2008
    
    $
    (166
    )
    
    $
    (178
    )
    
    $
    36
    (1)
    
    $
    (308
    )For the year ended 
December 31, 2007
    
    
    (409
    )
    
    
    (195
    )
    
    
    438
    (1)
    
    
    (166
    )For the year ended 
December 31, 2006
    
    
    (207
    )
    
    
    (397
    )
    
    
    195
    (1)
    
    
    (409
    )
 Additions
    
    DeductionsProvision
    
    Provision
    
    Actual Returns
    
    Actual ReturnsBalance at
    
    Related
    
    Related
    
    or Credits
    
    or Credits
    
    
    
    
    
    Balance atBeginning of
    
    to Current
    
    to Prior
    
    Related to
    
    Related to
    
    
    
    
    
    End ofPeriod
    
    Period Sales
    
    Period Sales
    
    Current Period
    
    Prior Period
    
    Other
    
    PeriodAllowance for product returns:For the year ended 
December 31, 2008
    
    $
    (5,947
    )
    
    $
    (6,080
    )
    
    $
    
    
    
    $
    39
    
    
    $
    1,737
    
    
    $
    
    
    
    $
    (10,251
    )For the year ended 
December 31, 2007
    
    
    (1,623
    )
    
    
    (4,495
    )
    
    
    (1,895
    )
    
    
    43
    
    
    
    2,023
    
    
    
    
    
    
    
    (5,947
    )For the year ended 
December 31, 2006
    
    
    (4,464
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,841
    (2)
    
    
    (1,623
    )
 
 (1)
    
    Deductions in allowance for excess and obsolete inventory represent physical disposition of inventory.(2)
    
    Deductions in allowance for product returns represent actual product returns of approximately $1.9 million and a reduction in the allowance due to the determination that the Company could reasonably estimate future product returns. F-31