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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
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2010
 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
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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SANTARUS, INC.
 FORM 10-K  ANNUAL REPORT
For the Year Ended December 31, 2010
 Table of Contents
 PagePART IItem 1 Business
    
    
    3Item 1A Risk Factors
    
    
    32Item 1B Unresolved Staff Comments
    
    
    55Item 2 Properties
    
    
    56Item 3 Legal Proceedings
    
    
    56Item 4 Reserved
    
    
    58PART IIItem 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    59Item 6 Selected Financial Data
    
    
    61Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    62Item 7A Quantitative and Qualitative Disclosures about Market Risk
    
    
    77Item 8 Financial Statements and Supplementary Data
    
    
    78Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    78Item 9A Controls and Procedures
    
    
    78Item 9B Other Information
    
    
    81PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    82Item 11 Executive Compensation
    
    
    82Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    82Item 13 Certain Relationships and Related Transactions, and Director Independence
    
    
    82Item 14 Principal Accountant Fees and Services
    
    
    82PART IVItem 15 Exhibits and Financial Statement Schedules
    
    
    83Signatures
    
    
    89EX-10.57EX-10.59EX-10.62EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  i




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PART I
 Forward-Looking Statements
 ® ® ® ® ® ®
  Corporate Information
  ® ® ® ® ® ® ®
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®
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Item 1. Business
  Santarus Product Portfolio
 Marketed and Approved ProductsGlumetza®
(metformin hydrochloride
extended release tablets)
(Rx  U.S.)
    
    Marketed as an adjunct to diet and exercise to
improve glycemic control in adults with type 2
diabetesCycloset®
(bromocriptine mesylate)
tablets
(Rx  U.S.)
    
    Marketed as an adjunct to diet and exercise to
improve glycemic control in adults with type 2
diabetesZegerid®
(omeprazole/sodium
bicarbonate) Capsules and
Powder for Oral Suspension
(Rx  U.S.)
    
    Non-promoted prescription products, approved to
treat certain upper GI conditions, including
gastroesophageal reflux diseaseDevelopment ProductsBudesonide MMX®
(Rx  U.S.)
    
    Statistically significant top-line results in
two phase III studies for the induction of
remission of mild or moderate active ulcerative
colitis; expect to submit NDA by the end of
2011Rhucin®(recombinant human C1
inhibitor)
(Rx  U.S., Canada and Mexico)
    
    For hereditary angioedema, phase IIIb clinical
study initiated in February 2011; requesting
FDA meeting regarding issues raised in BLA
refusal to file letter
For early antibody mediated rejection, phase II
proof of concept study plannedRifamycin SV MMX®
(Rx  U.S.)
    
    Phase III study in travelers diarrhea ongoingSAN-300 (anti-VLA-1 mAb)
(Rx  Worldwide)
    
    Initiation of single-dose, dose-escalation
phase I clinical study planned for March/April
2011Additional Strategic AlliancesMerck
Zegerid OTC®
(OTC  U.S.)
    
    Commenced commercial sales in March 2010;
marketed for treatment of frequent heartburnGlaxoSmithKline
Immediate-release Omeprazole
products
(Rx and OTC  Specified
Ex-U.S. countries)
    
    Expect first commercial launch in Mexico in 2011
Regulatory submissions made in certain Latin
American, African and Asian countries;
preparation of additional regulatory filings
ongoingNorgine B.V.
Immediate-release Omeprazole
products
(Rx  Specified European
countries and Israel)
    
    In development
 3




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Currently Marketed and Approved Products
 ®
 ®
 ®
 Development Products
 Budesonide MMX ®
 ®
 Rhucin ® (recombinant human C1 inhibitor)
   4




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Rifamycin SV MMX ®
  SAN-300 (anti-VLA-1 antibody)
  Additional Strategic Alliances
 ®
 Strategy
  
    
    Increasing Sales of Glumetza and Cycloset Brand Prescription Products.Our commercial
resources are focused on increasing market demand for, and sales of, Glumetza and Cycloset
brand prescription products. Our field sales organization currently promotes and sells
Glumetza and Cycloset prescription products to endocrinologists and other selected
physicians. We believe that both the Glumetza and Cycloset brand products offer
differentiated options for the treatment of type 2 diabetes and represent attractive
commercial opportunities.
 
    
    Pursuing Regulatory Approval and Preparing for Commercialization of Budesonide MMX and
Rhucin.We are also focused on pursuing regulatory approval and preparing for
commercialization of our budesonide MMX and Rhucin late-stage development products. Each
of budesonide MMX and Rhucin has demonstrated statistically significant top-line results in
phase III clinical studies. We plan to submit a new drug application, or NDA, for
budesonide MMX to the FDA by the end of 2011 and Rhucin is currently being investigated in
a phase IIIb clinical study. We believe these development products have the potential
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to offer unique features and benefits to address unmet medical needs of patients treated by
physician specialists.
 
    
    Advancing Our Other Development-Stage Products to Commercialization and Maximizing the
Value of Our Overall Product Portfolio.In addition, we are focused on advancing our other
development-stage products, rifamycin SV MMX and SAN-300 to commercialization, and on
maximizing the value of our overall product portfolio by pursuing new formulations or
indications for our existing products.
  Currently Marketed and Approved Products
 Glumetza (metformin hydrochloride extended release tablets)
   Promotion Agreement with Depomed
   6




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®
  Cycloset (bromocriptine mesylate) tablets
  7




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Distribution and License Agreement with S2 and VeroScience
     Type 2 Diabetes
  8




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Zegerid Capsules and Zegerid Powder for Oral Suspension
 ®
 Distribution and Supply Agreement with Prasco
     Development-Stage Products
 Budesonide MMX
   9




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
    
    Study CB-01-02/01 was conducted in the U.S. and India and
compared budesonide MMX 9 mg or 6 mg dosed once daily to
placebo. A reference arm using two
Asacol® (mesalamine) 400 mg
delayed-release tablets dosed three times a day for a total
of 2400 mg daily was also included.
    
    Study CB-01-02/02 was conducted in Europe and compared
budesonide MMX 9 mg or 6 mg dosed once daily to placebo. A
reference arm using three Entocort®
EC (budesonide) 3 mg capsules for a total of 9 mg dosed
once daily was also included.
      10




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Inflammatory Bowel Disease and Ulcerative Colitis
   Strategic Collaboration with Cosmo
  License Agreement
    11




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Stock Issuance Agreement/Registration Rights Agreement
    Rhucin (recombinant human C1 inhibitor)
  12




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Hereditary Angioedema
  License and Supply Agreements with Pharming
  License Agreement
   13




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Supply Agreement
    14




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Rifamycin SV MMX
 in vitro
     Travelers Diarrhea and Other Intestinal Diseases
 ® ® ®
 15




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SAN-300 (anti-VLA-1 antibody)
  1 1
   Rheumatoid Arthritis
  Acquisition of SAN-300 Development Program
 Merger Agreement
   16




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Amended License with Biogen Idec MA Inc.
     17




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Additional Strategic Alliances
  OTC License Agreement with Merck
       License Agreement with GSK
   18




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th
   License Agreement with Norgine
     19




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Sales and Marketing
      Manufacturing and Distribution
  20




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Glumetza
  Cycloset
  Zegerid
    21




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Budesonide MMX and Rifamycin SV MMX
  Rhucin
  SAN-300
  Distribution
   Intellectual Property
    22




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Glumetza and Pending Patent Litigation
  Depomed, Inc.  Glumetza Patent Litigation
   Cycloset
  Budesonide MMX
  Rhucin
  23




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Rifamycin SV MMX
  SAN-300
  Zegerid, Related PPI Technology and Pending Patent Litigation
  Zegerid and Zegerid OTC ® Patent Litigation
    24




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Exclusive License Agreement with the University of Missouri
   Trademarks
 ® ®
 ®
 ® ®
 ® ® ®
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Competition
   
    
    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.
 ®
  
    
    dipeptidyl peptidase IV inhibitors, or DPP-4, products (such as Januvia®
and Onglyza);
    
    glucagon-like peptide 1, or GLP-1, receptor agonist products (such as
Byetta® and Victoza®);
    
    thiazolidinedione, or TZD, products (such as Avandia® and
Actos®);
    
    sulfonylureas products (such as Amaryl® and Glynase®); and
    
    branded and generic metformin products.
    Research and Development
  26




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Government Regulation
   Clinical Testing and the FDA Approval Process
     27




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Section 505(b)(2) New Drug Applications
  28




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Marketing Exclusivity Under the Hatch-Waxman Act
  The Orphan Drug Act
  29




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Other Regulatory Requirements
       30




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Patient Protection and Affordable Care Act of 2010
      31




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Employees
  Available Information
 www.santarus.com. www.sec.gov
 
 Item 1A. Risk Factors
   
    
    our ability to generate revenues from our two marketed products: Glumetza®
(metformin hydrochloride extended release tablets) and Cycloset® (bromocriptine
mesylate) tablets, both of which are indicated to treat type 2 diabetes;
    
    our ability to successfully advance the development of, obtain regulatory approval for
and ultimately commercialize, our development products: budesonide MMX®,
Rhucin® (recombinant human C1 inhibitor), rifamycin SV MMX and
SAN-300;
    
    our ability to maintain patent protection and regulatory exclusivity for our commercial
and development-stage products, including difficulty in predicting the timing and outcome
of the Glumetza, Zegerid® and Zegerid OTC® patent litigation;
    
    our ability to continue to generate revenues from our branded and authorized generic
Zegerid (omeprazole/sodium bicarbonate) prescription products and the impact on our
business and financial condition of the ongoing generic competition for our Zegerid
products;
    
    our ability to achieve continued progress under our strategic alliances, including our
over-the-counter, or OTC, license agreement with Schering-Plough HealthCare Products, Inc.,
a subsidiary of Merck & Co., Inc., or Merck, our license agreement with Glaxo Group
Limited, an affiliate of GlaxoSmithKline plc, or GSK, and our license agreement with
Norgine B.V., or Norgine, and the potential for early termination of, or reduced payments
under, these agreements; and
    
    the impact on our business of significant change, and the risk that we may not be
successful in integrating our new marketed and development-stage products into our existing
operations or in achieving the planned results from our 2010 corporate restructuring or our
expanded product portfolio and pipeline.
  32




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Risks Related to Our Business and Industry
 We are dependent upon our ability to generate revenues from Glumetza and Cycloset, our only
promoted commercial products, and we cannot be certain that we will be successful.
  
    
    our ability to generate and increase market demand for, and sales of, Glumetza and to
mitigate the impact of a prior recall and supply interruption of Glumetza 500 mg, which
resulted in the unavailability of this dosage strength from June 2010 through early January
2011;
    
    our ability to successfully generate demand for, and sales of, Cycloset, which we
recently launched in November 2010 and have limited experience promoting;
    
    the ability to maintain patent coverage for Glumetza and Cycloset, including whether a
favorable outcome is obtained in the pending patent infringement lawsuit relating to
Glumetza;
    
    our ability to accurately forecast manufacturing requirements and manage inventory
levels for Cycloset during the launch period and in light of the products limited expiry
dating;
    
    the performance of third-party manufacturers and our ability to maintain commercial
manufacturing arrangements necessary to meet commercial demand for the products;
    
    the occurrence of adverse side effects or inadequate therapeutic efficacy of the
products, and any resulting product liability claims or additional product recalls;
    
    the availability of adequate levels of reimbursement coverage for the products from
third-party payors, particularly in light of the availability of other branded and generic
competitive products; and
    
    our ability to effectively market Glumetza and Cycloset in accordance with the
requirements of the U.S. Food and Drug Administration, or FDA.
    Our commercialization efforts and revenues have been negatively impacted by the prior recall and
supply interruption of Glumetza 500 mg.
  33




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Our development-stage products 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.
     
    
    may not deem a product candidate to be adequately safe and effective;
    
    may not find the data from preclinical studies, CMC studies and clinical studies to be
sufficient to support a claim of safety and efficacy;
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
    
    may interpret data from preclinical studies, CMC studies and clinical studies
significantly differently than we do;
    
    may not approve the manufacturing processes or facilities utilized for our development
products;
    
    may conclude that we have not sufficiently demonstrated long-term stability of the
formulation for which we are seeking marketing approval;
    
    may change approval policies (including with respect to our development products class
of drugs) or adopt new regulations; or
    
    may not accept a submission due to, among other reasons, the content or formatting of
the submission.
     Budesonide MMX
   35




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Rhucin (recombinant human C1 inhibitor)
     36




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Rifamycin SV MMX
  SAN-300 (anti-VLA-1antibody)
 1 1
  Our reliance on our strategic partners, third-party clinical investigators and clinical research
organizations may result in delays in completing, or a failure to complete, clinical studies or we
may be unable to use the clinical data gathered if they fail to comply with our patient enrollment
criteria, our clinical protocols or regulatory requirements, or otherwise fail to perform under our
agreements with them.
  37




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Due to Pars decision to launch its generic product, we expect future sales of our Zegerid brand
and authorized generic prescription products to be significantly less than historical sales, which
will continue to negatively impact our overall financial results.
      Our ability to generate revenues also depends on the success of our strategic alliances with Merck,
GSK and Norgine.
  38




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Our business experienced significant change in 2010, and we may not be successful in integrating
our new products into our existing operations or in achieving the planned results from our
corporate restructuring and expanded product portfolio and pipeline.
  
    
    a distribution and license arrangement with S2 and VeroScience granting us exclusive
rights to manufacture and commercialize Cycloset prescription products in the U.S.;
    
    an exclusive license and supply arrangement with Pharming, granting us the right to
commercialize Rhucin, a late-stage development product, in North America; and
    
    an acquisition of Covella, in which we obtained the exclusive worldwide rights to
SAN-300, an early-stage development product.
  
    
    integrating Cycloset into our existing operations and managing the recent commercial
launch of this product;
    
    mitigating the impact of a prior recall and supply interruption of Glumetza 500 mg,
which resulted in the unavailability of this dosage strength from June 2010 through early
January 2011;
    
    integrating our new development products and successfully managing the development and
regulatory approval processes;
    
    coordinating with our strategic partners and licensors concerning the development,
manufacturing, regulatory and intellectual property protection strategies for these new
products and development products; and
    
    managing compliance with the in-license, acquisition, distribution, supply and other
agreements associated with each of these transactions.
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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.
    Our Glumetza and Cycloset prescription products currently compete with many other drug products.
  
    
    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.
 ®
  
    
    dipeptidyl peptidase IV inhibitors, or DPP-4, products (such as Januvia® and Onglyza);
    
    glucagon-like peptide 1, or GLP-1, receptor agonist products (such as Byetta® and Victoza®);
    
    thiazolidinedione, or TZD, products (such as Avandia® and Actos®);
    
    sulfonylureas products (such as Amaryl® and Glynase®); and
    
    branded and generic metformin products.
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We do not currently have any manufacturing facilities and instead rely on third-party manufacturers
and our strategic partners for supply.
      41




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Our reporting and payment obligations under 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.
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We are subject to ongoing regulatory review of our currently marketed products.
     43




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We are subject to new legislation, regulatory proposals and managed care initiatives that may
increase our costs and adversely affect our ability to market our products.
   We face a risk of product liability claims and may not be able to obtain adequate insurance.
  44




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If we are unable to retain key personnel, our business will suffer.
    Our future growth may depend on our ability to identify and in-license or acquire additional
products, and if we do not successfully do so, or otherwise fail to integrate any new products into
our operations, we may have limited growth opportunities.
  
    
    exposure to unknown liabilities;
    
    disruption of our business and diversion of our managements time and attention to
develop acquired products or technologies;
    
    a reduction of our current financial resources;
    
    difficulty or inability to secure financing to fund development activities for such
acquired or in-licensed technologies;
    
    incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions; and
    
    higher than expected acquisition and integration costs.
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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
    Glumetza and Pending Patent Litigation
  46




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Depomed, Inc.  Glumetza Patent Litigation
   Cycloset
  Budesonide MMX
  Rhucin
  Rifamycin SV MMX
  SAN-300
  47




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Zegerid, Related PPI Technology and Pending Patent Litigation
  Zegerid and Zegerid OTC ® Patent Litigation
     Exclusive License Agreement with the University of Missouri
  48




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Trade Secrets and Proprietary Know-how
  Trademarks
   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.
  49




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Risks Related to Our Financial Results and Need for Financing
 We may incur operating losses in the future and may not be able to return to profitability.
    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-stage products.
  
    
    commercial success of the Glumetza and Cycloset prescription products;
    
    results of clinical studies and other development programs, including the ongoing and
planned clinical programs for the budesonide MMX, Rhucin, rifamycin SV MMX and SAN-300
development products;
    
    potential to receive revenue from Zegerid brand and authorized generic products;
    
    whether we are able to maintain patent protection for our products, including whether
favorable outcomes are obtained in our pending appeal relating to our Zegerid prescription
products and the pending patent infringement lawsuits relating to our Glumetza prescription
product and Zegerid OTC;
    
    progress under our strategic alliances with Merck, GSK and Norgine, including the impact
on these alliances from generic competition and the potential for early termination of, or
reduced payments under, the related agreements;
    
    our ability to obtain regulatory approval for Rhucin and our other development products
and any future products we develop or in-license;
    
    interruption in the manufacturing or distribution of our products;
    
    timing of new product offerings, acquisitions, licenses or other significant events by
us, our strategic partners or our competitors; and
    
    legislative changes, including healthcare reform, affecting the products we may offer or
those of our competitors.
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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 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; 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.
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Covenants in our loan agreement with Comerica may limit our ability to operate our business.
   Our ability to use our net operating losses to offset taxes that would otherwise be due could be
limited or lost entirely if we do not continue to generate taxable income in a timely manner or if
we trigger an ownership change pursuant to Section 382 of the Internal Revenue Code which, if we
continue to generate taxable income, could materially and adversely affect our business, financial
condition, and results of operations.
  Our results of operations and liquidity needs could be materially negatively affected by market
fluctuations and economic downturn.
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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 and
revenue trends for the Glumetza and Cycloset products we promote and the status of the
patent litigation relating to Glumetza;
    
    announcements concerning our product development programs, results of our clinical
studies or status of our regulatory submissions;
    
    the status of the generic versions of our Zegerid prescription products offered by Par
and Prasco, and any additional generic products that may be offered in the future, as well
as developments in the pending appeal relating to our Zegerid prescription products and the
pending litigation concerning Zegerid OTC;
    
    developments, including announcements concerning progress, delays or terminations,
pursuant to our strategic alliances with Merck, GSK and Norgine;
    
    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;
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
    
    conditions or trends in the pharmaceutical and biotechnology industries, including the
impact of healthcare reform and;
    
    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 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;
    
    acquisition of products or businesses by us or our competitors;
    
    litigation and government inquiries, including the results of a putative class action
filed against us relating to alleged violations of certain labor laws seeking an
unspecified amount for unpaid wages and overtime wages, liquidated and/or punitive damages,
attorneys fees and other damages; 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.
   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.
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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.
   
 Item 1B. Unresolved Staff Comments
  55




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Item 2. Properties
  
 Item 3. Legal Proceedings
 Glumetza ® Patent Litigation
   Zegerid ® and Zegerid OTC ® Patent Litigation
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Wage and Hour Putative Class Action Litigation
   Fleet Phospho-soda ® Product Liability Litigation
  ® 
    57




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##### Table of Contents



Item 4. Reserved
 58




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##### Table of Contents



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, 2009First Quarter
    
    $
    2.03
    
    
    $
    1.05Second Quarter
    
    $
    3.20
    
    
    $
    1.53Third Quarter
    
    $
    3.57
    
    
    $
    2.56Fourth Quarter
    
    $
    5.82
    
    
    $
    3.05Year Ended December 31, 2010First Quarter
    
    $
    5.43
    
    
    $
    3.47Second Quarter
    
    $
    5.67
    
    
    $
    2.35Third Quarter
    
    $
    3.34
    
    
    $
    2.09Fourth Quarter
    
    $
    3.69
    
    
    $
    2.68
  Dividend Policy
  Recent Sales of Unregistered Securities
  Issuer Purchases of Equity Securities
  59




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##### Table of Contents



Performance Graph
  Comparison of Cumulative Total Return on Investment Since December 31, 2005
 
 12/31/05
    
    
    12/29/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09
    
    
    12/31/10Santarus, Inc.
    
    $
    100.00
    
    
    $
    147.73
    
    
    $
    51.88
    
    
    $
    29.62
    
    
    $
    87.16
    
    
    $
    61.69Nasdaq Composite
Index, U.S.
Companies
    
    $
    100.00
    
    
    $
    109.84
    
    
    $
    119.14
    
    
    $
    57.41
    
    
    $
    82.53
    
    
    $
    97.95Nasdaq
Pharmaceuticals
Index
    
    $
    100.00
    
    
    $
    97.88
    
    
    $
    102.94
    
    
    $
    95.78
    
    
    $
    107.62
    
    
    $
    116.66
 60




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##### Table of Contents



Item 6. Selected Financial Data
  Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(in thousands, except per share amounts)Statement of Operations Data:Revenues:Product sales, net
    
    $
    90,170
    
    
    $
    119,242
    
    
    $
    101,220
    
    
    $
    79,403
    
    
    $
    45,980Promotion revenue
    
    
    31,365
    
    
    
    23,631
    
    
    
    9,837
    
    
    
    1,803
    
    
    
    Royalty revenue
    
    
    3,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other license revenue
    
    
    245
    
    
    
    29,620
    
    
    
    19,144
    
    
    
    13,222
    
    
    
    3,263Total revenues
    
    
    125,351
    
    
    
    172,493
    
    
    
    130,201
    
    
    
    94,428
    
    
    
    49,243Costs and expenses:Cost of product sales
    
    
    7,715
    
    
    
    8,294
    
    
    
    7,345
    
    
    
    7,301
    
    
    
    4,927License fees and royalties
    
    
    28,576
    
    
    
    7,976
    
    
    
    22,257
    
    
    
    11,117
    
    
    
    6,437Research and development
    
    
    17,431
    
    
    
    16,244
    
    
    
    11,760
    
    
    
    6,849
    
    
    
    7,572Selling, general and administrative
    
    
    82,581
    
    
    
    105,838
    
    
    
    108,012
    
    
    
    116,503
    
    
    
    89,828Restructuring charges
    
    
    7,082
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    143,385
    
    
    
    138,352
    
    
    
    149,374
    
    
    
    141,770
    
    
    
    108,764Income (loss) from operations
    
    
    (18,034
    )
    
    
    34,141
    
    
    
    (19,173
    )
    
    
    (47,342
    )
    
    
    (59,521
    )Other income (expense):Interest income
    
    
    80
    
    
    
    194
    
    
    
    1,285
    
    
    
    3,088
    
    
    
    3,069Interest expense
    
    
    (461
    )
    
    
    (460
    )
    
    
    (95
    )
    
    
    (11
    )
    
    
    (14
    )Total other income (expense)
    
    
    (381
    )
    
    
    (266
    )
    
    
    1,190
    
    
    
    3,077
    
    
    
    3,055Income (loss) before income taxes
    
    
    (18,415
    )
    
    
    33,875
    
    
    
    (17,983
    )
    
    
    (44,265
    )
    
    
    (56,466
    )Income tax expense
    
    
    59
    
    
    
    1,760
    
    
    
    534
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (18,474
    )
    
    $
    32,115
    
    
    $
    (18,517
    )
    
    $
    (44,265
    )
    
    $
    (56,466
    )Net income (loss) per share:Basic
    
    $
    (0.31
    )
    
    $
    0.55
    
    
    $
    (0.36
    )
    
    $
    (0.87
    )
    
    $
    (1.19
    )Diluted
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    (0.36
    )
    
    $
    (0.87
    )
    
    $
    (1.19
    )Weighted average shares outstanding
used to calculate net income (loss)
per share:Basic
    
    
    58,734
    
    
    
    57,995
    
    
    
    51,835
    
    
    
    51,061
    
    
    
    47,355Diluted
    
    
    58,734
    
    
    
    59,674
    
    
    
    51,835
    
    
    
    51,061
    
    
    
    47,355
 As of December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(in thousands)Balance Sheet Data:Cash, cash equivalents and short-term
investments
    
    $
    60,797
    
    
    $
    93,944
    
    
    $
    52,037
    
    
    $
    64,678
    
    
    $
    75,534Working capital
    
    
    34,142
    
    
    
    47,563
    
    
    
    3,734
    
    
    
    25,582
    
    
    
    59,010Total assets
    
    
    96,037
    
    
    
    131,361
    
    
    
    92,484
    
    
    
    85,344
    
    
    
    93,628Deferred revenue, less current portion
    
    
    2,635
    
    
    
    2,678
    
    
    
    2,436
    
    
    
    12,722
    
    
    
    15,444Long-term debt
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    2,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    37,983
    
    
    
    46,916
    
    
    
    9,323
    
    
    
    15,348
    
    
    
    46,305
 61




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First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(in thousands, except per share amounts)Selected Quarterly Financial Data (unaudited):2010:Product sales, net
    
    $
    29,010
    
    
    $
    32,866
    
    
    $
    10,972
    
    
    $
    17,322Total revenues
    
    
    39,749
    
    
    
    41,674
    
    
    
    18,074
    
    
    
    25,854Cost of product sales
    
    
    1,573
    
    
    
    3,793
    
    
    
    1,189
    
    
    
    1,160Total costs and expenses
    
    
    36,089
    
    
    
    35,559
    
    
    
    43,917
    
    
    
    27,820Net income (loss)
    
    
    3,311
    
    
    
    6,025
    
    
    
    (25,746
    )
    
    
    (2,064
    )Net income (loss) per share:Basic
    
    
    0.06
    
    
    
    0.10
    
    
    
    (0.44
    )
    
    
    (0.03
    )Diluted
    
    
    0.05
    
    
    
    0.10
    
    
    
    (0.44
    )
    
    
    (0.03
    )2009:Product sales, net
    
    $
    27,555
    
    
    $
    27,989
    
    
    $
    31,488
    
    
    $
    32,210Total revenues
    
    
    34,810
    
    
    
    35,847
    
    
    
    39,453
    
    
    
    62,383Cost of product sales
    
    
    1,880
    
    
    
    2,104
    
    
    
    2,009
    
    
    
    2,301Total costs and expenses
    
    
    33,536
    
    
    
    34,551
    
    
    
    33,798
    
    
    
    36,467Net income
    
    
    1,153
    
    
    
    1,121
    
    
    
    5,340
    
    
    
    24,501Net income per share:Basic
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.09
    
    
    
    0.42Diluted
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.09
    
    
    
    0.40
 
 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 consolidated 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
  ® ®
 ®
  
    
    Budesonide MMX® is a corticosteroid in a novel oral tablet formulation, dosed
one tablet once a day, which utilizes proprietary multi-matrix (MMX®) colonic
delivery technology and is being developed for the treatment of ulcerative colitis. We
have announced statistically significant top-line results from two phase III clinical
studies which evaluated budesonide MMX 9 mg for the induction of remission of mild or
moderate active ulcerative colitis. We have rights to budesonide MMX in the U.S. under a
strategic collaboration with Cosmo Technologies Limited, or Cosmo.
 62




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##### Table of Contents




    
    Rhucin® (recombinant human C1 inhibitor) is a recombinant version of the
human protein C1 inhibitor, which is produced using proprietary transgenic technology. In
December 2010, our licensing partner, Pharming Group NV, or Pharming, submitted a biologics
license application, or BLA, to the U.S. Food and Drug Administration, or FDA, seeking
approval to market Rhucin for the treatment of acute attacks of hereditary angioedema, or
HAE, an orphan disease. On February 22, 2011, based on prior discussions with the FDA,
Pharming announced initiation of a placebo-controlled, double-blind phase IIIb clinical
study with approximately 50 patients to provide additional data in support of the 50 U/kg
dose. On February 28, 2011, Pharming announced receipt of a refusal to file letter from
the FDA for the Rhucin BLA. In the letter the FDA indicated that the BLA was not
sufficiently complete to enable a critical medical review and indicated that the FDA will
provide additional feedback on the design of the ongoing phase IIIb clinical study. In
addition, the FDA requested that the results of the phase IIIb clinical study be included
in any future BLA submission for Rhucin. Both we and Pharming intend to meet with the FDA
at the earliest opportunity to discuss the issues raised in the FDA letter and to reach a
more comprehensive understanding of what would be required for the BLA to be accepted for
review. In addition, a phase II proof of concept study is planned to evaluate recombinant
human C1 inhibitor for the treatment of early antibody mediated rejection, or AMR, in renal
transplant patients. We have rights to Rhucin in the U.S., Canada and Mexico under our
under license and supply agreements with Pharming.
 
    
    Rifamycin SV MMX® is a broad spectrum, semi-synthetic antibiotic in a novel
oral tablet formulation, which utilizes proprietary MMX colonic delivery technology and is
being developed for the treatment of patients with travelers diarrhea and potentially for
other diseases that have an infectious component in the intestine. Rifamycin SV MMX 200 mg
oral tablets taken twice daily (2 times 200 mg per dose, 800 mg total daily dose) is
currently being investigated in a phase III clinical program in patients with travelers
diarrhea. We have rights to rifamycin SV MMX in the U.S. under a strategic collaboration
with Cosmo.
 
    
    SAN-300 (anti-VLA-1 antibody) is a novel early stage anti-VLA-1 monoclonal antibody, or
mAb, development compound that we initially expect to develop for the treatment of
rheumatoid arthritis. We are planning to begin a single-center, randomized,
placebo-controlled, single-dose, dose-escalation phase I clinical study with SAN-300 in
March/April 2011. We have worldwide rights to SAN-300 under a license agreement with
Biogen Idec MA, or Biogen, and in connection with our acquisition of Covella
Pharmaceuticals, Inc., or Covella.
 ®
 Critical Accounting Policies
  63




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Principles of Consolidation
   Business Combinations
  Intangible Assets and Goodwill
  
    
    the assets ability to generate income from operations and positive cash flow in future
periods;
 
    
    loss of legal ownership or title to the asset;
 
    
    significant changes in our strategic business objectives and utilization of the
asset(s); and
 
    
    the impact of significant negative industry, regulatory or economic trends.
  64




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##### Table of Contents



Inventories and Related Reserves
  Revenue Recognition
  Product Sales, Net.
  
    
    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.
    65




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Promotion, Royalty and Other License Revenue.
 Stock-Based Compensation
  66




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##### Table of Contents



Years Ended December 31,2010
    
    
    2009
    
    
    2008Cost of product sales
    
    $
    140
    
    
    $
    101
    
    
    $
    95Research and development
    
    
    709
    
    
    
    598
    
    
    
    478Selling, general and administrative
    
    
    4,192
    
    
    
    3,870
    
    
    
    3,638Restructuring charges
    
    
    352
    
    
    
    
    
    
    
    Total
    
    $
    5,393
    
    
    $
    4,569
    
    
    $
    4,211
  Income Taxes
    67




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##### Table of Contents



Recent Accounting Pronouncements
   Results of Operations
 Comparison of Years Ended December 31, 2010, 2009 and 2008
 Product Sales, Net.
 Promotion Revenue.
 ® ® ® 
 68




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##### Table of Contents



Royalty Revenue.
 Other License Revenue.
 
    
    In October 2009, we received a nonrefundable $2.5 million upfront payment in connection
with our license agreement with Norgine. The $2.5 million upfront payment was amortized
over a three-month period through early January 2010, which represented the period during
which we had significant responsibilities under the agreement.
    
    In December 2009, we received a $20.0 million one-time nonrefundable milestone payment
from Merck following the approval of the new drug application, or NDA, submitted by Merck
for Zegerid OTC (omeprazole 20 mg/sodium bicarbonate 1100 mg capsules). In June 2008, we
received a $2.5 million nonrefundable milestone payment from Merck relating to FDA
acceptance for filing of the NDA submitted by Merck for Zegerid OTC. We recognized the
milestone payments of $20.0 million and $2.5 million in other license revenue in 2009 and
2008, 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 Merck. The $15.0 million upfront payment was amortized to revenue on
a straight-line basis over a 37-month period through the end of 2009, which represented the
period during which we had significant responsibilities under the agreement.
    
    In December 2007, we received a nonrefundable $11.5 million upfront payment in connection
with our license agreement with GSK. To support GSKs initial launch costs, we agreed to
waive the first $2.5 million of aggregate royalties payable to us. 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 royalty revenue as the royalties are earned.
The remaining $9.0 million was also recorded as deferred revenue and was amortized to
revenue on a straight-line basis over an 18-month period through May 2009, which represented
the period during which we had significant obligations under the 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 initially 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
and amortized the remaining balance of the $15.0 million up-front payment. We recognized
other license revenue associated with this amortization of $5.7 million in 2008.
 Cost of Product Sales.
 License Fees and Royalties.
 69




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Research and Development.
     70




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##### Table of Contents



1 1
  Selling, General and Administrative.
  Restructuring Charges.
 71




---



##### Table of Contents



Interest Income.
 Interest Expense.
 Income Tax Expense.
 Liquidity and Capital Resources
    72




---



##### Table of Contents



Contractual Obligations and Commitments
  License Agreement with University of Missouri
  Promotion Agreement with Depomed
   73




---



##### Table of Contents



License Agreement with Cosmo
  Distribution and License Agreement with S2 and VeroScience
  License Agreement and Supply Agreement with Pharming
  74




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##### Table of Contents



Acquisition of Covella
  Amended License with Biogen
   Payments Due by PeriodLess than
    
    
    One to
    
    
    Four toContractual Obligations
    
    Total
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Thereafter(in thousands)Operating leases
    
    $
    3,208
    
    
    $
    1,571
    
    
    $
    1,637
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    11,152
    
    
    
    456
    
    
    
    10,696Other long-term contractual obligations
    
    
    108
    
    
    
    54
    
    
    
    54
    
    
    
    
    
    
    
    Total
    
    $
    14,468
    
    
    $
    2,081
    
    
    $
    12,387
    
    
    $
    
    
    
    $
    
    75




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##### Table of Contents



76




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
   77




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##### Table of Contents



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
   Managements Report on Internal Control Over Financial Reporting
  78




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79




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       /s/ Ernst & Young LLP 
 80




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##### Table of Contents



Item 9B. Other Information
  81




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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
  82




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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
    
    Description2.1(1)+
    
    Agreement and Plan of Merger, dated September 10, 2010, among us, SAN
Acquisition Corp., Covella Pharmaceuticals, Inc. and Lawrence C. Fritz, as
the Stockholder Representative3.1(2)
    
    Amended and Restated Certificate of Incorporation3.2(3)
    
    Amended and Restated Bylaws3.3(4)
    
    Certificate of Designations for Series A Junior Participating Preferred Stock4.1(4)
    
    Form of Common Stock Certificate4.2(5)
    
    Amended and Restated Investors Rights Agreement, dated April 30, 2003,
among us and the parties named therein4.3(5)
    
    Amendment No. 1 to Amended and Restated Investors Rights Agreement, dated
May 19, 2003, among us and the parties named therein4.4(5)
    
    Stock Restriction and Registration Rights Agreement, dated January 26, 2001,
between us and The Curators of the University of Missouri4.5(5)
    
    Form of Common Stock Purchase Warrant4.6(4)
    
    Rights Agreement, dated 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(6)
    
    First Amendment to Rights Agreement, dated April 19, 2006, between us and
American Stock Transfer & Trust Company
 83




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##### Table of Contents



ExhibitNumber
    
    Description4.8(7)
    
    Second Amendment to Rights Agreement, dated December 10, 2008, between us and American
Stock Transfer and Trust Company4.9(8)
    
    Warrant to Purchase Shares of Common Stock, dated February 3, 2006, issued by us to
Kingsbridge Capital Limited4.10(8)
    
    Registration Rights Agreement, dated February 3, 2006, between us and Kingsbridge
Capital Limited4.11(9)
    
    Registration Rights Agreement, dated December 10, 2008, between us and Cosmo
Technologies Limited4.12(9)
    
    Amendment No. 1 to Registration Rights Agreement, dated April 23, 2009, between us and
Cosmo Technologies Limited10.1(5)
    
    Stock Purchase Agreement, dated January 26, 2001, between us and The Curators of the
University of Missouri10.2(5)
    
    Exclusive License Agreement, dated January 26, 2001, between us and The Curators of
the University of Missouri10.3(5)
    
    Amendment No. 1 to Exclusive License Agreement, dated February 21, 2003, between us
and The Curators of the University of Missouri10.4(10)
    
    Amendment No. 2 to Exclusive License Agreement, dated August 20, 2007, between us and
The Curators of the University of Missouri10.5(5)
    
    Omeprazole Supply Agreement, dated September 25, 2003, among us, InterChem Trading
Corporation and Union Quimico Farmaceutica, S.A.10.6(11)
    
    Amendment No. 1 to Omeprazole Supply Agreement, dated November 1, 2004, among us,
InterChem Trading Corporation and Union Quimico Farmaceutica, S.A.10.7(11)
    
    Amendment No. 2 to Omeprazole Supply Agreement, dated July 11, 2007, among us,
InterChem Trading Corporation and Union Quimico Farmaceutica, S.A.10.8(12)
    
    Amendment No. 3 to Omeprazole Supply Agreement, dated December 17, 2008, among us,
InterChem Trading Corporation and Union Quimico Farmaceutica, S.A.10.9(13)
    
    Amendment No. 4 to Omeprazole Supply Agreement, dated October 30, 2009, among us,
InterChem Trading Corporation and Union Quimico Farmaceutica, S.A.10.10(13)
    
    Second Amended and Restated Manufacturing and Supply Agreement, dated October 20,
2009, between us and Patheon Inc.10.11(14)
    
    Manufacturing and Supply Agreement, dated September 27, 2004, between us and OSG
Norwich Pharmaceuticals, Inc.10.12(8)
    
    Common Stock Purchase Agreement, dated February 3, 2006, between us and Kingsbridge
Capital Limited10.13(15)
    
    Amended and Restated Loan and Security Agreement, dated July 11, 2008, between us and
Comerica Bank10.14(16)
    
    First Amendment dated August 27, 2010 to the Amended and Restated Loan and Security
Agreement, dated as of July 11, 2008, by and between Santarus, Inc. and Comerica Bank10.15(15)
    
    Amended and Restated LIBOR Addendum to Loan and Security Agreement, dated July 11,
2008, between us and Comerica Bank10.16(17)
    
    OTC License Agreement, dated October 17, 2006, between us and Schering-Plough
Healthcare Products, Inc.10.17(18)
    
    Amendment No. 1 to OTC License Agreement, dated July 24, 2009, between us and
Schering-Plough Healthcare Products, Inc.10.18(1)
    
    Amendment No. 2 to OTC License Agreement, dated August 6, 2010, between us and
Schering-Plough Healthcare Products, Inc.10.19(19)
    
    Service Agreement, dated November 3, 2006, between us and Ventiv Commercial Services,
LLC (d/b/a inVentiv Commercial Services, LLC)10.20(11)
    
    Amendment No. 1 to Service Agreement, dated June 15, 2007, between us and Ventiv
Commercial Services, LLC (d/b/a inVentiv Commercial Services, LLC)10.21(20)
    
    Amendment No. 2 to Service Agreement, dated October 6, 2008, between us and Ventiv
Commercial Services, LLC (d/b/a inVentiv Commercial Services, LLC)
 84




---



##### Table of Contents



ExhibitNumber
    
    Description10.22(21)
    
    Amendment No. 3 to Service Agreement, dated June 30, 2010, between us and Ventiv
Commercial Services, LLC (d/b/a inVentiv Commercial Services, LLC)10.23(22)
    
    Co-Promotion Agreement, dated June 28, 2007, by and between us and Victory Pharma, Inc.10.24(10)
    
    Co-Promotion Agreement, dated August 24, 2007, between us and C.B. Fleet Company,
Incorporated10.25(23)
    
    Amendment No. 1 to Co-Promotion Agreement, dated May 6, 2008, between us and C.B.
Fleet Company, Incorporated10.26(24)
    
    License Agreement, dated November 30, 2007, between us and Glaxo Group Limited, an
affiliate of GlaxoSmithKline plc10.27(24)
    
    Distribution Agreement, dated November 30, 2007, between us and Glaxo Group Limited,
an affiliate of GlaxoSmithKline plc10.28(12)
    
    License Agreement, dated December 10, 2008, between us and Cosmo Technologies Limited10.29(12)
    
    Stock Issuance Agreement, dated December 10, 2008, between us and Cosmo Technologies
Limited10.30(25)
    
    Promotion Agreement, dated July 21, 2008, between us and Depomed, Inc.10.31(18)
    
    License Agreement, dated October 9, 2009, between us and Norgine B.V.10.32(21)
    
    Distribution and Supply Agreement, dated April 26, 2010, between us and Prasco, LLC10.33(1)+
    
    Distribution and License Agreement, dated September 3, 2010, among us, VeroScience,
LLC and S2 Therapeutics, Inc.10.34(1)+
    
    Manufacturing Services Agreement, dated May 26, 2010, between Patheon Pharmaceuticals
Inc. and S2 Therapeutics, Inc.10.35(1)
    
    Assignment and Assumption Agreement, dated September 3, 2010, between us and S2
Therapeutics, Inc.10.36(1)+
    
    License Agreement, dated September 10, 2010, among us, Pharming Group N.V., on behalf
of itself and each of its affiliates, including Pharming Intellectual Property B.V.
and Pharming Technologies B.V.10.37(1)+
    
    Supply Agreement, dated September 10, 2010, among us, Pharming Group N.V., on behalf
of itself and each of its affiliates, including Pharming Intellectual Property B.V.
and Pharming Technologies B.V.10.38(1)+
    
    License Agreement, dated January 22, 2009, between Covella Pharmaceuticals, Inc. and
Biogen Idec MA Inc.10.39(1)+
    
    Amendment to License Agreement, dated September 10, 2010, among us, Covella
Pharmaceuticals, Inc. and Biogen Idec MA Inc.10.40(26)
    
    Sublease, dated December 11, 2007, between us and Avnet, Inc.10.41(5)#
    
    Form of Indemnification Agreement between us and each of our directors and officers10.42(5)#
    
    1998 Stock Option Plan10.43(27)#
    
    Amendment to 1998 Stock Option Plan10.44(28)#
    
    Amended and Restated 2004 Equity Incentive Award Plan10.45(27)#
    
    Amendment No. 1 to Amended and Restated 2004 Equity Incentive Award Plan10.46(29)#
    
    Amendment No. 2 to Amended and Restated 2004 Equity Incentive Award Plan10.47(30)#
    
    Form of Stock Option Agreement under Amended and Restated 2004 Equity Incentive Award
Plan10.48(31)#
    
    Form of Immediately Exercisable Stock Option Agreement under Amended and Restated 2004
Equity Incentive Award Plan10.49(32)#
    
    Amended and Restated Employee Stock Purchase Plan10.50(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Gerald T. Proehl10.51(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Debra P. Crawford10.52(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Julie A. DeMeules
 85




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##### Table of Contents



ExhibitNumber
    
    Description10.53(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
William C. Denby, III10.54(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Warren E. Hall10.55(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Michael D. Step10.56(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and E.
David Ballard, II, M.D.10.57#
    
    Amendment to the Amended and Restated Employment Agreement, dated February 14, 2011,
between us and E. David Ballard, II, M.D.10.58(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Maria Bedoya-Toro10.59#
    
    Amendment to the Amended and Restated Employment Agreement, dated February 14, 2011,
between us and Maria Bedoya-Toro10.60(24)#
    
    Amended and Restated Employment Agreement, dated December 5, 2007, between us and
Carey J. Fox10.61(1)#
    
    Employment Agreement, dated September 10, 2010, between us and Mark Totoritis10.62#
    
    Amendment to the Employment Agreement, dated February 14, 2011, between us and Mark
Totoritis10.63(33)#
    
    2009 Bonus Plan10.64(34)#
    
    2010 Bonus Plan10.65(35)#
    
    2011 Bonus Plan21.1
    
    List of Subsidiaries of Santarus, Inc.23.1
    
    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
September 30, 2010, filed
with the Securities and
Exchange Commission on
November 9, 2010.(2)
    
    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.(3)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on December 5,
2008.(4)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on November 17,
2004.(5)
    
    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).(6)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on April 21, 2006.(7)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on December 15,
2008. 86




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##### Table of Contents



(8)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on February 3,
2006.(9)
    
    Incorporated by reference to
our Registration Statement on
Form S-3, filed with the
Securities and Exchange
Commission on January 20,
2009, as amended (File No.
333-156806).(10)
    
    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.(11)
    
    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.(12)
    
    Incorporated by reference to
our Annual Report on Form
10-K for the year ended
December 31, 2008, filed with
the Securities and Exchange
Commission on March 6, 2009.(13)
    
    Incorporated by reference to
our Annual Report on Form
10-K for the year ended
December 31, 2009, filed with
the Securities and Exchange
Commission on March 4, 2010.(14)
    
    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.(15)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on July 14, 2008.(16)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on August 30,
2010.(17)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on October 18,
2006.(18)
    
    Incorporated by reference to
our Quarterly Report on Form
10-Q for the quarter ended
September 30, 2009, filed
with the Securities and
Exchange Commission on
November 5, 2009.(19)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on November 7,
2006.(20)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on October 7,
2008.(21)
    
    Incorporated by reference to
our Quarterly Report on Form
10-Q for the quarter ended
June 30, 2010, filed with the
Securities and Exchange
Commission on August 3, 2010.(22)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on June 28, 2007.(23)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on May 7, 2008.(24)
    
    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.(25)
    
    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. 87




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##### Table of Contents



(26)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on December 13,
2007.(27)
    
    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.(28)
    
    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.(29)
    
    Incorporated by reference to
our Registration Statement on
Form S-8, filed with the
Securities and Exchange
Commission on December 21,
2006.(30)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on February 8,
2005.(31)
    
    Incorporated by reference to
our Current Report on Form
8-K, filed with the
Securities and Exchange
Commission on February 16,
2005.(32)
    
    Incorporated by reference to
our Registration Statement on
Form S-8, filed with the
Securities and Exchange
Commission on December 18,
2007.(33)
    
    Incorporated by reference to
our applicable Current Report
on Form 8-K, filed with the
Securities and Exchange
Commission on February 24,
2009.(34)
    
    Incorporated by reference to
our applicable Current Report
on Form 8-K, filed with the
Securities and Exchange
Commission on February 19,
2010.(35)
    
    Incorporated by reference to
our applicable Current Report
on Form 8-K, filed with the
Securities and Exchange
Commission on February 11,
2011.
    
    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.(c) Financial Statement Schedule.See Item 15(a)(2) above. 88




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##### Table of Contents



SIGNATURES
  SANTARUS, INC.Dated: March 3, 2011By:
    /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 3, 2011/s/ DEBRA P. CRAWFORD

Debra P. Crawford
    
    Senior Vice President and 
Chief Financial Officer(Principal Financial and
Accounting Officer)
    
    March 3, 2011/s/ DAVID F. HALE

David F. Hale
    
    Director(Chairman of the Board of 
Directors)
    
    March 3, 2011/s/ DANIEL D. BURGESS

Daniel D. Burgess
    
    Director
    
    March 3, 2011/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 3, 2011/s/ MICHAEL E. HERMAN

Michael E. Herman
    
    Director
    
    March 3, 2011/s/ TED W. LOVE, M.D.

Ted W. Love, M.D.
    
    Director
    
    March 3, 2011/s/ KENT SNYDER

Kent Snyder
    
    Director
    
    March 3, 2011
 89




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##### Table of Contents



SANTARUS, INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageAUDITED CONSOLIDATED FINANCIAL STATEMENTSReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    F-3Consolidated Statements of Operations for each of the years ended December 31, 2010, 2009 and 2008
    
    
    F-4Consolidated Statements of Stockholders Equity for each of the years ended December 31, 2010, 2009 and 2008
    
    
    F-5Consolidated Statements of Cash Flows for each of the years ended December 31, 2010, 2009 and 2008
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8FINANCIAL STATEMENT SCHEDULESchedule II  Valuation and Qualifying Accounts
    
    
    F-37
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 F-2




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##### Table of Contents



Santarus, Inc.


Consolidated Balance Sheets
(in thousands, except share and per share amounts)
 December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    56,692
    
    
    $
    86,129Short-term investments
    
    
    4,105
    
    
    
    7,815Accounts receivable, net
    
    
    7,156
    
    
    
    16,253Inventories, net
    
    
    3,025
    
    
    
    5,336Prepaid expenses and other current assets
    
    
    6,086
    
    
    
    3,797Total current assets
    
    
    77,064
    
    
    
    119,330Long-term restricted cash
    
    
    1,300
    
    
    
    1,400Property and equipment, net
    
    
    774
    
    
    
    875Intangible assets, net
    
    
    13,980
    
    
    
    9,750Goodwill
    
    
    2,913
    
    
    
    Other assets
    
    
    6
    
    
    
    6Total assets
    
    $
    96,037
    
    
    $
    131,361Liabilities and stockholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    29,472
    
    
    $
    58,676Allowance for product returns
    
    
    13,450
    
    
    
    12,846Current portion of deferred revenue
    
    
    
    
    
    
    245Total current liabilities
    
    
    42,922
    
    
    
    71,767Deferred revenue, less current portion
    
    
    2,635
    
    
    
    2,678Long-term debt
    
    
    10,000
    
    
    
    10,000Other long-term liabilities
    
    
    2,497
    
    
    
    Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value; 10,000,000 shares authorized at December 31,
2010 and 2009; no shares issued and outstanding at
December 31, 2010 and 2009
    
    
    
    
    
    
    Common stock, $0.0001 par value; 100,000,000 shares authorized at
December 31, 2010 and 2009; 60,008,836 and 58,344,932 shares issued
and outstanding at December 31, 2010 and 2009, respectively
    
    

    6
    
    
    
    6Additional paid-in capital
    
    
    346,852
    
    
    
    337,312Accumulated other comprehensive income loss
    
    
    
    
    
    
    (1
    )Accumulated deficit
    
    
    (308,875
    )
    
    
    (290,401
    )Total stockholders equity
    
    
    37,983
    
    
    
    46,916Total liabilities and stockholders equity
    
    $
    96,037
    
    
    $
    131,361
 See accompanying notes.
 F-3




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##### Table of Contents



Santarus, Inc.


Consolidated Statements of Operations
(in thousands, except share and per share amounts)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Revenues:Product sales, net
    
    $
    90,170
    
    
    $
    119,242
    
    
    $
    101,220Promotion revenue
    
    
    31,365
    
    
    
    23,631
    
    
    
    9,837Royalty revenue
    
    
    3,571
    
    
    
    
    
    
    
    Other license revenue
    
    
    245
    
    
    
    29,620
    
    
    
    19,144Total revenues
    
    
    125,351
    
    
    
    172,493
    
    
    
    130,201Costs and expenses:Cost of product sales
    
    
    7,715
    
    
    
    8,294
    
    
    
    7,345License fees and royalties
    
    
    28,576
    
    
    
    7,976
    
    
    
    22,257Research and development
    
    
    17,431
    
    
    
    16,244
    
    
    
    11,760Selling, general and administrative
    
    
    82,581
    
    
    
    105,838
    
    
    
    108,012Restructuring charges
    
    
    7,082
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    143,385
    
    
    
    138,352
    
    
    
    149,374Income (loss) from operations
    
    
    (18,034
    )
    
    
    34,141
    
    
    
    (19,173
    )Other income (expense):Interest income
    
    
    80
    
    
    
    194
    
    
    
    1,285Interest expense
    
    
    (461
    )
    
    
    (460
    )
    
    
    (95
    )Total other income (expense)
    
    
    (381
    )
    
    
    (266
    )
    
    
    1,190Income (loss) before income taxes
    
    
    (18,415
    )
    
    
    33,875
    
    
    
    (17,983
    )Income tax expense
    
    
    59
    
    
    
    1,760
    
    
    
    534Net income (loss)
    
    $
    (18,474
    )
    
    $
    32,115
    
    
    $
    (18,517
    )Net income (loss) per share:Basic
    
    $
    (0.31
    )
    
    $
    0.55
    
    
    $
    (0.36
    )Diluted
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    (0.36
    )Weighted average shares outstanding used to
calculate net income (loss) per share:Basic
    
    
    58,734,397
    
    
    
    57,994,506
    
    
    
    51,835,482Diluted
    
    
    58,734,397
    
    
    
    59,673,866
    
    
    
    51,835,482
 See accompanying notes.
 F-4




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##### Table of Contents



Santarus, Inc.


Consolidated Statements of Stockholders Equity
(in thousands, except share amounts)
 AccumulatedotherAdditional
    
    
    comprehensive
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    income
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    (loss)
    
    
    deficit
    
    
    equityBalance 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
under 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
    )
    
    
    9,323Issuance of common stock upon exercise of
stock options
    
    
    162,767
    
    
    
    
    
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    258Issuance of common stock under employee
stock purchase plan
    
    
    381,293
    
    
    
    
    
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    652Issuance of common stock upon exercise of
warrants
    
    
    1,284
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,569
    
    
    
    
    
    
    
    
    
    
    
    4,569Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,115
    
    
    
    32,115Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,112Balance at December 31, 2009
    
    
    58,344,932
    
    
    
    6
    
    
    
    337,312
    
    
    
    (1
    )
    
    
    (290,401
    )
    
    
    46,916
 F-5




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##### Table of Contents



AccumulatedotherAdditional
    
    
    comprehensive
    
    
    
    
    
    
    TotalCommon stock
    
    
    paid-in
    
    
    income
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    (loss)
    
    
    deficit
    
    
    equityBalance at December 31, 2009
    
    
    58,344,932
    
    
    
    6
    
    
    
    337,312
    
    
    
    (1
    )
    
    
    (290,401
    )
    
    
    46,916Issuance of common stock upon exercise of
stock options
    
    
    237,243
    
    
    
    
    
    
    
    384
    
    
    
    
    
    
    
    
    
    
    
    384Issuance of common stock under employee
stock purchase plan
    
    
    217,217
    
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    522Issuance of common stock at $2.01 per
share for business combination
    
    
    181,342
    
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    
    
    
    
    364Issuance of common stock at $2.68 per
share under technology license agreement
    
    
    55,970
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    150Issuance of common stock at $2.805 per
share under technology license agreement
    
    
    972,132
    
    
    
    
    
    
    
    2,727
    
    
    
    
    
    
    
    
    
    
    
    2,727Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    5,393
    
    
    
    
    
    
    
    
    
    
    
    5,393Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,474
    )
    
    
    (18,474
    )Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,473
    )Balance at December 31, 2010
    
    
    60,008,836
    
    
    $
    6
    
    
    $
    346,852
    
    
    $
    
    
    
    $
    (308,875
    )
    
    $
    37,983
 See accompanying notes.
 F-6




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##### Table of Contents



Santarus, Inc.


Consolidated Statements of Cash Flows
(in thousands)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Operating activitiesNet income (loss)
    
    $
    (18,474
    )
    
    $
    32,115
    
    
    $
    (18,517
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    2,259
    
    
    
    2,049
    
    
    
    1,355Recognition of auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    (1,457
    )Unrealized (gain) loss on trading securities
    
    
    (2
    )
    
    
    (48
    )
    
    
    1,507Loss on contingent consideration
    
    
    157
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    5,393
    
    
    
    4,569
    
    
    
    4,211Issuance of common stock under technology license agreements
    
    
    2,877
    
    
    
    
    
    
    
    7,440Changes in operating assets and liabilities:Accounts receivable, net
    
    
    9,097
    
    
    
    (2,887
    )
    
    
    (3,686
    )Inventories, net
    
    
    2,311
    
    
    
    (106
    )
    
    
    928Prepaid expenses and other current assets
    
    
    (2,289
    )
    
    
    29
    
    
    
    (1,486
    )Other assets
    
    
    
    
    
    
    
    
    
    
    61Accounts payable and accrued liabilities
    
    
    (29,670
    )
    
    
    5,566
    
    
    
    15,754Allowance for product returns
    
    
    604
    
    
    
    2,595
    
    
    
    4,304Deferred revenue
    
    
    (288
    )
    
    
    (6,878
    )
    
    
    (16,894
    )Net cash provided by (used in) operating activities
    
    
    (28,025
    )
    
    
    37,004
    
    
    
    (6,480
    )Investing activitiesPurchases of short-term investments
    
    
    (17,809
    )
    
    
    (11,877
    )
    
    
    (4,488
    )Sales and maturities of short-term investments
    
    
    17,791
    
    
    
    10,028
    
    
    
    2,929Redemption of investments
    
    
    3,850
    
    
    
    450
    
    
    
    Long-term restricted cash
    
    
    
    
    
    
    
    
    
    
    1,400Purchases of property and equipment
    
    
    (308
    )
    
    
    (274
    )
    
    
    (696
    )Acquisition of intangible assets
    
    
    (5,000
    )
    
    
    
    
    
    
    (12,000
    )Net cash paid for business combination
    
    
    (842
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (2,318
    )
    
    
    (1,673
    )
    
    
    (12,855
    )Financing activitiesProceeds from draw down on credit facility
    
    
    
    
    
    
    
    
    
    
    10,000Exercise of stock options and warrants
    
    
    384
    
    
    
    260
    
    
    
    77Issuance of common stock, net
    
    
    522
    
    
    
    652
    
    
    
    762Net cash provided by financing activities
    
    
    906
    
    
    
    912
    
    
    
    10,839Increase (decrease) in cash and cash equivalents
    
    
    (29,437
    )
    
    
    36,243
    
    
    
    (8,496
    )Cash and cash equivalents at beginning of the year
    
    
    86,129
    
    
    
    49,886
    
    
    
    58,382Cash and cash equivalents at end of the year
    
    $
    56,692
    
    
    $
    86,129
    
    
    $
    49,886Supplemental disclosure of cash flow information:Interest paid
    
    $
    461
    
    
    $
    460
    
    
    $
    95Income taxes paid
    
    $
    1,349
    
    
    $
    969
    
    
    $
    91
 See accompanying notes.
 F-7




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##### Table of Contents



SANTARUS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization and Business
  Principles of Consolidation
   Use of Estimates in the Preparation of Financial Statements
  Cash and Cash Equivalents
  Available-for-Sale Securities
   F-8




---



##### Table of Contents



Amortized
    
    
    
    
    
    
    UnrealizedCost
    
    
    Market Value
    
    
    LossDecember 31, 2010:U.S. government sponsored enterprise securities
    
    $
    5,405
    
    
    $
    5,405
    
    
    $
    December 31, 2009:U.S. government sponsored enterprise securities
    
    $
    3,852
    
    
    $
    3,852
    
    
    $
    U.S. Treasury securities
    
    
    1,516
    
    
    
    1,515
    
    
    
    (1
    )$
    5,368
    
    
    $
    5,367
    
    
    $
    (1
    )
  December 31,2010
    
    
    2009Short-term investments
    
    $
    4,105
    
    
    $
    3,967Restricted cash
    
    
    1,300
    
    
    
    1,400$
    5,405
    
    
    $
    5,367
  Fair Value Measurements
   F-9




---



##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalDecember 31, 2010:AssetsMoney market funds
    
    $
    16,729
    
    
    $
    
    
    
    $
    
    
    
    $
    16,729U.S. government sponsored enterprise
securities
    
    
    
    
    
    
    45,368
    
    
    
    
    
    
    
    45,368$
    16,729
    
    
    $
    45,368
    
    
    $
    
    
    
    $
    62,097LiabilitiesContingent consideration
    
    $
    
    
    
    $
    
    
    
    $
    2,057
    
    
    $
    2,057$
    
    
    
    $
    
    
    
    $
    2,057
    
    
    $
    2,057December 31, 2009:AssetsMoney market funds
    
    $
    60,663
    
    
    $
    
    
    
    $
    
    
    
    $
    60,663U.S. Treasury securities
    
    
    1,515
    
    
    
    
    
    
    
    
    
    
    
    1,515U.S. government sponsored enterprise
securities
    
    
    
    
    
    
    29,318
    
    
    
    
    
    
    
    29,318Municipal debt obligations 
auction rate securities
    
    
    
    
    
    
    
    
    
    
    3,370
    
    
    
    3,370Auction rate securities rights
    
    
    
    
    
    
    
    
    
    
    478
    
    
    
    478$
    62,178
    
    
    $
    29,318
    
    
    $
    3,848
    
    
    $
    95,344
  Years Ended December 31,2010
    
    
    2009Auction Rate Securities and Rights:Beginning balance
    
    $
    3,848
    
    
    $
    4,250Redemptions and sales, at par
    
    
    (3,850
    )
    
    
    (450
    )Net unrealized gain included in net income (loss)
    
    
    2
    
    
    
    48Ending balance
    
    $
    
    
    
    $
    3,848Contingent Consideration:Beginning balance
    
    $
    
    
    
    $
    Transfers in from business combination
    
    
    1,900
    
    
    
    Change in fair value recorded in operating
expenses
    
    
    157
    
    
    
    Ending balance
    
    $
    2,057
    
    
    $
    
  F-10




---



##### Table of Contents



Concentration of Credit Risk and Sources of Supply
   ® ®
 ®
 ®
 F-11




---



##### Table of Contents



® ®
 Inventories, Net
  Property and Equipment
  Business Combinations
  Intangible Assets and Goodwill
  F-12




---



##### Table of Contents




    
    the assets ability to generate income from operations and positive cash flow in future
periods;
    
    loss of legal ownership or title to the asset;
    
    significant changes in the Companys strategic business objectives and utilization of
the asset(s); and
    
    the impact of significant negative industry, regulatory or economic trends.
   Weighted Average
    
    
    GrossAmortization Period
    
    
    Carrying
    
    
    Accumulated
    
    
    Intangible(years)
    
    
    Amount
    
    
    Amortization
    
    
    Assets, NetIntangible Assets
Subject to
Amortization:License fees
    
    
    7
    
    
    $
    17,000
    
    
    $
    (4,120
    )
    
    $
    12,880Intangible Assets
and Goodwill Not
Subject to
Amortization:In-process
research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,100Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,9134,013Total
intangible assets, net and
goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,893
  Weighted Average
    
    
    GrossAmortization Period
    
    
    Carrying
    
    
    Accumulated
    
    
    Intangible(years)
    
    
    Amount
    
    
    Amortization
    
    
    Assets, NetIntangible Assets
Subject to
Amortization:License fees
    
    
    8
    
    
    $
    12,000
    
    
    $
    (2,250
    )
    
    $
    9,750
  F-13




---



##### Table of Contents



2011
    
    $
    2,6112012
    
    
    2,6112013
    
    
    2,6112014
    
    
    2,6112015
    
    
    1,686Thereafter through 2016
    
    
    750Total future amortization expense
    
    $
    12,880
 Revenue Recognition
  Product Sales, Net.
  
    
    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-14




---



##### Table of Contents



Promotion, Royalty and Other License Revenue.
 F-15




---



##### Table of Contents



Research and Development Expenses and License Fees
    Patent Costs
  Shipping and Handling Costs
  Advertising Expense
  Stock-Based Compensation
   F-16




---



##### Table of Contents



Years Ended December 31,2010
    
    2009
    
    2008Stock Options:Risk-free interest rate
    
    1.8%
    
    3.0%
    
    1.6%
    
    3.1%
    
    1.5%
    
    3.4%Expected volatility
    
    70%
    
    71%
    
    68%
    
    72%
    
    64%
    
    68%Expected life of options (years)
    
    5.27
    
    6.08%
    
    5.27
    
    6.08%
    
    5.27
    
    6.58%Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase Plan:Risk-free interest rate
    
    0.1%
    

    0.2%
    
    0.1%
    

    0.3%
    
    0.1%
    
    2.0%Expected volatility
    
    70%
    
    71%
    
    71%
    

    72%
    
    64%
    
    68%Expected life of options (years)
    

    0.50
    
    0.50
    
    0.50Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Risk-Free Interest Rate.
 Expected Volatility.
 Expected Life of Options.
 Expected Dividend Yield.
 
 Comprehensive Income (Loss)
  F-17




---



##### Table of Contents



Years Ended December 31,2010
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (18,474
    )
    
    $
    32,115
    
    
    $
    (18,517
    )Unrealized gain (loss) on investments
    
    
    1
    
    
    
    (3
    )
    
    
    2Comprehensive income (loss)
    
    $
    (18,473
    )
    
    $
    32,112
    
    
    $
    (18,515
    )
 Net Income (Loss) Per Share
  Years Ended December 31,2010
    
    
    2009
    
    
    2008Numerator:Net income (loss) (in thousands)
    
    $
    (18,474
    )
    
    $
    32,115
    
    
    $
    (18,517
    )Denominator:Weighted average common shares outstanding
    
    
    58,734,397
    
    
    
    57,994,506
    
    
    
    51,836,524Weighted average unvested common shares
subject to repurchase
    
    
    
    
    
    
    
    
    
    
    (1,042
    )Denominator for basic net income (loss) per
share
    
    
    58,734,397
    
    
    
    57,994,506
    
    
    
    51,835,482Net effect of dilutive common stock equivalents
    
    
    
    
    
    
    1,679,360
    
    
    
    Denominator for diluted net income (loss) per
share
    
    
    58,734,397
    
    
    
    59,673,866
    
    
    
    51,835,482Net income (loss) per shareBasic
    
    $
    (0.31
    )
    
    $
    0.55
    
    
    $
    (0.36
    )Diluted
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    (0.36
    )
 Segment Reporting
  Recent Accounting Pronouncements
  F-18




---



##### Table of Contents



2. Balance Sheet Details
  December 31,2010
    
    
    2009Raw materials
    
    $
    797
    
    
    $
    1,071Finished goods
    
    
    4,418
    
    
    
    4,2695,215
    
    
    
    5,340Allowance for excess and obsolete inventory
    
    
    (2,190
    )
    
    
    (4
    )$
    3,025
    
    
    $
    5,336
  December 31,2010
    
    
    2009Computer equipment and software
    
    $
    1,554
    
    
    $
    1,344Office equipment and furniture
    
    
    1,219
    
    
    
    1,219Leasehold improvements
    
    
    468
    
    
    
    4683,241
    
    
    
    3,031Less: accumulated depreciation and amortization
    
    
    (2,467
    )
    
    
    (2,156
    )$
    774
    
    
    $
    875
   December 31,2010
    
    
    2009Accounts payable
    
    $
    1,716
    
    
    $
    8,782Accrued compensation and benefits
    
    
    5,017
    
    
    
    7,525Accrued rebates
    
    
    12,322
    
    
    
    31,268Accrued license fees and royalties
    
    
    4,471
    
    
    
    1,831Accrued contract sales organization expenses
    
    
    54
    
    
    
    1,573Accrued research and development expenses
    
    
    2,862
    
    
    
    3,421Income taxes payable
    
    
    332
    
    
    
    1,267Other accrued liabilities
    
    
    2,698
    
    
    
    3,009$
    29,472
    
    
    $
    58,676
 3. Significant Agreements
 Promotion Agreement with Depomed
  F-19




---



##### Table of Contents



Distribution and License Agreement with S2 and VeroScience
  F-20




---



##### Table of Contents



Distribution and Supply Agreement with Prasco
  License Agreement with University of Missouri
  License Agreement and Supply Agreement with Pharming
  F-21




---



##### Table of Contents



License Agreement
      Supply Agreement
    F-22




---



##### Table of Contents



Strategic Collaboration with Cosmo
       F-23




---



##### Table of Contents



OTC License Agreement with Merck
 ®
  License Agreement with Glaxo Group Limited
  F-24




---



##### Table of Contents



th
 License Agreement with Norgine
  4. Acquisition of Covella
 Merger Agreement
    F-25




---



##### Table of Contents



Amended License with Biogen
    Purchase Price
   Cash paid on closing date
    
    $
    862Fair value of Santarus common stock issued to sellers on closing date
    
    
    364Contingent consideration liability
    
    
    1,900$
    3,126
  F-26




---



##### Table of Contents



Cash
    
    $
    20Intangible assets
    
    
    1,100Goodwill
    
    
    2,913Liabilities assumed
    
    
    (467
    )Deferred tax liabilities (long-term)
    
    
    (440
    )$
    3,126
  Contingent Consideration Liability
  5. Restructuring
   F-27




---



##### Table of Contents



Year EndedBalance
    
    
    December 31, 2010
    
    
    BalanceJanuary 1,
    
    
    Charges to
    
    
    Cash
    
    
    Non-Cash
    
    
    December 31,2010
    
    
    Expense
    
    
    Payments
    
    
    Charges
    
    
    2010One-time termination
benefits
    
    $
    
    
    
    $
    4,992
    
    
    $
    (4,992
    )
    
    $
    
    
    
    $
    Contract termination costs
    
    
    
    
    
    
    1,738
    
    
    
    (1,738
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    352
    
    
    
    
    
    
    
    (352
    )
    
    
    Total
    
    $
    
    
    
    $
    7,082
    
    
    $
    (6,730
    )
    
    $
    (352
    )
    
    $
    
 6. Long-Term Debt
   F-28




---



##### Table of Contents



7. Commitments and Contingencies
 Leases
    2011
    
    $
    1,5712012
    
    
    1,4242013
    
    
    2122014
    
    
    12015
    
    
    Thereafter
    
    
    Total minimum lease payments
    
    $
    3,208
  Legal Proceedings
 Glumetza Patent Litigation
  F-29




---



##### Table of Contents



Zegerid  and Zegerid OTC Patent Litigation
     Wage and Hour Putative Class Action Litigation
  F-30




---



##### Table of Contents



Fleet Phospho-soda ® Product Liability Litigation
  ® 
    8. Stockholders Equity
 Authorized Shares
 ,
 F-31




---



##### Table of Contents



Common Stock Offerings
  Stockholder Rights Plan
  Warrants
  Stock Option Plans
    F-32




---



##### Table of Contents



WeightedWeighted
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicExercise
    
    
    Contractual
    
    
    Value (inOptions
    
    Shares
    
    
    Price
    
    
    Term (years)
    
    
    thousands)Outstanding at January 1, 2010
    
    
    14,527,414
    
    
    $
    4.09Granted
    
    
    3,206,828
    
    
    
    4.42Exercised
    
    
    (237,243
    )
    
    
    1.62Forfeited
    
    
    (707,653
    )
    
    
    3.06Expired
    
    
    (386,017
    )
    
    
    5.91Outstanding at December 31, 2010
    
    
    16,403,329
    
    
    $
    4.20
    
    
    
    6.15
    
    
    $
    10,896Exercisable at December 31, 2010
    
    
    12,160,908
    
    
    $
    4.55
    
    
    
    5.34
    
    
    $
    7,559
  Employee Stock Purchase Plan
  Shares Reserved for Future Issuance
  December 31,2010
    
    
    2009Stock options issued and outstanding
    
    
    16,403,329
    
    
    
    14,527,414Authorized for future issuance under equity compensation plans
    
    
    3,432,867
    
    
    
    2,763,242Stock warrants outstanding
    
    
    365,000
    
    
    
    365,00020,201,196
    
    
    
    17,655,656
 F-33




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##### Table of Contents



9. 401(k) Plan
  10. Income Taxes
     Years Ended December 31,2010
    
    
    2009
    
    
    2008Unrecognized tax benefits  January 1
    
    $
    1,803
    
    
    $
    1,728
    
    
    $
    Gross decreases related to prior year tax positions
    
    
    
    
    
    
    (35
    )
    
    
    Gross increases related to current year tax positions
    
    
    1,146
    
    
    
    110
    
    
    
    1,728Settlements
    
    
    
    
    
    
    
    
    
    
    Lapse of statute of limitations
    
    
    
    
    
    
    
    
    
    
    Unrecognized tax benefits  December 31
    
    $
    2,949
    
    
    $
    1,803
    
    
    $
    1,728
    F-34




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##### Table of Contents



December 31,2010
    
    
    2009Deferred tax assets:Net operating loss carryforwards
    
    $
    66,806
    
    
    $
    62,298Research and development credits
    
    
    2,835
    
    
    
    2,534Capitalized research and development
    
    
    63
    
    
    
    108Depreciation and amortization
    
    
    5,233
    
    
    
    5,260Accrued rebates
    
    
    4,708
    
    
    
    11,919Deferred revenue
    
    
    1,330
    
    
    
    1,458License fees and milestone payments
    
    
    7,748
    
    
    
    Allowance for product returns
    
    
    5,139
    
    
    
    4,897Other
    
    
    9,341
    
    
    
    8,801Total deferred tax assets
    
    
    103,203
    
    
    
    97,275Valuation allowance
    
    
    (103,203
    )
    
    
    (97,275
    )$
    
    
    
    $
    Deferred tax liabilities:Indefinite life intangible
    
    $
    (440
    )
    
    $
    Net deferred tax assets (liabilities)
    
    $
    (440
    )
    
    $
    
  Years Ended December 31,2010
    
    
    2009
    
    
    2008Federal income taxes
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State income tax, net of Federal benefit
    
    
    4.2
    %
    
    
    4.1
    %
    
    
    3.8
    %Tax effect on non-deductible expenses
    
    
    (7.6
    )%
    
    
    4.3
    %
    
    
    (8.9
    )%Removal of net operating losses and R&D credits
    
    
    
    %
    
    
    
    %
    
    
    
    %Change in valuation allowance
    
    
    (32.2
    )%
    
    
    (39.0
    )%
    
    
    (23.4
    )%Other
    
    
    1.1
    %
    
    
    1.8
    %
    
    
    (8.5
    )%(0.5
    )%
    
    
    5.2
    %
    
    
    (3.0
    )%
 11. Quarterly Financial Information (unaudited)
  F-35




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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):2010:Product sales, net
    
    $
    29,010
    
    
    $
    32,866
    
    
    $
    10,972
    
    
    $
    17,322Total revenues
    
    
    39,749
    
    
    
    41,674
    
    
    
    18,074
    
    
    
    25,854Cost of product sales
    
    
    1,573
    
    
    
    3,793
    
    
    
    1,189
    
    
    
    1,160Total costs and expenses
    
    
    36,089
    
    
    
    35,559
    
    
    
    43,917
    
    
    
    27,820Net income (loss)
    
    
    3,311
    
    
    
    6,025
    
    
    
    (25,746
    )
    
    
    (2,064
    )Net income (loss) per share:Basic
    
    
    0.06
    
    
    
    0.10
    
    
    
    (0.44
    )
    
    
    (0.03
    )Diluted
    
    
    0.05
    
    
    
    0.10
    
    
    
    (0.44
    )
    
    
    (0.03
    )2009:Product sales, net
    
    $
    27,555
    
    
    $
    27,989
    
    
    $
    31,488
    
    
    $
    32,210Total revenues
    
    
    34,810
    
    
    
    35,847
    
    
    
    39,453
    
    
    
    62,383Cost of product sales
    
    
    1,880
    
    
    
    2,104
    
    
    
    2,009
    
    
    
    2,301Total costs and expenses
    
    
    33,536
    
    
    
    34,551
    
    
    
    33,798
    
    
    
    36,467Net income
    
    
    1,153
    
    
    
    1,121
    
    
    
    5,340
    
    
    
    24,501Net income per share:Basic
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.09
    
    
    
    0.42Diluted
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.09
    
    
    
    0.40
 F-36




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##### Table of Contents



Schedule II  Valuation and Qualifying Accounts
(in thousands)
 DeductionsActual Cash
    
    Actual CashAdditions
    
    Discounts,
    
    Discounts,Provision
    
    Chargebacks, and
    
    Chargebacks, andBalance at
    
    Related
    
    Other Discounts
    
    Other Discounts
    
    Balance atBeginning of
    
    to Current
    
    Related to Current
    
    Related to Prior
    
    End ofPeriod
    
    Period Sales
    
    Period Sales
    
    Period Sales
    
    PeriodAllowance for cash discounts,
chargebacks, and other sales
discounts:For the year ended December 31, 2010
    
    $
    (3,427
    )
    
    $
    (10,273
    )
    
    $
    9,008
    
    
    $
    3,309
    
    
    $
    (1,383
    )For the year ended December 31, 2009
    
    
    (3,248
    )
    
    
    (16,873
    )
    
    
    13,598
    
    
    
    3,096
    
    
    
    (3,427
    )For the year ended December 31, 2008
    
    
    (1,527
    )
    
    
    (14,051
    )
    
    
    11,484
    
    
    
    846
    
    
    
    (3,248
    )
 AdditionsBalance at
    
    Charged to
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    Balance
    
    
    
    
    
    End ofPeriod
    
    Expenses
    
    Sheet
    
    Deductions
    
    PeriodAllowance for excess and obsolete
inventory:For the year ended December 31, 2010
    
    $
    (4
    )
    
    $
    (1,959
    )
    
    $
    (227
    )
    
    $
    
    
    
    $
    (2,190
    )For the year ended December 31, 2009
    
    
    (308
    )
    
    
    (47
    )
    
    
    
    
    
    
    351
    (1)
    
    
    (4
    )For the year ended December 31, 2008
    
    
    (166
    )
    
    
    (178
    )
    
    
    
    
    
    
    36
    (1)
    
    
    (308
    )
 Additions
    
    DeductionsProvision
    
    Actual Returns
    
    Actual ReturnsBalance at
    
    Related
    
    or Credits
    
    or Credits
    
    Balance atBeginning of
    
    to Current
    
    Related to
    
    Related to
    
    End ofPeriod
    
    Period Sales
    
    Current Period
    
    Prior Period
    
    PeriodAllowance for product returns:For the year ended December 31, 2010
    
    $
    (12,846
    )
    
    $
    (2,551
    )
    
    $
    89
    
    
    $
    1,858
    
    
    $
    (13,450
    )For the year ended December 31, 2009
    
    
    (10,251
    )
    
    
    (4,634
    )
    
    
    26
    
    
    
    2,013
    
    
    
    (12,846
    )For the year ended December 31, 2008
    
    
    (5,947
    )
    
    
    (6,080
    )
    
    
    39
    
    
    
    1,737
    
    
    
    (10,251
    )
 
 (1)
    
    Deductions in allowance for excess and obsolete inventory represent physical disposition of inventory. F-37