Risks Related to Santhera’s product candidates

Santhera’s profitability will largely depend on Santhera being able to prove efficacy of Catena® in Friedreich’s Ataxia and other indications in a timely manner.
Successful development and marketing authorization for Catena® in Friedreich’s Ataxia and other indications is material for Santhera to become profitable. To date, of all of Santhera’s clinical development programs, Catena® in Friedreich’s Ataxia, in Duchenne Muscular Dystrophy and Leber's Hereditary Optic neuropathy have completed proof of principle in humans. Management expects that a failure to prove efficacy of Catena® would not only harm the development program, but also industry and investor confidence in Santhera as a whole. Therefore, if Catena® fails to demonstrate sufficient efficacy, this is likely to have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Catena® is approved in Canada, and also in various clinical stage development programs for future approval in other jurisdictions and additional indications; Santhera has clinical trials ongoing with Catena® and other product candidates at different stages of development, which are long, expensive and unpredictable, and there is a high risk of failure.

Preclinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to delays. It may take several years to complete the preclinical testing and clinical development necessary to commercialize a drug, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials.

In connection with clinical trials, Santhera faces risks that:

• A product candidate may not prove to be effective;
• Patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested;
• The results may not confirm the positive results of earlier trials; and
• The results may not meet the level of statistical significance required by the US Food and Drug Administration (FDA), the European Medicines Agency (EMA) or other regulatory agencies.

In particular, given the recent deterioration in the financial markets, an unfavorable outcome in one or more of the currently ongoing clinical trials would likely require Santhera to delay, reduce the scope of, or eliminate some programs and could have a material adverse effect on Santhera and the value of Santhera shares.

If Santhera is not able to successfully complete preclinical and clinical development programs, Santhera will be unable to market and sell products derived from the product candidates in development and to generate product revenues. Even if Santhera does successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed before a new drug application (NDA) or marketing authorization application (MAA) may be submitted to the FDA or the EMA, respectively. Of the large number of drugs in development, only a small percentage result in the submission of an NDA/MAA to the FDA or EMA and even fewer are approved for commercialization.

In addition to a potential lack of efficacy, the development and commercial exploitation of Catena® could be materially adversely delayed or affected by other risks described below, such as unexpected safety issues associated with high doses, recruitment problems for clinical trials, price pressure, lack of marketing exclusivity and lack of high quality manufacturing.

Santhera currently relies primarily on a single lead product candidate, Catena®, for the potential generation of future sales revenue.
Santhera’s revenue projections and current financial plans are based in large part on the assumption that Santhera will be able to commercialize its lead product candidate, Catena®, successfully and in a timely manner. In addition, Santhera is conducting a pivotal Phase III study (DELOS) for Catena® in Duchenne Muscular Dystrophy.

Santhera has obtained marketing approval for Catena® in Canada for the symptomatic treatment of Friedreich’s Ataxia under a notice of compliance with conditions (NOC/c). In Switzerland, a provisional authorization has been granted to the Swiss affiliate of Takeda Pharmaceutical Santhera Ltd, Osaka, Japan (Takeda), for idebenone under the brand name Mnesis® in the treatment of cardiomyopathy in Friedreich’s Ataxia to meet the current medical needs of patients. Such provisional authorization cannot replace marketing approval and lapses once the final marketing approval is issued to Santhera.

Even if Santhera is able to obtain marketing approval for Catena®, its ability to produce revenue will continue to depend for a considerable time upon its ability to grow sales of the product, which will depend on, among other things, Santhera’s ability to obtain and maintain orphan drug status in the targeted indications.

If Santhera is not successful or is significantly delayed in commercializing Catena®, Santhera would be forced to rely on the further development of its other product candidate fipamezole. The successful development of fipamezole may not occur quickly enough to sustain Santhera’s financing, or could at any time be adversely effected by lack of safety, efficacy or other development failures. This could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Santhera’s product candidates must prove their efficacy and safety in rigorous clinical testing. The results of these trials are uncertain.
Before Santhera may seek to obtain regulatory approval for any potential product, it must undertake extensive clinical testing in humans to demonstrate the safety and efficacy of the product. To date, Santhera has not completed the clinical testing and development of any of its product candidates. No assurance can be given that the results from pre-clinical studies and early clinical trials predict the results to be obtained in later-stage clinical trials. Any such failure to obtain positive testing results or any material delay in obtaining such results could have a material adverse effect on Santhera's business, financial condition, results of operations and prospects.

With respect to idebenone, there is only limited safety data available for higher doses, and unexpected safety issues with higher doses could prevent Santhera from bringing Catena® to market or from exploiting its full commercial potential. The safety pattern of Santhera's other product candidates has not yet been sufficiently explored in clinical trials.

The failure to successfully collaborate with third parties may delay, prevent or otherwise impair the development or commercialization of Santhera’s product candidates or revenue expectations.
Santhera’s business strategy includes entering into collaborations with third parties for research, development and commercialization of its pre-clinical, clinical and marketing assets. For example, Santhera is currently collaborating with Takeda to commercialize Sovrima® for Friedreich’s Ataxia and Duchenne Muscular Dystrophy and has granted Takeda the exclusive marketing rights in Europe under the brand name for Sovrima®. The revenue to be generated from such collaborations with third parties will depend on such third parties fulfilling their obligations under the relevant collaboration agreements.

Although Santhera believes its collaborators are economically motivated to perform their obligations conflicts may arise in these collaborations due to one or more of the following:

• Disputes or breaches with respect to payments that Santhera believes are due under the applicable agreements, particularly in the current economic environment when companies, including large established ones, may be seeking to reduce external payments;
• Disagreements with respect to ownership of intellectual property rights;
• Lack of diligent execution of collaboration agreements, in particular a delay of a collaborator's development or commercialization efforts with respect to Santhera product candidates;
• Unwillingness on the part of a collaborator to keep Santhera informed regarding the progress of its development and commercialization activities, or to permit publish disclosure of these activities; or
• Termination or non-renewal of the collaboration.

Before a clinical trial may begin, Santhera must obtain approval from the competent national authority in the country where the trial is planned to be conducted. A favorable opinion from a competent ethics committee or an independent institutional review board on the clinical trial application is also needed. No assurance can be given that Santhera will obtain authorization for further testing of product candidates already in clinical trials or for human clinical testing of any or all of its other product candidates currently in research or preclinical development. Santhera or applicable regulatory authorities may suspend or terminate clinical trials at any time if it is thought that the participants are being exposed to unacceptable health risks. It may take Santhera or its collaborators several years to complete clinical testing for any particular product candidate, and failure can occur at any stage of the process.

The governmental regulation of Santhera’s development of product candidates extends beyond clinical trials to approvals required for their sale and monitoring of such products after sale. A failure to obtain regulatory approval or a delay in obtaining and maintaining these approvals could damage Santhera’s reputation and adversely affect the marketing of Santhera’s products and its ability to generate revenue and could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

In addition, regulatory approvals, if granted, may not include all uses for which Santhera may seek to market a product, thereby limiting the potential market for such product. Moreover, even after regulatory approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to continual review and periodic inspections by the relevant authorities. Consequently, any discovery of previously unknown problems with an approved product, manufacturer or manufacturing facilities may result in restrictions on the product or manufacturer, including a requirement to withdraw the product from the market. In any event, changes in existing regulations or adoption of new regulations could prevent Santhera from obtaining or maintaining, or affect the timing of, future regulatory approvals. Any such event could have a material adverse effect on Santhera's business, financial condition, results of operations and prospects.

The availability of third party reimbursement for Santhera’s products will be uncertain, and it may be difficult to obtain and/or maintain expected price levels.
Santhera’s ability to successfully commercialize its product candidates and to attract strategic partners for its product candidates or future drugs will depend in part on the price levels and the extent to which reimbursement for the costs of treatment with these product candidates will be available from government health administration authorities, private health insurers and other third party payers, as well as government health care programs.

Governments and other third party payers are increasingly attempting to contain health care costs, in part by challenging the price of medical products and services and restricting eligibility for reimbursement. Health care cost pressure could lead to pricing pressure, which could adversely affect pricing of Catena® and Santhera’s other potential products. Furthermore, idebenone, which is the active ingredient in Catena®, can be acquired from Internet pharmacies. The prices of Internet pharmacies could have an adverse impact on the prices for Santhera’s Catena® and other products that government and third parties are willing to reimburse.

Seeking third party reimbursement is a time-consuming and costly process, which requires Santhera to provide scientific and clinical support for the use of each of its products to each third party payer separately. Significant uncertainty exists as to the payment status of newly approved medical products. The unavailability or inadequacy of third party reimbursement would have an adverse effect on the price level and, consequently, the market acceptance of Santhera’s products. In addition, Santhera is unable to forecast what additional legislation or regulation relating to the health care industry or third party reimbursement may be enacted in the future, or what effect such legislation or regulation would have on its business. Any such event could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

The off-label use of currently available idebenone may adversely affect the revenue to be generated by Santhera’s Catena® franchise.
Physicians may prescribe legally available therapeutics, including idebenone and others, for uses for which they are not approved but which they view as a less expensive treatment or a better alternative. A considerable number of physicians in Europe, and to a lesser degree in the US and other countries, have already been prescribing or recommending idebenone, which is the active ingredient of Catena®, primarily to their Friedreich’s Ataxia patients on an off-label basis or under special access programs. The product is either acquired from Internet pharmacies or countries, such as Italy and Portugal, where idebenone is already approved and marketed for other indications. Santhera’s management believes that such off-label use will gradually be substituted by use of Santhera’s Catena® for the treatment of Friedreich’s Ataxia, if and when the regulatory approval and orphan drug status has been obtained, since idebenone acquired from other sources will most likely not be reimbursed by any health insurer in countries where Catena® has orphan drug status. However, there is no assurance that Catena® will obtain orphan drug status and any residual off-label use of idebenone from inexpensive sources may reduce the potential revenue from Catena®.

Santhera’s products may be unable to achieve the expected market acceptance and, consequently, limit Santhera's ability to generate revenue.
Even when product development is successful and regulatory approval has been obtained, Santhera’s ability to generate significant revenue depends on the acceptance of its products by physicians and patients. Although to a certain degree idebenone is already known for the treatment of Friedreich’s Ataxia due to preliminary registration, compassionate use programs and off-label use, Santhera cannot assure that it will achieve the expected market acceptance and revenue once it obtains the regulatory approval. The market acceptance of any product depends on a number of factors, including the continued demonstration of efficacy and safety in commercial use, cost-effectiveness, convenience and ease of administration, competition and marketing and distribution support. Any factors preventing or limiting the market acceptance of Santhera’s products could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.
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Risks Related to Santhera’s Business

Santhera relies on the expertise of key employees in its research, development, marketing and management.
The success of Santhera depends, to a significant extent, on the efforts and expertise of the top management and other key members of Santhera’s management, scientific and marketing staff. Santhera is a small Santhera with many key functions being carried out by one person only. Focused experience and know how in neuromuscular diseases and the product candidates developed by Santhera are rare. The loss of key personnel could materially adversely affect Santhera and materially delay the development of its product candidates.

Santhera has endeavored to ensure that key personnel receive suitable incentives by establishing, among other things, an employee stock option plan. However, there is intense competition for skilled personnel and the retention of such personnel or the recruitment of new highly qualified employees on acceptable terms cannot be guaranteed. The loss of key personnel or the failure to attract new highly qualified and experienced employees could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

The failure to successfully collaborate with third parties may delay, prevent or otherwise impair the development or commercialization of Santhera’s product candidates or revenue expectations.
Santhera’s business strategy includes entering into collaborations with third parties for research, development and commercialization of product candidates. For example, Santhera is currently collaborating with Takeda to commercialize Catena®/Sovrima® and has granted Takeda the exclusive marketing rights for Friedreich’s Ataxia and Duchenne Muscular Dystrophy in Europe. In addition, Santhera has outlicensed fipamezole for Dyskinesia in Parkinson’s Disease to Valeant (formerly Biovail) for further development and commercialization in North America. The revenue to be generated from product candidates subject to collaboration with third parties will depend on such third parties fulfilling their obligations under the relevant collaboration agreements.

Although Santhera believes its collaborators are economically motivated to perform their obligations, Santhera can give no assurance that its collaborators will be fully able to perform their obligations or that Santhera will be able to maintain existing or future collaborations. Santhera has only a limited ability to influence the time, expertise and amount of resources committed by any collaborator to the relevant product candidate.

To the extent that Santhera is not able to maintain or establish collaboration arrangements with respect to existing or future products or the collaborators fail to perform their obligations, Santhera would be forced to seek alternatives, which would delay the launch of the relevant product and increase Santhera’s capital requirements. Santhera’s ability to exploit the value of its product pipeline could be materially adversely affected.

The failure to develop its own sales and marketing force or enter into collaboration with third parties to market and sell its product candidates may impair Santhera’s ability to generate significant revenue.
Santhera has only started to develop its own marketing and sales capabilities and has yet to commercialize a potential therapeutic outside Canada. For the North American market, Santhera has started to build up a small sales and marketing force. For the US market, Santhera is planning to market Catena® for Friedreich’s Ataxia, Duchenne Muscular Dystrophy, LHON, Mitochondrial Encephalopathy, Lactic Acidosis, and Stroke-like Episodes (MELAS syndrome) and possibly Primary Progressive Multiple Sclerosis (PPMS) on its own.

Takeda has been granted the exclusive rights to market and sell Catena® for Friedreich’s Ataxia and Duchenne Muscular Dystrophy in Europe (under the brand name Sovrima®). Santhera’s collaboration with Takeda does not currently extend to LHON, MELAS syndrome or PPMS. Therefore, if Takeda and Santhera do not agree on a license for these indications, Santhera, in order to avoid cross-selling, may have to develop a different product for these indications or take other measures to commercialize such product.

The failure to build up its own effective marketing and sales organization, to attract and maintain established collaboration partners or to enter into favorable agreements for sales and marketing could limit revenues for Santhera. As a consequence, Santhera may have to limit the scope of its research and development (R&D) activities in other fields and thereby delay product launches and sales, which could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Santhera faces competition from other companies that have developed or will develop similar or different product candidates aimed at the same neuromuscular diseases.
Santhera is competing with pharmaceutical and other biopharmaceutical companies worldwide, as well as universities and research organizations, some of which have significantly greater financial, manufacturing, marketing and product resources than Santhera. Santhera’s competitors have developed, are developing, or will develop, future products and processes that will compete with Santhera’s potential products.

To Santhera’s knowledge, no approved treatment is currently available to treat either the cardiomyopathy or the neurological symptoms of Friedreich’s Ataxia patients. However, some potential competitors have started research in the treatment of Friedreich’s Ataxia. For example, one potential competitor, Penwest Pharmaceuticals, announced plans to start clinical proof-of-concept trials in the near future with its lead product, A0001. Considering the high unmet medical need, clinical investigators also test known drugs for their efficacy in Friedreich’s Ataxia (e.g. Deferiprone, is currently being tested by Apopharma). Several compounds and novel therapeutic concepts are in development for Duchenne Muscular Dystrophy and Dyskinesia in Parkinson’s Disease. For Duchenne Muscular Dystrophy competition by “exon-skipping” (as developed by companies like Prosensa or AvioBioPharma) is considered a likely competition long-term. While Santhera believes the competition in LHON, MELAS syndrome, PPMS, and Congenital Muscular Dystrophy is still rather limited, however this may change.

If potentially competing products reach the market earlier than Santhera’s or if existing or new competing therapeutics prove to be superior treatment alternatives, have fewer side effects, are less expensive or have achieved better market acceptance, Santhera’s potential market share, profit margin and revenue may be materially adversely affected.

Santhera has no manufacturing capabilities or manufacturing experience and is dependent on third parties for cost effective manufacture of its product candidates. Problems with third party manufacturers may delay clinical trials and commercialization of Santhera's product candidates.
The manufacturing of product candidates and drugs necessitates compliance with regulatory requirements, such as current Good Manufacturing Practices, and will be complex, time-consuming and expensive. Santhera currently does not have in-house facilities to manufacture products for clinical trials or in commercial quantities. Santhera must outsource the manufacturing of its potential products and product candidates to third party manufacturers or develop commercial-scale manufacturing capabilities in-house. For example, for the production of Catena® for use in clinical development and commercialization, Santhera has contracted with Chemo Iberica S.A. (Spain) to be its exclusive drug substance supplier, and currently relies on Siegfried Ltd (Switzerland) as its main drug product supplier.

If Santhera's key manufacturers fail to perform their obligations, the availability of suitable manufacturers with the required facilities and expertise is limited or interrupted, contractual disputes occur, other events prevent the supply of contract manufacturing services, or Santhera's supply of these components or other materials becomes otherwise limited or interrupted (e.g. loss, damage, etc.), Santhera may not be able to develop or commercialize its products and product candidates on a timely or cost-competitive basis, if at all. Any such event could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Further, failure by our third-party manufacturers to comply with applicable regulations could result in sanctions being imposed on Santhera, including fines, injunctions, civil penalties, failure of the applicable regulatory authority to grant market approval of the relevant product candidate, delays, suspension or withdrawal of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions.

Santhera is an early stage company and has only one product approved for marketing in a relatively small market. Santhera has a history of losses and expects to incur substantial losses and negative operating cash flows for the foreseeable future.
Santhera only began to develop its own product candidates in 2004, and, with the exception of Catena®, which has received marketing approval in Canada for the symptomatic treatment of Friedreich’s Ataxia under an NOC/c, has no drugs approved for commercial sale and, therefore, has not generated any significant product revenue. Accordingly, Santhera has experienced operating losses since inception, including consolidated net losses of CHF 25,9 million for the fiscal year ended December 31, 2009, CHF 44,7 million for the fiscal year ended December 31, 2008 and CHF 27,9 million for the fiscal year ended December 31, 2007. These losses have resulted principally from costs incurred in R&D of its product candidates and general and administrative expenses.

Santhera will continue to incur significant operating losses in the foreseeable future, primarily due to the costs of its clinical development programs, including preclinical development and clinical trials. Santhera’s ability to achieve profitability will depend, among other things, on successfully completing the development of its product candidates, obtaining regulatory approvals, establishing and maintaining manufacturing arrangements with third parties, building up an effective internal sales and marketing organization, establishing and maintaining sales and marketing arrangements with third parties and raising sufficient funds to finance its activities. No assurance can be given that Santhera will be able to achieve profitability or that profitability, if achieved, can be sustained.

Santhera can give no assurance that it will have sufficient funds available in the future to develop and commercialize its current or future product candidates, including potential new compounds that may be acquired or in-licensed.
The available cash position, together with the cash flow, if any, from Santhera's operations, may not be sufficient to fund Santhera’s anticipated capital expenditures and working capital requirements for the foreseeable future. Delays in clinical trials or marketing of Catena® may require Santhera to raise additional funds from external sources. In addition, Santhera is evaluating potential new in-licensing projects at various stages, which, if any should be pursued, may require additional funding. No assurance can be given that Santhera will be able to obtain sufficient funds when needed. Santhera’s ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond management’s control. If Santhera fails to obtain additional funds on acceptable terms when needed, it may have to delay, reduce or terminate Santhera’s R&D programs or the production and commercialization of products, which may adversely affect Santhera’s business, financial condition and results of operations. In addition, in order to raise additional funds when needed, Santhera’s shareholders may have to accept equity financing terms that may significantly dilute their participation.

Santhera may become exposed to costly and damaging product liability claims and may not be able to maintain sufficient product liability insurance to cover these claims.
Researching, developing and commercializing drug products entails significant product liability risk. Liability claims may arise from Santhera’s (or its collaborators’) use of products in clinical trials or the commercial sale of those products. It is always possible that a drug, even after approval, may exhibit unforeseen failures or side effects. It cannot be assured that sufficient insurance coverage will be available to Santhera at acceptable terms. If any of Santhera’s products were to fail or produce adverse side effects, substantial uninsured losses could result, which could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects. Even where product failures or side effects are not so serious as to warrant withdrawing the product from the market, they may reduce the product's competitiveness or adversely affect Santhera’s reputation, which could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Santhera may encounter difficulties in managing future growth.
Santhera will need to expand and effectively manage its organization, personnel, operations and facilities in order to successfully develop and commercialize its product candidates. Santhera will only be able to organize operations efficiently and avoid the misallocation of resources if it continues to improve its operational, financial and management controls, reporting systems and procedures as well as attract and retain sufficient numbers of qualified employees, in particular in order to develop its sales and marketing organization. Santhera may be unable to successfully implement these tasks in time and on a larger scale and, accordingly, may not achieve its development and commercialization goals. If Santhera is not able to manage growth effectively, its operational efficiency could be materially adversely affected.

Santhera’s R&D activities could be delayed or become more expensive as a result of restrictions on animal testing.
Certain laws and regulations relating to drug development require Santhera to test product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop or significantly reduce animal testing activities by pressing for additional legislation and regulation and disrupting R&D activities through protests and other means. These activities may result in more restrictive laws or regulations or may cause disruptions, which could materially delay, impede or increase the costs of Santhera’s R&D activities.

Santhera is subject to environmental, health and safety regulations.
Santhera is subject to a variety of health, safety and environmental regulations in the jurisdictions in which it operates, particularly in its R&D activities. Santhera does not currently anticipate any material capital expenditures in respect of such regulations outside the ordinary course of business, however, the risk of environmental liability is inherent in Santhera’s business and there can be no assurance that material environmental costs inside or outside the ordinary course of business will not arise in the future. Santhera’s activities involve the use of hazardous materials and Santhera cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, Santhera may be held liable for any resulting damages, which in turn could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Santhera is exposed to currency fluctuation risks and other financial risks.
Santhera sources supplies, as well as R&D, consulting and other services from, and future revenue may be derived from, several countries outside of Switzerland, particularly the US. Additionally, Takeda will make milestone and royalty payments under their collaboration agreements with Santhera, if any, in Euro (EUR). As a result, Santhera’s business and Share price will be affected by fluctuations in foreign exchange rates between the Swiss franc and other currencies, especially USD and EUR.

Further, Santhera is subject to interest rate and other capital market risks in connection with its cash management because it is currently investing a portion of available funds in capital markets in the ordinary course of business. Such investment may be negatively affected by fluctuating interest rates and fluctuation of the value of investments.

It cannot be excluded that unfavorable development in the value of the relevant currencies, the interest rates and the capital markets could have a material adverse effect on Santhera's business, financial condition, results of operations and prospects.

If Santhera’s pension fund is underfunded, Santhera and/or the employees may have to pay in additional amounts.
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Risks Related to Intellectual Property and Marketing Exclusivity Rights

The success of Santhera is dependent on its ability to obtain or maintain orphan drug designation/status and resulting marketing exclusivity for its product candidates.
It is Santhera’s strategy to develop product candidates in indications qualifying for orphan drug designation in order to obtain marketing exclusivity. Santhera may not be able to rely on patent protection for any of its product candidates. In particular, idebenone, which is the active ingredient of Catena®, cannot as such be protected by patents. Orphan drug designation confers, if and when marketing approval is obtained, orphan drug status, which is the right to exclusively market the product for the specified indication for seven years in the US and for ten years in Europe.

There is no assurance that Santhera will be able to obtain and maintain orphan drug status and marketing exclusivity for Catena® in Friedreich’s Ataxia, Duchenne Muscular Dystrophy and LHON in the US and Europe and for MELAS syndrome and PPMS in the US or obtain and maintain orphan drug designation, orphan drug status and marketing exclusivity for other product candidates.

Orphan drug designation may be obtained for the same product in the same indication by several parties and only the first such party to obtain marketing approval will receive orphan drug status and marketing exclusivity for the relevant product in the relevant indication. Consequently, if a third party would obtain orphan drug status and marketing exclusivity for any of the products in an indication targeted by Santhera, Santhera may be excluded from marketing such product in such indication during the applicable exclusivity period. Also, once granted, marketing exclusivity may be revoked or exceptions to marketing exclusivity may be granted to other applicants, if the holder of the marketing exclusivity right is unable to supply sufficient quantities of the product, if a potential product based on the same compound of a second applicant is clinically superior, as a consequence of regulatory changes or for other reasons.

Santhera’s revenues and financial and commercial prospects could be materially adversely affected if it loses orphan drug designation or does not obtain orphan drug status for its lead product Catena®, it fails to obtain and maintain orphan drug status for its other indications or product candidates, or if the commercial value of such status is materially diminished.

Santhera may be materially adversely affected by its failure to protect its intellectual property rights.
Santhera’s success depends on obtaining and maintaining patent protection and on successfully defending and enforcing its own and in-licensed rights against infringement. As the composition of matter patent for idebenone has expired, Santhera can only seek patent protection for a combination, formula, process or novel application, as in the case of Santhera’s use patent application for Duchenne Muscular Dystrophy. Patents for therapeutic formulas and processes do not prevent a third party from using, applying or manufacturing the same compound in another composition, process or application. For these reasons, Santhera cannot ensure that a third party would not be able to use idebenone in different or even in the same formulas, applications or indications, which could adversely affect Santhera’s potential market share.

Santhera’s ability to commercialize its product candidates will also depend in part on the patent positions of third parties, including those of its competitors. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No assurance can be given that any patents based on pending patent applications or any future patent applications of Santhera will be issued, that the scope of any patent protection will exclude competitors or provide competitive advantages to Santhera, that any of the patents that have been or may be issued to Santhera will be held valid if subsequently challenged or that others will not claim rights in the patents and other proprietary rights held by Santhera. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of Santhera’s products, or design around any patents that have been issued to or may be issued to Santhera.

Santhera is dependent on in-licensed patents for its lead product Catena® in Friedreich’s Ataxia.
Santhera has an exclusive license for the commercial use of idebenone for the treatment of Friedreich’s Ataxia, which was granted by the Institut National de la Santé et de la Recherche Médicale, France (INSERM) under the US patent No. 6,133,322 and Canadian patent application No. 2,272,971. INSERM could terminate the agreement if Santhera fails to achieve the agreed milestones at the relevant scheduled date or materially breaches or defaults on the performance of any of its material obligations under the license agreement. Consequently, Santhera might not be able to continue using idebenone in clinical trials and for commercial sales in Friedreich’s Ataxia in the US and Canada, which could have a material adverse effect on Santhera’s business, financial condition, results of operations and prospects.

Santhera may be materially adversely affected by its failure to protect its trade secrets and know how.
Santhera relies on trade secrets and nonpatentable know how, which it seeks to protect, in part, through confidentiality agreements with its employees, consultants, suppliers, licensees, funding partners and other contractual partners. Trade secrets are, however, difficult to protect. There can be no assurance that Santhera's confidentiality agreements will provide adequate or effective protection or that they will not be breached, that Santhera would have adequate remedies for any breach, or that its trade secrets or nonpatentable know how will not otherwise become known or be independently developed by competitors. In addition, as Santhera substantially relies on the know how of few employees, its know how and expertise will be materially adversely affected if such employees should leave Santhera.

Litigation or other proceedings in connection with third party claims of infringement of intellectual property or market exclusivity rights could have a material adverse effect on Santhera.
Santhera’s commercial success depends also on the non-infringement of third party patents and other intellectual property (IP) or market exclusivity rights. If Santhera’s technology components, devices, designs, products, processes or other subject matters, company name, trademarks or trade names are claimed under other existing patents or trademarks or are otherwise protected by third party proprietary rights, Santhera may be subject to infringement actions. The patent infringement risk is not mitigated by orphan drug designation or status, which is granted with no prejudice to IP rights. This means that the granting of orphan drug designation or status does not legitimate any possible infringements by Santhera of patents owned by third parties and that, in effect, patent protection prevails over orphan drug designation or status.

If Santhera is required to defend itself against charges of infringing a third party’s proprietary and other IP related rights, substantial costs could be incurred and significant management resources could be consumed, regardless of whether Santhera is successful. Such proceedings are typically protracted with no certainty of success, and an adverse outcome could subject Santhera to significant liabilities to third parties, force it to curtail or cease the development and sale of its products and processes, or cease to use certain trademarks or force Santhera to get licenses for the relevant technology or drugs or other IP rights from others that Santhera may not be able to obtain at a reasonable cost, if at all. Any such event could have a material adverse effect on Santhera's business, financial condition, results of operations and prospects.
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Risks Related to the Shares

Future sales or the possibility or perception of future sales of a substantial number of Shares could adversely affect the market price of the Shares.
The market price of the Shares could decline as a result of sale of a large number of Shares in the public market in the future or the perception that these sales could occur. The sales, or the possibility that these sales may occur, also might make it more difficult for Santhera to sell equity securities in the future at a time and at a price that it deems appropriate.

Further, Santhera may choose to raise additional capital depending on market conditions or strategic considerations. To the extent that additional capital is raised through the issuance of equity or other securities that are convertible into equity, the issuance of such securities could dilute Santhera’s shareholders participation.

Santhera has never paid dividends and does not anticipate paying dividends in the foreseeable future.
Santhera has never paid dividends and it currently intends to retain all available funds and future earnings, if any, to fund the development and commercialization of its product candidates or for general corporate purposes. As a result, capital appreciation, if any, will be an investor's only source of financial gain from an investment in Shares for the foreseeable future.
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