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TABLE OF CONTENTS
Index to Consolidated Financial Statements

As filed with the Securities and Exchange Commission on May 13, 2010

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

IKARIA, INC.
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		2834 (Primary Standard Industrial Classification Code Number)		20-8617785 (I.R.S. Employer Identification Number)

6 State Route 173
Clinton, NJ 08809
(908) 238-6600
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Daniel Tassé
Chairman and Chief Executive Officer
Ikaria, Inc.
6 State Route 173
Clinton, NJ 08809
(908) 238-6600
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:


Steven D. Singer, Esq. Lia Der Marderosian, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 (617) 526-6000		Matthew M. Bennett, Esq. Senior Vice President, Legal and Corporate Development Ikaria, Inc. 6 State Route 173 Clinton, NJ 08809 (908) 238-6600		Patrick O'Brien, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):


Large Accelerated Filer o		Accelerated Filer o		Non-accelerated Filer ý (Do not check if a smaller reporting company)		Smaller Reporting Company o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities To Be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(2)




Common Stock, $0.01 par value per share	$200,000,000	$14,260

(1): Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2): Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated May 13, 2010.

Shares

Common Stock

This is an initial public offering of shares of common stock of Ikaria, Inc. We are offering shares of our common stock.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $ and $ per share. We have applied to have our common stock listed on the NASDAQ Global Market under the symbol "IKAR".

See "Risk Factors" beginning on page 13 to read about factors you should consider before buying shares of our common stock.

	Price to Public	Underwriting Discounts and Commissions	Proceeds to Ikaria, Inc.

Per Share	$	$	$
Total	$	$	$

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from selling stockholders at the initial public offering price less the underwriting discount. Ikaria, Inc. will not receive any proceeds from the sale of the shares by the selling stockholders.

The underwriters expect to deliver the shares against payment in New York, New York on , 2010.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


Goldman, Sachs & Co.		Morgan Stanley
Credit Suisse		Lazard Capital Markets
Cowen and Company		Wedbush PacGrow Life Sciences

Prospectus dated , 2010.

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		Page

Prospectus Summary		1
Risk Factors		13
Special Note Regarding Forward-Looking Statements		47
Use of Proceeds		48
Dividend Policy		49
Capitalization		50
Dilution		52
Selected Consolidated Financial Data		54
Management's Discussion and Analysis of Financial Condition and Results of Operations		56
Business		80
Management		127
Executive and Director Compensation		134
Certain Relationships and Related Person Transactions		157
Principal and Selling Stockholders		168
Description of Capital Stock		173
Description of Indebtedness		177
Shares Eligible for Future Sale		179
Certain Material U.S. Federal Tax Considerations		182
Underwriting		186
Legal Matters		190
Experts		190
Where You Can Find More Information		190
Index to Consolidated Financial Statements		F-1

Through and including , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the "Risk Factors" section and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.

IKARIA, INC.

Company Overview

We are a fully-integrated biotherapeutics company focused on developing and commercializing innovative therapeutics and interventions designed to meet the significant unmet medical needs of critically ill patients. We believe that this focus, combined with our strengths in research and development, manufacturing, and sales and marketing, position us to be a leader in the critical care market.

We generated net sales of $274 million in 2009, as compared to $207 million in 2007, representing a compound annual growth rate, or CAGR, of approximately 15%. We had net income of $13 million in 2009. We generated adjusted EBITDA of $109 million in 2009, as compared to $92 million in 2007, and adjusted net income of $38 million in 2009, as compared to $22 million in 2007, representing a CAGR of approximately 9% and 31%, respectively. For reconciliations of adjusted EBITDA to net income and adjusted net income to net income, see the section entitled "—Summary Consolidated Financial Data."

Our net sales are generated from INOtherapy. INOtherapy is our all-inclusive offering of drug product, services and technologies. This includes INOMAX (nitric oxide) for inhalation, INOcal calibration gases, use of our proprietary U.S. Food and Drug Administration, or FDA, cleared drug-delivery system, distribution, emergency delivery, technical and clinical assistance, quality maintenance, on-site training and 24/7/365 customer service. We sell INOtherapy in the United States, Puerto Rico, Canada, Australia, Mexico and Japan.

INOMAX is the only treatment approved by the FDA for hypoxic respiratory failure, or HRF, associated with pulmonary hypertension in term and near-term infants, which include infants born at a gestational age of at least 34 weeks. HRF is a potentially fatal condition that occurs when lungs are unable to deliver sufficient oxygen to the body. Our customers use INOMAX, which is typically administered at the patient's bedside through a ventilator, in a variety of critical care conditions beyond its approved indication. We believe this additional use is driven by physicians' knowledge of the underlying physiologic effects of inhaled nitric oxide, the scientific literature on the use of inhaled nitric oxide and the safety of INOMAX, and the inclusion of inhaled nitric oxide in published practice guidelines for certain conditions. In a survey we conducted, customers representing 16% of our 2008 U.S. net sales reported that, in 2008, approximately 80% of their aggregate INOMAX costs related to uses other than the treatment of HRF associated with pulmonary hypertension in term and near-term infants. Since its commercialization in 2000, we believe that approximately 360,000 patients have been treated with INOMAX worldwide.

We continue to pursue clinical studies required for approval of potential additional indications of INOMAX in the critical care setting. Notably, we are conducting a Phase 3 clinical trial in support of an indication for INOMAX for prevention of bronchopulmonary dysplasia, or BPD, a respiratory condition related to lung injury in pre-term infants, and are planning additional clinical trials for use in treating acute respiratory distress syndrome, or ARDS, a common and life-threatening condition for which there are no approved treatments. We plan to continue to grow our INOtherapy business by increasing sales for the approved indication through further penetration into our existing customer base and actively adding new U.S. customers, expanding in foreign markets, gaining additional

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FDA-approved indications for INOMAX and developing next-generation technologies for our drug-delivery systems.

Our success with INOtherapy has allowed us to use cash flow from net sales to fund our research and development efforts, to make targeted product acquisitions, to grow our commercial capabilities, and to build an infrastructure that supports further growth of INOtherapy as well as our pipeline of product candidates. We have built close relationships with and gained valuable insights from critical care professionals, which help us identify potential solutions to unmet medical needs. To augment our revenue growth, leverage our existing infrastructure and further diversify our product portfolio, we intend to continue to actively pursue acquisitions and in-licensing opportunities.

Our product and product candidate pipeline is summarized in the table below.

Product / Product Candidate	Active Pharmaceutical Ingredient / Mechanism of Action	Primary Indication(s)	Status	Commercialization Rights

INOtherapy /INOMAX	Nitric oxide / pulmonary vasodilator	Hypoxic respiratory failure	Marketed	Worldwide, excluding the EU and specified other countries(1)
		Bronchopulmonary dysplasia	Phase 3
		Acute respiratory distress syndrome- chronic lung disease	Phase 3 in planning stage
LUCASSIN	Terlipressin / vasopressin receptor agonist	Hepatorenal Syndrome Type 1	Pivotal Phase 3 expected to commence in 2010	United States, Canada, Mexico and Australia
IK-5001	Sodium alginate and calcium gluconate / mechanical support of infarcted heart muscle	Cardiac remodeling and subsequent congestive heart failure following acute myocardial infarction	Pivotal Phase 2/3 expected to commence in 2011	Worldwide
IK-1001	Sodium sulfide	Conditions characterized by tissue ischemia	Clinical program in planning stage	Worldwide
IK-6001	Fibrinogen Bb15-42 / anti-inflammatory	Conditions characterized by vascular leakage	Preclinical	Worldwide

(1): AGA AB, an affiliate of Linde North America, Inc., one of our stockholders, has the exclusive right to market and sell INOMAX in the European Union and other specified countries near the European Union. We are required to offer AGA AB the exclusive right to distribute INOMAX in any country prior to retaining an exclusive third-party distributor to sell INOMAX in that country.

Critical Care Market

Critical care medicine is the multi-disciplinary healthcare specialty focused on the care of patients with acute, life-threatening illness or injury. Problems that might need critical care treatment include complications from surgery, accidents, infections and severe cardiopulmonary conditions. The Society of Critical Care Medicine, or SCCM, estimates that the total costs attributable to caring for critically ill patients exceeded $180 billion in 2006, of which we estimate over $20 billion was spent on pharmaceutical therapies. According to data from the Hospital Cost Report Information System, or HCRIS, in 2005, there were more than 3,000 hospitals in the United States with over 90,000 intensive care unit, or ICU, beds, of which we estimate that 80% are located in 1,300 of these hospitals. Based

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on data from SDI Health, we estimate that, in 2008, there were approximately 16 million admissions to critical care units in the United States.

An ICU has a different operating environment than other areas in the hospital. These units operate as separate, closed spaces within the hospital with dedicated critical care professionals. The key factors that differentiate ICUs from general hospital units include: the aggressive interventions used to support critically ill patients, a decision-making process governed by the urgent and complex needs of critically ill patients, a highly trained and specialized workforce, a restricted-access environment and a compelling pharmacoeconomic rationale for the use of effective treatments.

Our Competitive Strengths

Profitable INOtherapy Business with Significant Growth Potential—Our annual net sales have grown from 2007 to 2009 at a CAGR of approximately 15%. We have been growing INOtherapy revenues, in part, through increased market penetration for the approved indication using our established sales team. We are conducting or planning clinical trials of INOMAX for additional indications, expanding in foreign markets and developing advanced INOMAX drug-delivery systems.

Established Infrastructure and Strength in Sales and Marketing—We have an established infrastructure, including manufacturing and distribution capabilities. We have an installed base and deployable inventory of approximately 4,500 wholly-owned, proprietary drug-delivery systems and have navigated the time-consuming and complex process of establishing the compatibility of our drug-delivery systems with more than 48 models of ventilators and anesthesia devices. Under our current management, we doubled the size of our sales team and we believe we have the capability to further expand our sales and marketing infrastructure to the extent necessary to commercialize any additional products we may develop or acquire.

Sales Driven by Deep Relationships in Critical Care—INOtherapy is typically administered at the patient's bedside through a ventilator. Given our strong focus on customer satisfaction, our medical and sales professionals provide critical care professionals with clinical and technical assistance and ongoing clinical training. Our comprehensive and integrated offering provides us with meaningful access to critical care professionals and their patients.

Expertise in Critical Care and in Research and Development—We are able to identify unmet medical needs and opportunities through our extensive knowledge of the critical care market and ongoing interactions with thought leaders. We believe that our expertise in critical care and in research and development, including our emphasis on early evaluation of potential product candidates, mitigates some of the risk usually associated with new product development.

Our Strategy

Growing Our INOtherapy Business—We are seeking to grow our revenues by increasing sales of INOtherapy for the approved indication through further penetration into existing accounts and actively

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adding new customers, expanding in foreign markets, seeking approval for additional indications and improving our drug-delivery technology.

Enhancing Our INOtherapy Market Position—We are working to sustain and improve our current INOtherapy market position by focusing on customer service, developing advanced drug-delivery systems, strengthening our intellectual property and pursuing other types of exclusivity.

Pursuing Efficient and Informed Development of Product Candidates—We intend to commence a pivotal Phase 3 clinical trial of LUCASSIN in 2010 for the treatment of hepatorenal syndrome Type 1, or HRS Type 1. IK-5001 has recently completed a Phase 1/2 clinical trial in Europe, and we intend to move its development forward with a pivotal Phase 2/3 clinical trial for the prevention of cardiac remodeling following acute myocardial infarction, or AMI, which may result in congestive heart failure, or CHF.

Building Our Product Portfolio through Targeted Business Development Efforts—We intend to actively pursue acquisitions and in-licensing opportunities to augment our growth, leverage our existing infrastructure and further diversify our product and product candidate portfolios. We believe that our experience in identifying acquisition and in-licensing opportunities and consummating these transactions, industry expertise and relationships, clinical development and commercial capabilities, and available capital make us an ideal partner for such opportunities.

Focusing on Profitability While Investing to Expand Our Business—Our strong financial position allows us to invest in research and development activities and acquisition and in-licensing opportunities. We intend to continue to grow revenues and generate significant cash flow, with the goal of maintaining profitability while investing wisely in our product and product candidate pipeline.

Risk Factors

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the "Risk Factors" section of this prospectus immediately following this prospectus summary. These risks include the following:

•: We derive substantially all of our revenue from INOtherapy, and our future success will depend on continued growth and acceptance of INOtherapy.
•: The principal U.S. patents covering INOMAX under our license agreement will expire in 2013 and, upon their expiration, we may experience a decline in our revenue and our profitability.
•: A significant portion of our revenues are derived from unapproved or off-label uses of INOMAX. If we fail to comply or are found to have failed to comply with FDA and other regulations related to the promotion of INOMAX for off-label uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.
•: We recently adopted a new billing model for INOtherapy, which could negatively impact our customer relationships, result in unexpected changes in customer spending and increase fluctuation in revenues during certain quarters.
•: We may be unsuccessful in our efforts to develop and obtain regulatory approval for new products, which may significantly impair our growth and ability to remain profitable.

Our Principal Equity Investors

Our principal shareholders are New Mountain Partners II, L.P., or New Mountain Partners, Allegheny New Mountain Partners, L.P., or Allegheny New Mountain, New Mountain Affiliated Investors II, L.P., or New Mountain Affiliated, ARCH Venture Fund VI, L.P., or ARCH, Venrock Associates IV, L.P., or Venrock IV, Venrock Partners, L.P., or Venrock Partners, Venrock Entrepreneurs

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Fund IV, L.P., or Venrock Entrepreneurs, and Linde North America, Inc., an indirect wholly-owned subsidiary of Linde AG, or Linde, who we refer to collectively as the Controlling Entities.

As of April 30, 2010, the Controlling Entities collectively owned approximately 88% of our outstanding capital stock. Following the completion of this offering, these Controlling Entities will own approximately % of our outstanding capital stock (or approximately % if the underwriters exercise their option to purchase additional shares in full) and will be entitled to designate six members of our board of directors. See "Description of Capital Stock—Series C Preferred Stock."

Following completion of this offering, New Mountain Partners, Allegheny New Mountain and New Mountain Affiliated, which we refer to collectively as the New Mountain Entities, will continue to have approval rights over many corporate actions and the ability to require the current holders of our series A and series B preferred stock to sell their shares in, or vote for a sale of, our company. See "Certain Relationships and Related Person Transactions—Investor Stockholders Agreement."

In addition to being parties to the investor stockholders agreement, which includes certain voting agreements, the Controlling Entities intend to report that they hold their shares of our stock as part of a group. Upon completion of this offering, we anticipate that the Controlling Entities will continue to control a majority of our outstanding capital stock and will be able to elect a majority of our directors. As a result, we will be a "controlled company" under the rules established by The NASDAQ Global Market and will qualify for, and intend to rely on, the "controlled company" exception to the board of directors and committee composition requirements regarding independence under the rules of The NASDAQ Global Market.

Our Corporate Information

We were initially incorporated in Delaware under the name ITL Holdings, Inc. on August 18, 2006. We changed our name to Ikaria Holdings, Inc. in February 2007 and changed our name to Ikaria, Inc. in May 2010. In March 2007, we acquired INO Therapeutics LLC, or INO Therapeutics, and Ikaria Research, Inc. INO Therapeutics and Ikaria Research, Inc. are now both our wholly-owned subsidiaries. INO Therapeutics was formed in July 1998 under the name INOCO, Inc. and became INO Therapeutics LLC in November 2003. Ikaria Research, Inc., was incorporated in November 2004 and changed its name from Ikaria, Inc. to Ikaria Research, Inc. in May 2010. Our principal executive offices are located at 6 State Route 173, Clinton, NJ 08809 and our telephone number is (908) 238-6600. Our website address is www.ikaria.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

In this prospectus, unless otherwise stated or the context otherwise requires, references to "Ikaria," "we," "us," "our" and similar references refer to Ikaria, Inc. and its subsidiaries on a consolidated basis. Ikaria®, the Ikaria logo, INOMAX®, INOtherapy®, INOcal®, INOflo®, and INOvent® are our registered trademarks. INOpulse^TM and INOmeter^TM are our trademarks. LUCASSIN® and the other trademarks and trade names appearing in this prospectus are the property of their respective owners.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. This prospectus also includes data based on our own internal estimates. While we believe that our internal company research is reliable and that our internal estimates are reasonable, no independent source has verified such research or estimates.

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THE OFFERING


Common stock offered by us		Shares
Common stock to be outstanding after this offering		Shares
Option to purchase additional shares offered to underwriters		The underwriters have an option to purchase a maximum of additional shares from the selling stockholders named in this prospectus. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
Use of proceeds		We intend to use the net proceeds received by us in connection with this offering for the following purposes and in the following amounts:
		• approximately $ million will be used to repay a portion of our indebtedness, including any discounts and accrued interest on such indebtedness; and
		• the remainder will be used for general corporate purposes including, among other things, development of our product and product candidates, foreign expansion, and acquisition and in-licensing opportunities.
		We will not receive any proceeds from the sale of shares of common stock by the selling stockholders
Risk Factors		You should read the "Risk Factors" section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
Proposed NASDAQ Global Market symbol		"IKAR"

The number of shares of our common stock to be outstanding after this offering is based on 93,106,655 shares of our common stock outstanding as of April 30, 2010 after giving effect to the conversion of all outstanding shares of our non-voting common stock, series A convertible preferred stock, which we refer to as the series A preferred stock, and series B convertible preferred stock, which we refer to as the series B preferred stock, into common stock upon the closing of this offering and excludes:

•: 100 shares of our series C-1 non-convertible preferred stock, 100 shares of our series C-2 non-convertible preferred stock, 100 shares of our series C-3 non-convertible preferred stock, and 100 shares of our series C-4 non-convertible preferred stock, outstanding as of April 30, 2010, which we refer to collectively as our series C preferred stock;
•: 9,902,298 shares of our common stock issuable upon the exercise of stock options outstanding as of April 30, 2010 at a weighted average exercise price of $5.70 per share;
•: 796,979 shares of our common stock available for future issuance as of April 30, 2010 under our 2007 stock plan;

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•: 2,793,062 shares of our common stock available for future issuance as of April 30, 2010 under our 2010 stock plan (excluding the "evergreen" provision providing for an annual increase in the number of shares available for issuance under the plan); and
•: 60,000 shares of our common stock issuable upon the exercise of a warrant outstanding as of April 30, 2010 held by SVB Financial Group at an exercise price of $1.00 per share.

Unless otherwise indicated, all information in this prospectus assumes:

•: no exercise of the outstanding stock options or of the warrant held by SVB Financial Group;
•: no exercise by the underwriters of their option to purchase up to additional shares of our common stock from the selling stockholders;
•: the conversion of all of the outstanding shares of our non-voting common stock, series A preferred stock and series B preferred stock upon the closing of this offering; and
•: the amendment and restatement of our certificate of incorporation and by-laws upon the closing of this offering.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data should be read together with our consolidated financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

The consolidated financial data for the period from January 1, 2007 through March 27, 2007 and for the years ended December 31, 2007, 2008 and 2009 have been derived from our consolidated financial statements included elsewhere in this prospectus, which have been audited by KPMG LLP, an independent registered public accounting firm.

The unaudited pro forma net income per share data for the year ended December 31, 2009 reflects:

(i)

the conversion of all outstanding shares of our non-voting common stock and series A and series B preferred stock into shares of common stock, as if the conversions had occurred as of January 1, 2009; and

(ii)

a net increase in interest expense of approximately $7.4 million, net of tax, as if the following events had occurred as of January 1, 2009:

a): our anticipated $250.0 million term loan, which will bear interest at a rate equal to the London Interbank Offered Rate, or LIBOR, plus 5.0%, with a 2.0% LIBOR floor;
b): the incurrence of an original issue discount of $5.0 million on the new term loan, which will be amortized through maturity;
c): the incurrence of estimated deferred financing costs of $5.4 million associated with the new term loan and revolving line of credit, which will be amortized through maturity, the determination of which is based on an assumption that the lenders are a syndicate of all new investors as compared to our existing loan;
d): the extinguishment of our existing outstanding term loan, which bears interest at a rate equal to LIBOR plus 2.25%; and
e): the anticipated discontinuation of cash flow hedge accounting on our interest rate swap, resulting in the recognition of estimated changes in fair value in interest expense.

The unaudited pro forma balance sheet data at December 31, 2009 reflects the following events as if they occurred on December 31, 2009:

(i): the conversion of all outstanding shares of our non-voting common stock and series A and series B preferred stock into shares of common stock;
(ii): the reclassification of a warrant to purchase 60,000 shares of our series A preferred stock from other liabilities to stockholders' equity based on the warrant becoming exercisable for common stock upon the closing of this offering;
(iii): the proceeds from our anticipated $250.0 million term loan, less an original issue discount of $5.0 million, and the application of $175.7 million of the proceeds to extinguish our existing outstanding term loan;
(iv): the capitalization of $5.4 million in estimated financing costs paid in connection with the new term loan and revolving line of credit, the determination of which is based on an assumption that the lenders are a syndicate of all new investors as compared to our existing loan;
(v): the write-off of $2.9 million of unamortized deferred financing costs related to the extinguishment of our existing outstanding term loan and revolving line of credit;

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(vi): the reclassification of $2.0 million, net of tax, from accumulated other comprehensive loss to accumulated deficit due to the anticipated discontinuation of cash flow hedge accounting on our interest rate swap; and
(vii): the payment of a planned cash dividend on our capital stock in the aggregate amount of $130.0 million.

The unaudited pro forma balance sheet data, as adjusted, further reflects the issuance and sale of shares of our common stock in this offering at an initial public offering price of $ per share, the midpoint of the range of the estimated initial public offering price between $ and $ as set forth on the cover page of this prospectus, our receipt of the net proceeds from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of $ of such net proceeds to repay a portion of our indebtedness.

From January 1, 2007 through March 27, 2007, Ikaria did not conduct any commercial operations. On March 28, 2007, we closed a private offering of our series B preferred stock, which resulted in proceeds of approximately $280 million, and secured $235.0 million in financing from a term loan. With the proceeds from the private placement and term loan and the issuance of stock, options and a warrant, we acquired the sole membership interest of INO Therapeutics and all of the outstanding equity of Ikaria Research, Inc. on March 28, 2007, referred to herein as the "Transaction."

We use the term Predecessor in this prospectus to refer to INO Therapeutics prior to March 28, 2007 and the term Successor to refer to Ikaria, Inc. and its consolidated subsidiaries. Our combined results of operations for the year ended December 31, 2007 represent the addition of the Predecessor period from January 1, 2007 through March 27, 2007 and the Successor period from January 1, 2007 through December 31, 2007. This combination is not presented in accordance with generally accepted accounting principles in the United States, or GAAP, or with the rules for pro forma presentation, but is presented because we believe it provides the most meaningful comparison of our results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" for a discussion of the presentation of our results for the year ended December 31, 2007 on a combined basis.

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			Predecessor			Successor			Combined			Successor			Successor
			January 1, 2007 to March 27, 2007			Year Ended December 31, 2007(1)			Year Ended December 31, 2007			Year Ended December 31, 2008			Year Ended December 31, 2009
			(Amounts in thousands, except per share amounts)
Consolidated Statements of Operations Data:
Revenues:
	Net sales		$	48,270		$	158,479		$	206,749		$	236,731		$	274,342
	Other revenue			—			2,450			2,450			63			250

		Total revenues		48,270			160,929			209,199			236,794			274,592
Operating costs and expenses:
	Cost of sales			10,566			102,753			113,319			51,572			52,380
	Selling, general and administrative			8,498			33,507			42,005			61,844			83,879
	Research and development			8,763			35,202			43,965			68,538			75,421
	Acquisition-related in-process research and development			—			271,637			271,637			—			—
	Amortization of acquired intangibles			—			22,187			22,187			30,452			30,720
	Other expenses (income), net			(57	)		(66	)		(123	)		356			(410	)

		Total operating expenses		27,770			465,220			492,990			212,762			241,990
Income (loss) from operations				20,500			(304,291	)		(283,791	)		24,032			32,602
Interest (expense) income, net:
	Interest income			63			187			250			229			385
	Interest expense			—			(14,725	)		(14,725	)		(13,378	)		(9,248	)

		Interest (expense) income, net		63			(14,538	)		(14,475	)		(13,149	)		(8,863	)
Income (loss) before income taxes				20,563			(318,829	)		(298,266	)		10,883			23,739
Income tax (expense) benefit				(8,517	)		109,105			100,588			(1,288	)		(10,760	)

		Net income (loss)	$	12,046		$	(209,724	)	$	(197,678	)	$	9,595		$	12,979

Net income (loss) per common share, basic and diluted						$	(65.28	)				$	0.10		$	0.14
Unaudited pro forma net income per common share, basic and diluted															$	0.06	(2)
Other Operating Data (Unaudited):
Adjusted EBITDA(3)									$	91,753		$	90,677		$	109,171
Adjusted net income(3)									$	22,219		$	30,951		$	38,181

(1): Although the consolidated statement of operations for the Successor is presented for the year ended December 31, 2007, it was not commercially active prior to the acquisition date of March 28, 2007.
(2): In determining our unaudited pro forma net income per share, we utilized a blended statutory tax rate of 40%. A ¹/8% variance in interest rates could impact interest expense by approximately $0.3 million. The unaudited pro forma net income per share excludes the impact of the following estimated non-recurring expenses related to the extinguishment of our existing outstanding term loan: (a) the reclassification of $2.5 million, net of tax, from accumulated other comprehensive loss to interest expense due to the discontinuation of cash flow hedge accounting on our interest rate swap and (b) expenses related to the write-off of $2.3 million, net of tax, of unamortized deferred financing costs.
(3): Adjusted EBITDA and adjusted net income are presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP. EBITDA is defined as net income (loss) before interest expense (income), net, expense (benefit) for income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to exclude the expenses in the table below. Adjusted net income is net income (loss) adjusted to exclude the expenses in the table below.

Adjusted EBITDA and adjusted net income are included in this prospectus because they are key metrics used by management to assess our operating performance, and we believe they allow for a greater understanding

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of, and transparency into, the means by which management operates our company. In addition, we believe these measures enhance comparability of our results period-to-period and with peer companies. EBITDA, adjusted EBITDA and adjusted net income are not measures of our financial performance or liquidity under GAAP and should not be considered as alternatives to net income as a measure of operating performance, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. EBITDA and adjusted EBITDA do not consider certain cash requirements such as interest payments, tax payments, and cash costs to replace assets being depreciated and amortized. Adjusted net income does not consider certain cash costs to replace assets being amortized. Additionally, adjusted EBITDA and adjusted net income contain certain other limitations as they exclude certain costs that may recur in the future. Management compensates for these limitations by relying on GAAP results in conjunction with adjusted EBITDA and adjusted net income. These metrics have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our measures of adjusted EBITDA and adjusted net income are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

	Combined			Successor		Successor

	Year ended December 31, 2007			Year ended December 31, 2008		Year ended December 31, 2009
	(Amounts in thousands)
Net income (loss)	$	(197,678	)	$	9,595	$	12,979
Expense (benefit) for income taxes		(100,588	)		1,288		10,760
Interest expense, net		14,475			13,149		8,863
Depreciation		9,048			10,526		10,316
Amortization of acquired intangibles		22,187			30,452		30,720

EBITDA		(252,556	)		65,010		73,638
Acquisition-related inventory step-up(a)		69,600			—		—
Acquisition-related in-process research and development(b)		271,637			—		—
Licensing upfront and milestone expenses(c)		—			20,527		24,250
Non-cash share-based compensation(d)		2,012			3,621		11,283
Severance and sign-on bonuses for executive management		1,060			1,519		—

Adjusted EBITDA	$	91,753		$	90,677	$	109,171

Net income (loss)	$	(197,678	)	$	9,595	$	12,979
Amortization of acquired intangibles, net of tax		13,312			18,271		18,432
Acquisition-related inventory step-up, net of tax(a)		41,760			—		—
Acquisition-related in-process research and development, net of tax(b)		162,982			—		—
Non-cash share-based compensation, net of tax(d)		1,207			2,173		6,770
Severance and sign-on bonuses for executive management, net of tax		636			912		—

Adjusted net income(e)	$	22,219		$	30,951	$	38,181

(a): Reflects a non-cash cost of goods sold charge associated with the step-up in the fair value of inventory recognized in connection with the acquisition of INO Therapeutics.
(b): Reflects a non-cash charge to acquisition-related in-process research and development associated with the allocation of the purchase price of INO Therapeutics and Ikaria Research, Inc., which was expensed immediately upon acquisition.
(c): In 2008, the expenses reflect $18.2 million in upfront and start-up manufacturing expenses for in-licensing LUCASSIN and $2.4 million for the purchase of patents and trademarks of INOvent technology, which we expensed since technological feasibility had not yet been established for the

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application at the time of acquisition. In 2009, the expenses relate to $17.0 million in upfront and milestone payments for in-licensing IK-5001, $5.3 million in upfront payments for in-licensing IK-6001, and $2.0 million for an ongoing collaborative arrangement.

(d): Reflects non-cash expense related to stock options.
(e): In determining our adjusted net income for the periods presented, we applied a blended statutory tax rate of 40% to the expenses in the table.

	As of December 31, 2009

	Actual			Pro Forma			Pro Forma, as Adjusted(1)
				(Unaudited)			(Unaudited)
	(Amounts in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	95,226		$	29,080		$
Working capital		115,342			39,652
Other assets		2,933			5,486
Total assets		468,205			404,612
Long-term debt, including current portion		175,721			245,000
Warrant liability		454			—
Redeemable preferred stock		388,930			1
Accumulated deficit		(187,150	)		(190,915	)
Accumulated other comprehensive income (loss)		(1,899	)		143
Total stockholders' equity (deficit)		(156,207	)		101,453

(1): A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially. In this event, the trading price of our common stock could decline and you might lose all or part of your investment.

Risks Relating to Our INOtherapy Business

We derive substantially all of our revenue from INOtherapy, and our future success will depend on continued growth and acceptance of INOtherapy.

Substantially all of our total consolidated net revenues have been derived from sales of INOtherapy, including for the years ended December 31, 2007, 2008 and 2009. Our near-term prospects, including our ability to finance our company, develop our product candidates and make acquisitions of additional products and product candidates, will depend heavily on the continued successful commercialization of INOtherapy.

We cannot be certain that INOMAX, the FDA-approved drug component of INOtherapy, will continue to be accepted in its current markets and for the treatment of the indication for which it is currently approved. Specifically, the following factors, among others, could affect the level of market acceptance of this product:

•: a change in perception of the critical care community of the safety and efficacy of INOMAX, both in an absolute sense and relative to that of competing products;
•: a negative development in a clinical trial of INOMAX;
•: the level and effectiveness of our sales and marketing efforts;
•: any unfavorable publicity regarding INOtherapy;
•: the introduction of new competitive products;
•: the initiation or threat of litigation or governmental inquiries or investigations by federal or state agencies relating to our conduct or to INOtherapy, including off-label use of INOMAX;
•: the price of INOtherapy relative to competing therapeutics or interventions;
•: any changes in government and other third-party payor reimbursement policies and practices;
•: regulatory developments affecting the manufacture, marketing or use of INOMAX, including changes to the label or changes with respect to the use of products for unapproved uses;
•: loss of our ability to obtain materials or products from third parties;
•: loss of key personnel; and
•: inability or delays in completing clinical trials of INOMAX for new indications.

Any adverse developments with respect to the sale or use of INOtherapy could significantly reduce our revenues and have a material adverse effect on our ability to generate net income and positive cash flow from operations and to achieve our business plan.

The principal U.S. patents covering INOMAX under our license agreement will expire in 2013 and, upon their expiration, we may experience a decline in our revenue and our profitability.

We depend in part upon patents to provide us with exclusive marketing rights for our product for some period of time. Upon expiration of these patents, others could introduce competitive products using the same compound and/or technology as our product. Loss of patent protection for our product

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may lead to a rapid loss of sales for INOMAX, as lower priced versions of that product become available. The principal issued patents covering INOMAX will expire in 2013 and, upon expiration, others may commercialize competitive nitric oxide therapies. As a result of the introduction of such therapies, we might be forced to reduce our prices to maintain sales of INOtherapy and/or we may quickly lose a substantial portion of our INOtherapy sales, either of which would negatively impact our revenues and profitability.

We currently market INOMAX for only one indication. We will not be permitted to market INOMAX for any other indication unless we receive FDA approval for any such indication. If we do not receive approval to market INOMAX for additional uses, our ability to grow revenues and achieve our business plan may be materially adversely affected.

We do not have any product approved for marketing and sale other than INOMAX, which is approved for sale in the United States only for the treatment of HRF associated with pulmonary hypertension in term and near-term infants. One of our key objectives is to expand the indications for which INOMAX is approved by the FDA, including for the prevention of BPD in pre-term infants and the treatment of ARDS. In order to market INOMAX for these and any other indications, we will need to conduct appropriate clinical trials, obtain positive results from those trials and obtain regulatory approval for such proposed indications. Obtaining regulatory approval is uncertain, time consuming and expensive. Even well-conducted studies of effective drugs will sometimes appear to be negative. The regulatory review and approval process to obtain marketing approval for a new indication can take many years, often requires multiple clinical trials and requires the expenditure of substantial resources. This process can vary substantially based on the type, complexity, novelty and indication of the product candidate involved. The FDA and other regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that any data submitted is insufficient for approval and require additional studies or clinical trials. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a new indication for a product candidate. For example, in a trial we conducted to test the effectiveness of INOMAX in preventing BPD, we did not meet the primary endpoint due to the trial design we used. If we do not receive approval to market INOMAX for additional indications, our ability to grow revenues and achieve our business plan may be materially adversely affected.

A significant portion of our revenues are derived from unapproved or off-label uses of INOMAX. If we fail to comply or are found to have failed to comply with FDA and other regulations related to the promotion of INOMAX for off-label uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.

The FDA and other foreign regulatory authorities approve drugs and medical devices for the treatment of specific indications, and products may only be promoted or marketed for the indications for which they have been approved. However, the FDA does not attempt to regulate physicians' use of approved products, and physicians are free to prescribe most approved products for purposes outside the indication for which they have been approved. This practice is sometimes referred to as "off-label" use. While physicians are free to prescribe approved products for off-label uses, it is unlawful for drug and device manufacturers to market or promote a product for an off-label use. INOMAX is currently approved, and therefore we are permitted to market it in the United States, for only one use, the treatment of term and near-term infants with HRF associated with pulmonary hypertension.

In a survey we conducted, customers representing 16% of our 2008 U.S. net sales reported that, in 2008, approximately 80% of their aggregate INOMAX costs related to uses other than the treatment of HRF associated with pulmonary hypertension in term and near-term infants. Based on the information collected in this survey, we believe that sales of INOMAX for unapproved uses relate (i) primarily to cardiac surgery and other conditions for which we are not currently planning to seek FDA approval, and (ii) to ARDS, and to a lesser extent BPD, conditions for which we are currently seeking FDA

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approval. We have no control over physicians' use of INOMAX for unapproved uses, we are not permitted to promote or market our product for unapproved uses and we cannot assure you that physicians will continue to prescribe INOMAX for unapproved uses at the same rate, or at all.

The regulations relating to off-label promotion are complex and subject to substantial interpretation by the FDA and other government agencies. Promotion of a product for off-label use is prohibited, however, certain activities that we and others in the pharmaceutical industry engage in are permitted by the FDA. For example, we provide medical information in response to, and otherwise address, unsolicited customer questions regarding, off-label uses of INOMAX. Following the Transaction, our management team put in place compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations. Notwithstanding these programs, the FDA or other government agencies may allege or find that our current or prior practices constitute prohibited promotion of INOMAX for off-label uses. We also cannot be sure that our employees will comply with company policies and applicable regulations regarding off-label promotion. In addition, we cannot be certain that the activities of our predecessor prior to the Transaction were in compliance with these regulations.

Over the past several years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with off-label promotion and other sales practices, including the Department of Justice and various U.S. Attorney's Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with off-label promotion of products, pricing and Medicare and/or Medicaid reimbursement. Many of these investigations originate as "qui tam" actions under the False Claims Act. Under the False Claims Act, any individual can bring a claim on behalf of the government alleging that a person or entity has presented a false claim, or caused a false claim to be submitted, to the government for payment. The person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as "whistleblower suits," are often brought by current or former employees. In a qui tam suit, the government must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone. From time to time, employees and former employees of ours have alleged that certain of our practices were not in compliance with applicable law. In each such case, we have reviewed the allegations and concluded they were without merit. However, because qui tam suits are filed under seal, it is possible that we are the subject of qui tam actions of which we are unaware.

If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to off-label promotion in connection with past or future activities, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.

Any inquiry or investigation into our promotion practices, even if resolved in our favor, would be costly and could divert the attention of our management, damage our reputation and have an adverse effect on our business.

Because of the broad scope and complexity of these laws and regulations, the high degree of prosecutorial resources and attention being devoted to the sales practices of pharmaceutical companies by law enforcement authorities, and the risk of potential exclusion from federal government

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reimbursement programs, numerous companies have determined that it is highly advisable that they enter into settlement agreements in these matters, particularly those brought by federal authorities. Companies that have chosen to settle these alleged violations have typically paid multi-million dollar fines to the government and agreed to abide by consent decrees or corporate integrity agreements.

Any inquiry or investigation into our promotion practices, whether in the United States or by a foreign regulatory authority, even if resolved in our favor, would be costly and could divert the attention of our management, damage our reputation and have an adverse effect on our business.

We are the sole manufacturer of INOMAX and we only have one FDA inspected manufacturing facility. Our inability to continue manufacturing adequate supplies of INOMAX could result in a disruption in the supply of INOMAX to our customers.

We are the sole manufacturer of INOMAX. We develop and manufacture INOMAX at our facility in Port Allen, Louisiana, which is the only FDA inspected site for manufacturing pharmaceutical-grade nitric oxide, or NO, in the world. Our Port Allen facility is subject to the risks of a natural disaster or other business disruption. Accordingly, we have implemented business continuity measures to mitigate the risk of interruption in the supply of INOMAX, including establishing a backup production facility in Coppell, Texas, which is not yet FDA inspected. The Coppell facility, which is capable of producing INOMAX from our supply of a concentrated pre-mix, which we manufacture at our Port Allen facility, would only be capable of serving as a backup facility for as long as our supply of concentrated pre-mix lasts, which we currently estimate to be about one year. There can be no assurance that we would be able to meet our requirements for INOMAX if there were a catastrophic event or failure of our current manufacturing system. If we are required to change or add a new manufacturer or supplier, the process would likely require prior FDA and/or equivalent foreign regulatory authority approval, and would be very time consuming. In addition, because the manufacture of a pharmaceutical gas requires specialized equipment and expertise, there are few, if any, third-party manufacturers to whom we could contract this work in a short period of time. An inability to continue manufacturing adequate supplies of INOMAX at our facility in Port Allen, Louisiana and, once inspected by the FDA, our back-up facility in Coppell Texas, could result in a disruption in the supply of INOMAX to our customers.

We rely on other manufacturers for components of our drug-delivery systems and INOcal. If we experience problems or delays with these supplies, our ability to provide our customers with INOtherapy would be adversely affected.

For our drug-delivery systems, there are several components that are custom designed for our systems. We are typically dependent on a single company to supply us with these components. There is a risk that a single-source supplier could fail to deliver adequate supply, or could suffer a business interruption that could affect our supply of these components. Further, a supplier could choose to modify the design which would require focused attention and time from our engineers. Calibration gases, known as INOcal, are used to calibrate the NO and nitrogen dioxide sensors that are installed in our drug-delivery systems. We currently source all of our INOcal from a single supplier through a multi-year contractual agreement that expires in September 2011. There is a risk that this single source could experience a supply interruption which would affect our supply of INOcal. Also, if the relationship with this supplier were damaged in any way, or if we are unable to negotiate an extension of our agreement with this supplier or otherwise secure supply beyond September 2011, there could be a subsequent impact on the supply of INOtherapy to our customers. If we experience problems or delays with our supply of components for our drug-delivery systems or INOcal, our ability to provide our customers with INOtherapy would be adversely affected.

We obtain some of the components for our drug-delivery systems through individual purchase orders executed on an as needed basis rather than pursuant to long-term supply agreements. Our business, financial condition or results of operations could be adversely affected if any of our principal

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third-party suppliers or manufacturers experience production problems, lack of capacity or transportation disruptions or otherwise cease producing such components.

We exclusively license patents covering INOMAX from MGH. If MGH terminates the license or fails to maintain or enforce the underlying patents, our competitive position and market share would be harmed.

We hold an exclusive license from The General Hospital Corporation, which does business as Massachusetts General Hospital, or MGH, for the two principal patents covering various aspects of INOMAX that expire in 2013. MGH may fail to maintain the INOMAX patents, may decide not to pursue litigation against third-party infringers, may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability. MGH has the right to terminate its license agreement with us for an uncured material breach by us. In spite of our best efforts, MGH might conclude that we materially breached our license agreement and might therefore terminate the license agreement, thereby removing our ability to market INOMAX. If this license is terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products similar to ours. This could have a material adverse effect on our competitive business position and our business prospects.

Our future growth depends, in part, on our ability to penetrate foreign markets, where we are subject to additional regulatory burdens and other risks and uncertainties. However, we have limited experience marketing and servicing our products outside North America.

Our future profitability will depend, in part, on our ability to grow and ultimately maintain our sales in foreign markets. However, we have limited experience in marketing, servicing, and distributing our products in countries other than the United States and Canada and rely on third parties to support our foreign operations. Our foreign operations and any foreign operations we establish in the future subject us to additional risks and uncertainties, including:

•: our customers' ability to obtain reimbursement for procedures using our products in foreign markets;
•: our inability to directly control commercial activities because we are relying on third parties who may not put the same priority on our products as we would;
•: the burden of complying with complex and changing foreign regulatory, tax, accounting, and legal requirements;
•: import or export licensing requirements;
•: longer accounts receivable collection times;
•: longer lead times for shipping;
•: language barriers for technical training;
•: reduced protection of intellectual property rights in some foreign countries;
•: foreign currency exchange rate fluctuations; and
•: the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions, changes in tariffs, and difficulties in staffing and managing foreign operations.

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Other companies may develop competitive products that could negatively affect our INOtherapy sales.

Our ability to compete successfully depends on our ability to introduce new technologies and services related to INOtherapy. As a result, we must make significant investments in research and development, manufacturing and sales and marketing. If we are unable to continue to develop and sell innovative new products with attractive margins or if other companies infringe on our intellectual property, our ability to maintain a competitive advantage could be negatively affected and our financial condition and operating results could be materially adversely affected. Our financial condition and operating results depend substantially on our ability to continually improve INOtherapy to maintain therapeutic and functional advantages. Unauthorized use of INOMAX on other companies' delivery devices may result in decreased demand for INOtherapy, and could materially adversely affect our financial condition and operating results. There can be no assurance that we will be able to continue to provide products and services that compete effectively.

INOMAX is one of many adjunctive therapies physicians prescribe for HRF, BPD, ARDS and pulmonary hypertension following cardiac surgery. For example, physicians use other drugs, such as Flolan, Ventavis, Primacor and Revatio, to treat acute pulmonary hypertension. In addition, we are aware that neonatologists, surgeons and other physicians have and may continue to experiment with these drugs, including Revatio, which recently became available in intravenous, or IV form, to treat these conditions. The use of these drugs could reduce the use of INOtherapy, particularly if physicians perceive them as being less expensive, more effective, safer or easier to use than INOtherapy. In addition, companies, such as GeNO, LLC and GeNOsys Inc., are in the early stages of developing small, mobile devices that aim to manufacture NO at the location of delivery. Air Liquide Healthcare America Corporation, or Air Liquide, currently manufactures and sells an NO mixture in a pressurized canister in the European Union. If any other therapy proves to treat any of these conditions more effectively, less expensively, more safely, or is more easily used than INOtherapy and/or is approved for sale, our business would be adversely affected.

We recently adopted a new billing model for INOtherapy, which could negatively impact our customer relationships, result in unexpected changes in customer spending and increase fluctuation in revenues during certain quarters.

In 2010, we implemented a new tier-based billing model. Under the new billing model, customers can select from a range of options. These options include: (1) one option which offers unlimited access to INOtherapy for a fixed fee, (2) three capped tier options offering increasing allocations of hours of INOMAX, and (3) a price per hour model. We determined fees and hourly usage allocations for each customer based on historical usage. In addition, we utilize a standard six-month introductory package for new customers and, for very low volume customers, we have a standard package designed to accommodate occasional use. Customers who did not sign a new billing model contract by April 1, 2010 defaulted to the price per hour model. Under the capped tier options, if hourly usage exceeds the cap during the contract period, the customer pays an hourly fee to cover the excess usage for the remainder of the contract. For the top two capped tiers, if the customer's usage is below a specified level following the eighth month of the contract, the customer typically has the option to move down one level to a lower tier. In this case, the customer will be billed an adjusted monthly fee for the remainder of the contract such that the total cost of the INOtherapy service agreement will be equal to the cost of the lower tier. As a result, we will recognize revenue for these customers as if they were contracted at the lower tier and defer the incremental revenue until the earliest to occur of (i) the customer's hours exceeding the set cap for the lower tier and, therefore, the ability to move down one tier is eliminated, (ii) the customer electing to stay at the initially selected tier, or (iii) the expiration of the time period for which the customer can move to a lower tier in the tenth month of the contract term.

The new model may not adequately address customer requests for a more streamlined billing process and increased predictability in the amounts they spend on INOtherapy annually or it may raise

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new concerns that negatively impact our customer relationships. In addition, the new billing model could result in unexpected changes in customer spending, including the reduction of their use of our product. We may not know until 2011 or later, when customers begin renewing their contracts, what impact, if any, the new billing model will have on our future revenues. Furthermore, the timing of deferred revenue recognition under the new billing model may cause significant fluctuations in our revenue and operating results from quarter to quarter.

Risks Related to Government Regulation

The design, development, manufacture, supply, and distribution of our products are highly regulated and technically complex.

The design, development, manufacture, supply, and distribution of pharmaceutical products and medical devices, both inside and outside the United States, are technically complex and highly regulated. We, along with our third-party providers, must comply with all applicable regulatory requirements of the FDA and foreign authorities. In addition, the facilities used to manufacture, store, and distribute our products are subject to inspection by regulatory authorities at any time to determine compliance with applicable regulations.

The manufacturing techniques and facilities used for the manufacture and supply of our products must be operated in conformity with current Good Manufacturing Practices, or cGMP, regulations promulgated by the FDA. In complying with cGMP requirements, we, along with our suppliers, must continually expend time, money and effort in production, record keeping, and quality assurance and control to ensure that our products meet applicable specifications and other requirements for safety, efficacy and quality. In addition, we, along with our suppliers, are subject to unannounced inspections by the FDA and other regulatory authorities.

Any failure to comply with regulatory and other legal requirements applicable to the manufacture, supply and distribution of our products could lead to remedial action (such as recalls), civil and criminal penalties and delays in manufacture, supply and distribution of our products. In addition, we may from time to time be forced to delay the launch of new products or carry out voluntary recalls to address unforeseen design difficulties or defects.

We must comply with federal, state and foreign laws and regulations relating to the healthcare business, and, if we do not fully comply with such laws and regulations, we could face substantial penalties and other negative impacts on our business.

We and our suppliers and customers are subject to extensive regulation by the federal government, and the governments of the states and foreign countries in which we may conduct our business. In the United States, the laws that directly or indirectly affect our ability to operate our business include the following:

•: the Federal Food, Drug and Cosmetics Act, which regulates manufacturing, labeling, marketing, distribution and sale of prescriptions drugs and medical devices;
•: the Prescription Drug User Fee Act, which governs the filing of applications for marketing approval of prescription drug products;
•: the Food and Drug Administration Amendment Act of 2008;
•: the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;
•: the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with delivery of or payment for healthcare benefits, items or services;

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•: the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
•: other Medicare and Medicaid laws and regulations that establish the requirements for coverage and payment of, among other things, prescription drugs, including the amount of such payment;
•: the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program, including private payors, and Health Information Technology for Economic and Clinical Health, or HITECH, Act, both of which require us to comply with standards regarding privacy and security of individually identifiable health information and conduct certain electronic transactions using standardized code sets;
•: the Deficit Reduction Act of 2005;
•: the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or the PPACA;
•: state and foreign law equivalents of the foregoing; and
•: state food and drug laws, pharmacy acts and state pharmacy board regulations, which govern the sale, use, distribution and prescribing of prescription drugs.

Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim. Typically, each fraudulent bill submitted by a provider is considered a separate false claim, and thus the penalties under a false claim case may be substantial. Liability arises when an entity knowingly submits, or causes to be submitted, a false claim for reimbursement to the federal government. In some cases, whistleblowers or the federal government have taken the position that companies that (i) allegedly have violated other laws, such as the prohibition of off-label promotion or the anti-kickback laws, and (ii) have submitted or caused to be submitted claims to a governmental payor during the time period in which they allegedly violated these other laws, have thereby also violated the False Claims Act.

The federal Anti-Kickback Statute is broad and prohibits many arrangements that may be lawful in other businesses outside the healthcare industry. Recognizing that the statute may technically prohibit innocuous and beneficial arrangements, Congress authorized the creation of several "safe harbors" that exempt certain practices from enforcement under the Anti-Kickback Statute. We seek to comply with such safe harbors wherever possible. However, safe harbor protection is only available for transactions that satisfy all of the applicable narrowly defined safe harbor provisions. Therefore, we may from time to time enter into arrangements that may not be afforded safe harbor protection. For example, like many healthcare companies, we have endowed professorships and fellowships at major academic medical centers to advance critical care research and enhance our corporate image. Arrangements that do not fall within a safe harbor may face increased scrutiny. While we believe we have structured our business and arrangements to comply with the federal Anti-Kickback Statute and similar state laws, it is possible that government authorities could determine that we have not.

If our operations are found to be in violation of any of the laws and regulations described above or any other law or governmental regulation to which we or our customers are or will be subject, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Similarly, if our customers are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. Any

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action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and damage our reputation.

Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing products abroad.

In addition to our foreign marketing efforts with respect to INOMAX, we may in the future seek to market some of our other products or product candidates outside the United States. In order to market our product candidates in other jurisdictions, we must submit clinical data concerning our product candidates and obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval from foreign regulators may be longer than the time required to obtain FDA approval. The regulatory approval process outside the United States may include all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product candidate be approved for reimbursement before it can be approved for sale in that country. In some cases, this may include approval of the price we intend to charge for our product, if approved.

We may not obtain approvals from regulatory authorities outside the United States on a timely basis, or at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA, but a failure or delay in obtaining regulatory approval in one country may negatively affect the regulatory process in other countries. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize any products in any market and therefore may not be able to generate sufficient revenues to support our business.

If we fail to comply with the extensive regulatory requirements to which we and our products are subject, our products could be subject to restrictions or withdrawal from the market and we could be subject to penalties.

The testing, manufacturing, labeling, safety, advertising, promotion, storage, sales, distribution, export and marketing, among other things, of our products, both before and after approval, are subject to extensive regulation by governmental authorities in the United States, Canada and elsewhere throughout the world. Both before and after approval of a product, quality control and manufacturing procedures must conform to cGMP. Regulatory authorities, including the FDA, periodically inspect manufacturing facilities to assess compliance with cGMP. Our failure or the failure of our contract manufacturers to comply with the laws administered by the FDA or other governmental authorities could result in, among other things, any of the following:

•: delay in approving or refusal to approve a product;
•: product recall or seizure;
•: suspension or withdrawal of an approved product from the market;
•: interruption of production;
•: operating restrictions;
•: warning letters;
•: injunctions;
•: fines and other monetary penalties;
•: criminal prosecutions; and
•: unanticipated expenditures.

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We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.

Certain aspects of our business are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, distribution, storage, handling, treatment and disposal of materials. For example, high-pressure gas cylinders can be regarded as hazardous materials. Although we believe our safety procedures for handling and disposing of these materials and waste products comply with these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, manufacture, distribution, storage, handling, treatment or disposal of hazardous materials. In the event of contamination or injury, or failure to comply with environmental, occupational health and safety and export control laws and regulations, we could be held liable for any resulting damages and any such liability could exceed our assets and resources. We do not maintain insurance for any environmental liability or toxic tort claims that may be asserted against us.

Failure to comply with the U.S. Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the U.S. Foreign Corrupt Practices Act which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires companies to maintain accurate books and records and internal controls, including at foreign-controlled subsidiaries. We can make no assurance that our employees or other agents will not engage in prohibited conduct under our policies and procedures and the Foreign Corrupt Practices Act for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Governments may impose price controls, which may adversely affect our future profitability.

We intend to seek approval to market our future products in the United States and in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

Healthcare reform measures, if implemented, could hinder or prevent our commercial success.

There have been, and likely will continue to be, legislative and regulatory measures proposed by federal and state governments directed at broadening access to healthcare and containing or lowering the costs of healthcare. On March 23, 2010, President Obama signed into law the PPACA, a legislative overhaul of the U.S. healthcare system, which may have far reaching consequences for drug and device manufacturers like us. In particular, there are elements of this legislation that are aimed at promoting the greater use of comparative effectiveness research as well as various pilot and demonstration programs that have the potential to impact reimbursement and patient access for our product and product candidates, and which may materially impact aspects of our business. Additionally, the new legislation mandates fees on drug manufacturers totaling $2.5 billion in 2011, $2.8 billion in 2012 and 2013 and over $20 billion over the next 10 years. These taxes represent a significant increase in the tax burden on the drug and device industries and may have a material and adverse impact on our operations and cash flow.

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We cannot predict the precise terms of the initiatives that may be adopted in the future. There will be continuing efforts by government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare that may adversely affect:

•: access, utilization and demand for any drug products or devices for which we may obtain regulatory approval;
•: our ability to set a price that we believe is fair for our products, or obtain necessary coding, coverage and payment;
•: our ability to generate revenues and achieve or maintain profitability;
•: the level of taxes that we are required to pay; and
•: the availability of capital.

Risks Relating to the Development of Our Product Candidates

We may be unsuccessful in our efforts to develop and obtain regulatory approval for new products, which may significantly impair our growth and ability to remain profitable.

Our long-term prospects depend, in large part, on successful development, or acquisition or licensing, and commercialization of our product candidates, including LUCASSIN and IK-5001. Our product candidates are in various stages of development. We cannot be certain that we will be able to develop or acquire and commercially introduce new products in a timely manner or that new products, if developed, will be approved for the indications, and/or with the labeling, we expect or that they will achieve market acceptance. Before we commercialize any product candidate, we will need to develop the product candidate by completing successful clinical trials, submit a new drug application, or NDA; or supplemental NDA, or sNDA, that is accepted by the FDA and receive FDA approval to market the product candidate. If we fail to successfully develop a product candidate and/or the FDA delays or denies approval of any NDA or sNDA, then commercialization of our product candidates may be delayed or terminated, which could have a material adverse effect on our business. For example, after considering the NDA submitted by Orphan Therapeutics, LLC, or Orphan, the former owner of the NDA for our product candidate LUCASSIN, the FDA issued a complete response letter stating that the NDA did not contain sufficient data to support approval and requesting at least one additional well-controlled Phase 3 trial be conducted to supplement the existing data.

Clinical trials of product candidates are expensive and time consuming, and the results of these trials are uncertain.

Before we can obtain regulatory approvals to market any product for a particular indication, we will be required to complete preclinical studies and extensive clinical trials in humans to demonstrate the safety and efficacy of such product for such indication.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Furthermore, there are few drugs that have been approved in critical care indications. It is often difficult to design and carry out clinical trials for critical care indications for a number of reasons, including ethical concerns with conducting placebo-controlled studies in critically ill patients, the difficulty in meeting endpoints tied to mortality and the heterogeneity of underlying conditions. For the foregoing reasons, we may not be able to develop clinical trials for some of our product candidates that will be acceptable to the FDA. Success in preclinical testing or early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. An unexpected result in one or more of our clinical trials can occur at any stage of testing due to drug effect or trial design. For example, in 2008 we completed a 150 patient Phase 2 clinical trial in patients undergoing left ventricular assist device, or LVAD, insertions

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designed to determine if INOMAX reduces the incidence of right ventricular failure and shortens the time needed on mechanical ventilation. However, the trial was underpowered to meet its primary endpoint. Even well-conducted studies of effective drugs will sometimes appear to be negative. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent us from receiving regulatory approval or commercializing our products, including:

•: our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials which even if undertaken cannot ensure we will gain approval;
•: data obtained from preclinical testing and clinical trials may be subject to varying interpretations, which could result in the FDA or other regulatory authorities deciding not to approve a product in a timely fashion, or at all;
•: the cost of clinical trials may be greater than we currently anticipate;
•: if we are required to conduct overseas clinical trials, we may also be subject to financial risk based on foreign currency exchange rate fluctuations;
•: regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•: we, or the FDA or other regulatory authorities, might suspend or terminate a clinical trial at any time on various grounds, including a finding that participating patients are being exposed to unacceptable health risks; and
•: the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.

The rate of completion of clinical trials depends, in part, upon the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. In particular, the patient population targeted by some of our clinical trials may be small. Delays in patient enrollment in any of our current or future clinical trials may result in increased costs and program delays.

If serious or unanticipated side effects are identified during the development of our product candidates, we may need to abandon our development of any such product candidates.

We are unable to accurately predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. If the effects of our product candidates include undesirable side effects or have characteristics that are unexpected, we may need to abandon our development of those product candidates. In the case of INOMAX, ongoing clinical trials for new indications could uncover safety concerns that impact our existing business. In connection with granting approval for a product or after discovery of previously unknown problems, the FDA also could require us to conduct costly post-marketing testing and surveillance to monitor the safety or efficacy of the product.

If we are unable to expand our sales and marketing capabilities, the commercial opportunity for our product and product candidates may be diminished.

We plan to expand our team of sales professionals as we prepare to support continued growth of INOtherapy and, over time, the expected commercial launch of other products in development, such as LUCASSIN and IK-5001, if and when such products receive required regulatory approvals.

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We may not be able to attract, hire, train and retain qualified sales and marketing professionals to augment our existing capabilities in the manner or on the timeframe that we are currently planning. If we are not successful in our efforts to expand our sales team and marketing capabilities, our ability to independently market and sell INOtherapy and any product candidates that we successfully bring to market will be impaired. In such an event, we would likely need to establish a collaboration, co-promotion, distribution, or other similar arrangement to market and sell the product candidate. However, we might not be able to enter into such an arrangement on terms that are favorable to us, or at all.

Expanding our sales team and our marketing group will be expensive and time consuming and could delay a product launch. Similar to other companies such as ours, we will typically expand our sales and marketing capabilities for a product prior to its approval by the FDA so that the product can be commercialized upon approval. If the commercial launch of a product candidate for which we recruit additional sales professionals and expand our marketing capabilities is delayed as a result of FDA requirements or other reasons, we would incur the expense of the additional sales and marketing personnel prior to being able to realize any revenue from the sales of the product candidate. This may be costly, and our investment would be lost if we cannot retain our sales and marketing personnel. Even if we are able to effectively expand our sales team and marketing capabilities, our sales and marketing teams may not be successful in commercializing our products.

Risks Related to Our Financial Position and Capital Requirements

Failure to achieve our revenue targets or raise additional funds in the future may require us to delay, reduce the scope of, or eliminate one or more of our planned activities.

The development of INOMAX for additional indications, the development of LUCASSIN, IK-5001 and our other product candidates, as well as any acquisition and subsequent development of additional product candidates by us, will require a commitment of substantial funds. Our future funding requirements, which may be significantly greater than we expect, will depend upon many factors, including:

•: the progress, timing, and success of our research and development activities related to our clinical trials;
•: the timing of any future payments we may be required to make under our license agreements;
•: the cost and outcomes of regulatory submissions and reviews;
•: the cost of any investigation or litigation related to the promotion or marketing of INOMAX for unapproved uses;
•: the extent to which INOtherapy continues to be commercially successful;
•: the continued acceptance of our new billing model;
•: the success of sales of INOMAX in foreign markets;
•: the size, cost and effectiveness of our sales and marketing programs and efforts;
•: the status of competitive products;
•: our ability to enforce and defend our intellectual property rights;
•: our establishment of additional strategic or licensing arrangements with other companies;
•: our ability to obtain additional debt financing; and
•: our acquisition of businesses, products or product candidates.

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If our existing resources are insufficient to satisfy our liquidity requirements due to lower than anticipated sales of INOtherapy or higher than anticipated costs, if we acquire additional product candidates or businesses, or if we determine that raising additional capital would be in our interest and the interests of our stockholders, we may sell equity or debt securities or seek additional financing through other arrangements. Any sale of additional equity or debt securities may result in dilution to our stockholders, and debt financing may involve covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. We cannot be certain that public or private financing will be available in amounts or on terms acceptable to us, if at all. If we seek to raise funds through collaboration or licensing arrangements with third parties, we may be required to relinquish rights to products, product candidates or technologies that we would not otherwise relinquish or to grant licenses on terms that may not be favorable to us. If we are unable to obtain additional financing, we may be required to delay, reduce the scope of, or eliminate one or more of our planned research, development and commercialization activities, which could harm our financial condition and operating results.

Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.

As of April 30, 2010, (i) our wholly owned subsidiary, Ikaria Acquisition Inc., or Ikaria Acquisition, had, and Ikaria, Inc. guaranteed, $175.3 million in principal amount of secured term loan debt and $39.0 million borrowing availability under a revolving line of credit and (ii) we, including our subsidiaries, had $85.1 million in cash and cash equivalents. Ikaria Acquisition may borrow all or part of the amount available under this line of credit and incur additional indebtedness beyond such amount. The credit facility imposes, and the terms of any future indebtedness may impose, operating and other restrictions, including limits on Ikaria Acquisition's ability to distribute or dividend funds to Ikaria, Inc. as the parent company.

Our substantial debt or the terms of our debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:

•: limiting our ability to take various actions that could be in the interests of our stockholders, including our ability to incur additional debt, pay dividends and make distributions, make certain investments (including licensing transactions and acquisitions), merge or consolidate and sell assets;
•: requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which would reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;
•: increasing our vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
•: limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
•: placing us at a competitive disadvantage compared to our competitors that have less debt.

We are vulnerable to increases in the market rate of interest because our credit agreement debt bears interest at a variable rate, including one-, three- and six-month LIBOR loans. If the market rate of interest increases, we will have to pay additional interest on our outstanding debt, which would reduce cash available for our other business needs.

We intend to satisfy our current and future debt service obligations with cash flow from net sales, our existing cash and cash equivalents and, in the case of principal payments at maturity, funds from external sources, as needed. However, we may not have sufficient funds or may be unable to arrange

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for additional financing to pay the amounts due under our existing debt facility. Funds from external sources may not be available on acceptable terms, if at all.

Our current credit facility requires us to maintain compliance with specified financial ratios, annual limits on capital expenditures as well as other non-financial covenants. While we are currently in compliance with these covenants, we cannot assure you that we will be able to maintain compliance with the financial ratio covenants, which will be affected by certain events both within and beyond our control, or the other covenants.

A failure to comply with the covenants under our existing credit facility could result in an event of default under those instruments. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default or the occurrence of a mandatory prepayment event, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness. Because of the covenants under our existing credit facility and the pledge of our assets as collateral, we have a limited ability to obtain additional debt financing.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

As widely reported, global credit and financial markets have been experiencing extreme disruptions over the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by the recent economic downturn and volatile business environment and continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, suppliers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

At April 30, 2010, we had $85.1 million of cash and cash equivalents consisting of cash and money market deposit account balances. No assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives.

There is also a possibility that our stock price will decline following this offering, due, in part, to the volatility of the stock market and the general economic downturn.

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

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. However, actual results may differ significantly from these estimates.

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Risks Relating to Product Acquisitions and In-Licenses

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

We have a single product, INOMAX, approved for marketing in a single indication. In order to generate additional revenue, we have acquired rights to other product candidates, including LUCASSIN, IK-5001, IK-1001 and the IK-600X portfolio and intend to continue to acquire rights to and develop, additional product candidates or approved products. The success of this growth strategy depends upon our ability to identify, select and acquire therapeutics and interventions that meet the criteria we have established. We are largely dependent upon other healthcare companies and researchers to sell or license product candidates to us. We will be required to integrate any acquired products into our existing operations. Managing the development of a new product entails numerous financial and operational risks, including difficulties in attracting qualified employees to develop the product.

Prior to commercial sale, we will need to devote substantial development and research efforts to any product candidates we acquire, including extensive preclinical and/or clinical testing and regulatory correspondence, submissions and approvals. All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe or effective or approved by regulatory authorities.

In addition, we cannot assure you that any approved products that we develop or acquire will be:

•: manufactured or produced economically;
•: protected by adequate intellectual property rights;
•: successfully commercialized; or
•: widely accepted in the marketplace.

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

Our key product candidates currently in development are exclusively licensed from other companies. If the licensors terminate the licenses, or fail to maintain or enforce the underlying patents, our competitive position and market share will be harmed.

We have licensed IK-5001, IK-1001 and the IK-600X portfolio from other companies. In particular, we hold an exclusive license, in certain territories and subject to certain retained rights of the applicable licensor, from BioLineRx Ltd., or BioLine, for IK-5001, from Fred Hutchinson Cancer Research Center, or FHCRC, for IK-1001 and from Fibrex Medical, Inc., or Fibrex, for the IK-600X portfolio. We have an agreement with Orphan pursuant to which we acquired rights to LUCASSIN. In spite of our best efforts, these third parties may conclude that we materially breached our agreements and might, therefore, terminate the agreements, thereby removing our ability to obtain regulatory approval and to market products covered by these agreements. If we fail to use commercially reasonable efforts to develop, market, commercialize and sell LUCASSIN, Orphan has the right to terminate the agreement if we fail to use such efforts during the six months following notice from Orphan. Orphan also has the right to terminate the agreement after notice and a cure period. If the agreement is terminated, our exclusive rights from Orphan will terminate and Orphan will have the right to reacquire LUCASSIN from us, on pre-agreed terms. We are obligated to use commercially reasonable efforts to develop and commercialize at least one product containing IK-5001 and at least

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one product containing an IK-600X compound. Both BioLine and FHCRC have the right to terminate their license agreements with us for an uncured material breach by us, upon which our exclusive licenses for the corresponding products or product candidates will terminate. Fibrex has the right to terminate the agreement related to the IK-600X portfolio for an uncured material breach by us. If Fibrex terminates the agreement for our uncured material breach, our exclusive licenses from Fibrex will terminate and Fibrex will have the right to acquire rights to any terminated product(s) from us on terms to be negotiated under specified guidelines.

We are likely to enter into additional license agreements as part of the development of our business in the future. Our licensors may not successfully prosecute certain patent applications under which we are licensed and on which our business depends. Even if patents issue from these applications, our licensors may fail to maintain these patents, may decide not to pursue litigation against third-party infringers, may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability. If these in-licenses are terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products identical to ours. This could have a material adverse effect on our competitive business position and our business prospects.

We plan to consider, and may enter into, transactions in which we would acquire other companies or businesses, partner with other companies, or license intellectual property or product rights. Any such transaction may subject us to a number of different risks or result in us experiencing significant expenses that may adversely affect our business, results of operations, stock price and financial condition.

As part of our efforts to enter into transactions in which we would acquire other companies or businesses, partner with other companies, or license intellectual property or product rights, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction and also make estimates as to the value of the transaction. Despite our efforts, we may be unsuccessful in ascertaining or evaluating all such risks or making accurate estimates, and, as a result, we might not realize the expected advantages and benefits of the transaction. If we fail to realize the expected advantages and benefits from transactions we have consummated or may consummate in the future, whether as a result of unidentified risks, inaccurate estimates, integration difficulties, regulatory setbacks or other actions or events, our business, results of operations and financial condition could be adversely affected.

We may incur charges to earnings related to our efforts to consummate transactions.

We may incur charges to earnings related to our efforts to consummate transactions. For transactions that ultimately are not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants, consultants and other advisors in connection with our efforts. Even if our efforts are successful, we may incur as part of a transaction substantial charges for closing costs associated with the elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

We may be unable to successfully consolidate and integrate the operations of businesses, products, or rights we acquire, which may adversely affect our business, results of operations, stock price and financial condition.

We may seek to consolidate and integrate the operations of acquired businesses, products or rights with our business. Integration efforts often take a significant amount of time, place a significant strain on our managerial, operational and financial resources and could prove to be more difficult and expensive than we estimate, especially if key employees of target businesses leave with know-how that is integral to such business. The diversion of our management's attention and any delays or difficulties encountered in connection with these recent acquisitions, and any future acquisitions we may consummate, could result in the disruption of our ongoing business or inconsistencies in standards,

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controls, procedures and policies that could negatively affect our ability to maintain relationships with customers, suppliers, employees and others with whom we have business dealings.

Risks Related to Our Business and Industry

We face substantial competition, which may result in others developing or commercializing products before, or more successfully than, we do.

Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the development and commercialization of INOMAX and our other product candidates. Our objective is to design, develop and commercialize new products with superior efficacy, convenience, tolerability and safety.

There are other biopharmaceutical companies, such as Cubist Pharmaceuticals, Inc., The Medicines Company and Talecris Biotherapeutics, Inc., focused on developing therapies for the critical care market. There are also hospital product companies, such as Baxter Healthcare Corporation, that also have pharmaceutical divisions that could potentially develop products that compete with ours. It is possible that the number of companies seeking to develop products and therapies for the treatment of unmet needs in critical care will increase.

Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. We will not be able to compete effectively unless we successfully:

•: design, develop and commercialize products that are superior to other products in the market;
•: attract qualified scientific, medical, sales and marketing, engineering and commercial personnel;
•: obtain patent and/or other proprietary protection for our processes and product candidates; and
•: obtain required regulatory approvals.

The biotechnology and pharmaceutical industry is characterized by rapid technological developments and a high degree of competition. As a result, our products could become obsolete.

Our industry is highly competitive. Potential competitors in the United States and other countries include major pharmaceutical and chemical companies, medical device companies, specialized pharmaceutical companies and biotechnology firms, and universities and other research institutions. Many of our competitors have substantially greater capital resources, research and development staffs, and facilities than we have. In addition, many of our competitors also have substantially greater experience in conducting clinical trials, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products and medical devices. These entities represent significant competition for us. Competition and innovation from these or other sources, including advances in current treatment methods, could potentially affect sales of our products negatively or make our products obsolete. Furthermore, we may be at a competitive marketing disadvantage against companies that have broader product lines and whose sales personnel are able to offer more complementary products than we can. Any failure to maintain our competitive position could adversely affect our business and results of operations. In addition, as we lose patent protection or marketing exclusivity on our products over time, we will likely have to compete with generic versions of our products.

If LUCASSIN is approved by the FDA, we expect that it will compete with a combination of midodrine, a vasopressor, and octreotide, a vasodilation inhibitor. If another therapy proves to treat HRS Type 1 better than LUCASSIN, or reduces the incidence of HRS Type 1, our business would be adversely affected.

If another therapy proves to prevent or treat cardiac remodeling or CHF following AMI better than IK-5001, or reduces the incidence of AMI, our business would be adversely affected.

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If we fail to attract and retain senior management and key scientific and engineering personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical, scientific and engineering personnel. We are highly dependent upon our senior management, as well as other senior scientists and members of our management team. The loss of services of any of these individuals or one or more of our other members of senior management could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of our product candidates. We do not carry "key person" insurance covering any members of our senior management.

We need to hire and retain qualified personnel for the development, manufacture and commercialization of drugs and medical devices. We could experience problems in the future attracting and retaining qualified employees. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense and it is uncommon for potential employees to have capabilities relating to both drugs and medical devices. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms who have the expertise we need to sustain and grow our business.

As the sole manufacturer and supplier of INOtherapy in the United States, we are also highly dependent on our manufacturing, engineering, equipment service and operations staff. We experience intense competition for qualified manufacturing, engineering, equipment service and operations personnel. Our future success depends, in part, on the continued service of our personnel and our ability to recruit, train and retain highly qualified manufacturing, engineering, equipment service and operations personnel. The loss in service of any of these key personnel may affect our ability to manufacture, service or distribute INOtherapy or any future products we may develop.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately, to disclose unauthorized activities to us or to comply with our Code of Business Conduct and Ethics for Officers and Employees. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, false claims, inappropriate promotion, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible for our chief compliance officer, who works to ensure that we and our employees are in compliance with applicable rules, regulations and company policies, to identify and deter employee misconduct. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

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In addition, during the course of our operations, our directors, executives and employees may have access to material, non-public information regarding our business, our results of operations or potential transactions we are considering. We may not be able to prevent a director, executive or employee from violating our insider trading policies and trading in our common stock on the basis of, or while having access to, material, non-public information. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, engineering, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and face an even greater risk with respect to our commercialized products. We may be sued if INOMAX or any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. In addition, we may be sued if our drug-delivery systems malfunction or are alleged to have malfunctioned. We have been, and may in the future be, sued if our drug-delivery systems fail to provide adequate warnings. We could also be sued if our drug-delivery systems fail to adequately monitor for nitrogen dioxide, which forms when nitric oxide mixes with oxygen in the air. Elevated levels of nitrogen dioxide can be toxic and lead to decreased pulmonary function, chronic bronchitis, chest pain and pulmonary edema. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

•: decreased demand for INOtherapy or other products that we may develop;
•: injury to our reputation;
•: withdrawal of clinical trial participants, trial sites and investigators;
•: costs to defend the related litigation;
•: a diversion of management's time and our resources;
•: substantial monetary awards to trial participants or patients;
•: product recalls or withdrawals;

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•: labeling, marketing or promotional restrictions;
•: loss of revenue;
•: the inability to commercialize our product candidates; and
•: a decline in our stock price.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our product and clinical studies in the amount of $50 million in the aggregate. Any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

As our product is used commercially, unintended side effects, adverse reactions or incidents of misuse may occur that could result in additional regulatory controls, changes to product labeling, adverse publicity and reduced sales of our products.

During research and development, the use of pharmaceutical products, such as ours, is limited principally to clinical trial patients under controlled conditions and under the care of expert physicians. The widespread commercial use of INOMAX or other products that we may develop could uncover undesirable or unintended side effects that were not exhibited in our clinical trials or the commercial use as of the filing date of this prospectus. We train healthcare professionals on the proper use of our drug and drug-delivery systems. However, healthcare professionals from time to time operate our drug-delivery systems incorrectly.

In addition, an affiliate of Linde has marketing rights to INOMAX in the European Union and specified countries near the European Union. Linde's primary focus is not INOMAX, as it represents a de minimis amount of their revenue. If there were a serious adverse event or complication related to the use of INOMAX in the European Union, or any territory where Linde markets and sells INOMAX, it could have a material adverse effect on our business, financial condition and results of operations.

These events, among others, could result in adverse publicity that harms the commercial prospects of INOMAX or other products we may develop or lead to additional regulatory controls that could limit the circumstances under which the product is prescribed or used or even lead to the withdrawal of the product from the market.

Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.

Market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor's determination that use of a product is:

•: a covered benefit under its health plan;
•: safe, effective and medically necessary;

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•: appropriate for the specific patient;
•: cost-effective; and
•: neither experimental nor investigational.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products.

In the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our products profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products under Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal and state initiatives designed to reduce payment for pharmaceuticals.

As a result of legislative proposals and the trend towards managed healthcare in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide any coverage of approved products for medical conditions other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. We expect to experience pricing pressures in connection with the sale of our products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, additional legislative proposals, as well as national, regional or local healthcare budget limitations.

We are also subject to a variety of foreign regulations governing clinical trials and the marketing of other products. Outside of the United States, our ability to market a product depends upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory authority is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing or sale of the product in those countries. The time needed to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversight process in other countries includes all of the risks associated with regulation by the FDA and certain state regulatory agencies as described above.

Risks Relating to Dependence on Third Parties

We rely on third parties for important aspects of our commercialization infrastructure for INOtherapy and failure of these third parties to fulfill these functions would disrupt our business.

We do not have, nor do we intend to establish in the near term, our own warehousing, distribution, and service centers in certain regions in North America or Canada. Accordingly, we have entered into agreements with local third-party providers. Our third-party providers may not be able to warehouse, distribute, or service our products without interruption, or may not comply with their other contractual obligations to us. Any failure of any of those third-party providers to fully and timely perform their obligations may result in an interruption in the supply of INOtherapy in the affected geographic area. Also, we may not have adequate remedies for any breach of our agreements with such

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third-party providers. Furthermore, if any of our third-party distributors ceases doing business with us or materially reduces the amount of services they perform for us, and we cannot enter into agreements with replacement service providers on commercially reasonable terms, we might not be able to effectively distribute our products to all geographic locations we currently serve.

We rely on third-party manufacturers to produce clinical drug supplies for our product candidates, and we intend to rely on third parties to produce commercial supplies of any approved product candidates. Any failure by a third-party manufacturer to produce supplies for us may delay or impair our ability to complete our clinical trials or commercialize our product candidates.

We have relied upon a small number of third-party manufacturers for the manufacture of our product candidates for preclinical and clinical testing purposes and intend to continue to do so in the future. We may need to identify a third-party manufacturer capable of providing commercial quantities of drug product. If we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, we may not be able to successfully produce and market our product candidates or may be delayed in doing so.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. In addition, such failure could be the basis for action by the FDA to withdraw approvals for product candidates previously granted to us and for other regulatory action, including recall or seizure, fines, imposition of operating restrictions, total or partial suspension of production or injunctions.

We rely on our manufacturers to purchase the materials necessary to produce our product candidates for our clinical studies from third-party suppliers. There are a small number of suppliers for certain capital equipment and raw materials that are used to manufacture our drugs. Such suppliers may not sell these raw materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.

Because of the complex nature of many of our other compounds, our manufacturers may not be able to manufacture such other compounds at a cost or in quantities or in a timely manner necessary to develop and commercialize other products. If we successfully commercialize any of our product candidates, we may be required to establish or access large-scale commercial manufacturing capabilities. In addition, as our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates and we currently have no plans to build our own clinical or commercial scale manufacturing capabilities. To meet our projected needs for commercial manufacturing, third parties with whom we currently work will need to increase their scale of production or we will need to secure alternate suppliers.

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We rely on third parties to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidates.

We design the clinical trials for our product candidates, but we rely on contract research organizations and other third parties to assist us in managing, monitoring and otherwise carrying out many of these trials. We compete with larger companies for the resources of these third parties.

Although we rely on these third parties to conduct many of our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements.

The third parties on whom we rely generally may terminate their engagements with us at any time and having to enter into alternative arrangements would delay introduction of our product candidates to market.

If these third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical trial protocols or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates.

Risks Related to Patents, Licenses and Trade Secrets

We may not be able to maintain adequate protection for our intellectual property and competitors may develop similar competing products, which could result in a decrease in sales, cause us to further reduce prices to compete successfully and limit our commercial success.

We place considerable importance on obtaining patent protection for new technologies, products and processes. To that end, we file applications for patents covering compositions or uses of our product candidates or our proprietary processes. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions. Accordingly, the patents and patent applications relating to our products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies. Patent disputes in our industry are frequent, expensive and can preclude commercialization of products. If we ultimately engage in and lose any such disputes in the future, we could be subject to increased competition or significant liabilities, we could be required to enter into third-party licenses or we could be required to cease using the technology or selling the product in dispute. In addition, even if such licenses are available, the terms of any licenses requested by a third party could be unacceptable to us.

We also rely on trade secrets, know-how and continuing technological advancements to support our competitive position. Although we have entered into confidentiality and invention rights agreements with certain of our employees, consultants, advisors and collaborators, we may be unable to enforce such agreements or effectively protect our rights to our trade secrets and know-how. In addition, we may be subject to allegations of trade secret violations and other claims.

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If we are unable to obtain or maintain patent protection for the intellectual property relating to our products, the value of our products could be adversely affected.

The patent positions of companies like us are generally uncertain and involve complex legal, scientific and factual issues. Our success depends significantly on our ability to:

•: obtain and maintain U.S. and foreign patents, including defending those patents against adverse claims;
•: protect trade secrets;
•: operate without infringing the proprietary rights of others; and
•: prevent others from infringing our proprietary rights.

We may not have any additional patents issued from any patent applications that we own or license. For example, we recently filed a U.S. patent application containing claims directed towards new inventions that led to amendments to the warnings and precautions section of the INOMAX prescribing information necessary for the safe and effective use of INOMAX. The U.S. Patent and Trademark Office, or the USPTO, has not taken any action with respect to this patent, and the patent may not be issued before 2013, when our existing patents relating to INOMAX expire, or may never be issued at all. If additional patents are granted, the claims allowed may not be sufficiently broad to protect our inventions. In addition, issued patents that we own or license may be challenged, narrowed, invalidated or circumvented, which could limit our ability to prevent competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Changes in patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications.

Issued patents covering one or more of our products or product candidates could be found invalid or unenforceable if challenged in court.

If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. We endeavor to conduct due diligence on patents we have exclusively in-licensed, and we believe that we conduct our patent prosecution in accordance with the duty of candor and in good faith. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one of our products or product candidates. Such a loss of patent protection could have a material adverse impact on our business.

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If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business.

Our research, development and commercialization activities, as well as any products or product candidates resulting from these activities including INOMAX and any of our current or future drug-delivery systems, may infringe or be claimed to infringe upon patents or patent applications under which we do not hold licenses or other rights. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the USPTO and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Unfavorable outcomes in intellectual property litigation could limit our research and development activities and/or our ability to commercialize certain products.

If third parties successfully assert intellectual property rights against us, we might be barred from using certain aspects of our technology platform, or barred from developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against allegations of patent infringement or misappropriation of trade secrets, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the patent owner, in order to continue our research and development programs or to market our products. It is possible that the necessary license will not be available to us on commercially acceptable terms, or at all. This could limit our research and development activities, our ability to commercialize certain products, or both.

Most of our competitors and potential competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation

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longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic partnerships that would help us bring our product candidates to market.

In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or our strategic partners to loss of our proprietary position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, or at all.

Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline.

During the course of any patent litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, development programs, or intellectual property could be diminished. Accordingly, the market price of our common stock may decline.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to patents, we rely on trade secrets, technical know-how, and proprietary information concerning our business strategy in order to protect our inventions and exclusivity. In the course of our research and development activities and our business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors of laboratory or clinical development services or potential strategic partners. In addition, each of our employees is required to sign a confidentiality agreement upon joining our company. There can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, despite any legal action we might take against persons making such unauthorized disclosures.

Trade secrets are difficult to protect. Our employees, consultants, advisors, contractors, or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

Certain of our partners may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.

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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

•: Others may be able to develop and commercialize treatments that are similar to our product or product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
•: We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.
•: We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
•: Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.
•: It is possible that our pending patent applications will not lead to issued patents.
•: Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
•: Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.
•: We may not develop additional proprietary technologies that are patentable.
•: The patents of others may have an adverse effect on our business.
•: Another party may be granted orphan exclusivity for an indication that we are seeking before us or may be granted orphan exclusivity for one of our products for another indication.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. In addition, Congress may pass patent reform legislation. The Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

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Risks Related to this Offering and Ownership of our Common Stock

You will not have the same protections available to other shareholders of NASDAQ-listed companies because we are a "controlled company" within the meaning of The NASDAQ Global Market's standards and, as a result, will qualify for, and will rely on, exemptions from several corporate governance requirements.

Certain of our stockholders are parties to a voting agreement and intend to report that they hold their shares of our stock as part of a group. Upon completion of this offering, these stockholders, the New Mountain Entities; Linde; ARCH; and Venrock IV, Venrock Partners and Venrock Entrepreneurs, collectively the Venrock Entities, are expected to control a majority of our outstanding capital stock and will be able to elect a majority of our directors. As a result, we will be a "controlled company" within the meaning of the rules governing companies with stock quoted on The NASDAQ Global Market. Under these rules, a company as to which an individual, a group or another company holds more than 50% of the voting power is considered a "controlled company" and can choose to be exempt from the following corporate governance requirements:

•: a majority of the board of directors consist of independent directors;
•: compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and
•: director nominees be selected or recommended for election by a majority of the independent directors or by a nominating committee that is composed entirely of independent directors.

Following this offering, we intend to avail ourselves of these exemptions. In addition, because we are listing our common stock in connection with an initial public offering, following this offering our audit committee will not consist entirely of independent directors. Furthermore, our lead director, Alok Singh, will not be independent and our compensation committee will not have a majority of independent directors. Accordingly, you will not have the same protections afforded to shareholders of other companies that are subject to all of The NASDAQ Global Market corporate governance requirements as long as the Controlling Entities own a majority of our outstanding capital stock.

Our stock price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.

The market price of our common stock could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Market prices for securities of healthcare companies have historically been particularly volatile. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:

•: fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
•: changes in estimates of our financial results or recommendations by securities analysts;
•: changes in market valuations of similar companies;
•: success of competitive products;
•: changes in our capital structure, such as future issuances of securities or the incurrence of debt;
•: announcements by us or our competitors of significant acquisitions or strategic alliances;
•: regulatory developments in the United States, foreign countries or both;
•: litigation involving our company, our general industry or both;

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•: additions or departures of key personnel;
•: investors' general perception of us; and
•: changes in general economic, industry and market conditions.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time after the expiration of the lock-up agreements described in the "Underwriting" section of this prospectus. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have shares of common stock outstanding based on the number of shares outstanding as of . The remaining shares, or % of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations under federal securities laws, in the near future as set forth below.

Number of Shares and % of Total Outstanding		Date Available for Sale into Public Market

Shares, or %		On the date of this prospectus
Shares, or %		90 days after the date of this prospectus
Shares, or %		180 days after the date of this prospectus, subject to the requirements of the federal securities laws, and subject to extension in specified instances, due to lock-up agreements between the holders of these shares and the underwriters; however, the representative of the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time

In addition, as of April 30, 2010, there were 9,902,298 shares subject to outstanding options that will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701 under the Securities Act of 1933, as amended. Moreover, after this offering, holders of an aggregate of approximately 93,166,655 shares of our outstanding common stock and common stock issuable upon conversion of our outstanding warrant and series A and series B preferred stock as of April 30, 2010, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity incentive plans. Once we register and issue these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements.

Our largest stockholders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including any change of control.

Upon the completion of this offering, we anticipate that our largest stockholders, the New Mountain Entities, will own, in the aggregate, approximately % of our outstanding common stock ( % if the underwriters exercise their option to purchase additional shares in full). Following the completion of this offering, (i) the New Mountain Entities are entitled to elect (a) three directors, for so long as they beneficially own 15% or more of our outstanding common stock, (b) two directors, for so long as they beneficially own less than 15% but more than 5% of our outstanding common stock

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and (c) one director, for so long as they own less than 5% of our outstanding common stock but more than one share of common stock and (ii) each of ARCH, the Venrock Entities and Linde, each voting as a separate class, is entitled to elect one director for so long as such holder owns 5% or more of our outstanding common stock. In addition, the right to elect one director will be transferrable by the New Mountain Entities when transferred with at least 15,822,967 shares of our common stock issued upon conversion of the series B preferred stock.

The New Mountain Entities will also retain the benefit of the rights conferred by the investor stockholders agreement. See "Certain Relationships and Related Person Transactions—Investor Stockholders Agreement." As a result, the New Mountain Entities would be able to exert significant influence over matters requiring board approval, including the compensation and hiring and firing of our senior management, business combinations, issuance of shares of our capital stock, incurrence of debt, and payment of dividends, and their consent would be required for many matters requiring approval by our stockholders. If the New Mountain Entities propose to sell at least 80% of their shares of our common stock issued upon conversion of their series B preferred stock to a third party (which would represent, together with any other shares of capital stock proposed to be transferred, more than 50% of our outstanding capital stock) or we propose to sell or otherwise transfer for value all or substantially all of our stock, assets or business to a third party, then the New Mountain Entities at their option may require (i) in the case of a sale of capital stock by the New Mountain Entities, that each person or entity that held shares of our capital stock prior to this offering, collectively our current stockholders, sell a proportionate amount of such stockholder's shares of capital stock and waive any appraisal right that it may have in connection with the transaction and (ii) in any case, if stockholder approval of the transaction is required and our stockholders are entitled to vote thereon, that that each of our current stockholders vote all of such stockholder's shares of our capital stock in favor of such transaction. These rights will terminate when the New Mountain Entities and their assignees beneficially own less than 20% of our outstanding capital stock. See "Certain Relationships and Related Person Transactions—Investor Stockholders Agreement" and "—Common Stockholders Agreement" included elsewhere in this prospectus. Upon completion of this offering, we anticipate that the New Mountain Entities together with our current stockholders will own, in the aggregate, approximately % of our outstanding common stock ( % if the underwriters exercise their option to purchase additional shares in full).

The New Mountain Entities may have interests that differ from your interests, and they may vote in a way with which you disagree and that may be adverse to your interests. The concentration of ownership of our capital stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may adversely affect the market price of our common stock. See "Related Person Transactions—Investor Stockholders Agreement."

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The assumed initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $ in net tangible book value per share from the price you paid. In addition, following this offering, purchasers in the offering will have contributed % of the total consideration paid by our stockholders to purchase shares of common stock. Moreover, we issued options in the past to acquire common stock at prices significantly below the assumed initial public offering price. As of December 31, 2009, 8,826,992 shares of common stock were issuable upon exercise of outstanding stock options with a weighted average exercise price of $5.30 per share.

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To the extent that these outstanding options are ultimately exercised, you will incur further dilution. For a further description of the dilution that you will experience immediately after this offering, see the "Dilution" section of this prospectus.

Our management will have broad discretion over the use of the net proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering for the repayment of indebtedness, capital expenditures and general corporate purposes and working capital, which may in the future include investments in, or acquisitions of, complementary businesses, services or technologies. The failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. We have not been subject to these requirements in the past. The internal control report must contain (i) a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting, (ii) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, (iii) management's assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective, and (iv) a statement that our independent registered public accounting firm has issued an attestation report on internal control over financial reporting.

To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to (i) assess and document the adequacy of internal control over financial reporting, (ii) continue steps to improve control processes where appropriate, (iii) validate through testing that controls are functioning as documented, and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, we can provide no assurance as to our, or our independent registered public accounting firm's, conclusions with respect to the effectiveness of our internal control over financial reporting under Section 404. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

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Our independent registered public accounting firm previously identified material weaknesses in our internal control over financial reporting. If we fail to achieve and maintain effective internal control over financial reporting, we could face difficulties in preparing timely and accurate financial reports, which could result in a loss of investor confidence in our reported results and a decline in our stock price.

In connection with its audit of our consolidated financial statements for the years ended December 31, 2007 and 2008, KPMG LLP, our independent registered public accounting firm, identified material weaknesses in our internal control over financial reporting. Statement on Auditing Standard No. 115 (SAS No. 115), which supersedes Statement on Auditing Standard No. 112, defines a material weakness as a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

The two material weaknesses identified during the 2007 audit related to (i) ineffective policies and procedures around purchase accounting related to the 2007 acquisitions of INO Therapeutics and Ikaria Research, Inc. and (ii) ineffective policies and procedures with respect to the preparation and management review of our consolidated financial statements. We remediated both of these material weaknesses during 2008 by adding key personnel, which resulted in enhanced expertise within the finance department, and by implementing more effective management review practices.

The material weakness identified during the 2008 audit related to ineffective policies and procedures around the calculation of our unbilled revenue estimate. This calculation involved an estimate of (i) gross revenue earned from the delivery of INOtherapy to a patient for which an invoice had not yet been issued and (ii) credits to be issued subsequent to year-end on both billed and unbilled revenue. We remediated this material weakness during 2009 by implementing more robust reviews around the estimation of net unbilled revenue and by analyzing subsequent actual invoice and credit data prior to finalizing our estimates. With the implementation of the new billing model in 2010, we will no longer need to estimate net unbilled revenue.

Our independent registered public accounting firm completed its audit of our consolidated financial statements for the year ended December 31, 2009 without identifying any ongoing or additional material weaknesses, as defined by SAS No. 115, in our internal control over financial reporting. It is possible that we or our independent registered public accounting firm may identify additional material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and maintaining these controls could cause us to fail to meet the periodic reporting obligations that we will become subject to after this offering or result in material misstatements in our consolidated financial statements. The existence of a material weakness could result in errors requiring a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations after this offering and cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

Anti-takeover provisions contained in our certificate of incorporation and by-laws, provisions of Delaware law and our investor stockholders agreement, could impair a takeover attempt.

Our certificate of incorporation, by-laws and Delaware law all contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

•: authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
•: limiting the liability of, and providing indemnification to, our directors and officers;
•: limiting the ability of our stockholders, other than the New Mountain Entities, to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

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•: requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
•: controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;
•: providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings; and
•: limiting the determination of the number of directors on our board of directors and the filling of vacancies or newly created seats on the board to our board of directors then in office.

These provisions, alone or together, could delay hostile takeovers and changes in control of our company or changes in our management.

In addition, the New Mountain Entities may require our current stockholders, who will own approximately % of our common stock following this offering, to sell their shares of our stock in connection with, and/or vote these shares in favor of, certain transactions in which the New Mountain Entities propose to sell all or any portion of their shares of our stock or in which we propose to sell or otherwise transfer for value all or substantially all of the stock, assets or business of our company. See "Certain Relationships and Related Person Transactions—Investor Stockholders Agreement" and "—Common Stockholders Agreement" included elsewhere in this prospectus.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this prospectus include, among other things, statements about:

•: continued growth and acceptance of INOtherapy;
•: our ability to obtain additional indications for INOMAX;
•: our ability to comply with laws and government regulations;
•: the success of our new billing model;
•: our ability to fund operations with cash flow from net sales;
•: our ability to acquire and develop additional product candidates or approved products;
•: the success and timing of our product and product candidate development activities and clinical trials;
•: our ability to obtain and maintain regulatory approvals for our product and product candidates;
•: our ability to successfully commercialize additional products;
•: our ability to manage growth and successfully expand operations;
•: our ability to penetrate foreign markets;
•: the performance of our collaborators, single source-suppliers and manufacturers;
•: the success of competing treatments and interventions;
•: our ability to obtain and maintain intellectual property protection for our product and product candidates;
•: the loss of key personnel;
•: regulatory developments in the United States and foreign countries;
•: our use of the proceeds from this offering; and
•: the accuracy of our estimates regarding revenues, expenses, capital requirements and needs for additional financing, and our ability to obtain additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

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USE OF PROCEEDS

We estimate that the net proceeds to us from our issuance and sale of shares of our common stock in this offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses.

We intend to use the net proceeds received by us in connection with this offering for the following purposes and in the following amounts:

•: approximately million will be used to repay a portion of our indebtedness under our new term loan and accrued interest on such indebtedness; and
•: the remainder for general corporate purposes including, among other things, development of our product and product candidates, foreign expansion, and acquisition and in-licensing opportunities.

We expect our new term loan will mature in May 2016 and have an interest rate of LIBOR plus 5.0%, with a 2.0% LIBOR floor.

This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current understandings, agreements or commitments for any material acquisitions or licenses of any products, businesses or technologies.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

If the underwriters exercise their option to purchase additional shares, the selling stockholders may sell up to shares of their common stock. We will not receive any proceeds from the sale of shares of common stock, if any, by the selling stockholders.

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DIVIDEND POLICY

In the second quarter of 2010, we expect to declare and pay a special cash dividend on shares of our capital stock from the proceeds of a new credit facility and cash on hand. The following executive officers and members of our board of directors may receive a dividend in respect of shares of capital stock they own as a result of this special cash dividend: Aldo Belloni, Matthew Bennett, James Briggs, Michael Flaherman, Michael Kennedy, Robert T. Nelsen, Bryan E. Roberts, Stephen Ross, Ralf Rosskamp, Alok Singh, Randy Thurman and Richard Wichansky.

We have not declared or paid any other cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business and, therefore, other than the special cash dividend described above, we do not intend to pay cash dividends to our stockholders in the foreseeable future.

The terms of our existing credit agreement include provisions that restrict the payment of cash dividends on our common stock. In addition, pursuant to our investor stockholders agreement, for as long as the New Mountain Entities and their assignees own at least 15% of our outstanding capital stock we may not pay or declare a dividend or distribution on any shares of our capital stock (other than dividends from a wholly owned subsidiary to its parent company) without their approval.

We anticipate that if we enter into a new credit facility, it will permit the special cash dividend described above, but otherwise restrict payment of cash dividends on our capital stock.

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and capitalization as of December 31, 2009:

•

on an actual basis;

•

on a pro forma basis to give effect to:

(i): the conversion of all outstanding shares of our non-voting common stock and series A and series B preferred stock into 89,368,574 shares of common stock;
(ii): the reclassification of a warrant to purchase 60,000 shares of series A preferred stock from other liabilities to stockholders' equity based on the warrant becoming exercisable for common stock upon the closing of this offering;
(iii): the proceeds from our anticipated $250.0 million term loan, less an original issue discount of $5.0 million and the application of $175.7 million of the proceeds to extinguish our existing outstanding term loan;
(iv): the capitalization of $5.4 million in estimated financing costs paid in connection with the new term loan and revolving line of credit, the determination of which is based on an assumption the lenders are a syndicate of all new investors as compared to our existing loan;
(v): the write-off of $2.9 million of unamortized deferred financing costs related to the extinguishment of our existing outstanding term loan and revolving line of credit;
(vi): the reclassification of $2.0 million, net of tax, from accumulated other comprehensive loss to accumulated deficit due to the anticipated discontinuation of cash flow hedge accounting on our interest rate swap; and
(vii): the payment of a planned cash dividend on our capital stock in the aggregate amount of $130.0 million.

•

on a pro forma as adjusted basis to give effect to (i) the issuance of shares of our common stock in this offering, (ii) the receipt of the estimated net proceeds from this offering based on an assumed initial public offering price of $ per share, the mid-point of the price range reflected on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the application of $ of such net proceeds to repay a portion of our indebtedness.

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You should read the information in this table together with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

			As of December 31, 2009

			Actual			Pro Forma			Pro Forma As Adjusted⁽¹⁾
			(Unaudited) (Dollars in thousands, except per share data)
Cash and cash equivalents			$	95,226		$	29,080		$

Term loan, including current portion			$	175,721		$	245,000		$
Series A preferred stock warrant				454			—
Series A convertible preferred stock, 11,421,300 shares authorized, 11,361,250 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted				32,152			—
Series B convertible preferred stock, 76,980,900 shares authorized, 76,980,811 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted				356,777			—
Series C-1 - C-4 preferred stock, 400 shares authorized, issued and outstanding, actual, pro forma and pro forma as adjusted				1			1

	Total redeemable preferred stock and warrant			389,384			1
Stockholders' (deficit) equity:
Common stock, par value $0.01 per share; 103,929,200 shares authorized, 3,733,081 shares issued and outstanding, actual; 125,000,000 shares authorized, 93,101,655 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted				37			931
Non-voting common stock, par value $0.01 per share; 11,859,900 shares authorized, 1,026,513 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted				10			—
Common stock warrant				—			454
Additional paid-in capital				32,795			290,840
Accumulated other comprehensive income (loss)				(1,899	)		143
Accumulated deficit				(187,150	)		(190,915	)

	Total stockholders' (deficit) equity			(156,207	)		101,453

		Total capitalization	$	408,898		$	346,454		$

(1): Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the mid-point of the range reflected on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately $ million, assuming that the assumed initial public offering price remains the same.

The outstanding share information in the table above excludes the following as of December 31, 2009:

•: 8,826,992 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2009 at a weighted average exercise price of $5.30 per share; and
•: 60,000 shares of our common stock issuable upon the exercise of a warrant held by SVB Financial Group.

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

Our historical net tangible book value as of was $ million, or $ per share of our common stock. Historical net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding.

Our pro forma net tangible book value as of was $ million, or $ per share of our common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the pro forma number of shares of our common stock outstanding after giving effect to the conversion of all outstanding shares of our series A and series B preferred stock and our non-voting common stock into an aggregate of shares of our common stock upon the closing of this offering.

After giving effect to our issuance and sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as of would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value per share of $ to existing stockholders and immediate dilution of $ in pro forma net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:


Assumed initial public offering price per share			$
	Historical net tangible book value per share as of	$
	Increase attributable to the conversion of outstanding preferred stock

	Pro forma net tangible book value per share as of
	Increase in net tangible book value per share attributable to new investors

Pro forma net tangible book value per share after this offering

Dilution per share to new investors			$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our pro forma net tangible book value by approximately $ , our pro forma net tangible book value per share by approximately $ and dilution per share to new investors by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

If any additional shares are issued in connection with outstanding options or warrants, you will experience further dilution.

The following table summarizes, on a pro forma basis as of , the total number of shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in this offering at an assumed initial

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public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.

	Shares Purchased				Total Consideration

	Shares Purchased				Total Consideration				Average Price Per Share
	Number	Percentage			Amount	Percentage			Average Price Per Share
Existing stockholders				%	$			%	$
New investors

Total			100	%	$		100	%

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the total consideration paid by new investors by $ million and increase (decrease) the percentage of total consideration paid by new investors by approximately %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The table above is based on shares outstanding as of December 31, 2009 and includes 89,368,574 shares of our common stock issuable upon the conversion of all outstanding shares of our series A preferred stock and series B preferred stock and our non-voting common stock upon the closing of this offering.

The table above excludes:

•: 8,826,992 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2009 at a weighted average exercise price of $5.30 per share; and
•: 60,000 shares of our common stock issuable upon the exercise of a warrant held by SVB Financial Group.

If the underwriters exercise their option to purchase additional shares in full, the sale of shares of our common stock by the selling stockholders will reduce the number of shares of our common stock held by existing stockholders from to , or % of the total outstanding shares, and will increase the number of shares of our common stock held by new investors to , or % of the total shares of our common stock outstanding.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read together with our consolidated financial statements and accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The selected consolidated financial data in this section is not intended to replace our consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

The selected consolidated financial data as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007 and for the period from January 1, 2007 through March 27, 2007 have been derived from our consolidated financial statements included elsewhere in this prospectus, which have been audited by KPMG LLP, an independent registered public accounting firm. The selected consolidated financial data as of December 31, 2007, 2006 and 2005 and for the years ended December 31, 2006 and 2005 have been derived from audited consolidated financial statements not included in this prospectus.

From January 1, 2007 through March 27, 2007, we did not conduct any commercial operations. On March 28, 2007, we closed a private offering of our series B convertible preferred stock, which resulted in proceeds of approximately $280 million, and secured $235.0 million in financing from a term loan. With the proceeds from the private placement and term loan and the issuance of stock, options and a warrant, we acquired the net assets of INO and all of the outstanding equity of Ikaria Research, Inc. on March 28, 2007, which we refer to as the "Transaction."

The term Predecessor refers to INO Therapeutics prior to March 28, 2007 and the term Successor refers to Ikaria, Inc. and its consolidated subsidiaries. Our combined results of operations for the year ended December 31, 2007 represent the addition of the Predecessor period from January 1, 2007 through March 27, 2007 and the Successor period from January 1, 2007 through December 31, 2007. This combination does not comply with GAAP or with the rules for pro forma presentation, but is presented because we believe it provides the most meaningful comparison of our results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" for a discussion of the presentation of our results for the year ended December 31, 2007 on a combined basis.

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			Predecessor									Successor			Combined			Successor			Successor
			Year Ended December 31, 2005			Year Ended December 31, 2006			January 1 to March 27, 2007			Year Ended December 31, 2007			Year Ended December 31, 2007			Year Ended December 31, 2008			Year Ended December 31, 2009
			(Amounts in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Revenue:
	Net sales		$	142,519		$	163,536		$	48,270		$	158,479		$	206,749		$	236,731		$	274,342
	Other revenue			1,044			1,314			—			2,450			2,450			63			250

		Total revenues		143,563			164,850			48,270			160,929			209,199			236,794			274,592
Operating Costs and Expenses:
	Cost of sales			37,344			38,516			10,566			102,753			113,319			51,572			52,380
	Selling, general and administrative			39,379			37,358			8,498			33,507			42,005			61,844			83,879
	Research and development			24,779			33,051			8,763			35,202			43,965			68,538			75,421
	Acquisition-related in-process research and development			—			—			—			271,637			271,637			—			—
	Amortization of acquired intangibles			—			—			—			22,187			22,187			30,452			30,720
	Other expenses (income), net			915			1,162			(57	)		(66	)		(123	)		356			(410	)

		Total operating expenses		102,417			110,087			27,770			465,220			492,990			212,762			241,990
Income (loss) from operations				41,146			54,763			20,500			(304,291	)		(283,791	)		24,032			32,602
Interest (expense) income:
	Interest income			302			2,926			63			187			250			229			385
	Interest expense			(136	)		—			—			(14,725	)		(14,725	)		(13,378	)		(9,248	)

		Interest (expense) income, net		166			2,926			63			(14,538	)		(14,475	)		(13,149	)		(8,863	)
Income (loss) before income taxes				41,312			57,689			20,563			(318,829	)		(298,266	)		10,883			23,739
Income tax (expense) benefit				(154	)		(327	)		(8,517	)		109,105			100,588			(1,288	)		(10,760	)

		Net income (loss)	$	41,158		$	57,362		$	12,046		$	(209,724	)	$	(197,678	)	$	9,595		$	12,979

Net income (loss) per common share, basic and diluted												$	(65.28	)				$	0.10		$	0.14
Unaudited pro forma net income per common share, basic and diluted																					$	0.06	(1)

(1): See "Prospectus Summary—Summary Consolidated Financial Data" for an explanation of unaudited pro forma net income per share.

	Predecessor				Successor

	As of December 31,				As of December 31,
	2005		2006		2007			2008			2009
	(Amounts in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	364	$	236	$	3,870		$	51,651		$	95,226
Working capital		50,652		115,622		51,971			72,403			115,342
Total assets		124,822		176,947		422,522			441,569			468,205
Long-term debt, including current portion		—		—		193,513			191,563			175,721
Warrant liability		—		—		298			527			454
Redeemable preferred stock		—		—		388,930			388,930			388,930
Members' equity		96,148		153,510		—			—			—
Total stockholders' deficit		—		—		(192,336	)		(181,382	)		(156,207	)

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Our net sales are generated from INOtherapy, our all-inclusive offering of drug product, services and technologies, which we first commercialized in 2000. INOtherapy includes our FDA-approved drug INOMAX (nitric oxide) for inhalation, INOcal calibration gases, use of our proprietary FDA-cleared drug-delivery system, distribution, emergency delivery, technical and clinical assistance, quality maintenance, on-site training and 24/7/365 customer service. INOMAX, the drug included in our INOtherapy offering, is the only treatment approved by the FDA for HRF associated with pulmonary hypertension in term and near-term infants. We sell INOtherapy in the United States, Puerto Rico, Canada, Australia, Mexico and Japan. We manufacture and package INOMAX at our facility in Louisiana and manufacture delivery systems for INOMAX at our facility in Wisconsin. The principal U.S. patents covering INOMAX, which we license from MGH, will expire on January 23, 2013.

In 2009, 2008 and 2007, INOtherapy net sales were $274.3 million, $236.7 million and $206.7 million (on a combined basis—see below), respectively, approximately 95% of which reflects sales in the United States in each of these years.

We were initially incorporated on August 18, 2006 and established for the purpose of acquiring INO Therapeutics, a specialty pharmaceutical company, and Ikaria Research, Inc., a development-stage biotechnology company. From August 18, 2006 through March 27, 2007, we did not conduct any commercial operations. On March 28, 2007, we closed a private offering of our series B preferred stock, which resulted in proceeds of approximately $280 million, and secured $235.0 million in financing from a six-year senior secured term loan, or the Term Loan. With the proceeds from the private placement and the Term Loan and the issuance of stock, stock options and a warrant, we acquired the sole membership interest of INO Therapeutics and all the outstanding equity of Ikaria Research, Inc. on March 28, 2007. This is referred to as the Transaction. In this prospectus, the term Predecessor refers to INO Therapeutics prior to March 28, 2007 and the term Successor refers to us and our consolidated subsidiaries. We have combined the statement of operations for the year ended December 31, 2007 to include the statement of operations of the Successor for the year ended December 31, 2007 (for which there was no activity through March 27, 2007) and the Predecessor for the period January 1, 2007 to March 27, 2007. This combination is not presented in accordance with GAAP or with the rules for pro forma presentation, but is presented because we believe it provides the most meaningful comparison of our results.

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Recent Developments

New Credit Facility and Dividend

On May 10, 2010, our board of directors approved a new credit facility consisting of a $250.0 million term loan and a $40.0 million line of credit, at an interest rate of LIBOR plus 5.0% with a 2.0% LIBOR floor. We expect the new credit facility to close in the second quarter of 2010. Assuming consummation of the new credit facility, we expect to use a portion of the proceeds from the term loan to repay the entire outstanding balance on our existing term loan. We do not expect to draw down on the line of credit at the time the new credit facility closes. On May 10, 2010, our board of directors also declared a cash dividend of $130.0 million, in the aggregate, contingent on the closing of the new credit facility, which we expect to pay to holders of our capital stock in the second quarter of 2010. This dividend will be paid from the remaining proceeds of the new term loan in addition to cash on hand.

LUCASSIN

On March 29, 2010, Orphan and we amended and restated the terms of our prior August 29, 2008 agreement. Pursuant to this agreement, (i) we made an upfront $5.0 million payment to Orphan on signing the agreement, (ii) we agreed to make a milestone payment upon the approval of a special protocol assessment with the FDA, pursuant to which we and the FDA agree on the design of a pivotal clinical trial for LUCASSIN, (iii) the previously-agreed royalty rates payable by us to Orphan were reduced, (iv) the previously-agreed approval milestone payment to be made by us to Orphan was reduced, and (v) we agreed to assume full control of conducting a pivotal clinical trial for LUCASSIN and to be responsible for LUCASSIN's funding and future regulatory interactions with the FDA.

Healthcare reform

In March 2010, the PPACA, was signed into law. The PPACA is a legislative overhaul of the U.S. healthcare system which may have far reaching consequences for drug and medical device manufacturers. In particular, there are elements of this legislation that are aimed at reducing spending by promoting the greater use of comparative effectiveness research as well as various pilot and demonstration programs that have the potential to impact reimbursement and patient access for our products, and which may materially impact numerous aspects of our business. The legislation has the potential to significantly increase the tax burden on the drug and medical device industries and may have a material and adverse impact on our operations and cash flow. We do not yet know the full impact this new legislation will have on our business.

Financial Operations Overview

Revenue

We derive revenue primarily from sales of INOtherapy. Historically, we offered INOtherapy at a fixed, hourly rate that was tied directly to the number of hours of INOMAX used. Each product cylinder is equipped with an INOmeter that measures the number of hours and cumulative duration of INOMAX actual usage. We estimated unbilled revenue for INOtherapy that had been used, but for which usage information was not yet available or for which we had not yet otherwise billed. In addition, we recorded INOtherapy revenue net of expected patient credits. Credits were issued, under our expense limitation program, on a per patient basis following application from the hospital for patients who exceeded certain durations.

Effective January 1, 2010, we began implementing a new tier-based billing model, which impacted the way we recognize revenue. For an explanation of the new tier-based billing model, see "Critical Accounting Policies and Significant Estimates—Revenue Recognition."

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Cost of Sales

Cost of sales consists of the expenses associated with producing and distributing INOtherapy to our customers. In particular, our cost of sales includes:

•: salaries, stock-based compensation and related expenses for employees in both manufacturing and servicing, product distribution, logistics, and quality;
•: royalties due to third parties on net sales;
•: drug manufacturing overhead, including depreciation, maintenance and utilities;
•: depreciation of drug-delivery systems;
•: maintenance of regional service and distribution centers, including rent and utilities;
•: distribution expenses, including fleet, fuel, third-party freight and warehousing; and
•: cost of parts, disposables, calibration gases and pharmaceutical ingredients.

Research and Development Expenses

Research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of:

•: salaries, stock-based compensation and related expenses for employees in research and development functions;
•: expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials;
•: costs of acquiring and manufacturing clinical trial materials;
•: costs related to upfront and pre-regulatory approval milestone payments under in-licensing agreements;
•: costs related to compliance with domestic and international regulatory requirements for clinical trials;
•: fees paid to third parties involved in research and development activities;
•: costs related to research and development facilities and equipment, which include rent, depreciation and maintenance;
•: costs for laboratory supplies; and
•: other costs associated with non-clinical research and development activities and regulatory approvals.

Our research and development programs are focused on developing and commercializing innovative therapies for use in the critical care market. To develop our drug candidates, we use in-house expertise and rely heavily on third-party contractors to perform many activities related to our clinical trials, including patient recruitment, monitoring services and conducting the trials. Conducting clinical trials is a complicated, lengthy and expensive process and may not always meet the intended endpoint or result in regulatory approval of new drug candidates or additional or expanded indications for existing products.

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Below is a description of our current product and product candidates:

Product / Product Candidate	Active Pharmaceutical Ingredient / Mechanism of Action	Primary Indication(s)	Status

INOtherapy / INOMAX	Nitric oxide / pulmonary vasodilator	Hypoxic respiratory failure Bronchopulmonary dysplasia Acute respiratory distress syndrome-chronic lung disease	Marketed Phase 3 Phase 3 in planning stage
LUCASSIN	Terlipressin / vasopressin receptor agonist	Hepatorenal Syndrome Type 1	Pivotal Phase 3 expected to commence in 2010
IK-5001	Sodium alginate and calcium gluconate / mechanical support of infarcted heart muscle	Cardiac remodeling and subsequent congestive heart failure following acute myocardial infarction	Pivotal Phase 2/3 expected to commence in 2011
IK-1001	Sodium sulfide	Conditions characterized by tissue ischemia	Clinical program in planning stage
IK-6001	Fibrinogen Bb15-42 / anti-inflammatory	Conditions characterized by vascular leakage	Preclinical

The following table summarizes our research and development expenses for the past five years directly attributable to our product candidates. It does not include the $271.6 million of in-process research and development, or IPR&D, expensed in 2007 arising from the Transaction. Development projects that have been terminated are included in "Terminated projects," and earlier-stage development projects are included in "Other projects." A significant portion of our research and development costs are not tracked by product candidate program as they benefit multiple programs. As a result, we do not allocate salaries, benefits or other indirect costs, such as administration of medical information and regulatory affairs to our development candidates but include these costs in "R&D support."

The combined data for the year ended December 31, 2007 represents the expenses of the Successor for the year ended December 31, 2007 (for which there was no activity through March 27, 2007) and the expenses of the Predecessor for the period January 1, 2007 to March 27, 2007.

		Predecessor				Combined		Successor

(000's)		Year Ended December 31, 2005		Year Ended December 31, 2006		Year Ended December 31, 2007		Year Ended December 31, 2008			Year Ended December 31, 2009			Total
INOtherapy/INOMAX:
	HRF(1)	$	479	$	779	$	227	$	246		$	59		$	1,790
	BPD		5,129		4,452		7,259		6,458			3,209			26,507
	ARDS		—		—		—		—			—			—
LUCASSIN			—		—		—		18,153	(2)		4,144			22,297
IK-5001			—		—		—		—			17,279	(3)		17,279
IK-1001			—		—		7,566		9,912			13,028			30,506
Other projects			—		—		—		—			7,311	(4)		7,311
Terminated projects			3,051		10,144		9,510		7,613			1,827			32,145
R&D support			16,120		17,676		19,403		26,156			28,564			107,919

	Total	$	24,779	$	33,051	$	43,965	$	68,538		$	75,421		$	245,754

(1): Includes development costs of INOMAX for HRF outside the United States, including Japan and Canada.
(2): Includes an upfront cash payment of $17.5 million for the North American commercial rights to LUCASSIN.

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(3): Includes an upfront cash payment of $7.0 million for in-licensing of IK-5001 and a $10.0 million expense for achievement of a development milestone that we deemed probable as of December 31, 2009.
(4): Includes an upfront cash payment of $5.25 million for in-licensing of the IK-600X portfolio and $2.0 million for an ongoing collaborative arrangement.

At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of our product candidates. This is due to the numerous risks associated with developing drugs, including the uncertainty of:

•: the progress and results of our clinical trials;
•: the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any other product candidate;
•: the costs, timing and outcome of regulatory review of our product candidates;
•: the emergence of competing technologies and products and other adverse market developments;
•: our ability to establish and maintain partnerships and the terms and success of those partnerships; and
•: the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization of any of our product candidates. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as ongoing assessment of the product candidate's commercial potential. We plan to fund our research and development expenses with net cash flows from sales of INOtherapy; however, we may need or choose to raise additional capital in the future to fund the development and/or acquisition of other product candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, sales and marketing, information technology, legal, quality and human resources functions. Other selling, general and administrative expenses include professional fees for legal, consulting, auditing and tax services and facility costs.

We anticipate that our selling, general and administrative expenses will continue to increase for, among others, the following reasons:

•: expenses related to the sales and marketing of our currently marketed product and product candidates; and
•: increased payroll, expanded infrastructure and higher consulting, legal, accounting and investor relations costs, and director and officer and other insurance premiums associated with being a public company.

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Licensing and Development Agreements

LUCASSIN

On August 29, 2008, we entered into an agreement with Orphan pursuant to which we acquired the North American rights to LUCASSIN (terlipressin for injection), a potential treatment of HRS Type 1, which is a rare and often fatal condition characterized by rapid onset of renal failure with a high mortality rate. As part of the agreement, we made an upfront cash payment of $17.5 million to Orphan in 2008, which was recorded as research and development expense on our consolidated statement of operations for 2008 since technological feasibility had not been established for LUCASSIN. Under this agreement, we were responsible for a portion of the development costs prior to regulatory approval. On March 29, 2010, Orphan and we amended and restated the terms of our prior August 29, 2008 agreement as described under "Recent Developments—LUCASSIN" above. We expect to commence a pivotal Phase 3 clinical trial of LUCASSIN for the treatment of HRS Type 1 in 2010.

IK-5001

On August 26, 2009, we entered into an agreement with BioLine to obtain a worldwide exclusive license to develop and commercialize a product that will be developed through the medical device pathway and is designed to prevent the structural alteration of damaged heart muscle and development of subsequent CHF caused by AMI. At the time of the agreement, the compound was in a Phase 1/2 clinical trial in Europe. In 2009, we paid a $7.0 million upfront payment and accrued a $10.0 million milestone payment for the completion of the Phase 1/2 clinical trial, which we paid in 2010. The upfront and milestone payments were recorded as research and development expense on our consolidated statement of operations for 2009. If we successfully achieve all other development, regulatory and commercialization milestones in the agreement, we will be obligated to pay BioLine, in the aggregate, an additional $265.5 million. In addition, we agreed to pay royalties to BioLine on our net sales of IK-5001 if it is approved for commercialization. We expect to commence a pivotal Phase 2/3 clinical trial of IK-5001 in 2011.

IK-600X

On July 17, 2009, we entered into an agreement with Fibrex to obtain the worldwide exclusive license to an investigational portfolio of compounds for use in a range of critical care conditions characterized by vascular leakage. The compounds are in various stages of development. In 2009, we made a $5.25 million upfront payment that was recorded as research and development expense in our consolidated statement of operations for 2009. We will be responsible for completing clinical development and commercialization efforts. As part of this agreement, we are required to make additional payments to Fibrex of approximately $101 million, in the aggregate, upon the achievement of various milestones associated with the development and regulatory approval of the compounds with respect to potential indications. We are also required to pay royalties based on sales should products be approved for commercialization.

Critical Accounting Policies and Significant Estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. We base our estimates on historical experience, current business factors and various other assumptions that we believe are necessary to form a basis for making judgments about the carrying values of assets and liabilities and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Although we believe our estimates and assumptions are reasonable, actual results could differ significantly from these estimates.

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We believe the following critical accounting policies require the more significant judgments and estimates used in the preparation of our consolidated financial statements:

•: revenue recognition;
•: research and development expenses;
•: valuation of long-lived assets and other intangible assets;
•: stock-based compensation;
•: income taxes; and
•: acquisitions.

Revenue Recognition

INOtherapy consists of multiple elements but is accounted for as a single unit of accounting, since elements are not sold separately on a stand-alone basis. Prior to adoption of our new billing model in 2010, we recognized revenue based on hours of INOMAX used by patients at established hourly rates. We estimated unbilled revenue for INOtherapy that had been used, but for which the INOmeter reading was not yet available or for which we had not yet otherwise billed. Included in accounts receivable at December 31, 2009 and 2008 are unbilled revenues of $33.4 million and $25.6 million, respectively. In addition, we recorded INOtherapy revenue net of expected patient credits. Credits were issued under our expense limitation program on a per patient basis following application from the hospital for patients that exceed certain durations. Using historical data coupled with judgments about future activity, we developed assumptions to estimate future credits on billed and unbilled usage. As of December 31, 2009 and 2008, the allowances for credits were $22.6 million and $25.2 million, respectively.

Certain factors, if they occurred, may cause our estimates to change and may cause actual results to differ from our estimates, including varying patient usage patterns and the timing of customer credit submissions. As of December 31, 2009, a 5% change in our unbilled revenue net of expected credits would impact net sales by approximately $0.5 million.

In 2010, we implemented a new tier-based billing model and eliminated the expense limitation program, which had an impact on the way we recognize revenue. Under the new billing model, customers can select from a range of options. These options include (i) one option which offers unlimited access to INOtherapy for a fixed fee, (ii) three capped tier options offering increasing allocations of hours of INOMAX, and (iii) a price per hour model. We determined fees and hourly usage allocations for each customer based on historical usage and credit activity. In addition, we utilize a standard six-month introductory package for new customers and, for very low volume customers, we have a standard package designed to accommodate occasional use. These packages include a capped tier option and a net hourly pricing option. Under the capped tier options, if hourly usage exceeds the cap during the contract period, the customer pays an hourly fee to cover the excess usage for the remainder of the contract. Customers who did not sign a new billing model contract by April 1, 2010 defaulted to the price per hour model. As of April 30, 2010, approximately 66% of our customers, representing approximately 85% of our 2009 revenue, had elected to use one of the four tiered options. For customers on the net hourly pricing option, we recognize revenue based on actual meter readings at the applicable hourly price.

For both unlimited access customers and customers who select a capped tier, we bill a fixed monthly fee. We provide our services on a continual basis and, therefore, assuming we provide the

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customer with sufficient access to INOMAX, we recognize the revenue on a straight-line basis subject to the following:

•: Customers who select one of the top two capped tiers will typically have the option of moving to the next lower tier if their usage is below a specified level following the eighth month of the contract. In this case, the customer will be billed an adjusted monthly fee for the remainder of the contract such that the total cost of the INOtherapy service agreement will be equal to the cost of the lower tier. We currently have no historical information to reliably estimate the number of customers and which customers will elect to move to a lower tier. As a result, we will recognize revenue for these customers as if they were contracted at the lower tier and defer the incremental revenue until the earliest to occur of (i) the customer's hours exceeding the set cap for the lower tier and, therefore, the ability to move down one tier is eliminated, (ii) the customer electing to stay at the initially selected tier, or (iii) the expiration of the time period for which the customer can move to a lower tier in the tenth month of the contract term.
•: For any hours that exceed the limit imposed by a selected capped tier, we recognize revenue based on actual meter readings at the applicable hourly price.

The implementation of this new billing model may result in unexpected changes in customer usage patterns going forward. Additionally, the ability of certain customers to move down one level to a lower tier creates additional uncertainty related to future sales levels.

Research and Development Expenses

We expense research and development expenses as incurred. We expense upfront and milestone payments made to third parties in connection with research and development collaborations as incurred up to the point of regulatory approval. We capitalize and amortize payments made to third parties upon or subsequent to regulatory approval over the remaining useful life of the related product. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. These amounts are recognized as research and development expense as the related goods are delivered or the related services are performed.

In preparing our consolidated financial statements, we estimate our accrued research and development expenses. In that process, we review open contracts and purchase orders and communicate with project leaders to identify services that have been performed and the associated costs incurred that have not yet been invoiced. We make estimates of our accrued expenses as of the balance sheet date based on the facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees related to:

•: contract research organizations in connection with clinical studies;
•: investigative sites in connection with clinical studies;
•: contract manufacturers in connection with the production of clinical trial materials; and
•: vendors in connection with research and development activities.

We record expenses based on estimates of services received and efforts expended under contracts with contract research organizations and research institutions that conduct and manage clinical studies on our behalf. The terms of these agreements vary from contract to contract and may result in uneven expenditures. Payments under some contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. If the actual timing of services provided or level of effort varies from our estimates, we adjust our accrual.

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Valuation of Long-Lived Assets and Other Intangible Assets

We review the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We evaluate indefinite-lived intangible assets for impairment at least annually or more frequently if an indicator of potential impairment exists. As of December 31, 2009, we completed our annual impairment test for our trademarks and trade names and concluded that no impairment existed. In performing our evaluations of impairment, we determine fair value using widely accepted valuation techniques, including discounted cash flows. These calculations contain uncertainties as they require us to make assumptions related to future cash flows, projected useful lives of assets and the appropriate discount rate to reflect the risk inherent in future cash flows. We must also make assumptions regarding industry economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to a material impairment charge.

Stock-Based Compensation

We measure compensation expense for all stock-based awards made to employees and directors based on the estimated fair value of the award and recognize such expenses on a straight-line basis over the vesting period of the award. Stock-based compensation expense for stock options granted to non-employees is recognized over the related service periods based on the estimated fair value of the options re-measured at each reporting date until vesting has occurred. The following table presents the summary of stock options granted for the years ended December 31, 2009 and 2008:



Grants Made During the Quarter Ended:
	March 31, 2008	810,000	5.57
	June 30, 2008	606,250	6.20
	September 30, 2008	—	—
	December 31, 2008	1,266,000	8.39
	March 31, 2009	445,000	9.58
	June 30, 2009	—	—
	September 30, 2009	270,000	9.62
	December 31, 2009	—	—

	Total	3,397,250

(1): In the second quarter of 2008, we established a policy to price stock options at an exercise price per share equal to the fair value of our common stock, as determined by the next valuation study following board approval of the stock option. The grant date for accounting purposes is the date the valuation is finalized and the exercise price is communicated to the employee.

As of December 31, 2009, there was approximately $6.2 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.4 years. Based on an assumed initial public offering price of $ per share, the intrinsic value of stock options outstanding at December 31, 2009 was $ million, of which $ million and $ million related to stock options that were vested and unvested, respectively, at that date.

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We determine the fair value of our stock option awards at the date of grant using a Black-Scholes valuation model. This model requires us to make assumptions and judgments on the expected volatility of our stock, dividend yield, the risk-free interest rate, and the expected term of our option. We utilized the following weighted average assumptions for stock options granted:



Valuation Assumptions:
	Risk-free rate	2.03%	2.61%
	Expected volatility	45.5%	45.5%
	Expected term	5.32 yrs	5.25 yrs
	Dividend yield	—	—

•: Risk-free interest rate—The risk-free rate is based on the U.S. Treasury yield curve in effect on the date of grant for a term consistent with the expected term of our stock options.
•: Expected volatility—As we do not have any trading history for our common stock, the expected stock price volatility for our common stock is estimated by taking the median historical stock price volatility for publicly traded industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. The industry peers consist of several public companies in the specialty pharmaceutical industry similar in size, stage of life cycle, revenues and financial leverage.
•: Expected term—We have minimal historical information to develop expectations about future exercise patterns for our stock option grants. As a result, our expected term is estimated based on an average of the expected term of options granted by several publicly traded industry peers that grant options with vesting and expiration provisions similar to ours.
•: Dividend yield—The dividend yield percentage is zero because historically we have not paid and at the time of the grants did not intend to pay dividends during the expected option life.

Changes in these assumptions can materially affect the fair value estimates. We also estimate a forfeiture rate based on a historical analysis of option forfeitures and revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Fair Value of Common Stock

The fair value of the shares of our common stock that underlie the stock options granted is determined by our board of directors. In determining the valuation of our common stock, we use a two-step methodology that first estimates the fair value of our company as a whole, and then allocates a portion of the enterprise value to our common stock. The valuation of our company as a whole is based upon valuation studies. The findings of these valuation studies are based on our business and general economic, market and other conditions that can be reasonably evaluated at that time. The analyses of the valuation studies incorporate extensive due diligence that include a review of our company, including our financial results, business agreements, intellectual property and capital structure. The valuation studies also include a thorough review of the conditions of the industry in which we operate and the markets that we serve.

The methodologies used in the valuation studies include two widely accepted valuation methodologies: the market multiple and the discounted cash flow methods. Our board of directors considers both of these valuation methodologies when establishing the fair value of our common stock. This approach is consistent with the methods outlined in the AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or Practice Aid.

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The discounted cash flow method applies appropriate discount rates to estimated future cash flows that are based on forecasts of revenue and costs. These cash flow estimates are consistent with the plans and estimates that management uses to manage the business. The discount rates used are based on a risk-adjusted weighted average cost of capital, which ranged from 15.5% in December 2007 to 11.0% in December 2009. If different discount rates had been used, the valuations would have been different. The projections of future cash flow, the determination of an appropriate discount rate and the estimates of probability for success of product candidates each involve a significant degree of judgment. There is inherent uncertainty in making these estimates.

The market multiple method estimates the fair market value of a company by applying market multiples of publicly-traded companies in the same or similar lines of business to the results and projected results of the company being valued. The list of comparable companies remained largely unchanged from 2007 to 2009.

The enterprise values derived under the discounted cash flow and market multiple methods resulted in an initial estimated value of our company, to which we applied a marketability discount. The marketability discount is applied given that the lack of public information and the illiquidity of shares held by private company shareholders typically results in lower valuations for privately held companies relative to comparable public companies. This marketability discount factor was constant at 10% in the valuations from December 2007 to December 2009.

In addition, we have several series of preferred stock outstanding. It is also necessary to allocate our company's value to the various classes of stock, including a warrant and stock options. As provided in the Practice Aid, there are several approaches for allocating enterprise value of a privately-held company among the securities held in a complex capital structure. The possible methodologies include the probability-weighted expected return method, the option-pricing method and the current value method. We have historically used the option-pricing method. Under the option-pricing method, we first assign a liquidation preference to each of the preferred shares and then analyze the equity securities as an option on some portion of the remaining equity value. We consider the rights and privileges of each security, including the liquidation and conversion rights, and the manner in which each security affects the other.

Based on the foregoing, the board of directors determined the estimated fair value of our common stock from December 31, 2007 through December 31, 2009 as follows:

•: The valuation of our common stock at December 31, 2007 resulted in an estimated fair value of $5.66 per share.
•: The valuation of our common stock at April 28, 2008 resulted in an estimated fair value of $6.20 per share. The increase in value was primarily attributable to an increase in our cash balance.
•: The valuation of our common stock at October 30, 2008 resulted in an estimated fair value of $8.39 per share. The increase in value was partially attributable to a change in our revenue forecast and greater confidence in the sustainability of our business. In addition, the increase in value was also due to a reduction in our risk-adjusted weighted average cost of capital, as a result of diversification of our product candidate portfolio achieved from our acquisition of rights to the NDA for LUCASSIN.
•: The valuation of our common stock at December 31, 2008 resulted in an estimated fair value of $9.58 per share. The increase in value was primarily attributable to additional Phase 2 and 3 studies for INOMAX and certain of our product candidates that were expected to contribute to stronger future sales. This was partially offset by the impact of the recessionary market environment on our discount rate.
•: The valuation of our common stock at June 30, 2009 resulted in an estimated fair value of $9.62 per share. The increase in value was attributable to an increase in sales projections resulting

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from improved international sales and additional expected aggregate revenues from possible new indications of INOMAX. This was partially offset by an increased discount rate used in the discounted cash flow methodology reflecting uncertainty around such growth.

•: The valuation of our common stock at December 31, 2009 resulted in an estimated fair value of $8.34 per share. The decrease in value was primarily attributable to the timing change in our revenue projections for LUCASSIN following receipt of a complete response letter from the FDA, reduction in projected revenues associated with potential new INOMAX indications, and lower international revenue projections due to the timing of product launches. This was partially offset by a lower discount rate reflecting a decrease in the risk around meeting our revenue projections due to the reduction in future sales for the projected period as noted above.

Income Taxes

We record income taxes using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

We make judgments as to the amount of a required valuation allowance, if any, based on the assessed realizability of deferred tax assets on a "more likely than not" basis. The assessment of realizability is based on changing facts and circumstances, including but not limited to future projections of taxable income, tax legislation and rulings by relevant tax authorities, tax planning strategies and the progress of ongoing tax audits. We reassess the need for a valuation allowance each reporting period, and record any adjustments that would affect income.

We recognize the tax benefit from an uncertain tax position only if it is "more likely than not" that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The determination as to whether a particular tax position meets the "more likely than not" recognition threshold requires significant management judgment and requires an evaluation of applicable tax laws and regulations as well as the administrative practices and procedures of particular taxing authorities. The measurement of tax positions that meet the more-likely-than-not threshold requires significant management judgment regarding the probabilities assigned to possible outcomes with the taxing authority and may include an assessment of possible settlement outcomes, guidance received from qualified tax advisors and other available information. Although we believe that our judgments and estimates related to income taxes are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material. We will continue to re-evaluate our tax positions each reporting period as new information about recognition or measurement becomes available.

We file income tax returns in U.S. federal, state and certain international jurisdictions. For federal and certain state income tax purposes, our 2004 through 2009 tax years remain open for examination by the tax authorities under the normal statute of limitations. For certain international income tax purposes, our 2008 and 2009 tax years remain open for examination by the tax authorities under the normal statute of limitations.

Acquisitions—Purchase Price Allocations

Prior to January 1, 2009, when recording acquisitions, we expensed amounts related to acquired IPR&D in acquisition-related in-process research and development. IPR&D acquired after January 1, 2009, as part of a business combination, is capitalized as an identifiable intangible asset. IPR&D acquired as part of an asset acquisition is expensed as incurred.

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On March 28, 2007, we acquired INO Therapeutics and Ikaria Research, Inc. for a total purchase price of $628.7 million. Because the Ikaria Research, Inc. acquisition was a non-cash exchange of equity interests, we valued the transaction using the value of equity interests given up, based on both a market and an income approach. INO Therapeutics was acquired for cash and the issuance of shares of series B preferred stock, which were valued based on the price per share paid by the investors in our private offering of series B preferred stock on the same date. We allocated the purchase price for both entities to identifiable assets and liabilities such as inventories, accounts receivable, property, plant and equipment, core developed technology, trademarks and trade names, and IPR&D based on estimated fair values for INO Therapeutics and relative fair values for Ikaria Research, Inc. In estimating fair values, we used all available information, including appraisals and discounted cash flow information. Our purchase price allocation contains uncertainties as it required us to apply judgments with regard to forecasted sales and costs, discount rates and other assumptions. We estimated the value of acquired intangible assets and IPR&D using a discounted cash flow model, which required us to make assumptions and estimates about, among other things: the time and investment that will be required to develop products and technologies, the amount of revenues that will be derived from the products and the appropriate discount rates to use in the analysis. If actual results are not consistent with our estimates of fair value used to complete the purchase price allocations, we could be exposed to material losses.

Internal Control over Financial Reporting

Effective internal control over financial reporting is necessary for us to provide reliable annual and quarterly financial reports and to prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results and financial condition could be materially misstated and our reputation could be significantly harmed. As a private company, we were not subject to the same standards as a public company. As a public company, we will be required to file annual and quarterly reports containing our consolidated financial statements and will be subject to the requirements and standards set by the Securities or Exchange Commission, or SEC.

Results of Operations

The combined statement of operations for the year ended December 31, 2007 represents the statement of operations of the Successor for the year ended December 31, 2007 (for which there was no activity through March 27, 2007) and the Predecessor for the period January 1, 2007 to March 27, 2007.

Comparison of Years Ended December 31, 2009, 2008 and 2007

Revenue

The following table provides information regarding our revenues during the periods indicated:

	Successor				Combined		2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009		Year ended December 31, 2008		Year ended December 31, 2007		% Increase/ (Decrease)			% Increase/ (Decrease)
Net sales	$	274,342	$	236,731	$	206,749		16	%		15	%
Other revenue	$	250	$	63	$	2,450		297	%		(97	)%

Our net sales represent net sales of INOtherapy. Other revenue in 2009 and 2008 represent the earned portion of a $1.0 million payment received in connection with a distribution and logistics services agreement to promote and distribute INOtherapy in Japan, which is being recognized on a straight-line basis over the term of the agreement. In 2007, we recognized other revenue of $2.45 million related to the reimbursement of costs incurred for the research, manufacture and analysis of IK-1001.

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The increase in net sales of $37.6 million, or 16%, in 2009 as compared to 2008 was primarily due to the following:

•: a 5% price increase in the United States implemented in December 2008, resulting in an increase of approximately $10.2 million;
•: an increase in demand from our existing customers, penetration into new hospitals and use of INOtherapy in H1N1 cases; and
•: the commercial introduction of INOtherapy in Australia and Mexico during 2009, resulting in sales of approximately $1.8 million.

The increase in net sales of $30.0 million, or 15%, in 2008 as compared to 2007 was primarily due to the following:

•: a 5% price increase in the United States implemented in October 2007, resulting in an increase of approximately $7.1 million;
•: an increase in demand from our existing customers and penetration into new hospitals; and
•: continued growth in Canada of $1.4 million.

Cost of Sales

The following table provides information regarding our cost of sales and gross margin during the periods indicated:

	Successor						Combined			2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			% Increase/ Decrease			% Increase/ Decrease
Net sales	$	274,342		$	236,731		$	206,749			16	%		15	%
Cost of sales		52,380			51,572			113,319			2	%		(54	)%

Gross margin		221,962			185,159			93,430			20	%		98	%
Gross margin as a percentage of net sales		81	%		78	%		45	%

Our gross margin increased $36.8 million, or 20%, from 2008 to 2009. The gross margin as a percentage of net sales increased 3% from 78% in 2008 to 81% in 2009. These increases were primarily due to:

•: higher net sales due to increased volume and a 5% price increase;
•: lower cost per unit of INOMAX due to increased volume at our manufacturing facilities;
•: lower cost of delivery to customers due to efficiency initiatives in our distribution operations; and
•: a total of $1.9 million in additional charges in 2008 as compared to 2009, consisting of $1.1 million of accelerated depreciation recognized in 2008 for the planned replacement of certain equipment used in the delivery of INOtherapy as compared to $0.2 million in 2009; and $1.0 million for pre-manufacturing costs of drug-delivery systems recognized in 2008.

Our gross margin increased $91.7 million, or 98%, from 2007 to 2008. The gross margin as a percentage of net sales increased 33% from 45% in 2007 to 78% in 2008 due to:

•: a one-time step-up of $69.6 million in the fair value of inventory recognized in connection with the Transaction, which was sold and reflected in cost of sales in 2007; and
•: the full year effect of the 5% price increase that was implemented in October 2007.

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This increase was partially offset by $2.1 million in charges in 2008 as discussed above.

Selling, General and Administrative

The following table provides information in regards to our selling, general and administrative, or SG&A, expenses during the periods indicated:

	Successor						Combined			2009 versus 2008			2008 versus 2007

	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			2009 versus 2008			2008 versus 2007
(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			% Increase			% Increase
Selling, general and administrative	$	83,879		$	61,844		$	42,005			36	%		47	%
Selling, general and administrative as a percentage of net sales		31	%		26	%		20	%

The increase in SG&A expenses of $22.0 million, or 36%, in 2009 as compared to 2008 is primarily due to the following:

•: a $8.7 million increase in salaries and related costs relating to the impact of increased headcount, including an expansion of our sales team from 23 to 45 in the United States, to further drive sales of INOMAX in its approved indication, expand internationally in Australia and Japan and support LUCASSIN in anticipation of FDA approval;
•: $7.3 million in stock-based compensation relating to the modification of stock options granted to a former member of our board of directors;
•: a $2.5 million contribution to fund an academic chair in critical care research;
•: a $1.8 million increase in marketing costs relating to pre-launch activities for LUCASSIN; and
•: $0.9 million in additional costs to support our international expansion, including administrative services and fees for our third-party sales team in Australia.

SG&A expenses increased $19.8 million, or 47%, in 2008 as compared to 2007 primarily due to the following:

•: a $5.2 million increase in professional services fees, including auditing and tax, information technology and consulting fees to help supplement our internal workforce;
•: a $5.0 million increase in salaries and related costs for headcount expansions in finance, legal, human resources and business development for the expansion of selling and administrative functions following the Transaction;
•: $2.9 million related to consulting services investigating critical care market opportunities;
•: a $2.0 million increase in legal costs relating to the reexamination of certain of our U.S. patents, Canadian litigation, regulatory compliance and negotiation of building leases;
•: a $1.3 million increase in stock-based compensation primarily due to stock options granted and the achievement of performance criteria for certain stock options; and
•: a $0.5 million increase related to restricted stock units granted in 2008.

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Research and Development

The following table provides information in regards to our research and development expenses during the periods indicated:

	Successor						Combined			2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			% Increase/ (Decrease)			% Increase/ (Decrease)
Research and development	$	75,421		$	68,538		$	43,965			10	%		56	%
Research and development as a percentage of net sales		28	%		29	%		21	%

Research and development expenses increased $6.9 million, or 10%, in 2009 as compared to 2008 primarily due to the following:

•: $17.3 million in expenses for IK-5001 primarily related to upfront and milestone payments made in connection with in-licensing of the product in 2009;
•: $7.3 million in expenses for other projects in 2009, which included an upfront cash payment of $5.25 million for in-licensing of the IK-600X portfolio and $2.0 million for an ongoing collaborative arrangement;
•: a $3.1 million increase in clinical expenses for the planning of two Phase 2 studies for IK-1001, which began in 2009; and
•: a $2.4 million increase in support primarily due to increased salaries and related benefits for the continued expansion of our research and development functions.

These increases were partially offset by:

•: a $14.0 million decrease in expenses for LUCASSIN. In 2008, we paid $17.5 million to Orphan for the North American commercial rights to LUCASSIN and $0.7 million for start-up manufacturing costs. In 2009, we incurred $4.2 million in clinical, manufacturing and development expenses for LUCASSIN;
•: a $5.8 million decrease in clinical expenses related to terminated projects, primarily due to reduced spending for inhaled carbon monoxide; and
•: a $3.3 million decrease in clinical expenses for INOMAX clinical trials in BPD. In 2008, clinical expenses were $6.5 million, the majority of which were for our INOT-27 Phase 3 trial on the effects of INOMAX on the prevention of BPD in pre-term infants. In 2009, clinical expenses were $3.2 million, primarily related to: (1) follow-up of the INOT-27 Phase 3 trial from 2008, and (2) start-up expenses for our BPD-301 Phase 3 trial evaluating the efficacy and safety of INOMAX on the prevention of BPD in pre-term infants.

Research and development expenses increased $24.6 million, or 56%, in 2008 as compared to 2007 primarily due to:

•: $18.2 million in upfront and start up manufacturing expenses for LUCASSIN, for which the commercial rights were purchased in 2008;
•: $6.8 million in increased research and development support, primarily due to salaries and benefits as a result of expanding our research and development functions; and
•: $2.3 million in increased clinical expenses for IK-1001.

These increases were partially offset by:

•: a $1.9 million decrease in clinical expenses related to terminated projects; and
•: a $0.8 million decrease in clinical expenses for our INOT-27 Phase 3 trial on the effects of INOMAX on BPD in pre-term infants, which completed enrollment during 2008.

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Acquisition-Related In-Process Research and Development

The $271.6 million IPR&D charge in 2007 represents the expensing of IPR&D products as a result of the purchase price allocation from the Transaction. These products included IK-1001, inhaled carbon monoxide and potential new indications for INOMAX.

Amortization of Acquired Intangibles

The following table provides information in regards to our amortization of intangibles during the periods indicated:

	Successor				Combined		2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009		Year ended December 31, 2008		Year ended December 31, 2007		% Increase/ (Decrease)			% Increase/ (Decrease)
Amortization of acquired intangibles	$	30,720	$	30,452	$	22,187		1	%		37	%

Amortization of acquired intangibles expense increased $0.3 million, or 1%, in 2009 as compared to 2008. The increase reflects the impact of a full year's amortization of future royalty interests on net sales of INOMAX in the United States and Canada.

Amortization of acquired intangibles expense increased by $8.3 million, or 37%, in 2008 as compared to 2007 primarily because of the full year's amortization of intangibles recorded from the Transaction. Amortizable intangibles acquired included core developed technology of $170.2 million and assembled workforce of $0.3 million. We also had $0.7 million of additional amortization expense during 2008 arising from the purchase of royalty obligations discussed above.

Other Operating Expense (Income), net

The following table provides information in regards to our other operating expense (income), net during the periods indicated:

	Successor						Combined			2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			% Increase/ (Decrease)			% Increase/ (Decrease)
Foreign currency transaction (gains) losses	$	(303	)	$	305		$	(201	)		NA			NA
Bank charges		358			222			84			61	%		164	%
Warrant (income) expense		(73	)		229			157			NA			46	%
Gain on disposal of fixed assets		(392	)		(400	)		(163	)		(2	)%		145	%

	$	(410	)	$	356		$	(123	)		NA			NA

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Interest (Expense) Income, net

The following table provides information in regards to our interest (expense) income, net during the periods indicated:

	Successor						Combined			2009 versus 2008			2008 versus 2007

(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007			% Increase/ (Decrease)			% Increase/ (Decrease)
Interest (expense) income, net	$	(8,863	)	$	(13,149	)	$	(14,475	)		(33	)%		(9	)%

The decrease in interest expense, net of $4.3 million, or 33%, in 2009 as compared to 2008 was primarily due to a decrease in LIBOR and in our total debt outstanding due to principal repayments of approximately $15.8 million in 2009.

The decrease in interest expense of $1.3 million, or 9%, in 2008 as compared to 2007 was primarily due to a decrease in LIBOR, a decrease in the interest rate spread on the Term Loan from 2.50% to 2.25% due to meeting certain defined leverage ratios, and a decrease in our total debt outstanding due to principal repayments of approximately $41.5 million in 2007. These decreases were partially offset by the full year impact of interest expense on the Term Loan.

Provision for Income Taxes

The following table provides our reconciliation of the statutory federal income tax rate to our effective tax rate during the periods indicated:

	Successor						Combined

	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007
U.S. federal statutory rate		35.0	%		35.0	%		(35.0	)%
State and local taxes, net of federal tax effect		9.4			11.1			(3.8	)
In-process research and development		—			—			4.9
Change in tax status		—			—			2.2
Research tax credit		(11.8	)		(38.4	)		(0.1	)
Impact of tax-free flow through period		—			—			(2.2	)
License payments		3.1			—			—
Foreign tax differential		1.2			—			—
Change in valuation allowance		1.8			—			—
Incentive stock options		3.3			5.5			0.1
Other		3.3			(1.4	)		0.2

Effective Tax Rate		45.3	%		11.8	%		(33.7	)%

Orphan drug and research and development tax credits of approximately $4.4 million and $6.3 million were generated, which impacted the effective tax rate for the years ended December 31, 2009 and 2008, respectively. We engage in annual studies that support the availability of these orphan drug and research and development tax credits.

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Liquidity and Capital Resources

As of December 31, 2009, (i) we, including our subsidiaries, had $95.2 million in cash and cash equivalents and (ii) our wholly owned subsidiary, Ikaria Acquisition, had, and Ikaria, Inc. guaranteed, $39.2 million borrowing availability under a revolving line of credit. The outstanding principal on the Term Loan at December 31, 2009 was $175.7 million. Our cash and cash equivalents as of December 31, 2009 consisted predominantly of balances held in money market deposit accounts.

Our liquidity requirements have historically consisted of research and development expenses, sales and marketing expenses, in-licensing expenditures, capital expenditures, working capital, debt service and general corporate expenses. Historically, we have funded these requirements and the growth of our business primarily through sales of INOtherapy, convertible preferred stock sales and proceeds of the Term Loan. We now expect to fund our liquidity requirements primarily with cash generated from operations. We believe that our existing capital resources, including amounts available for borrowing under our revolving credit facility and cash flows from operations, will be sufficient to maintain and grow our current operations for at least the next twelve months.

Our longer-term liquidity and capital requirements will depend upon numerous factors including our operating performance, costs to license or acquire new products or product development candidates, to conduct clinical trials in support of development projects and to develop systems and the possible loss of sales and reduced margins if competitive products are commercially introduced upon the expiration of the principal patents covering INOMAX in 2013. Future liquidity requirements could also be impacted by potential growth in our infrastructure, and significant economic, regulatory, product supply and competitive conditions. We may choose to raise additional funds through public or private debt or equity financings or other arrangements. There can be no assurance that these arrangements will be available on terms acceptable to us, or at all, or that these arrangements will not be dilutive to our stockholders.

Summary of Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2009, 2008 and 2007. The combined cash flow data for the year ended December 31, 2007 represents the combined statement of cash flows of the Successor for the year ended December 31, 2007 (for which there was no activity through March 27, 2007) and the Predecessor for the period January 1, 2007 to March 27, 2007:

	Successor						Combined

(000's)	Year ended December 31, 2009			Year ended December 31, 2008			Year ended December 31, 2007
Cash provided by (used in):
Operating activities	$	71,434		$	67,522		$	63,093
Investing activities		(12,600	)		(18,054	)		(511,720	)
Financing activities		(15,556	)		(1,687	)		453,776
Effect of exchange rates on cash		297			—			—

Net increase in cash and cash equivalents	$	43,575		$	47,781		$	5,149

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Cash Flows from Operating Activities

Cash flows from operating activities for the years ended December 31, 2009, 2008 and 2007 were as follows:

	Successor				Combined

(000's)	Year ended December 31, 2009		Year ended December 31, 2008		Year ended December 31, 2007
Cash flows from operating activities:
Net income (loss)	$	12,979	$	9,595	$	(197,678	)
Non-cash charges, net		45,337		45,236		204,035
Increase in cash from changes in operating assets and liabilities		13,118		12,691		56,736

Cash flows from operating activities	$	71,434	$	67,522	$	63,093

During 2009, 2008 and 2007, cash provided by operating activities was $71.4 million, $67.5 million and $63.1 million, respectively. The $3.9 million increase in 2009 from 2008 primarily related to the $3.4 million increase in net income. In 2009 and 2008, non-cash charges, which were largely composed of amortization and depreciation, and the net increase in cash from changes in operating assets and liabilities were relatively constant.

In 2007, the net loss of $197.7 million, the non-cash charges of $204.0 million and the increase in cash from changes in operating assets and liabilities of $56.7 million were all impacted by acquisition accounting. The $197.7 million loss in 2007 included a non-cash charge of $271.6 million related to the expensing of acquisition-related IPR&D and the effect of a $69.6 million step-up in the value of inventory upon acquisition. Cash provided by operating activities increased $4.4 million in 2008, as compared to 2007, primarily due to an increase in gross margin on net sales. Gross margin on net sales increased by $91.7 million of which $69.6 million reflected a one-time non-cash expense arising from the step-up of inventory from the Transaction. Excluding this non-cash expense, the cash flow impact from the increase in margin was $22.1 million. This increase was partially offset by a cash payment made in August of 2008 of $18.3 million to acquire the North American commercial rights to LUCASSIN and for certain start-up manufacturing costs.

Cash Flows from Investing Activities

During 2009 and 2008, cash used in investing activities was $12.6 million and $18.1 million, respectively. Additions to property, plant and equipment of $13.7 million and $13.9 million, respectively, primarily reflected the purchases of cylinders and the purchase and manufacture of delivery systems to support the growth of the business. In 2008, we also purchased future royalty obligations on net sales of INOMAX in the United States and Canada for which we recorded an intangible asset of $4.6 million. During 2007, cash used in investing activities of $511.7 million was primarily attributable to cash paid for the acquisition of INO Therapeutics of $505.1 million and capital expenditures of $6.8 million. Investing activities also included proceeds from the sale of property plant and equipment of $1.1 million, $0.9 million and $0.2 million in 2009, 2008 and 2007, respectively.

Cash Flows from Financing Activities

During the years ended December 31, 2009 and 2008, cash used in financing activities was $15.6 million and $1.7 million, respectively, and primarily reflects repayments on the Term Loan. We repaid $15.8 million and $2.0 million of the Term Loan in 2009 and 2008, respectively. Cash used in financing activities was slightly offset by proceeds of $0.3 million in both 2009 and 2008 from the

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issuance of stock pursuant to the exercise of stock options granted under our equity plans. During 2007, cash provided by financing activities of $453.8 million was predominantly from proceeds from the issuance of Series B preferred stock of approximately $280 million, the borrowing under the Term Loan of $235.0 million, and proceeds from the issuance of common stock of $3.0 million, partially offset by a repayment of $41.5 million of the Term Loan, an increase in a loan to a related party of $17.2 million and payment of debt issuance costs of $5.5 million.

Credit Agreement

On March 28, 2007, we entered into a credit agreement, or the Credit Agreement, with a group of financial institutions under which our wholly-owned subsidiary, Ikaria Acquisition, borrowed $235.0 million pursuant to the Term Loan and obtained a five-year $40.0 million senior secured revolving loan facility, both of which Ikaria, Inc. guaranteed. The proceeds from the Term Loan were used to pay cash consideration for the purchase of INO Therapeutics, to pay transaction costs, and to provide up to $2.0 million in cash on hand. As of December 31, 2009 and 2008, our total debt outstanding consisted of the amounts set forth in the following table:

(000's)	As of December 31, 2009		As of December 31, 2008

Current portion of Term Loan	$	1,807	$	15,843
Long-term portion of Term Loan		173,914		175,720

Total outstanding Term Loan	$	175,721	$	191,563

The Term Loan bears interest, at our election, at (i) LIBOR plus an increment of 2.25% to 2.50% or (ii) the Alternate Base Rate, or ABR, plus an increment of 1.25% to 1.50%. Both increments are based upon a leverage ratio as of the relevant date of determination defined in the Credit Agreement. The ABR is the greater of the Prime Rate and the Federal Funds Effective rate plus 0.5%.

The Term Loan matures quarterly in amounts equal to 1% annually of the beginning principal amount in each year of the loan term with the remainder maturing on March 28, 2013. The facility also requires mandatory payments of 25% of excess cash flow, or ECF, if our leverage ratio is greater than 2.0 but less than 2.75 and 50% of ECF if the leverage ratio is equal to or greater than 2.75. ECF payments are not required if the leverage ratio is less than 2.0. The leverage ratio is defined in the Credit Agreement. The ECF payments are net of any voluntary prepayments made during such fiscal year. We made an ECF payment for 2008 of $14.0 million in March of 2009. No ECF payments were required in 2008 for 2007 because of principal payments of $41.5 million made in 2007. No ECF payments will be required in 2010 for 2009.

Under the terms of the Credit Agreement, we have an incremental Term Loan feature that allows us to request commitments from the existing or other lenders to borrow up to an additional $100 million without having to get the consent of the existing lenders.

As of December 31, 2009, we had $0.8 million in letters of credit issued against the revolving credit facility. Any borrowings under the revolving credit facility bear interest, at our election, at (a) LIBOR plus an increment of 2.00% to 2.50% or (b) ABR plus an increment of 1.00% to 1.50%, also based upon a leverage ratio as of the relevant date of determination. We pay a commitment fee of 0.50% per annum on the undrawn portion of the revolving facility and an all-in rate of 2.25% on outstanding letters of credit.

The Term Loan and revolving loans are secured by substantially all of our assets, including those presently owned or hereafter acquired and all of our intellectual property. The Credit Agreement requires us to maintain compliance with specified leverage ratios and annual limits on capital expenditures and has other customary restrictions. The maximum leverage ratio under the terms of our

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Credit Agreement cannot exceed 4.25 and 5.0 as of December 31, 2009 and 2008, respectively. Our leverage ratio as of December 31, 2009 was 1.85. The Credit Agreement limits capital expenditures to $15.0 million per year. Our ability to comply with these ratios may be affected by certain events both within and beyond our control. As of December 31, 2009, we were in compliance with all required covenants. A failure to comply with the covenants under our existing credit facility could result in an event of default. In the event of an acceleration of amounts due under our credit facility as a result of an event of default or the occurrence of a mandatory prepayment event, we may not have sufficient funds or may not be able to arrange for additional financing to repay our indebtedness. The lenders could seek to enforce security interests in the collateral securing such indebtedness. Because of the covenants under our existing credit facility and the pledge of our assets as collateral, we may have a limited ability to obtain additional debt financing.

Tax Loss Carryforwards

At December 31, 2009, we had federal net operating loss carryforwards of approximately $6.4 million, all of which are subject to limitation under Internal Revenue Code Section 382. At December 31, 2009 we had combined post apportionment state net operating loss carryforwards of approximately $3.4 million and foreign net operating loss carryforwards of $1.1 million. We also had federal research tax credit carryforwards of $7.5 million at December 31, 2009, of which $0.5 million are subject to limitation under Internal Revenue Section 382. The federal net operating loss carryforwards begin to expire in 2027 and the federal research credits begin to expire in 2025. The state net operating loss carryforwards begin to expire in 2019, and the foreign net operating loss carryforwards begin to expire in 2017.

Contractual Obligations

The table below summarizes our contractual obligations as of December 31, 2009 that requires us to make future cash payments:

Contractual Obligations(1) (000's)	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years

Long-term debt obligations	$	175,721	$	1,807	$	3,614	$	170,300	$	—
Operating lease obligations(2)		8,985		3,692		4,109		1,093		91
Research and development agreements(3)		9,530		2,808		5,041		1,681		—
Inventory supply agreements(4)		692		692		—		—		—

Total contractual obligations	$	194,928	$	8,999	$	12,764	$	173,074	$	91

(1): Milestone payments and royalty payments under our license and collaboration agreements are not included in the table above because we cannot, at this time, determine when or if the related milestones will be achieved or the events triggering the commencement of payment obligations will occur. For additional information, see Note 18, Product Acquisitions and Other Agreements, and Note 21, Commitment and Contingencies, in our consolidated financial statements included elsewhere in this prospectus.
(2): Reflects lease obligations under operating leases for office, warehouse and manufacturing space, equipment and vehicles expiring at various dates through 2016.
(3): Represents committed funding in connection with our research and development contractual arrangements.
(4): Represents committed purchases in connection with our inventory arrangements.

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Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board, or FASB, amended the consolidation guidance that applies to variable interest entities, or VIEs, which requires ongoing reassessments of whether an enterprise is the primary beneficiary of the VIE. The guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with an approach focused on identifying which enterprise has the power to direct the activities of a VIE and the obligation to absorb losses of the entity or the right to receive the entity's residual returns. It also requires enhanced disclosures about an enterprise's involvement in a VIE. This guidance is effective for fiscal years beginning after November 15, 2009 and the interim periods within that fiscal year. We do not expect the standard will have a material impact on our consolidated financial statements.

In October 2009, the FASB issued authoritative guidance that amends existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and provides guidance for allocating and recognizing revenue based on those separate deliverables. The guidance is expected to result in more multiple-deliverable arrangements being separable than under current guidance. This guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We do not expect the standard to have a material impact on our consolidated financial statements other than additional disclosures.

In January 2010, the FASB issued guidance requiring additional disclosures related to transfers between levels in the hierarchy of fair value measurement. The standard is effective for interim and annual reporting periods beginning after December 15, 2009. The standard does not change how fair values are measured. Accordingly, we do not expect the standard will have an impact on our consolidated financial statements other than additional disclosures.

Off-Balance Sheet Arrangements

Except for standard operating leases, we do not have any off-balance sheet arrangements relating to the use of structured finance, special purpose entities or variable interest entities.

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk is confined to our cash and cash equivalents, interest rates on our debt and foreign currency fluctuations. At December 31, 2009 we had cash and cash equivalents of $95.2 million, which consisted primarily of balances held in money market deposit accounts. Our cash is managed in accordance with our investment policy goals, which in order of priority, are preservation of capital, maintenance of sufficient liquidity and maximization of the after-tax return of the portfolio. We do not hold or issue financial instruments for trading purposes.

We are exposed to interest rate risk primarily through our borrowing activities, which are described in Note 8, Debt and Credit Facilities, of our consolidated financial statements included elsewhere in this prospectus. Since April 2007, we have managed interest rate risks through the use of derivative financial instruments. Our borrowings under the Term Loan and revolving facility are subject to a variable rate of interest. Pursuant to the Credit Agreement entered into on March 28, 2007, we were required to enter into one or more hedging agreements for the first two years of the Term Loan so that at least 50% of our aggregate principal amount outstanding was subject to a fixed or maximum interest rate to protect against exposure to interest rate fluctuations.

In April 2007, we entered into an interest rate collar agreement as required under the Credit Agreement to help manage our exposure to interest rate movements, economically hedging $117.5 million of our LIBOR-based floating rate term debt for a period of two years. As a result of entering into the agreement, the interest rate to be paid by us relating to the hedged portion of our

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debt was based on a minimum three-month LIBOR rate of 4.09% and a maximum three-month LIBOR rate of 5.75%. During the years ended December 31, 2008 and 2007, we recorded a pre-tax loss of $0.3 million and $0.7 million, respectively, in interest expense resulting from the changes in the fair value of the interest rate collar. During 2009, there was an immaterial loss on the collar. The interest rate collar expired on April 30, 2009.

In May 2008, we entered into a two-year forward starting interest rate swap effective April 30, 2009, that converts the interest rate on a portion of our debt from floating rate to fixed rate using a cash flow hedge. The notional amount of the interest rate swap is $100.0 million from April 30, 2009 to April 30, 2010 and $80.0 million from April 30, 2010 to April 30, 2011. The swap had the economic effect of converting a portion of our three-month floating LIBOR interest rate base to a fixed interest rate base of 3.89% for a term of two years. At December 31, 2009, the estimated fair value of the swap was a liability of $4.0 million, and accumulated other comprehensive loss included a loss of $2.0 million, after tax, related to the swap.

As of December 31, 2009, we had outstanding floating rate debt of $175.7 million under our Term Loan. We also had $0.8 million in letters of credit issued against our revolving line of credit facility. If interest rates were to increase or decrease by one percentage point, the annual interest expense on our debt would increase or decrease by approximately $1.8 million. However, because of the interest rate swap agreement, which in effect converts $100.0 million of our floating rate debt to fixed rate debt as of December 31, 2009, the impact of a change in interest rates on the hedged portion of our debt would be offset by the impact of the change in the interest rates on our swap.

Most of our transactions are conducted in U.S. dollars. Approximately four percent of our net sales were denominated in Canadian dollars for the year ended December 31, 2009. We currently have a limited number of transactions in currencies other than the U.S. dollar. As such, we do not currently have a significant risk to foreign currency fluctuations, but we may in the future as we continue to expand our operations overseas.

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BUSINESS

Overview

We are a fully-integrated biotherapeutics company focused on developing and commercializing innovative therapeutics and interventions designed to meet the significant unmet medical needs of critically ill patients. We believe that this focus, combined with our strengths in research and development, manufacturing and sales and marketing, position us to be a leader in the critical care market.

We generated net sales of $274 million in 2009, all of which was from INOtherapy. Our annual net sales have increased to $274 million in 2009 from $207 million in 2007, representing a CAGR of approximately 15%. We had net income of $13 million in 2009. We generated adjusted EBITDA of $109 million in 2009, as compared to $92 million in 2007 and adjusted net income of $38 million in 2009, as compared to $22 million in 2007, representing a CAGR of approximately 9% and 31%, respectively. For reconciliations of adjusted EBITDA to net income and adjusted net income to net income, see the section entitled "Summary Consolidated Financial Data". Our net sales are generated from INOtherapy, our all-inclusive offering of drug product, services and technologies, which we first commercialized in 2000. INOtherapy includes our FDA-approved drug INOMAX (nitric oxide) for inhalation, INOcal calibration gases, use of our proprietary FDA-cleared drug-delivery system, distribution, emergency delivery, technical and clinical assistance, quality maintenance, on-site training and 24/7/365 customer service.

We sell INOtherapy in the United States, Puerto Rico, Canada, Australia, Mexico and Japan. INOMAX, the drug included in our INOtherapy offering, is the only treatment approved by the FDA for HRF associated with pulmonary hypertension in term and near-term infants. HRF is a potentially fatal condition that occurs when lungs are unable to deliver sufficient oxygen to the body. Our customers use INOMAX in a variety of critical care conditions beyond HRF. We believe this additional use is driven by physicians' knowledge of the physiologic effects of inhaled nitric oxide, the scientific literature on the use of inhaled nitric oxide and the safety of INOMAX, and the inclusion of inhaled nitric oxide in published practice guidelines for certain conditions. In a survey we conducted, customers representing 16% of our 2008 U.S. net sales reported that approximately 80% of their aggregate INOMAX costs in 2008 related to uses other than for its approved indication. Based on the information collected in this survey, we believe that sales of INOMAX for unapproved uses relate (i) primarily to cardiac surgery and other conditions for which we are not currently planning to seek FDA approval, and (ii) to ARDS, and to a lesser extent BPD, conditions for which we are currently seeking FDA approval. We therefore continue to pursue clinical studies required for approval of potential uses of INOMAX in the critical care setting. Notably, we are conducting a Phase 3 clinical trial in support of an indication for INOMAX for prevention of BPD and, pending the outcome of preclinical studies, are planning additional clinical trials for use of INOMAX in treating ARDS. We plan to continue to grow our INOtherapy business by increasing penetration into our existing customer base, actively adding new U.S. customers, expanding in foreign markets, gaining additional FDA-approved indications for INOMAX and developing next-generation technologies for our drug-delivery systems.

Our success with INOtherapy has allowed us to use cash flow from net sales to fund our research and development efforts, to make targeted product acquisitions, to grow our commercial capabilities, and to build an infrastructure that supports further growth of INOtherapy as well as our pipeline of product candidates. We have built close relationships with and gained valuable insights from critical care professionals, which help us identify potential solutions to unmet medical needs. These solutions aim to optimize patient outcomes, whether through improvements to existing treatments, new treatments or disease-modifying therapies. We also leverage our extensive knowledge of the critical care market and our research and development expertise to reduce the risks of clinical development and to help ensure efficient spending on our product candidates.

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To augment our revenue growth, leverage our existing infrastructure and further diversify our product and product candidate portfolios, we have pursued, and intend to continue to actively pursue, acquisitions and in-licensing opportunities. We harness our biologic expertise and clinical insight in the critical care market in order to identify, develop and commercialize our product candidates.

Our product and product candidates pipeline is summarized in the table below.

Product / Product Candidate	Active Pharmaceutical Ingredient / Mechanism of Action	Primary Indication(s)	Status	Commercialization Rights

INOtherapy / INOMAX	Nitric oxide / pulmonary vasodilator	Hypoxic respiratory failure	Marketed	Worldwide, excluding the EU and specified other countries(1)
		Bronchopulmonary dysplasia	Phase 3
		Acute respiratory distress syndrome-chronic lung disease	Phase 3 in planning stage
LUCASSIN	Terlipressin / vasopressin receptor agonist	Hepatorenal Syndrome Type 1	Pivotal Phase 3 expected to commence in 2010	United States, Canada, Mexico and Australia
IK-5001	Sodium alginate and calcium gluconate / mechanical support of infarcted heart muscle	Cardiac remodeling and subsequent congestive heart failure following acute myocardial infarction	Pivotal Phase 2/3 expected to commence in 2011	Worldwide
IK-1001	Sodium sulfide	Conditions characterized by tissue ischemia	Clinical program in planning stage	Worldwide
IK-6001	Fibrinogen Bb15-42 / anti-inflammatory	Conditions characterized by vascular leakage	Preclinical	Worldwide

(1): An affiliate of Linde has the exclusive right to market and sell INOMAX in the European Union and other specified countries near the European Union. We are required to offer an affiliate of Linde the exclusive right to distribute INOMAX in any country prior to retaining an exclusive third-party distributor to sell INOMAX in that country.

Our later-stage product candidates include LUCASSIN and IK-5001.

LUCASSIN is being developed for the treatment of HRS Type 1, a rare and often fatal condition characterized by rapid onset of kidney failure for which there are no approved drugs in the United States. Terlipressin, the active pharmaceutical ingredient in LUCASSIN, is approved in France, Ireland, Spain and South Korea for the treatment of patients with HRS Type 1. In the United States, LUCASSIN has fast-track and orphan drug designations for use in HRS Type 1.

IK-5001 is being developed to prevent cardiac remodeling, the structural alteration of damaged heart muscle, and subsequent CHF resulting from a heart attack. IK-5001 is administered following a heart attack in liquid form by injection and is designed to flow into the damaged heart muscle where it forms a protective cast, or scaffold, to enhance the mechanical strength of the heart muscle during recovery and repair.

The Critical Care Market

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estimates that the total costs attributable to caring for critically ill patients exceeded $180 billion in 2006, of which we estimate over $20 billion was spent on pharmaceutical therapies.

The management of critically ill patients is typically provided in critical care units, which are frequently referred to as ICUs. ICUs can be subdivided based on specialty and include the neonatal intensive care unit, or NICU, medical intensive care unit, or MICU, surgical intensive care unit, or SICU, pediatric intensive care unit, or PICU, coronary care unit, or CCU, and burn unit. Monitors, intravenous, or IV, medication and/or hydration pumps, tubes, feeding tubes, catheters, ventilators and other equipment are commonly found in critical care units. While critically ill patients may recover, death is a significant possibility.

According to data from HCRIS, in 2005, there were more than 3,000 hospitals in the United States with over 90,000 ICU beds, of which we estimate that 80% of these ICU beds are located in 1,300 of these hospitals. Based on data from SDI Health, we estimate there were approximately 16 million admissions to critical care units in the United States in 2008. On average, critically ill patients require a higher level of care than most other hospitalized patients. Based on HCRIS data, it has been estimated that the average cost per critically ill patient is over $3,500 per day versus approximately $1,500 per day for other hospitalized patients.

Critical care involves close, constant attention by a team of specially-trained healthcare professionals. These teams include highly experienced physicians, nurses, respiratory therapists, pharmacists and other professionals who use their expertise, ability to interpret complex clinical information, and access to highly sophisticated equipment to optimize patient outcomes. An intensivist is a physician with subspecialty training, or equivalent qualifications, in critical care who directs the care of critically ill patients and works in collaboration with other healthcare professionals as necessary. The United States Department of Health and Human Services estimated that the aging of the population will increase demand for intensivist services by approximately 48% from 2000 to 2020.

•: Aggressive intervention for critically ill patients—Patients in the ICU often present with multiple organ system problems and severely compromised basic functions, such as respiration, oxygenation, heart rate, blood pressure and mental function. The fragile state of these critically ill patients, combined with a lack of approved treatments for their complex medical conditions, generally increases the need for critical care physicians to employ more aggressive courses of treatment, which may be largely based on clinical literature and their prior training and experience. The benefits of using all available treatments frequently outweigh the risks associated with using an approved treatment for an unapproved use. For example, one 2005 study conducted in the PICU at the University of Wisconsin School of Medicine and Public Health showed that less than 35% of medications commonly prescribed had FDA-approved indications for the conditions for which they were prescribed.
•: Urgent and complex needs of critically ill patients govern decision-making—Due to the often rapidly declining state of patients in an ICU, it is desirable to have immediate feedback as to whether a course of treatment is working. In addition, the complexity of the conditions that present in many critically ill patients creates the need for a broad level of medical support. As a result, there is often a focus on the use of life-sustaining mechanical and nutritional interventions in conjunction with pharmacological therapies. Further, since time frequently is of the essence when treating critically ill patients, and the treatment to which a patient will respond may be unknown at the outset, multiple drugs and other interventions are often used simultaneously rather than in sequence to optimize patient outcomes in a narrow time frame. Moreover, in

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most situations, maintaining appropriate oxygenation is a top priority in managing an ICU patient.

•: Highly trained, specialized workforce—The intensivists, neonatologists, nurses, respiratory therapists and other healthcare professionals who work in ICUs receive specialized critical care training. In addition, the ratio of healthcare professionals to patients is generally higher in an ICU than in other units of the hospital.
•: Restricted-access environment—Access to the ICU is among the most heavily restricted in the hospital. Generally, pharmaceutical and medical device sales representatives are not freely allowed into an ICU. As a result, sales representatives do not frequently market new products to critical care physicians without a strong pre-existing relationship.
•: Compelling pharmacoeconomic rationale—In general, because of the intensity of services required for a critically ill patient, the care that a hospital provides in the ICU is reimbursed at a higher rate by Medicare, Medicaid and insurance companies. Reimbursement under Medicare and Medicaid for inpatient hospital services is based on a fixed amount per admission which, in turn, is based on the patient's diagnosis related group, or DRG, regardless of the cost or amount of treatments provided. Private third-party payors typically reimburse for inpatient hospital services under programs that are substantially similar to the DRG system. Any treatment that improves care and reduces days in the ICU results in cost savings to the hospital without directly affecting DRG payments. In addition, due to the high morbidity and mortality associated with critically ill patients, effective interventions or treatments could deliver compelling pharmacoeconomic value by potentially increasing years of life, as well as quality of life, in survivors.

Our Competitive Strengths

We believe we have the following competitive advantages and strengths:

Profitable INOtherapy Business with Significant Growth Potential—Our annual net sales have grown from $207 million in 2007 to $274 million in 2009, representing a CAGR of approximately 15%. We have been growing INOtherapy revenues, in part, through increased market penetration for the approved indication using our established sales team in the United States and Puerto Rico. We are conducting and planning clinical trials of INOMAX for additional indications and are developing advanced INOMAX drug-delivery systems. We also market INOtherapy in Canada, Australia, Mexico and Japan.

Established Infrastructure and Strength in Sales and Marketing—We have been selling INOtherapy since 2000, and, as a result, have an established infrastructure, including manufacturing and distribution capabilities, an installed base of drug-delivery systems, and an experienced sales and marketing team. We have an installed base and deployable inventory of approximately 4,500 wholly-owned, proprietary drug-delivery systems and have navigated the time-consuming and complex process of establishing the compatibility of our drug-delivery systems with more than 48 models of ventilators and anesthesia devices. As of April 30, 2010, we had 45 sales professionals in the United States and Puerto Rico, five professionals who educate customers on reimbursement options and 11 employees responsible for brand management, market research and sales operations. Under our current management, we doubled the size of our sales team and we believe we have the capability to further expand our sales and marketing infrastructure to the extent necessary to commercialize any additional products we may develop or acquire.

Sales Driven by Deep Relationships in Critical Care—INOtherapy is typically administered at the patient's bedside through a ventilator. In order to facilitate the use of INOtherapy, our medical and sales professionals provide critical care professionals with clinical and technical assistance and ongoing clinical training. In addition, we have a strong focus on customer satisfaction, which is demonstrated

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through around-the-clock customer support and reflected in our customer satisfaction surveys and high customer retention rates. Our comprehensive and integrated offering provides us with meaningful access to critical care professionals and their patients. We believe this access, together with our focus on customer satisfaction, allows us to develop close relationships with, and respond to the needs and practices of, our customers as well as understand the roles of therapeutics, diagnostics and supportive care in the critical care setting.

Expertise in Critical Care and in Research and Development—We are able to identify unmet medical needs and opportunities through our extensive knowledge of the critical care market and ongoing interactions with thought leaders. Once we have identified a potential product candidate or indication, we rely on our expertise in understanding the pathophysiology and biology of the condition to determine the best clinical and scientific path to demonstrate pharmacological activity and proof of concept within an attractive timeframe and budget. For those product candidates with which we decide to move forward, we are able to rely on the expertise of our approximately 110 research and development personnel, over 60 of whom have experience administering clinical trials in critical care settings. We believe that a combination of the judicious use of clinically relevant biomarkers, and our experience with adaptive clinical trial design, which is modifying ongoing clinical trials based on accumulated trial data, can help identify the right dose and patient profile for our clinical studies. We believe that our expertise in critical care and in research and development, including our emphasis on early evaluation of potential product candidates, mitigates some of the risk usually associated with new product development.

Pipeline of Promising Product Candidates—We have a diversified and promising pipeline of product candidates, including two late-stage product candidates and a number in earlier clinical or preclinical development. We believe several of our product candidates target potentially large market opportunities. We intend to use our experience in critical care research and development to advance this pipeline and our knowledge and success in the critical care market to augment our pipeline through in-licensing.

Leadership Team with Proven Track Record of Operational Execution—Under our current management, we have successfully grown our annual INOtherapy revenues, expanded our commercial and research and development capabilities, and executed on our product acquisition and in-licensing strategy by acquiring rights to LUCASSIN, IK-5001 and the IK-600X portfolio. In addition, we have built a strong financial foundation which, combined with the experience and proven track record of our leadership team, positions us to capitalize on additional opportunities.

Our Strategy

Our goal is to become a leader in developing and commercializing innovative therapeutics and interventions for the critical care market and, ultimately, advancing the practice of critical care medicine. The key elements of our strategy to achieve this goal include:

Growing Our INOtherapy Business—We are seeking to grow our revenues by:

•: Further Penetrating Existing Accounts—We plan to continue to introduce our next-generation drug-delivery systems in hospitals, educate our customers on the use of INOMAX and available reimbursement options and provide superior customer service in order to increase sales of INOMAX for its approved indication to existing hospital accounts.
•: Adding New Hospitals as Customers—We plan to market our INOtherapy offering for the approved INOMAX indication to new hospital accounts.
•: Expanding in Foreign Markets—We are adding resources in foreign jurisdictions and expanding in new markets. We intend to leverage our existing infrastructure to provide our INOtherapy offering in foreign markets, with the same high quality standards.

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•: Seeking Approval for Additional Indications—We are conducting and planning clinical trials of INOMAX for currently unapproved uses with the intention of seeking FDA approval for these indications if the trials are successful.
•: Improving Drug-Delivery Technology—We are continuing to develop innovative technology for our drug-delivery systems to enhance safety, efficacy and ease of use in the delivery of INOMAX.

Enhancing Our INOtherapy Market Position—We are working to sustain and improve our current INOtherapy market position through our:

•: Customer Service—We continue to focus on customer service and satisfaction. We train our customers on use of our product and drug-delivery systems, educate them about reimbursement options, and deliver emergency drug and drug-delivery systems when needed. In addition, we periodically conduct customer surveys to ensure we are effectively meeting their needs. By focusing on customer satisfaction, we are striving to further strengthen our customer relationships and loyalty, which we believe will help improve and protect our current market position.
•: Advanced Drug-Delivery Systems—We are developing more technologically advanced drug-delivery systems with improved functionality to further enhance their safety, efficacy and ease of use and to build a sustainable competitive advantage for INOtherapy. These advanced drug-delivery systems include the INOMAX DSIR and INOpulse DS. The INOMAX DSIR, recently cleared by the FDA, uses infrared technology to improve the safety parameters of the drug-delivery systems. The INOpulse DS is optimized for spontaneously breathing patients and provides precise drug delivery, which may prove useful in certain indications.
•: Intellectual Property and Other Exclusivity—To protect the value of our innovations, we are pursuing intellectual property protection for our new drug delivery technology. Also, we are seeking drug and delivery system combination approval by the FDA for certain future indications. In addition, when appropriate, we intend to seek additional exclusivity through orphan designation and/or pediatric exclusivity and to file additional patent applications.

Pursuing Efficient and Informed Development of Product Candidates—We intend to harness our biologic expertise and clinical insight in the critical care market to further the clinical development of several of our in-licensed product candidates. We expect to commence a pivotal Phase 3 clinical trial of LUCASSIN in 2010 for the treatment of HRS Type 1. IK-5001 has recently completed a Phase 1/2 clinical trial in Europe, and we intend to move its development forward with a pivotal Phase 2/3 clinical trial for the prevention of cardiac remodeling and subsequent CHF following AMI.

In addition, we leverage our knowledge and expertise to help ensure prudent spending on development of our product candidates. We identify critical care market opportunities, determine the likely value to patients and physicians, and gauge our ability to develop a product candidate within a reasonable timeframe and budget. We then use clinically relevant biomarkers and adaptive clinical trial design, when appropriate, to help identify the right dose and patient profile for our clinical studies. In addition, we focus on acute diseases that require a short duration of therapy and usually have short clinical endpoints, allowing us to move quickly from proof of concept into clinical trials.

Building Our Product Portfolio through Targeted Business Development Efforts—We believe that acquisition and in-licensing opportunities in the critical care area are attractive because of the limited number of therapies approved for critical care indications and the high unmet need. We are positioned to identify these opportunities as a result of our knowledge of the market and our close relationships with critical care physicians and thought leaders, and to execute on them because of our financial position and experienced leadership team. We intend to actively pursue acquisitions and in-licensing opportunities to augment our growth, leverage our existing infrastructure and further diversify our product and product candidate portfolios. We believe that our experience in identifying acquisition and

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in-licensing opportunities and consummating these transactions, industry expertise and relationships, clinical development and commercial capabilities, and available capital make us an ideal partner for such opportunities.

Focusing on Profitability While Investing to Expand Our Business—Our strong financial position allows us to invest in research and development activities and acquisition and in-licensing opportunities. We have a track record of steady revenue growth and are focused on maintaining our core profitability. We intend to continue to grow revenues and generate significant cash flow, with the goal of maintaining profitability while investing wisely in our product and product candidate pipeline.

Product and Product Candidates

INOtherapy

INOtherapy is our all-inclusive offering of drug product, services and technologies. This includes INOMAX, INOcal calibration gases, use of our proprietary FDA-cleared delivery system, distribution, emergency delivery, technical and clinical assistance, quality maintenance, on-site training and 24/7/365 customer service. We have the exclusive worldwide rights to market and sell INOMAX, except for in the European Union and other specified countries near the European Union.

Due to the fragile health of patients with HRF and other conditions for which physicians prescribe INOMAX, it is imperative that INOMAX be readily available when needed. In order to ensure this continuous access to INOMAX, we provide our customers with back-up INOMAX cylinders and extra drug-delivery systems, which are designed to be easily transportable. Providing continuous access also requires that we train hospital personnel on all shifts, including nights and weekends, that we provide live customer and technical support 24/7/365, and that emergency deliveries of our drug-delivery systems and INOMAX cylinders reach customers within hours.

INOMAX is typically administered at the patient's bedside through a ventilator. Patients remain on INOMAX for an average continuous duration of approximately five days; however, some may remain on INOMAX for a significantly longer period, depending on the patient's condition and the physician's discretion. Since its commercialization in 2000, we believe that approximately 360,000 patients have been treated with INOMAX worldwide.

Delivering and maintaining precise levels of INOMAX is a complex process. INOMAX is designed to be delivered through our wholly-owned proprietary drug-delivery system, the INOMAX DS, which is engineered to simplify the administration of INOMAX while ensuring safe and efficacious drug delivery. In addition to its small size and weight for use in transport situations, the INOMAX DS features an enhanced user interface for ease-of-use at the bedside and is fully compatible with more than 48 models of ventilators and anesthesia devices. The INOMAX DS also employs multiple back-up systems to ensure safe, consistent and reliable delivery and monitoring at any ventilation setting for all patients. The INOvent, our first-generation delivery system, is still used in some hospitals, but we are gradually upgrading the INOvents to INOMAX DS drug-delivery systems. Additionally, we are developing more technologically advanced drug-delivery systems, including the INOMAX DSIR and INOpulse DS, to enhance clinical benefit, patient safety and ease of use. All of our delivery systems monitor for nitrogen dioxide, which forms when nitric oxide mixes with oxygen in the air. Elevated levels of nitrogen dioxide can be toxic and lead to decreased pulmonary function, chronic bronchitis, chest pain and pulmonary edema.

We manufacture INOMAX at our Port Allen, Louisiana facility, which is the only FDA inspected site for manufacturing pharmaceutical-grade NO in the world. We design, develop, manufacture and globally distribute our drug-delivery systems through our FDA inspected facility in Madison, Wisconsin. We distribute our INOtherapy product offering directly to our U.S. customers from one of our seven regional service and distribution centers. We also own all of our installed base and deployable inventory of approximately 4,500 INOMAX drug-delivery systems and can move the systems between locations at

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our discretion. We work directly with ventilator manufacturers through the time-consuming and complex process of ensuring that our drug-delivery systems are compatible with their new ventilator models. When we add compatibility with a new ventilator model, we have the new ventilator model cleared through a special 510(k), which contains compatibility validation reports and diagrams, and the new ventilator is added to the list of FDA-cleared devices in the operating manual for the INOMAX DS.

Customer service is a key value driver for our INOtherapy offering. We take a holistic view of our customers' needs. For that reason, we employ a team of 22 customer service professionals who provide around-the-clock support for all the needs of our customers. Our customer service team is the primary point of contact for the distribution chain and has responsibility for maintaining an adequate supply of our drug and drug-delivery systems. This team coordinates delivery of INOtherapy, the pick-up and replacement of INOMAX cylinders and emergency deliveries of both our drug and drug-delivery systems through one of our seven regional service and distribution centers. We have designed our distribution system and located our seven regional service and distribution centers in places that allow emergency deliveries to reach our U.S. customers in four hours or less in most cases. In addition to our regional service and distribution center operations, we also have third-party logistics and equipment service agreements in place with companies throughout the world, including in the United States, Puerto Rico, Canada, Australia, Mexico and Japan.

We currently have 45 sales professionals in the United States and Puerto Rico who promote INOMAX for HRF associated with pulmonary hypertension in term and near-term infants and have developed close relationships with neonatologists, nurses, respiratory therapists and other relevant healthcare professionals. They also manage the overall customer relationships and train customers on the use of our drug-delivery systems for delivery of INOMAX for its approved use. Additionally, we have five professionals who educate our customers on reimbursement. A 15-member, field-based medical affairs team addresses scientific and medical questions and provides expert guidance and education in the application, administration, and utilization of our drug and drug-delivery systems. This well-credentialed team consists of doctorate-level scientists, nurses, respiratory therapists, clinical specialists and pharmacists. On average, our entire field-based team interacts with and trains approximately 1,800 healthcare professionals each month. This training is driven by account expansion, the evolving needs of our customers, the addition of new clinical personnel, as well as our regular updates and improvements to our drug-delivery systems. We currently market INOtherapy in the United States, Puerto Rico, Canada, Australia, Mexico and Japan. Three sales professionals currently cover Canada, and we work with third parties to provide sales support for INOtherapy in Australia, Mexico and Japan.

We conduct annual customer satisfaction surveys to ensure that we continue to exceed our customers' expectations and make improvements along the way. In 2009, we conducted a comprehensive survey of approximately 175 customers (clinicians and hospital administrators) using a Net Promoter Score, or NPS, as a key performance metric for tracking customer satisfaction and brand equity. NPS involves quantitative measures by which companies can correlate the impact of their business and business practices on customer satisfaction and loyalty. Our NPS score demonstrated high overall satisfaction with and loyalty to our product, drug-delivery systems, people and company, as well as intent to recommend our product and company to colleagues. Nearly 70% of our customers were completely or very satisfied with our performance, while fewer than 5% were less than satisfied. Customer service and quality of our product and delivery systems were among our most highly rated attributes.

Historically, we offered INOtherapy at a fixed, hourly rate that was tied directly to the hours of INOMAX used. Each product cylinder is equipped with a meter, the INOmeter, that measures the number of hours and cumulative duration of usage on each cylinder. In addition, under our expense limitation program, we issued credits to customers for patients that exceeded specific durations of treatment. To apply for these credits, customers were required to track and submit patient data to us by

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completing manual forms or entering data via an extranet site. This made the credit processing paperwork administratively burdensome for our customers. In addition, our customers often considered the list price of our product rather than the price net of credits, which made the perceived price higher than the effective price they paid. Because INOtherapy is used when patients are severely ill, our customers experience a fair amount of fluctuation from month to month in the use of this product, which caused significant budget variability for many customers.

In response to those concerns, in 2010 we implemented a new tier-based billing model and eliminated the expense limitation program. This model generally provides customers with the option of selecting one of four customized tiers of INOtherapy use. Three of these tiers are capped and have a different base fee and corresponding number of hours of use of INOMAX. The remaining tiered option provides unlimited access to INOtherapy for a fixed fee. There also is an hourly pricing model for those customers not wishing to select a tiered option. In effect, customers that elect one of the capped-tiered models now buy access to a fixed number of hours of use of INOMAX for a preset price, which removes many of the issues with the prior billing model. We believe the new billing model provides less budget variability and removes a significant administrative burden from our customers as they no longer are required to monitor and submit individual customer patient data to apply for credits. Finally, we believe the new billing model benefits us by providing revenue predictability and improving customer relationships.

We understand from our customers that reimbursement for the cost of INOMAX is typically provided through their receipt of DRG payments for patients who are covered by Medicare or Medicaid, or through similar reimbursement programs for patients who are covered by private third-party payors. As part of hospital billing, we believe that, when a hospital submits its summary bill for reimbursement, that bill includes all the line item costs captured in the patient's financial records. Under the DRG or similar reimbursement programs, hospitals are reimbursed based on the diagnosis of the patient and receive the same amount irrespective of the total length of stay or cost of services provided. However, hospitals are reimbursed at a higher rate for patients with the same diagnosis who have more complications.

INOtherapy Foreign Expansion

We intend to leverage our existing infrastructure to provide INOtherapy in foreign markets with the same high-quality standards with which we operate in the United States. In Australia, Mexico and Japan, we operate in partnership with third parties to maintain our service and delivery system functions and operate local customer service centers. In Canada, we maintain our own service and delivery system functions, and provide customer service from the United States. We believe that certain foreign markets that we are targeting have favorable pricing and reimbursement environments.

In Japan, where INOMAX is known as INOflo, we have full reimbursement for up to six days at approximately $2,000 per day. Hospitals can be fully reimbursed for 100% of INOflo costs for approved uses. In Canada, where the federal government does not specifically reimburse the use of INOMAX, we charge approximately $100 per hour, which is paid out of local hospital budgets. In Mexico, there is currently no formal government reimbursement for INOMAX, and we are commercializing INOMAX within the private segment of the market only. We are in negotiations with multiple public hospitals in Mexico to secure budget allocations for INOMAX and are also actively pursuing government inclusion of INOMAX on Mexico's national drug formulary. In Australia, the government does not currently fund any use of INOMAX and all usage is paid for out of local hospital budgets. We are pursuing special reimbursement for INOMAX in Australia, but there is no guarantee that this will be successful.

INOMAX Scientific Background

The active substance in INOMAX is pharmaceutical grade NO. NO is a naturally occurring molecule produced by many cells of the body. Researchers found that NO is produced and released by

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portions of the blood vessels and results in smooth muscle relaxation. In particular, NO controls muscle tone in blood vessels, and thus is an important factor in regulating blood pressure. As the muscles relax, blood flow increases, helping the heart and lungs to improve oxygenation and deliver more oxygenated blood to the body. Researchers discovered that NO has many critical roles in the body, not only in regulating blood pressure and blood flow, but also as: a neurotransmitter; protection against damage to tissue caused when blood supply returns after a period of restriction, known as ischemia reperfusion injury; protection against infection; a regulator for blood vessel growth; and a regulator of the function of the body's immune system. The scientific journal Science named NO Molecule of the Year in 1992. Additionally, the three researchers who discovered the role of NO as a signaling molecule in the cardiovascular system earned the Nobel Prize for Physiology or Medicine in 1998.

In 1991, Dr. Warren Zapol and his associates at the Massachusetts General Hospital discovered that inhaling NO in gas form could reduce high blood pressure in the lungs, a condition known as pulmonary hypertension. NO is a rapid and potent vasodilator, which means it quickly dilates, or widens, blood vessels. When inhaled, it quickly dilates blood vessels in the lungs, which reduces blood pressure in the lungs, strain on the right ventricle, and shunting of de-oxygenated blood away from the lungs. Because more blood can flow through the lungs, blood levels of oxygen improve. In addition, inhaled NO improves the efficiency of oxygen delivery, and because it is a gas, it goes only to the portions of the lung that are ventilated, or receiving air flow, and increases blood flow only in these areas. Thus, inhaled NO improves ventilation-perfusion matching, an important element of lung function involving the air that reaches the lungs, or ventilation, and the blood that reaches the lungs, or perfusion. Inhaled NO is quickly inactivated after contact with blood, and is selective for the lungs, meaning that it has minimal effects on blood pressure outside of the lungs, which is an important safety consideration. The INOMAX product label recognizes the fact that it is selective for the lungs.

Approved Indication

Hypoxic Respiratory Failure

INOMAX is the only treatment approved by the FDA for HRF associated with pulmonary hypertension in term and near-term infants. The FDA approved INOMAX for this indication in December 1999, and we commercially introduced it in 2000.

Disease background and market opportunity

HRF is a potentially fatal condition that occurs when the lungs are unable to deliver enough oxygen to the body. In infants with HRF and pulmonary hypertension, there are regions in the lungs where the blood vessels are constricted, resulting in inadequate blood flow. Consequently, oxygen is unable to diffuse from the lungs into pulmonary blood vessels. This inadequately oxygenated blood returns to the heart and is pumped back to the body. If this condition persists, these infants are at risk for dying from inadequate oxygen delivery to their tissues.

Pulmonary hypertension occurs as a primary developmental defect or as a condition secondary to other diseases, including: meconium aspiration syndrome, which occurs when infants breathe their first stool, known as meconium, into their lungs during or before delivery; pneumonia; sepsis, an infection of the blood stream; and hyaline membrane disease or neonatal respiratory distress syndrome, which is due to immature lung development.

HRF severity is measured by oxygenation index, or OI. A higher OI is associated with more severe HRF. We estimate that approximately 25,000 term and near-term infants in the United States develop HRF each year, about 8,000 of whom have severe to very severe HRF (OI >25). According to our estimates, INOMAX currently is used to treat approximately 65% of the severe and very severe patients (OI > 25) and approximately 25% of all HRF patients.

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Based on published estimates of the incidence of HRF among infants in the United States in 2001 and the population and birth rates in Japan, in Australia and in Canada in 2006 and in Mexico in 2005, we estimate that the number of infants eligible for INOMAX in the following countries, for the labeled indication in each country, are as follows: approximately 20,000 infants with HRF in Japan, approximately 3,000 term and near-term infants with HRF in Australia, approximately 30,000 term and near-term infants with HRF in Mexico and approximately 4,000 term and near-term infants with HRF in Canada.

Clinical Development Program

Because INOMAX is already approved for the treatment of HRF, we have no further clinical development planned.

Competition

The FDA has not approved any therapies for treatment of HRF associated with pulmonary hypertension in term and near-term infants other than INOMAX. The current standard of care includes the use of oxygen and mechanical ventilation. Revatio, which recently became available in IV form, has been studied for the management of pulmonary hypertension in children, but is not approved for treatment of HRF. Prior to the introduction of INOMAX, extracorporeal membrane oxygenation, or ECMO, was the standard of care. ECMO is a highly invasive procedure in which an ECMO machine, which is similar to a heart-lung bypass machine, is used. It requires placing large tubes, known as catheters, into an artery and a vein to access the patient's blood and then continuously pumping it through a membrane oxygenator. This removes carbon dioxide and adds oxygen, and returns the oxygenated blood back to the patient. Because tubes are placed into the major blood vessels, ECMO carries the risks of bleeding and infection and clotting in the blood vessels, which could lead to stroke.

Additional Indications under Development

We are currently pursuing indications for INOMAX for the prevention of BPD and the treatment of ARDS.

Bronchopulmonary Dysplasia

We are investigating its use in the potential treatment of pre-term infants who are susceptible to BPD. Prior clinical trials of INOMAX in this area, conducted by us and others, varied considerably in dosing regimen, patient selection, treatment duration, and did not demonstrate consistent efficacy. Based on the design of a 582 patient clinical trial that demonstrated a greater benefit from INOMAX treatment at a high dose in a severely ill population, we began enrollment in a 380 patient Phase 3 clinical trial in December 2009 in the United States and Canada. We believe that this trial, if successful, in addition to data from previous trials, would be sufficient for FDA approval. INOMAX is not currently approved by the FDA for the prevention of BPD, and therefore our policies prohibit promotion and marketing of INOMAX for the prevention of BPD.

Disease Background and Market Opportunity

BPD is a respiratory condition related to lung injury in pre-term infants. Pre-term infants have underdeveloped, fragile lungs. With injury, the lung tissue becomes inflamed and may break down, resulting in scarring that can impair breathing and require oxygen for repair. Causes of lung injury include:

•: pre-term birth, because the lungs, especially air sacs, or alveoli, are not fully developed;

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•: insufficient amounts of surfactant (a natural detergent) that is needed to keep tiny air sacs open (without surfactant, the burden of breathing is greatly increased); and
•: lung-cell damage resulting from use of high concentrations of oxygen, air pressure from breathing machines, and suctioning of airways and tracheal tubes that can damage lungs during mechanical ventilation.

Infants with BPD often require prolonged support with mechanical ventilation and oxygen. Infants with BPD may be at increased risk for respiratory infection and may need to be re-hospitalized, resulting in significant additional medical costs. Infants with low birth weight have the highest chance of developing BPD, and the risk of BPD increases with decreasing birth weight. The Centers for Disease Control data for 2006 indicates that approximately 63,000 infants were born with very low birth weight (less than 1,500 grams) and would be at risk for BPD. We believe approximately half of all infants born with very low birth weight who are at risk for BPD could potentially be candidates for INOMAX.

Scientific Rationale for Use of INOMAX

INOMAX has been evaluated in several animal studies that suggest it may play a critical role in normal lung vascular growth and alveolarization, an increase in alveoli that exchange carbon dioxide and oxygen. Infants with BPD have larger and fewer alveoli, resulting in a less efficient transfer of oxygen from the lungs to the blood. Research into the interactions between the developing airspaces and the blood vessels has impacted the understanding of BPD. Damage to the developing alveolar epithelium, which is the cellular lining of the airspaces, may interrupt critical biological signaling and reduce capillary growth. As a result, blood vessels do not develop normally. We believe that interrupting blood vessel growth in the lungs may, in turn, halt the development of the alveoli.

Strategies focused on preventing lung injury and promoting normal maturation of alveoli may improve the outcomes of infants at risk of BPD in a few important ways:

•: by reducing larger alveoli that characterize BPD by promoting the growth of blood vessels and more alveoli in the lungs;
•: by improving oxygenation, thereby allowing lower concentrations of oxygen to be given to the patient; and
•: by reducing inflammation.

The effectiveness of INOMAX in preventing BPD in pre-term infants has been investigated in a number of clinical trials.

•: Pilot trial: A single-center study of 207 patients conducted by the University of Chicago showed that INOMAX, started at 10 parts per million, or ppm, for one day and reduced to 5 ppm for six additional days, increased the rate of survival without BPD by approximately 42% as compared to the patients in the control group, a statistically significant result, and was well tolerated.
•: Low-dose trials: Three placebo-controlled trials were conducted using INOMAX at a relatively low dose of 5 ppm for 3 to 21 days. Some of these trials included pre-term infants who were not at very high risk of BPD. None of these trials showed a benefit of INOMAX in reducing the incidence of BPD, but they did show the safety and tolerability of INOMAX in the 2,013 pre-term infants in these trials. In retrospect, this approach made it more difficult to show differences between the INOMAX and placebo groups.
•: Higher-dose trials: Independent of those trials, Dr. Roberta Ballard and her colleagues at the National Heart Lung and Blood Institute, or NHLBI, initiated their own trial, using a different dosing strategy. This trial was significantly different from the other trials because it started with a higher dose of INOMAX (20 ppm) and continued it for 24 days, so that the total drug

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exposure was greater. In addition, the patients in this trial were somewhat older and more severely ill when therapy was started, and thus at much higher risk of BPD. The trial enrolled 582 pre-term infants and showed a 20% improvement in the primary endpoint of survival without BPD, and shorter time to hospital discharge, as compared to patients in the control group. Based on this trial, some physicians have begun to use INOMAX to prevent BPD in this specific subset of infants at high risk for BPD. Dr. Ballard has also published a one-year follow up report that showed that the infants treated with INOMAX required significantly less use of oxygen and other medications for breathing. The two-year follow up study also confirmed the longer-term safety of INOMAX.

The following table shows the size, time to initiation of therapy, dosing information and duration of the trials described above. All of these trials were double-blind, randomized, placebo-controlled trials, with the primary endpoint of survival without BPD at 36 weeks gestational age.

Trial	Sponsorship			Time to initiation of therapy	Starting INOMAX Concentration		Achievement of Primary Endpoint

Schreiber	University of Chicago	P2	207	< 72 hrs	10 ppm	7	Yes
Van Meurs	National Institute of Child Health and Human Development	P3	420	< 72 hrs	5 ppm	3	No
Kinsella II (INOT-25)	NHLBI	P3	793	< 48 hrs	5 ppm	21	No
EUNO (INOT-27)	INO Therapeutics	P3	800	< 24 hours	5 ppm	21	No
Ballard	NHLBI	P3	582	day 7-21	20 ppm	24	Yes

Clinical Development Program

We are conducting an additional Phase 3 clinical trial (BPD-301) in pre-term infants at risk for BPD to explore our hypothesis that a higher dose of INOMAX, administered for a longer duration to the population of pre-term infants at very high risk for BPD, will result in a reduction in the incidence of BPD as compared to the control group. We began enrollment in this double-blind, randomized, placebo-controlled trial in December 2009, and we expect that it will include 380 infants at approximately 30 sites in the United States and Canada. The starting dose will be 20 ppm of INOMAX, starting between five and 14 days after birth and all infants will be treated for 24 days. The primary endpoint, survival without BPD at 36 weeks gestational age, is identical to the endpoint used in the prior successful NHLBI trial. Data regarding a secondary endpoint, patient outcome at one year of age, will be a required part of our sNDA submission for FDA approval for the BPD indication. The trial will also measure several other endpoints, including length of hospital stay and outcomes at two years.

Competition

The FDA has not approved any treatments specifically to prevent or treat BPD. We expect that INOMAX, if approved for the BPD indication, would be used in combination with other therapies, including:

•: extra oxygen to compensate for decreased capacity;
•: mechanical ventilation followed by gradual weaning as lungs grow and breathing improves;
•: medications; and
•: additional surfactants, such as Infasurf, Curosurf or Survanta.

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Clinical trials have demonstrated that Vitamin A and caffeine may reduce the incidence of BPD, but these therapies are not approved for this use.

Acute Respiratory Distress Syndrome

ARDS is a common and life-threatening condition for which no specific treatments are available. INOMAX has been studied for the treatment of ARDS. Although those trials were not adequate for FDA approval of this indication, physicians continue to use INOMAX to treat patients with severe ARDS. Based on the outcome of additional preclinical studies of INOMAX in treating ARDS, we are currently planning to conduct Phase 2 and Phase 3 clinical trials in this use. INOMAX is not currently approved by the FDA for the treatment of ARDS, and therefore our policies prohibit promotion or marketing of INOMAX for the treatment of ARDS.

Disease Background and Market Opportunity

Acute lung injury, or ALI, is characterized by inflammation of the lung tissues leading to impaired gas exchange with low oxygen levels and frequently results in multiple organ failure and death. This condition requires support with oxygen and mechanical ventilation. In its most severe form, it is called ARDS, but these conditions are often discussed as one condition, which we will refer to as ARDS/ALI. ARDS/ALI can be caused by direct lung injury, such as pneumonia, aspiration of gastric acid or smoke inhalation, or by indirect injury, such as trauma, sepsis or systemic conditions such as pancreatitis.

According to a published study, there are 190,600 cases of ALI in the United States per year, with an associated 74,500 deaths and 2.2 million days in ICUs. This study also estimates that out of the patients with ALI, approximately 141,500 patients would be classified as having ARDS, with an associated 59,000 deaths and 1.6 million days in ICUs. ALI patients, either with or without ARDS, spend a significant amount of time in the ICU with the average length of stay estimated at 11.3 and 11.6 days for all cases of ALI and ARDS, respectively.

Scientific Rationale for Use of INOMAX

INOMAX has been shown to be a selective pulmonary vasodilator with minimal systemic effects in patients with HRF. Additionally, INOMAX has also been shown to improve gas exchange both in animal models and in humans. The hypothesis for the use of INOMAX in ARDS is that it may increase oxygenation and decrease pulmonary arterial pressures by causing vasodilation in well-aerated areas of the lung, thereby improving oxygenation. This, in turn, is expected to allow for less toxic levels of oxygen and less ventilator support, thereby protecting the lungs from ventilator- and oxygen-induced injury.

Clinical Development Program

In 1999, we conducted a randomized, double-blind, placebo-controlled, Phase 3 clinical trial in the ICUs of 46 U.S. hospitals to evaluate the efficacy of low-dose INOMAX (5 ppm) in 385 patients with ARDS. The primary endpoint of this trial was the number of days patients were alive and stayed off mechanical ventilation. In this trial, INOMAX had no significant benefit versus placebo. There was a significant increase in blood oxygen levels during the initial 24 hours of treatment, but no improvement in survival at 28 days, which was a secondary endpoint of the trial.

The major clinical complication of ARDS in survivors is the development of chronic lung disease as the injured lung tissue heals. We performed additional, prospectively defined analyses on this trial, which showed significant improvement in lung function in survivors who were treated with INOMAX, suggesting that INOMAX may have a protective effect against chronic lung disease. We therefore believe that there may be a clinically important effect of INOMAX other than improving survival.

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In addition, we and other investigators have performed pharmacokinetic and pharmacodynamic studies that, we believe, suggest that an alternative INOMAX dosing regimen (such as pulsed or intermittent dosing) may improve the effectiveness of INOMAX and reduce mortality in patients with ARDS. Therefore, we are planning two separate development paths for the use of INOMAX in ARDS: one to determine if an alternative dosing strategy will reduce 28 day mortality in patients with ARDS, and a second to examine the effectiveness of INOMAX in preventing chronic lung disease in survivors.

Pending the outcome of preclinical studies, we are planning a Phase 2 clinical trial to evaluate an alternative dosing strategy to determine if we can prolong the improved oxygenation effect and improve survival in ARDS. This alternative dosing strategy includes an evaluation of our new INOpulse DS technology, a drug-delivery system that may improve dosing of INOMAX to the injured lung. We believe that a successful alternative dosing regimen could lead to reduced requirements for high ventilatory and oxygen support in ARDS patients, thus improving survival at 28 days.

We are also planning a Phase 3 clinical trial of INOMAX in patients with ARDS using our INOpulse DS technology to evaluate the effects of INOMAX in the prevention or amelioration of chronic lung disease in survivors of ARDS. Since the previous trials in ARDS were conducted using the early-generation INOvent DS with constant delivery of INOMAX, we believe we will be required to provide "bridging data" between the two drug-delivery systems, and therefore we are starting studies to demonstrate equivalent bioavailability between the two systems.

Competition

The standard of care for ARDS includes support with oxygen and mechanical ventilation to keep the patient alive. Although patients with ARDS receive many supportive therapies, we are not aware of any therapy or combination of therapies that have been shown to improve survival from ARDS. We expect that INOMAX, if approved for this indication, would be used in combination with these other supportive therapies.

Other Uses for INOMAX—Cardiac Surgery

Cardiac surgery with cardiopulmonary bypass often is complicated by pulmonary hypertension in the immediate post-operative period. In the early post-operative period, pulmonary hypertension is characterized by a sudden rise in pulmonary vascular resistance, which initiates a cycle of right-ventricular failure and poor cardiac output. If left untreated, cardiac arrest and death may follow. INOMAX is now widely used for treating this condition, based on numerous published studies, textbooks and practice guidelines. INOMAX is not approved by the FDA for use in cardiac surgery, and therefore our policies prohibit promotion and marketing of INOMAX for use in cardiac surgery.

Pulmonary Hypertension Following Surgery to Repair Congenital Heart Disease

Disease Background and Market Opportunity

Significant post-operative pulmonary hypertension following repair of congenital heart disease is relatively uncommon, but very serious when it does occur. Certain high-risk populations may be identified pre-operatively. These high-risk populations include patients undergoing surgery for:

•: specific congenital heart diseases present at birth; and
•: post-operative cardiac transplantation.

The American Heart Association, or AHA, estimates that there are approximately 36,000 babies born in the United States with congenital heart defects that are detected in the first year of life, of whom approximately 9,200 require an invasive procedure in the first year.

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Clinical Development Program

INOMAX is not FDA approved for hypertension following cardiac surgery to repair congenital heart disease and therefore our policies prohibit promotion and marketing of INOMAX for such use. However, based on data from clinical trials and clinical experiences documented in published practice guidelines, many physicians use INOMAX to treat this condition. For this reason, physicians are unwilling to conduct additional placebo-controlled trials that might harm patients in the control group who would not be receiving INOMAX. We have investigated various trial designs and conducted several face-to-face meetings with the FDA, but have been unable to agree with the FDA on an additional clinical trial that would be adequate for approval of this indication. As a result, we are exploring alternative development strategies, including an investigator-initiated clinical trial and a partnership with the National Institutes of Health for a consensus conference on the use of INOMAX for treating hypertension following cardiac surgery to repair congenital heart disease. Any clinical trial would be designed to address questions about the optimal use of INOMAX in this setting and would be intended to support the best use of the product, and the results may merit publication. However, it is unlikely that any of these paths would lead to future FDA approval of INOMAX for this indication.

Competition

There currently are no approved treatments for post-operative pulmonary hypertension or to shorten the time needed on mechanical ventilation following cardiac surgery to repair congenital heart disease. However, certain vasodilator drugs, such as Primacor and Revatio, and prostacyclin analogues, such as Flolan and Ventavis, sometimes are used in treating these patients. Asklepion Pharmaceuticals LLC is developing Citrupress for post-operative pulmonary hypertension in patients with congenital heart disease.

Pulmonary Hypertension Following Heart Transplants and LVAD Insertions

Disease Background and Market Opportunity

Patients with structural heart disease, such as valvular heart disease and cardiomyopathy, may, as a result, develop CHF, which may be further complicated by pulmonary hypertension and right ventricular dysfunction. For patients with end-stage CHF, the best option is a heart transplant. For patients who cannot wait or who are not eligible for a transplant, the alternative is to support the heart with a partial mechanical heart that provides a temporary treatment, known as LVAD. LVAD devices have improved survival rates; however, their insertion can create new problems, such as right ventricular failure and cardiovascular collapse, especially in patients with pulmonary hypertension who often have increased resistance to blood flow through the lungs, which is referred to as increased pulmonary vascular resistance, or PVR. This, in turn, may lead to the need for a right ventricular assist device, or RVAD, in addition to medical therapy, to improve right heart function following the LVAD insertion. One study reported that approximately 40% of patients with LVAD devices developed right heart failure after surgery.

There are approximately 2,000 heart transplants and approximately 2,300 LVAD insertions performed each year in the United States.

Clinical Development Program

As is the case for patients having cardiac surgery to repair congenital heart disease, INOMAX is used in the management of post-operative pulmonary hypertension in patients undergoing heart transplants and LVAD insertions. Numerous published studies in a variety of types of cardiac surgery (including LVAD insertions, heart transplant and valve repair surgery) have suggested a potential for physiologic and clinical benefit from use of INOMAX. In 2008, we completed a 150 patient Phase 2 clinical trial in patients undergoing LVAD insertions designed to determine whether INOMAX could

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reduce the incidence of right ventricular failure and shorten the time needed on mechanical ventilation. Because of the unexpectedly low event rate in the placebo arm, the trial was underpowered to meet its primary endpoint. Although the incidence of right ventricular failure was reduced (9.6% on INOMAX compared to 15.5% on placebo) and days on mechanical ventilation were reduced (median 2 days on INOMAX compared to 3 days on placebo) in patients treated with INOMAX, these results did not reach statistical significance.

INOMAX is not FDA approved for treatment of pulmonary hypertension following heart transplants and LVAD insertions, and therefore our policies prohibit promotion and marketing of INOMAX for these uses. Due to the current use of INOMAX in the management of post-operative pulmonary hypertension, physicians are generally unwilling to conduct placebo-controlled clinical trials and we have been unable to reach agreement with the FDA on an alternative trial design. In June 2009, we submitted a pre-sNDA briefing book to the FDA, citing five studies conducted in adults undergoing heart transplant or LVAD insertions, and six additional studies conducted in other types of cardiac surgery. However, the FDA declined to grant us a meeting. We have no plans to conduct another trial on the effects of INOMAX in treating pulmonary hypertension following surgery to insert LVAD devices or heart transplants.

Competition

There are currently no approved treatments that reduce the incidence of right ventricular failure or shorten the time needed on mechanical ventilation following LVAD procedures. However, certain vasodilator drugs, such as milrinone, Revatio, prostacyclin and prostacyclin analogues are used to treat these patients.

Clinical Stage—Product Candidates

LUCASSIN

Under our agreement with Orphan, we have acquired the IND and NDA to LUCASSIN (terlipressin for injection) and have all rights necessary to develop, manufacture and commercialize LUCASSIN in the United States, Canada, Mexico and Australia. LUCASSIN is being developed for the treatment of HRS Type 1, which is a rare and often fatal condition characterized by rapid onset of renal failure with a high mortality rate. Terlipressin, the active pharmaceutical ingredient in LUCASSIN, is approved in France, Ireland, Spain and South Korea for the treatment of patients with HRS Type 1. In the United States, HRS Type 1 is an orphan-designated condition for which there currently are no approved drugs. An orphan drug is one that has been developed specifically to treat a rare medical condition, the condition itself being referred to as an orphan disease.

Disease Background and Market Opportunity

HRS is a condition of advancing kidney failure in patients with cirrhosis. Kidney failures associated with HRS may arise spontaneously or in response to changes in blood volume or fluid shifts within the body. In HRS, renal blood flow decreases due to abnormalities, including the narrowing of renal blood vessels. While the cause is unknown, it appears to be due to an imbalance between the mechanisms that expand and constrict renal blood vessels. Kidney problems in HRS result from poor liver function and a successful liver transplant currently is the only cure.

The two general categories of HRS are Type 1 and Type 2. HRS Type 1 is characterized by rapidly progressive renal failure in less than two weeks, while HRS Type 2 consists of renal impairment that progresses more slowly. We estimate that HRS impacts approximately 25,000 patients annually in the United States, approximately 3,000 of whom have HRS Type 1. HRS Type 1 has a poor prognosis with only 50% of patients surviving for more than two weeks and only 10% to 20% surviving for more than three months. HRS Type 2 has a slightly better survival rate with 50% of these patients still alive six

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months after diagnosis with the condition. With no approved drugs to treat HRS Type 1, patients with this condition are at significant risk of death unless they receive a liver transplant. The average waiting time for a liver transplant is approximately one year. Additionally, patients with compromised renal function who undergo liver transplantation have a worse post-transplant outcome than those who have normal kidney function prior to transplantation. Thus, management of HRS Type 1 is an important bridging strategy to liver transplant.

Scientific Rationale for Use of LUCASSIN

Recent findings on the cause of HRS show that it results from progressive, inappropriate systemic widening of blood vessels in the intestines known as vasodilation. Medications that constrict the blood vessels, referred to as vasoconstrictors, have been studied as possible treatments.

Based upon preliminary studies, LUCASSIN appears to counteract the vasodilatation in the intestinal circulation and increase blood flow to the kidneys thereby improving renal function. In clinical trials, LUCASSIN increased the chance of HRS reversal by restoration of normal kidney function. In these trials, HRS patients treated with LUCASSIN before liver transplantation had similar survival and outcomes compared to patients without HRS who also underwent transplantation.

Clinical Development Program

Orphan conducted a double-blind, randomized, placebo-controlled Phase 3 clinical trial in 112 patients with HRS Type 1 (OT-0401) which compared LUCASSIN in combination with albumin to placebo with albumin, the most commonly used supportive treatment for HRS Type 1. The primary endpoint of this trial was incidence of treatment success, which was defined as the percentage of patients alive with a reversal of HRS at day 14 following commencement of treatment. HRS reversal was defined as a serum creatinine level of less than or equal to 1.5 mg/dL without hemodialysis or recurrence of HRS in two separate measurements taken 48 hours apart and without recurrence of HRS until day 14. All patients were included in the analysis of the primary endpoint, including patients who were discharged from the hospital earlier than day 14, received hemodialysis or underwent liver transplant. Two patients reached their second confirmatory serum creatinine level of less than or equal to 1.5 mg/dL after day 14 but did not qualify as treatment success as defined by the protocol. Treatment success was demonstrated in 29.2% of qualified patients treated with LUCASSIN and albumin compared to 15.9% of qualified patients treated with placebo and albumin, although this was not a statistically significant difference (p=0.131). However, in a retrospective analysis of all patients, LUCASSIN achieved statistically significant HRS reversal (p = 0.008), defined as a single measurement of serum creatinine level of less than or equal to 1.5 mg/dL, in 33.9% of LUCASSIN and albumin-treated patients compared to 12.5% of placebo and albumin-treated patients.

As part of the LUCASSIN NDA, Orphan also submitted results from a second Phase 3 clinical trial (TAHRS) conducted by The Hospital Clinic, University of Barcelona, Spain. This trial was an open-label, randomized, multi-center clinical trial comparing LUCASSIN in combination with albumin to albumin alone in 46 patients with both HRS Type 1 and HRS Type 2. The co-primary endpoints of this trial were 90-day survival and HRS reversal. Unlike the OT-0401 trial that included only HRS Type 1 patients, the TAHRS trial included 34 Type 1 patients, who represented 74% of the total patients in the trial, as well as 12 Type 2 patients. In the TAHRS trial, HRS reversal was observed in 39.1% of LUCASSIN and albumin-treated patients compared to 8.7% of patients treated with albumin alone (p = 0.018). However, the study results were not statistically significant for 90-day survival. Because one of the two co-primary endpoints did not achieve statistical significance, the results of the combined co-primary endpoint were not statistically significant.

Orphan submitted data from these two trials in its rolling NDA seeking FDA approval of LUCASSIN for the treatment of HRS Type 1. In November 2009, the FDA issued a complete response letter requiring at least one additional adequate and well-controlled study with pre-specified endpoints

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that achieves statistical significance and demonstrates the safety of LUCASSIN. In the complete response letter, the FDA requested additional safety information (i) to support the proposed use of LUCASSIN for up to 14 days and (ii) with regard to the adverse events and serious adverse events which occurred in the trials. The FDA noted in the complete response letter that while the total number of adverse events in the studies was small, some adverse events and serious events (including death) during the treatment period occurred somewhat more frequently in the LUCASSIN treatment groups than in the placebo groups. In order to demonstrate safety and efficacy of LUCASSIN to seek approval in the United States, we plan to begin an additional 150 patient double-blind, placebo-controlled, Phase 3 clinical trial of LUCASSIN for the treatment of HRS Type 1 in 2010.

In preparation for this new Phase 3 pivotal trial, we reanalyzed data from the OT-0401 trial using the definition of treatment success that we intend to use for the planned Phase 3 trial. This retrospective analysis, using an endpoint of two serum creatinine values of less than or equal to 1.5mg/dL at least 48 hours apart, without any intervening hemodialysis, transplant, or measurement of serum creatinine above a specified level, showed that 32.1% patients treated with LUCASSIN and albumin achieved this endpoint versus 12.5% of patients treated with placebo and albumin, which was statistically significant (p = 0.013). We have applied these learnings from the reanalysis of the OT-0401 trial data, as well as FDA comments regarding establishing endpoints, inclusion and exclusion criteria and data handling and statistical methods, to ensure optimal selection of a patient population that is likely to respond to LUCASSIN.

The Phase 3 pivotal trial we intend to conduct will compare LUCASSIN in combination with albumin to placebo with albumin, and will have a primary endpoint of HRS reversal, which is defined as two serum creatinine values of less than or equal to 1.5mg/dL taken at least 48 hours apart, without any intervening hemodialysis, transplant or elevation of serum creatinine above a pre-specified level. Patients will be treated for up to 14 days and serum creatinine measurements will be taken at least daily during the treatment period. Secondary endpoints in the trial will include change in renal function from baseline through end of treatment, transplant-free survival and overall survival. We have submitted and are corresponding with the FDA regarding a special protocol assessment, on which we expect to reach agreement shortly. Our agreement with the FDA will pertain to pre-specified endpoints, acceptable inclusion and exclusion criteria, setting an upper limit on serum creatinine levels, outcome measures and statistical methods for addressing missing data, and study randomization that is stratified by important baseline factors. By conducting this additional Phase 3 pivotal trial, we believe we will fulfill the FDA's requirements of two, well-controlled, well-designed clinical trials to support filing an NDA.

LUCASSIN has fast-track and orphan drug designations for use in HRS Type 1. Fast track is an FDA process-based designation designed to facilitate the development and expedite the review of drugs that treat serious diseases and fill an unmet medical need. Orphan designation qualifies the product sponsor for tax credit and marketing incentives. Specifically, a marketing application for a prescription drug product that has been designated as a drug for a rare disease or condition is not subject to a prescription drug user fee unless the application includes an indication other than for a rare disease or condition. Once the FDA has approved a marketing application with an orphan designation, it will not approve a subsequent application for the same drug product for the same indication for another seven years.

Competition

Patients diagnosed with HRS Type 1 currently are treated with supportive therapy until they can receive a liver transplant, which is the only known cure. While transplants are usually successful in these patients, the number of liver transplants in HRS Type 1 patients is low due to shortages in livers available for transplant. The critical issue for a patient with HRS Type 1 is survival until the time of transplant.

There are no FDA approved drug therapies to treat HRS Type 1. However, some physicians prescribe a combination of midodrine, a vasopressor, and octreotide, a vasodilation inhibitor. Patients

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generally are put on hemodialysis to lower creatinine levels, which reduces symptoms of kidney failure, and some patients will have a stent placed between the portal and hepatic veins, which carry blood to and from the liver, to relieve high blood pressure in the portal vein in order to prevent bleeding.

IK-5001

Under our agreement with BioLine, we have an exclusive worldwide license to IK-5001, a product that will be developed through the medical device pathway and is designed to prevent the structural alteration of damaged heart muscle caused by acute myocardial infarction, or AMI. AMI, commonly known as heart attack, frequently causes an alteration in the structure and function of the heart, which is referred to as cardiac remodeling. Because a portion of the heart muscle can no longer function, the rest of the heart must compensate. Under this extra workload, the heart muscle eventually dilates, the walls of the heart thin and the heart further remodels thereby causing another cycle of dilation and overcompensation. This cardiac remodeling results in reduced heart function that typically leads to CHF. IK-5001 is administered following AMI and is designed to flow into the damaged heart muscle where it forms a protective cast, or scaffold, to enhance the mechanical strength of the heart muscle during recovery and repair, thereby preventing cardiac remodeling.

Disease Background and Market Opportunity

The AHA estimates that over 850,000 Americans will suffer from AMI annually, with approximately one-third estimated to suffer from the more serious ST-segment elevated AMI, or STEMI. An infarction refers to dead tissue that results from the loss of blood supply. Patients who have STEMI, particularly those with an infarction in the anterior left ventricular portion of the heart, are at significant risk of cardiac remodeling and CHF following AMI when the heart is too weak to pump enough blood to supply all of the demands of the body. A study estimates that approximately 40% of patients with AMI later suffer from CHF. In addition, the costs of treating AMI can be substantial. The AHA estimated that the direct and indirect cost of CHF in 2008 was $20 billion to $30 billion, and we estimate that about half of that was related to AMI. The costs of re-hospitalization and other long-term treatments for CHF can be significant, therefore we believe a treatment which would help prevent cardiac remodeling could generate significant medical cost savings.

Following treatment during the acute phase of AMI, which includes salvage of the heart muscle, known as the myocardium, a breakdown in the structural integrity of the heart, such as expansion of the original area of infarction, wall thinning and increased wall stress in the remaining heart muscle may occur. These processes can lead to molecular, cellular, and physiological responses that, in turn, can lead to cardiac remodeling and ultimately to CHF. If IK-5001 is found to be effective in reducing the impact of cardiac remodeling and is approved by the FDA, we believe that it could become a commonly used treatment for patients with AMI, particularly for patients with a STEMI who are at higher risk for subsequent CHF. We believe that IK-5001 would most often be used immediately after a coronary angioplasty procedure.

Scientific Rationale for Use of IK-5001

Alginates, which are complex sugars obtained from seaweed, have been used extensively in the food industry, as well as by the pharmaceutical and medical device industries. As medical devices, alginates have been used as wound dressings, as bone void fillers and to create dental impressions. Scientific journals have reported that alginates are not absorbed systemically after ingestion and that injected alginates are eliminated through the urine unchanged.

We expect to administer IK-5001, which is an injectable liquid containing sodium alginate and calcium, through the coronary artery during a coronary angioplasty procedure to the infarcted myocardial tissue using commercially available catheters approved for coronary intravascular use. IK-5001 is designed to be delivered through an injection in a high quantity, known as a bolus injection,

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over a period of approximately 30 seconds. This delivery method is similar to the administration of contrast dye during coronary angiography. As IK-5001 enters the myocardium from the coronary artery, it crosses the capillary bed into the infarcted myocardium and fills the area outside of the existing cells, known as extracellular spaces. We believe that, while filling these extracellular spaces, IK-5001 binds with the calcium that has been released from the dead cells, creating a gel that causes the substance to thicken and form a protective cast, or scaffold, around the area of dead tissue, which is known as the infarct zone. We believe that IK-5001 will work as a temporary structural support while the damaged myocardium heals by replacing the dead tissue that would normally support the wall of the heart. As the infarction heals, calcium is no longer released from dying cells. As calcium levels return to normal, the IK-5001 gradually dissipates through excretion.

BioLine has conducted numerous preclinical studies of IK-5001 in animal models of AMI. Tissue samples have shown that IK-5001 settles in the area of the AMI and prevents cardiac remodeling. In these preclinical studies, injection of IK-5001 was well tolerated, did not gel in the artery, impede coronary blood flow or restrict the wall motion of the heart. In addition, in preclinical studies, virtually all of the material has been shown to have left the body six weeks after injection.

Clinical Development Program

IK-5001 is biologically inert, and does not have any pharmacologic activity. In addition, IK-5001 is excreted unchanged through the kidneys and does not result in any absorption or metabolism within the body. For these reasons, we believe that IK-5001 will be designated a medical device, rather than a drug, by the FDA.

BioLine has completed a Phase 1/2 clinical trial in Europe in 27 patients with AMI, in which IK-5001 was safely administered in humans. We are planning to meet with the FDA in the second quarter of 2010 to discuss the development plans, including any U.S. regulatory requirement, for a pivotal Phase 2/3 clinical trial.

Competition

There are various therapies available to treat AMI, such as coronary angioplasty and opening blocked arteries by inserting a tube, or stent. Once blood flow has been restored, most patients receive ongoing therapies to reduce the workload on the heart in order to prevent future cardiac adverse events, including CHF. These therapies include drugs, such as angiotensin-converting enzyme inhibitors, known as ACE inhibitors, angiotensin receptor blockers, known as ARBs, beta blockers and diuretics. In the subset of patients with AMI who have abnormal heart rhythms, cardiac resynchronization may prevent or reverse remodeling. However, the FDA has not approved any of these treatments specifically for the prevention of cardiac remodeling following AMI.

We do not expect IK-5001 to replace current treatments for CHF following AMI, but rather will become part of the treatment regimen used in conjunction with other therapies, including those discussed above. In addition, because IK-5001 can be given in conjunction with a coronary angioplasty procedure, we do not believe it will directly compete with other remodeling devices that may be developed for administration during open heart surgery.

IK-1001

We are developing hydrogen sulfide, or H₂S, a naturally occurring molecule to be delivered as sodium sulfide, under the investigational code name IK-1001. IK-1001 has a variety of biologic effects that result in the protection of cells and tissues in conditions that cause stress to the human body. In particular, IK-1001 acts as an antioxidant, slowing or preventing an increase in oxygen and corresponding loss of electrons, and as an anti-inflammatory, reducing inflammation. While the reasons

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for these biologic effects are not completely understood, they have been demonstrated in several animal models.

We are developing IK-1001 for acute, single administrations in critical care conditions characterized by tissue ischemia. We believe there are a number of potential clinical indications for IK-1001, including AMI, coronary artery bypass graft surgery, or CABG, and diabetic ulcer. The first indication for which we are pursuing development is in preventing damage to tissue caused when blood supply returns to the tissue following AMI.

To date, we have performed three Phase 1 trials involving the administration of IK-1001 in humans. We have completed two trials in healthy volunteers and another in patients with varying degrees of kidney failure. A total of 170 patients participated in these trials, with 137 receiving IK-1001 and 33 receiving placebo. The IK-1001 doses evaluated were up to 0.2 milligrams, or mg, per kilogram, or kg, administered as a one-minute IV bolus injection, and up to a 1.5 mg/kg/hour continuous IV infusion for a duration of six hours for a cumulative dose of 9.0 mg/kg. Most adverse events were of mild-to-moderate intensity and self-resolving and there have been no treatment-related serious adverse events. No efficacy data were collected during any of these trials. Subsequently, we also initiated a Phase 2 clinical trial in patients undergoing CABG surgery but terminated it based on a need to develop a rapid and reliable assay methodology for IK-1001. Once this assay is developed, we expect to resume Phase 2 clinical trials. A total of seven serious adverse events had been reported in that trial, none of which were treatment related.

IK-600X Portfolio

Under our agreement with Fibrex, we have the exclusive worldwide license to a portfolio of investigational compounds for a range of critical care conditions characterized by vascular leakage. We identify these compounds in a series of IK6000s, which we refer to as IK-600X, with IK-6001 as the lead compound. The IK-600X compounds are fibrin-derived peptides, which are proteins based on naturally occurring molecules formed during normal blood clotting, that bind to proteins found in the blood vessel lining known as vascular endothelial cells. Proper functioning of the blood vessel walls, known as the endothelial barrier, prevents tissue damage after injury. When tissues are injured, the endothelial barrier allows for the flow of small molecules and even whole cells to pass through to reach the site of the injury thereby causing inflammation. This capacity of the blood vessel wall is referred to as vascular permeability and is an important step in the healing process. However, if this flow, or vascular leakage, becomes excessive it can cause damage to the tissue it is trying to help heal. Vascular leakage is common to many conditions.

In preclinical studies conducted outside of the United States by Fibrex, IK-6001 was shown in several animal models to preserve the function of blood vessel lining, prevent vascular leakage and inhibit white blood cell movement into tissues. Additionally, Fibrex conducted a Phase 2 clinical trial of patients with AMI. Although a numerical reduction in infarct size was observed in this trial (21%), the results were not statistically significant (p=0.207). We believe these results provide insight into the potential beneficial effects of IK-6001 in AMI. In this clinical trial, patients were treated with IK-6001 by bolus infusion. We are currently conducting a series of preclinical studies to determine the optimal dosing regimen. After we complete these preclinical studies and determine the optimal dosing regimen, we plan to resume clinical development of IK-6001. We believe that the compounds within the IK-600X series may have use in conditions characterized by vascular leakage and currently are evaluating them in preclinical studies for the treatment of AMI, acute lung injury and solid organ transplantation.

Research and Development

We rely on the expertise of our approximately 110 research and development personnel, over 60 of whom have experience administering clinical trials in critical care settings. In 2008 and 2009, we invested approximately 28% of net sales in organic research and development, as well as in research

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and development activities arising from licensing and acquisitions. Moving forward, we intend to invest in research and development in the same manner in which we have historically invested.

We conduct some of our proof of concept studies in our preclinical research and development facility, which is equipped and staffed to conduct synthetic chemistry, analytical and bioanalytical chemistry, formulation, cell culture, pharmacology and pilot toxicology studies. These studies also serve to identify new potential indications, minimize potential pitfalls in the formal drug development stage, and create novel intellectual property positions. Only compounds and technologies that meet a set of stringent evaluation criteria move into formal preclinical development and later progress to clinical trials. We execute development programs with a defined set of goals and a series of development milestones by which we measure progress. We also actively sponsor independent investigator sponsored research into potential applications of INOMAX.

Our drug-development programs are focused on INOMAX, LUCASSIN, IK-5001, IK-1001, and a portfolio of investigational compounds known as IK-600X. Our INOMAX and IK-1001 compounds are the result of internal research and development activities. We currently have several other candidates in various stages of early development, including pro-drugs, which are drugs that are administered in an inactive form and then metabolized in the body into an active form, and different release formulations for NO and H₂S, as well as programs addressing different platform pathways and mechanisms.

We expect to begin more early-stage projects that will progress to later-stage development. We review our portfolio regularly to ensure a balanced mix of product candidates moving into later stages of development across therapeutic areas.

Business Development and Product Acquisition Model

A key element of our business strategy is to build our product and product candidate portfolio through targeted business development efforts. We intend to actively pursue strategic acquisitions and in-licensing opportunities to augment our growth, capitalize upon our operating leverage and diversify our product and product candidate portfolios.

Our business development team has successfully negotiated the rights to products in various stages of development: LUCASSIN, a late-stage product candidate for which we expect to begin a pivotal Phase 3 clinical trial in 2010; IK-5001, a product that will be developed through the medical device pathway for which we expect to begin a pivotal trial in 2011; and IK-600X, a late-stage preclinical development portfolio of fibrin-derived peptides. We are continuing to evaluate multiple opportunities across several therapeutic categories with a focus on late-stage clinical development and marketed assets, and expect our business development activities to focus on significant transactions. As such, we may license or make acquisitions of products, solutions and technologies and enter into partnerships with and make acquisitions of businesses and companies. Our focus is, and will continue to be, to acquire and develop therapeutic products and product candidates that address the significant unmet needs of critically ill patients in the hospital setting.

We believe that attractive opportunities exist for acquisitions or in-licensing in the critical care market. We believe that our experience in identifying and consummating acquisitions and in-licensing opportunities, our industry expertise and relationships, clinical development and commercial capabilities, and available capital, make us an ideal partner for such opportunities.

License and other Product Agreements

INOtherapy

In March 2007, in connection with our acquisition of INO Therapeutics, we obtained from AGA AB, an affiliate of Linde, or AGA, certain rights and obligations with respect to patent rights pertaining to INOMAX under a license agreement between AGA and MGH. Our rights under the

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agreements with MGH and AGA include an exclusive license, subject to certain reserved rights, to research and develop products covered by such patent rights in countries where such patent rights are issued or pending and to manufacture and commercialize such products in the territory consisting of the United States, Puerto Rico, Canada, Australia, Japan and certain other non-European countries where such patent rights are issued or pending, which we refer to as the licensed territory. We are obligated (i) to use reasonable efforts to develop products covered by such patent rights in countries where such patent rights are issued or pending and to make available commercially viable products covered by the licensed patent rights for sale and distribution throughout the licensed territory, (ii) to achieve certain specified goals relating to the approval of such products for sale in the United States and Canada, and (iii) to pay MGH royalties at a single digit percentage on net sales in the licensed territory, if any, of any product covered by such patent rights, subject to specified reductions and exclusions. Our agreement with MGH states that our obligation to pay royalties to MGH expires on a country-by-country and product-by-product basis, with respect to specified types of products, on the date on which the product is no longer covered by a valid claim in the licensed patent rights or, with respect to other types of products, upon the later to occur of the expiration in such country of the last to expire of specified licensed patent rights by MGH and the date of regulatory approval of a generic version of such product. We and MGH each have the right to terminate the agreement for an uncured material breach by the other party. In the United States the patents covering INOMAX expire in January 2013.

In March 2007, in connection with our acquisition of INO Therapeutics, we entered into agreements with AGA under which we agreed to supply AGA with certain products, including bulk nitric oxide and nitric oxide delivery systems and related accessories. Those agreements also provide for certain cooperation between AGA and us with respect to the development of indications for INOMAX, as well in areas such as pharmacovigilence and product recalls. These supply and cooperation obligations remain in effect until March 2027. We and AGA have the right to terminate these obligations for an uncured material breach by the other party. We also have the right to terminate our supply and cooperation obligations if AGA breaches the parties' March 2007 agreements by selling products subject to the patent rights in any territory for which we obtained an exclusive license in the March 2007 transaction. AGA may terminate the agreement 18 months after we give them notice that we are discontinuing our commercial activities with respect to INOMAX. We may terminate the agreement six months after AGA gives notice that it is discontinuing its commercial obligations with respect to INOMAX. In order to induce our investment in the acquisition of INO Therapeutics, the agreements also include a provision which prevents Linde from commercializing INOMAX in North America until after March 27, 2013.

Under the 1998 sale and purchase agreement pursuant to which AGA acquired the INOMAX clinical program and related license rights, we are obligated to pay royalties at a single-digit percentage on net sales of INOtherapy to INO Holdings LLC, or INO Holdings, of which Datex-Ohmeda, Inc. and BDX INO LLC are the sole members, until we are no longer obligated to pay royalties to MGH on such sales. If we successfully achieve all remaining regulatory milestones in the agreement, we will be obligated to pay, in the aggregate, $4.0 million to INO Holdings. In 2008, we entered into a agreement with Datex-Ohmeda under which we purchased future royalty obligations on net sales of INOMAX and acquired certain intellectual property for a cash payment totaling $7.0 million.

See "Certain Relationships and Related Person Transactions—Business Agreements with Linde" for more information regarding our agreements with Linde.

LUCASSIN—Orphan Therapeutics

Under our agreement with Orphan, we acquired the IND and NDA to LUCASSIN (terlipressin for injection) and all of Orphan's rights to develop, manufacture and commercialize LUCASSIN in the United States, Canada, Mexico and Australia. In August 2008, we paid Orphan Therapeutics

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$17.5 million and on March 29, 2010, we paid Orphan an additional $5.0 million and reimbursed it for prior research and development costs it had incurred with respect to LUCASSIN. We are obligated to use commercially reasonable efforts to develop, market, commercialize and sell LUCASSIN.

If we successfully achieve all development, regulatory and commercialization milestones in the agreement, we will be obligated to pay Orphan, in the aggregate, an additional $27.5 million. In addition, we will be obligated to pay Orphan royalties at a percentage in the low double digits on net sales, if any, of LUCASSIN for as long as we sell LUCASSIN, subject to a 50% reduction following regulatory approval of specified competitive products and offsets for specified payments to third parties made in connection with LUCASSIN. We are also required to pay Orphan specified minimum royalties on our sales of LUCASSIN. We also assumed specified royalty obligations owed by Orphan to third parties in connection with sales of LUCASSIN.

If, prior to August 29, 2014, we sell or transfer LUCASSIN to a third party, or grant an exclusive license to develop, market and sell LUCASSIN in the United States to a third party, other than in connection with a change of control, we will be required to pay Orphan an amount based on a formula specified in the agreement. If we undergo a change of control prior to August 29, 2011, we will be required to pay Orphan a specified amount. In addition, if we undergo a change of control at any time, and we have not sold our rights to LUCASSIN or granted an exclusive license to LUCASSIN in the United States, the minimum royalties we are required to pay Orphan will be increased by a pre-agreed amount.

If we fail to use commercially reasonable efforts to develop, market, commercialize and sell LUCASSIN, Orphan has the right to terminate the agreement if we fail to use such efforts during the six months following notice from Orphan. Orphan also has the right to terminate the agreement within the six months that follow specified events of non-payment. We and Orphan each have the right to terminate the agreement if we elect to cease development, marketing, commercialization or sale of LUCASSIN in the United States, Canada, Mexico and Australia. If the agreement is terminated, our exclusive licenses from Orphan will terminate and Orphan will have the right to reacquire LUCASSIN from us, on pre-agreed terms.

IK-5001—BioLine

In August 2009, acting through our wholly owned subsidiary, we entered into an agreement with BioLine, under which we obtained the worldwide exclusive rights to the compound we have designated as IK-5001. We are obligated to use commercially reasonable efforts to develop and commercialize at least one product containing IK-5001.

During 2009, we paid BioLine a $7.0 million upfront payment and accrued a $10.0 million milestone payment that we paid in 2010. If we successfully achieve all other development, regulatory and commercialization milestones in the agreement, we will be obligated to pay BioLine, in the aggregate, an additional $265.5 million. In addition, we will be obligated to pay BioLine a specified percentage of any upfront consideration we receive for sublicensing IK-5001, as well as royalties at a percentage in the low double digits on net sales, if any, of any approved product containing IK-5001, subject to offsets for specified payments to third parties made in connection with such product. Our obligation to pay BioLine royalties will expire on a product-by-product and country-by-country basis on the date on which the product is no longer covered by a valid claim in the licensed patent rights in the given country.

BioLine has the option, exercisable under specified circumstances, to manufacture any product containing IK-5001 for us pursuant to terms to be negotiated by the parties. If BioLine exercises this option, we would generally be obligated to purchase at least a specified percentage of our product requirements from BioLine at a price calculated using a pre-agreed methodology.

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Except under specified circumstances, we may not directly or indirectly acquire more than a specified percentage of the equity or debt securities of BioLine, or urge, induce, entice or solicit any other party to acquire such securities.

We and BioLine have the right to terminate the agreement for an uncured material breach by the other party. In addition, we have the right to terminate the agreement if at any time we determine that further development of products containing IK-5001 is unwarranted.

IK-1001—Fred Hutchinson Cancer Research Center

In April 2005, our wholly owned subsidiary obtained from FHCRC, the exclusive worldwide rights to the products we have designated IK-1001 covered by specified patent rights or that use other specified technology owned by FHCRC, subject to certain reserved rights. We are obligated to pursue diligently the development of such products and to use commercially reasonable efforts to bring such products to market through a diligent program for exploitation of such patent rights and the marketing and commercialization of such products. In addition, we are obligated to achieve specified development and regulatory goals by specified dates or to pay extension fees of up to $1.25 million in the aggregate. These extension fees, if paid, are creditable against later development milestones.

During 2008, we paid FHCRC a $50,000 milestone payment. If we successfully achieve all development and regulatory milestones in the agreement, we will be obligated to pay FHCRC, in the aggregate, an additional $6.7 million. In addition, we will be obligated to pay FHCRC royalties at a single-digit percentage on net sales, if any, for the term in which a product licensed under the agreement is covered by a valid claim in the licensed patent rights, subject to offsets for specified payments to third parties made in connection with such product.

We and FHCRC have the right to terminate the agreement for an uncured material breach by the other party. We have the right to terminate the agreement with or without cause at any time on ninety days notice to FHCRC. FHCRC has the right to terminate the agreement in connection with our bankruptcy or insolvency or if we directly or indirectly oppose or dispute the validity of the licensed patent rights.

IK-600X—Fibrex

In July 2009, acting through our wholly owned subsidiary, we obtained from Fibrex the worldwide exclusive rights to an investigational portfolio of compounds we have designated as IK-600X. We are obligated to use commercially reasonable efforts to develop and commercialize at least one product containing an IK-600X compound in the United States and in specified other countries.

During 2009, we paid Fibrex a $5.25 million upfront payment. If we successfully achieve all development and regulatory milestones under the agreement, we will be obligated to pay Fibrex additional amounts, in the aggregate, of approximately $101 million. In addition, we will be obligated to pay Fibrex royalties at a single digit percentage on net sales, if any, of any approved product containing an IK-600X compound, subject to offsets for specified payments to third parties made in connection with such product. Our agreement with Fibrex states that our obligation to pay Fibrex royalties will expire on a product-by-product and country-by-country basis on the later of the date on which the product is no longer covered by a valid claim in the licensed patent rights in the given country and the date on which regulatory approval of a generic version of the product occurs in such country.

We and Fibrex have the right to terminate the agreement for an uncured material breach by the other party. In addition, we have the right to terminate the agreement on a product-by-product basis if at any time we determine that further development of such product is unwarranted. If Fibrex terminates the agreement for our uncured material breach, or if we terminate the agreement for one or more products because we determine that further development of such product(s) is unwarranted, our

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exclusive licenses from Fibrex will terminate and Fibrex will have the right to acquire rights to any terminated product(s) from us on terms to be negotiated under specified guidelines.

Sales and Marketing

As of April 30, 2010, we had 45 sales professionals in the United States and Puerto Rico and three sales professionals who cover Canada. We work with third parties to provide sales support for INOtherapy in Australia, Mexico and Japan. Additionally, we have five field-based reimbursement professionals and 11 employees who are responsible for brand management, market research, and sales operations in the United States. Additionally, we have general managers in Canada, Australia and Japan, and marketing staff in Australia and Japan.

Customer Service

As of April 30, 2010, we employed a team of 22 customer service professionals who provide around-the-clock support for all the needs of our customers.

Medical Affairs

As of April 30, 2010, we had a medical affairs team consisting of 24 professionals, of which 15 are field-based professionals who provide scientific and medical information regarding our INOtherapy offering and other related issues to the healthcare community. This group includes medical science liaisons who interact with physician thought leaders and clinical researchers to keep us abreast of the latest scientific discoveries and medical developments, as well as clinical specialists who provide expert guidance and education in the application, administration and utilization of our drug-delivery systems and technology.

Manufacturing

Drug Products

We manufacture INOMAX at our facility in Port Allen, Louisiana. This facility, which we believe is operated in compliance with cGMP, is the only FDA inspected site for manufacturing pharmaceutical-grade NO in the world. The primary manufacturing activity is the commercial production of INOMAX. This includes the chemical synthesis of high-purity NO, which is the active pharmaceutical ingredient in INOMAX.

Our manufacturing operations are strictly governed by cGMP. The drug manufacturing, testing, packaging release and storage follow the strictest requirements for a safe product. Our documentation management systems record manufacturing procedures and data for all finished product lots with complete traceability throughout the supply chain. Our production capability includes commercial scale for sale to our customers and pilot-scale for use in clinical trials.

To support business outside of the United States, the Port Allen manufacturing facility has also successfully passed inspections by local agencies, the European Medicines Agency, or EMEA; Health Canada; the Pharmaceutical and Medical Devices Agency, or PMDA, of Japan; and the Korean FDA, or KFDA. The EMEA, the Health Protection Branch of Health Canada, KFDA and the PMDA of Japan operate similarly to the U.S. FDA in that they require submission of a dossier containing substantial evidence of safety and effectiveness prior to approval. Their monitoring of safety in a post-marketing setting also is similar.

INOcal is used to calibrate the nitrogen and nitrogen dioxide cells that are installed in both the INOvent and INOMAX DS drug-delivery systems. We continually evaluate additional manufacturing capabilities as we seek to leverage our knowledge base to develop the manufacturing capability and commercial partnerships for our product and product candidates.

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As the sole provider of FDA approved pharmaceutical-grade NO, we have implemented business continuity measures to mitigate the risk of an interruption in the supply of INOMAX. Such measures include, maintaining a reasonable inventory, consisting of at least ten weeks of finished product and 12 months of concentrated pre-mix at our regional service and distribution centers. We have also built a back-up cGMP facility at a second location in Coppell, Texas. We designed this facility to produce INOMAX from our concentrated pre-mix in compliance with cGMP in the event of any manufacturing interruption at the Port Allen facility. If there were a natural disaster or other business disruption at our Port Allen facility, we believe that our Coppell facility would be capable of serving as a backup facility for as long as our supply of concentrated pre-mix lasts, which we currently estimate to be approximately one year. We have applied to the FDA to approve the Coppell facility for the production of INOMAX from our concentrated pre-mix. In addition, we have stocked key back-up components of the Port Allen facility, including two reactor columns in our distribution center in Illinois, which we estimate will allow us to replace the reactor column at our Port Allen facility within six weeks in case of a catastrophic event or failure. We also maintain property insurance on our locations with a limit of $81 million per occurrence and business interruption insurance with a limit of $50 million.

We currently outsource the manufacture of our product candidates for use in clinical trials. If any of our late-stage product candidates are approved by the FDA, we will likely continue to outsource the manufacturing of such approved products to contract manufacturers. We expect that any contract manufacturer that we would use would be subject to cGMP requirements.

Drug-Delivery Systems

In 2008, we established a drug-delivery system manufacturing facility in Madison, Wisconsin, which is responsible for the design, engineering, assembly, packaging, and distribution of our drug-delivery systems. Our drug-delivery system development strategy is to focus on technologically advanced, systems that support our commercial and drug-development programs, and to continuously improve the customer's experience with the INOtherapy offering. As of April 30, 2010, we had an installed base and deployable inventory of approximately 4,500 of our wholly-owned drug-delivery systems with 3,800 in the United States and Puerto Rico. We intend to increase the worldwide number of our drug-delivery systems to approximately 5,800 by December 2011. The FDA recently cleared one of our next-generation drug-delivery systems, the INOMAX DSIR, which uses infrared technology to further improve safety parameters while enhancing ease of use. Enhancements to our INOtherapy delivery systems are ongoing. In addition, we are currently in the process of investigating a new drug-delivery system, the INOpulse DS. The INOpulse DS is optimized for spontaneously breathing patients and provides precise drug delivery, which may prove useful in certain indications. We intend to pursue FDA clearance of this new drug-delivery system following completion of associated clinical trials.

The process of NO delivery also requires calibration gases, known as INOcal, to ensure proper operation of NO and nitrogen dioxide sensors in the drug-delivery systems. We purchase the calibration gases from Air Liquide, in accordance with a multi-year supply agreement. Pursuant to this non-exclusive supply agreement, we have agreed to purchase certain minimum quantities of calibration gases from Air Liquide. Air Liquide has agreed that it will maintain a specified amount of inventory for the production of calibration gas. This supply agreement terminates on September 14, 2011.

Distribution

We have seven regional service and distribution centers to handle warehousing, distribution and equipment servicing for INOtherapy in the United States. The regional service and distribution centers are located in Louisiana, New Jersey, Georgia, Illinois, Texas and two in California. In addition to our regional service and distribution center operations, we also have third-party logistics and equipment service agreements in place with companies in the United States, Puerto Rico, Canada, Australia, Mexico and Japan. Our U.S. regional service and distribution center operations are staffed, as of

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April 30, 2010, by approximately 60 employees with expertise in pharmaceutical and medical device logistics and service.

Our regional service and distribution centers are licensed with the appropriate state wholesale pharmacy boards and carry out their activities in compliance with cGMP and the regulations of the Department of Transportation, Department of Homeland Security, Occupational Safety and Health Administration and International Air Transport Association, as may be applicable. Shipments to overseas destinations are made in accordance with the regulations of the International Maritime Organization, or IMO, the United Nations' specialized agency responsible for improving maritime safety and preventing pollution from ships, as may be applicable.

Competition

The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities, and research organizations actively engaged in the research and development of products that may be similar to our products. In particular there are other biopharmaceutical companies, such as Cubist Pharmaceuticals, Inc., The Medicines Company and Talecris Biotherapeutics, Inc., focused on developing therapies for the critical care market. There are also hospital product companies, such as Baxter Healthcare Corporation, that also have pharmaceutical divisions and could potentially develop products competitive with ours. In addition, other companies are increasingly looking at critical care as a potential opportunity. It is possible that the number of companies seeking to develop products and therapies for the treatment of unmet needs in critical care will increase. In addition, companies, such as GeNO, LLC and GeNOsys Inc., are in the early stages of developing small, mobile devices that aim to manufacture NO at the location of delivery. Air Liquide currently manufactures and sells in the European Union an NO mixture in a pressurized canister. Before commercializing a competitive product in the United States, Air Liquide would need to obtain FDA approval for its NO mixture, obtain FDA clearance for a delivery device and manufacture its NO in a cGMP compliant, FDA inspected manufacturing facility.

Our competitors, either alone or with their strategic partners, may have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval for therapies and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs and advanced technologies become available.

For more information with respect to competition with respect to our product and our product candidates and each of the indications for which we are seeking approval, see the appropriate "Competition" section under the descriptions of our product and our product candidates included in "—Product and Product Candidates" above.

Patents and Proprietary Rights

We pursue patent protection of our technology, products and product improvements both in the United States and in selected foreign countries. We also rely on trade secrets and technological innovations to develop and maintain our competitive position.

We have entered into a number of license and other arrangements under which we have obtained rights to manufacture and market products or potential products. For instance, a number of the therapeutic-based products that we are developing, such as IK-5001, incorporate proprietary technologies that we have licensed from third parties. Under our existing licenses, we are subject to commercialization, development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach a license agreement, the licensor may have

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the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license, we may be required to license to the licensor any related intellectual property that we developed.

Our owned and licensed patents and patent applications cover the active pharmaceutical product, formulations of our product and product candidates, uses of our product and product candidates to treat particular conditions, drug-delivery technologies, delivery profiles relating to our product and product candidates and methods for producing our product and product candidates. However, patent protection is not available for the composition of matter of the active pharmaceutical ingredients in our product and most of our product candidates, including INOMAX and LUCASSIN. The actual protection afforded by the patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country. The patents and patent applications that relate to our product and product candidates include the following:

INOMAX. We solely own or have exclusive rights to method of use patents claiming present FDA-approved uses and current clinical development targets of INOMAX in the licensed territory. These patents are listed in the FDA Orange Book and will expire in the United States on January 23, 2013. These patents have issued or are pending in ten other countries, including Australia, Canada, Europe and Japan, and will generally expire on December 5, 2011 in these countries. On January 28, 2010, the FDA agreed to issue a Pediatric Written Request based on previously completed clinical trials using INOMAX to prevent BPD in a pediatric patient population (INOT-27). On April 30, 2010, we received the Written Request from the FDA. We intend to submit the completed trial reports to the FDA, and if the FDA determines the trial reports meet all the requirements contained in the Written Request, INOMAX will be eligible for an additional six months of regulatory pediatric exclusivity in the United States. We filed a U.S. Patent application containing claims directed towards new inventions that led to amendments to the warnings and precautions section of the INOMAX prescribing information necessary for the safe and effective use of INOMAX. This patent application, if and when issued, would be eligible for listing in the FDA Orange Book and would expire on June 30, 2029. In Japan, INOMAX (sold under the brand name INOflo) has further been designated as an orphan drug by Japan's Ministry of Health, Labor and Welfare, or MHLW, thereby providing a statutory exclusivity period until July 16, 2018, during which time the MHLW will not approve any generic versions of INOMAX for HRF. In Australia, we are seeking confirmation of statutory data exclusivity for INOMAX that would provide statutory exclusivity until November 22, 2012. In addition, we solely own or have exclusive rights to the U.S. patents and patent applications, including their foreign counterparts, that contain claims associated with the delivery of INOMAX, including the drug-delivery systems we refer to as INOvent, INOMAX DS and INOpulse.

LUCASSIN. There are no patents claiming LUCASSIN. We have acquired all of Orphan's rights to develop, manufacture and commercialize LUCASSIN in the United States, Canada, Mexico and Australia. The FDA has granted LUCASSIN an orphan drug designation for use in HRS Type 1, and therefore, we will have seven years of statutory orphan drug exclusivity starting from the date of NDA approval for HRS Type 1, if such approval is granted.

IK-5001. We have exclusive worldwide rights to patents and patent applications claiming compounds and therapeutic methods for the use of IK-5001 in the treatment and prevention of complications arising from cardiac remodeling following AMI. These exclusive rights include two U.S. patent applications and rights to corresponding foreign patents and patent applications. Foreign counterparts of this patent application have been granted in Australia, China and India and are pending in other countries, including Europe, Japan, Canada, Korea, Mexico and Israel. Patents relating to IK-5001 will expire on various dates from May 2024 to March 2027.

IK-1001. We solely own or have exclusive rights to six U.S. patent applications claiming various delivery technologies, formulations and therapeutic methods for the use of IK-1001. In addition, we

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own or have exclusive rights to the corresponding foreign patents associated with these patent families. These patents will expire on various dates from December 2023 to January 2030.

IK-600X. We have exclusive worldwide rights to patents and patent applications claiming specific compounds, formulations and therapeutic applications relating to an investigational portfolio of fibrin-derived peptide compounds for use in a range of critical care conditions. In the United States, these exclusive rights include 16 U.S. patents and patent applications. In addition, we have exclusive rights to the corresponding foreign patents and patent applications associated with these patent families. The patents will expire on various dates from December 2021 to November 2030.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent's term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent.

The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA approval, we expect to apply for patent-term extensions on patents covering those products. We believe that IK-5001, IK-1001 and the IK-600X portfolio may be subject to the Hatch-Waxman patent term extension provisions.

The patent positions of pharmaceutical and biotechnology firms can be uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, we do not know whether any of the applications we acquire or license will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated. Because patent applications filed within the last 18 months are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using such technology.

The development of critical care hospital products is intensely competitive. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in the critical care field. Some of these applications could be competitive with applications we have acquired or licensed, or could conflict in certain respects with claims made under such applications. Such conflict could result in a significant reduction of the coverage of the patents we have acquired or licensed, if issued, which would have a material adverse effect on our business, financial condition and results of operations. In addition, if patents are issued to other companies that contain competitive or conflicting claims and such claims are ultimately

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determined to be valid, no assurance can be given that we would be able to obtain licenses to these patents at a reasonable cost, or develop or obtain alternative technology.

We solely own or have exclusive rights to multiple trademarks that we consider important to our business. Ikaria®, the Ikaria logo, INOMAX®, INOtherapy®, INOmeter™, INOflo®, INOcal®, INOvent®, INOpulse™ and LUCASSIN® are registered or common law trademarks in the United States and/or other countries where we currently conduct business or may consider doing so in the future.

It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements generally provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and consultants, the agreements provide that all inventions conceived by the individual shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.

Government Regulation

The testing, manufacturing, labeling, advertising, promotion, distribution, export, and marketing of our product and product candidates are subject to extensive regulation by governmental authorities in the United States and in other countries. In the United States, the FDA, under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations, regulates pharmaceutical and medical device products. Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending pre-market applications (e.g., NDAs, PMAs, 510(k)s), withdrawal of approval of approved products, warning letters, untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, civil penalties, and/or criminal prosecution.

The FDCA generally regulates the manufacture and importation of drugs and medical devices shipped via interstate commerce, including such matters as labeling, packaging, storage, and handling of such products. The Prescription Drug Marketing Act of 1987, which amended the FDCA, establishes certain requirements applicable to the wholesale distribution of prescription drugs, including the requirement that wholesale drug distributors be registered with the Secretary of Health and Human Services or be licensed in each state in which business is conducted in accordance with federally established guidelines on storage, handling, and records maintenance. The Safe Medical Devices Act of 1990 imposes certain reporting requirements on distributors in the event of an incident involving serious illness, injury, or death caused by a medical device. We are also required to maintain licenses and permits for the distribution of pharmaceutical products and certain medical devices under the laws of the states in which we operate.

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

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Pharmaceutical product development in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of a notice of claimed investigational exemption or an investigational new drug application or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.

Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information including information about product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not commented on or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted in compliance with federal regulations, good clinical practices, or GCP, as well as under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population, to determine the effectiveness of the drug for a particular indication or indications, dosage tolerance and optimum dosage, and identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, currently exceeding $1,400,000, and the manufacturer and/or sponsor under an approved NDA are also subject to annual product and establishment user

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fees, currently exceeding $79,000 per product and $450,000 per establishment. These fees are typically increased annually.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for non-priority drug products are reviewed within ten months while most applications for priority review drugs, that is, drugs that FDA determines represent a significant improvement over existing therapy, are reviewed in six months. The review process may be extended by the FDA for three additional months to consider certain information or clarification regarding information already provided in the submission. Additionally, the FDA's review of applications frequently results in the issuance of action letters in which FDA requests additional data and information pertaining to the application which in turn can toll or start anew the review cycle. The FDA may also refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After the FDA evaluates the NDA and the manufacturing facilities, it issues an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy and may impose other conditions, including labeling restrictions that can materially affect the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

The Hatch-Waxman Act

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent which claims the active ingredient, drug product or method of use covered by the application. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA, or a 505(b)(2) application. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. ANDA applicants are not required to conduct or submit results of preclinical or clinical tests to prove the safety or effectiveness of their drug product, other than the requirement for bioequivalence testing. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

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The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. A certification that the new product will not infringe the already approved product's listed patents or that such patents are invalid is called a Paragraph IV certification. If the ANDA applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired, with the exception of the method of use patent in which an ANDA applicant can obtain effective approval if the use for which it seeks approval is not covered by a listed patent, even though other uses are covered.

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA sponsor and the patent holders once the ANDA has been accepted for filing by the FDA. The NDA sponsor and the patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. Federal law provides a period of five years following approval of a drug containing no previously approved active ingredients, during which ANDAs for generic versions of those drugs cannot be submitted unless the submission contains a Paragraph IV certification challenge to a listed patent, in which case the submission may be made four years following the original product approval. Federal law provides for a period of three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials conducted by or for the NDA sponsor, during which FDA cannot grant effective approval of an ANDA based on that listed drug.

Other Regulatory Requirements

Once the FDA approves an NDA, the product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet and social media.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans, and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control as well as drug manufacture, packaging, and labeling procedures must continue to conform to

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cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

Our regional service and distribution centers are licensed with the appropriate state wholesale pharmacy boards and carry out their activities in compliance with cGMP and the regulations of the Department of Transportation, Department of Homeland Security, Occupational Safety and Health Administration and International Air Transport Association, as may be applicable. Shipments to overseas destinations are made in accordance with the regulations of the IMO, the United Nations' specialized agency responsible for improving maritime safety and preventing pollution from ships, as may be applicable.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, it publicly discloses the generic identity of the drug and its potential orphan use. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. The first NDA applicant with FDA orphan drug designation for a particular active ingredient to receive FDA approval of the designated drug for the disease for which it has such designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

Pediatric Information and Exclusivity

Under the Pediatric Research Equity Act of 2008, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.

Under Section 505A of the FDCA, six months of market exclusivity may be granted in exchange for the voluntary completion of pediatric studies in accordance with an FDA-issued "Written Request." The FDA may issue a Written Request for studies on unapproved or approved indications, where it determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may produce health benefits in that population. To receive the six-month pediatric market exclusivity, we have to receive a Written Request from the FDA, and conduct the requested studies and submit reports of the studies in accordance with a written agreement with the FDA. If we receive a Written Request, but do not have a written agreement with FDA regarding the conduct of the studies, the studies must fairly respond to the Written Request, have been conducted in accordance with commonly accepted scientific principles and protocols, and meet filing requirements. There is no guarantee that the FDA will issue a Written Request for such studies or accept the reports of the studies.

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Fast Track Designation

The FDA is required to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug candidate may request the FDA to designate the drug candidate for a specific indication as a fast track drug concurrent with or after the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor's request.

In addition to other benefits such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA may initiate review of sections of a fast track drug's NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA's time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process.

Section 505(b)(2) New Drug Applications

Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the safety and efficacy data of an existing product, or published literature, in support of its application.

505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon certain preclinical or clinical studies conducted for an approved product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be delayed until all applicable listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Food and Drug Administration Amendments Act of 2007

On September 27, 2007, the Food and Drug Administration Amendments Act, or the FDAAA, was enacted into law, amending both the FDCA and the Public Health Service Act. The FDAAA makes a number of substantive and incremental changes to the review and approval processes in ways that could make it more difficult or costly to obtain approval for new pharmaceutical products, or to produce, market and distribute existing pharmaceutical products. Most significantly, the law changes the FDA's handling of post-market drug product safety issues by giving the FDA authority to require post

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approval studies or clinical trials, to request that safety information be provided in labeling or to require an NDA applicant to submit and execute a Risk Evaluation and Mitigation Strategy, or REMS.

Sales and Marketing

The FDA regulates all labeling for products under its jurisdiction both prior to and after approval, as well as advertising for prescription drugs and medical devices. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians may prescribe legally available drugs for uses that are not described in the drug's labeling and that differ from those tested by us and approved by the FDA. The amount of off-label uses varies among medical specialties. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers' communications regarding off-label uses. Failure to comply with applicable FDA requirements may subject a company to enforcement action by the FDA, Department of Justice, Office of the Inspector General, state attorneys general and other governmental agencies, adverse publicity, corrective advertising and the full range of civil and criminal penalties available.

Foreign Regulations and Registrations

We are also subject to a variety of foreign regulations governing clinical trials and the marketing of other products. Outside of the United States, our ability to market a product depends upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory authority is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The time needed to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversight process in other countries includes all of the risks associated with regulation by the FDA and certain state regulatory agencies as described above.

U.S. Device Regulations and Registrations

Pre-market Pathways. In the United States, medical devices are regulated by the FDA Center for Devices and Radiological Health, or CDRH. Medical devices generally come to market as a result of an approved Premarket Approval Application, or PMA, or a cleared Pre-market Notification, or 510(k). As is the case with drug products, applications for medical devices are subject to user fees with PMAs being subject to relatively high user fees and 510(k)s being subject to relatively small user fees. There are also product and establishment user fees as well as fees for requesting the status of a device under the FDCA.

Pre-market approval is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Due to the level of risk associated with Class III devices, the FDA has determined that general and special controls alone are insufficient to ensure the safety and effectiveness of Class III devices. Therefore, these devices require a pre-market approval, or PMA, application under section 515 of the FDCA in order to obtain marketing clearance. PMA is the most stringent type of device marketing application required by the FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by the FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use or uses.

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For a medical device that does not require a PMA, a 510(k) must be submitted to the FDA, unless the device is specifically exempted from 510(k) requirements of the FDCA. A 510(k) is a pre-market submission made to the FDA to demonstrate that the device to be marketed is at least as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to PMA. Submitters must compare their device to one or more similar legally marketed devices and make and support their substantial equivalency claims. A legally marketed device is a device that was legally marketed prior to May 28, 1976, for which a PMA is not required, or a device which has been reclassified from Class III to Class II or I, or a device which has been found to be substantially equivalent through the 510(k) process. The legally marketed device to which equivalence is drawn is commonly known as the "predicate." Although devices recently cleared under 510(k) are often selected as the predicate to which equivalence is claimed, any legally marketed device may be used as a predicate. Before marketing a device, each submitter must receive an order, in the form of a letter, from the FDA which finds the device to be substantially equivalent and states that the device can be marketed in the United States. This order "clears" the device for commercial distribution.

Investigational Device Exemptions. Clinical data are generally required to support a PMA, and less frequently a 510(k). An investigational device exemption, or IDE, allows the investigational device to be used in a clinical trial in order to collect safety and effectiveness data required to support a PMA application or a 510(k) submission to the FDA. Clinical trials are most often conducted to support a PMA. A relatively small percentage of 510(k)'s require clinical data to support the application. Investigational use also includes clinical evaluation of certain modifications or new intended uses of legally marketed devices. All clinical evaluations of investigational devices, unless exempt, must have an approved IDE before the study is initiated. An approved IDE permits a device to be shipped lawfully for the purpose of conducting investigations of the device without complying with other requirements of the FDCA that would apply to devices in commercial distribution. Sponsors need not submit a PMA or 510(k), register their establishment or list the device while the device is under investigation. Sponsors of IDEs are also exempt from the Quality System Regulations except for the requirements for design control.

Combination Products. A combination product is a product comprised of two or more regulated components (drug-device or biologic-device). Combination products are either combined as a single entity or labeled for use with a specified drug, device or biologic in which both are required to achieve the intended use, indication or effect. The FDA Office of Combination Products assigns review responsibility for combination products. If, for example, the Center for Drug Evaluation and Research, or CDER, is assigned primary jurisdiction, then the combination drug-device product clinical testing is conducted under the IND process already described, with the device evaluation conducted by the CDRH, consulting with CDER. The device documentation is provided to CDER in INDs and NDAs and forwarded to CDRH for review. A separate IDE for clinical testing is not required.

Quality System Regulations. The cGMP requirements set forth in the Quality System Regulations, or QSRs, are promulgated under section 520 of the FDCA. They require that domestic or foreign manufacturers have a quality system for the design, manufacture, packaging, labeling, storage, installation, and servicing of finished medical devices intended for commercial distribution in the United States. The regulation requires that various specifications and controls be established for devices; that devices be designed and manufactured under a quality system to meet these specifications; that finished devices meet these specifications; that devices be correctly installed, checked and serviced; that quality data be analyzed to identify and correct quality problems; and that complaints be investigated and appropriate corrective action be implemented. The QSRs are intended to help ensure that medical devices are safe and effective for their intended use. The FDA monitors device problem data and inspects the operations and records of device developers and manufacturers to determine compliance with the GMP requirements in the QS regulation.

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Medical Device Reporting. The Medical Device Reporting, or MDR, regulation provides a mechanism for the FDA and manufacturers to identify and monitor significant adverse events involving medical devices. The goals of the regulation are to detect and correct problems in a timely manner. Manufacturers must report device-related deaths, serious injuries, and malfunctions to the FDA whenever they become aware of information that reasonably suggests that a reportable event occurred (one of their devices has or may have caused or contributed to the event). Each manufacturer must review and evaluate all complaints to determine whether the complaint represents an event which is required to be reported to the FDA. Although the requirements of the regulation can be enforced through legal sanctions authorized by the FDCA, the FDA generally relies on the goodwill and cooperation of all affected groups to accomplish the objectives of the regulation. In addition, the Safe Medical Devices Act, or SMDA, requires medical device manufacturers to certify to the FDA the number of MDR reports filed or that no reports have been filed.

Registration and Listing. Establishments involved in the production and distribution of medical devices intended for marketing or leasing in the United States are required to register with the FDA. Registration provides the FDA with the location of medical device manufacturing facilities and importers. The owner/operator of an establishment who is engaged in the manufacture, preparation, propagation, compounding, assembly or processing of a medical device intended for commercial distribution is required to register. This includes manufacturers, contract manufacturers and contract sterilizers that place the device into commercial distribution, specification developers, re-packagers or re-labelers, re-processors of single-use devices, remanufacturers, U.S. manufacturers of export-only devices and manufacturers of components or accessories that are ready to be used for any intended health-related purpose and are packaged or labeled for commercial distribution for such health-related purpose.

Establishments required to register with the FDA must also identify to the FDA the devices they have in commercial distribution including devices produced exclusively for export. The process is known as medical device listing and is a means of keeping FDA advised of the generic category(s) of devices an establishment is manufacturing or marketing. The owner/operator of an establishment engaged in the manufacture, preparation, propagation, compounding, assembly or processing of a medical device intended for commercial distribution is required to list its device with the FDA within 30 days of entering the device into commercial distribution in the United States. This includes manufacturers, re-packagers and re-labelers, specification developers, re-processors of single-use devices, remanufacturers, U.S. manufacturers of export-only devices and manufacturers of accessories and components that are ready to be used for any intended health-related purpose and are packaged or labeled for commercial distribution for such health-related purpose.

CE Marking. In order to enter the European market, and to help facilitate entry into other global markets such as Australia, our drug-delivery systems must be CE (Conformité Européene)-Marked. CE Marking involves a Notified Body, or NB, which, working together with a company, assesses the company's Quality Management System, or QMS. The company determines how it will comply with the Medical Device Directive, or MDD, in terms of its QMS. Council Directive 93/42/EEC, as amended by DIRECTIVE 2007/47/EC (MDD), sets forth the "Essential Requirements" for CE Marking.

The NB will also examine the design dossier and technical file for a medical device to judge compliance with Annex I of the MDD. Annex I details the Essential Requirements of the MDD for Medical Devices. The Technical File and Design Dossier contain or point to documents, reports, records, etc., that demonstrates compliance with each element of the Essential Requirements in Annex I of the MDD.

When the QMS has been certified, the Notified Body will issue the company a Quality Certificate and an MDD Certificate. If certified to Annex II, Full Quality System, the company can issue 'Declarations of Conformity" for additional products, based on their own assessment of the Technical

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File for the new device. Once the Declaration of Conformity has been issued, the CE mark may be applied to the devices and the product can be distributed in the EU and in other countries where the CE Mark may be accepted.

We currently are ISO-13485:2003 certified and are certified under Annex II, Full Quality System. Our only delivery system currently carrying the CE Mark is the INOvent Delivery System, specifically the INOvent systems that were originally manufactured for the European market. The INOMAX DS will be CE Marked in 2010.

The NB usually conducts audits once per year to ensure the requirements of the Quality Management System continues to meet the requirements of ISO-13485:2003 and MDD Annex I continue to be met. Our last audit was conducted in December 2009, with a successful outcome.

Other Regulatory Requirements

In addition to regulation by the FDA and certain state regulatory agencies, we need to comply with other agencies that govern the way we conduct business.

Because our compressed gas products are packaged at pressures greater than 25 pounds of pressure per square inch gauge, or psig, they are classified as hazardous materials. The Department of Transportation, the International Air Transportation Association, the International Maritime Organization, the Environmental Protection Agency, and the Occupational Safety and Health Administration, impose various regulations pertaining to the way we manufacture, transport, store and handle our products.

Failure to comply with current and future regulations of these agencies could lead to a variety of sanctions, which could harm our business and financial condition.

Anti-Kickback and Fraud Laws

We are subject to various federal and state laws pertaining to healthcare "fraud and abuse." The federal Anti-Kickback Statute makes it illegal for any person, including a pharmaceutical company (or a party acting on its behalf), to knowingly and willfully solicit, offer, receive or pay any remuneration, directly or indirectly, in exchange for, or to induce, the referral of business, including the purchase, order or prescription of a particular drug, or arranging for the purchase, ordering, or prescription of a particular drug for which payment may be made under federal healthcare programs such as Medicare and Medicaid. In 1996, under HIPAA, the Anti-Kickback Statute was expanded to be made applicable to most federal and state-funded healthcare programs. The definition of "remuneration" has been broadly interpreted to include any item or service of value, including but not limited to gifts, discounts, the furnishing of free supplies or equipment, commercially unreasonable credit arrangements, cash payments, waivers of payments or providing anything at less than its fair market value. Several courts have interpreted the Anti-Kickback Statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of business reimbursable by a federal healthcare program, the statute has been violated. Penalties for violations include criminal penalties, civil sanctions and administrative actions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federally-funded healthcare programs. In addition, some kickback allegations have been held to violate the federal False Claims Act, which is discussed in more detail below.

The federal Anti-Kickback Statute is broad and prohibits many arrangements and practices that may be lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous and beneficial arrangements, Congress created several exceptions in the Social Security Act and has authorized the U.S. Department of Health and Human Services, or HHS, to publish regulatory "safe harbors" that exempt certain practices from

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enforcement action under the Anti-Kickback Statute prohibitions. For example, there are safe harbors available for certain discounts to purchasers, personal services arrangements and various other types of arrangements. However, safe harbor protection is only available for transactions that satisfy all of the narrowly defined safe harbor provisions applicable to the particular remunerative relationship. Conduct and business arrangements that do not strictly comply with all the provisions of an applicable safe harbor, while not necessarily illegal, face an increased risk of scrutiny by government enforcement authorities and an ongoing risk of prosecution.

In addition, many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for healthcare services reimbursed by any third-party payor, not only the Medicare and Medicaid programs or other governmental payors. At least one state, California, also has adopted a law requiring pharmaceutical companies to implement compliance programs to prevent and deter conduct that may violate fraud and abuse laws that comply with the voluntary industry guidelines and Office of Inspector General, or OIG, compliance guidance. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could find that such arrangements violate these laws, which could have a material adverse effect on our business, results of operations and financial condition.

The PPACA imposes new reporting and disclosure requirements for pharmaceutical and device manufacturers with regard to payments or other transfers of value made to physicians and teaching hospitals, effective March 30, 2013. In addition, pharmaceutical and device manufacturers will also be required to report and disclose investment interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties of up to $150,000 per year (and up to $1 million per year for "knowing failures") for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Further, the PPACA amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims laws.

If not preempted by federal law, several states require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products and to report gifts and payments to individual physicians in the states. Other states prohibit providing meals to prescribers or other marketing related activities. Still other states require the posting of information relating to clinical trials and their outcomes. In addition, certain states, such as California, Nevada, and Massachusetts, require pharmaceutical companies to implement compliance programs or marketing codes. Currently, several additional states are considering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civil penalties. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

HIPAA created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal and state healthcare programs such as Medicare and Medicaid. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment. Additionally, HIPAA granted expanded enforcement authority to HHS and the U.S. Department of Justice, or DOJ, and

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provided enhanced resources to support the activities and responsibilities of the OIG and DOJ by authorizing large increases in funding for investigating fraud and abuse violations relating to healthcare delivery and payment.

Numerous federal and state laws and regulations, including HIPAA, govern the collection, dissemination, use and confidentiality of patient-identifiable health information. Through many of our operations, we encounter, collect, maintain, and transmit patient-identifiable health information. New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare related data and communicate with customers, payors, and others, and the cost of complying with these standards could be significant. If we do not comply with existing or new laws and regulations related to patient health information, we could be subject to criminal or civil sanctions.

In addition, federal law includes other provisions that specifically prohibit certain types of manipulative Medicare billing practices. Federal law also provides for minimum periods of exclusion from federal and state healthcare programs for certain offenses and frauds. Many states also have false claims and other healthcare fraud and abuse laws, which also may include civil and criminal penalties.

False Claims Laws

Pursuant to various federal and state false claims laws, the submission of false or fraudulent claims for payment may lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicare, Medicaid and other federally funded healthcare programs. These false claims statutes include the federal False Claims Act, which allows the federal government or private individuals to bring suit alleging that an entity or person knowingly submitted, or caused another person or entity to submit, a false or fraudulent claim for payment to the federal government or knowingly used, or caused to be used, a false record or statement to obtain payment from the federal government. The federal False Claims Act may also be violated if a person files a false statement in order to reduce, avoid, or conceal an obligation to pay money to the federal government. Several pharmaceutical companies have settled claims based on the federal False Claims Act for conduct involving, among other examples, providing free product to purchasers with the expectation that federally-funded health programs would be billed for the product, or instances in which a manufacturer has marketed its product for off-label or non-reimbursable purposes. A person who files suit may be able to share in amounts recovered by the government in connection with such suits. Such suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a healthcare company will have to defend a false claims action, enter into settlements that may include corporate integrity agreements requiring disclosures to the federal government, pay fines or be excluded from the Medicare and/or Medicaid programs as a result of an investigation arising out of such an action. In addition, a number of states have enacted similar laws prohibiting the submission of false or fraudulent claims to a state government. We are not aware of any qui tam actions pending against us. However, no assurance can be given that such actions may not be filed against us in the future, or that any non-compliance with such laws would not have a material adverse effect on our business, results of operations and financial condition.

The foregoing description of laws and regulations affecting healthcare companies is not meant to be an all-inclusive discussion of aspects of federal and state regulation which may affect our business, results of operations and financial condition. Healthcare companies operate in a complicated regulatory environment. These or other statutory or regulatory initiatives may affect our revenues or operations. We have a compliance officer and retain, when necessary, special counsel for guidance on applicable laws and regulations, including fraud and abuse laws. However, no assurance can be given that our practices, if reviewed, would be found to be in compliance with applicable fraud and abuse laws (including false claims laws and anti-kickback prohibitions), as such laws ultimately may be interpreted, or that any non-compliance with such laws or government investigations of alleged non-compliance with

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such laws would not have a material adverse effect on our business, results of operations and financial condition.

Pharmaceutical Pricing and Reimbursement

In both the United States and foreign markets, our ability to commercialize our products successfully, and to attract commercialization partners for our products, depends in significant part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations, and private health insurers. Medicare is a federally funded program managed by the Centers for Medicare and Medicaid Services, or CMS, through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain healthcare items and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined levels and who are otherwise uninsured that is both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations that govern its individual program. Each payor has its own process and standards for determining whether it will cover and reimburse a procedure or particular product. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving favorable CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. The competitive position of some of our products will depend, in part, upon the extent of coverage and adequate reimbursement for such products and for the procedures in which such products are used. Prices at which we or our customers seek reimbursement for our products can be subject to challenge, reduction or denial by the government and other payors.

CMS, as well as most other third-party payors, provide reimbursement for unapproved uses of FDA-approved products, but often limit coverage to drugs prescribed for a medically accepted indication. A drug's medically accepted indications include all FDA-approved indications as well as unapproved indications supported by listings in specified compendia. INOMAX is currently included in these compendia for a significant portion of the unapproved uses for which it is prescribed by physicians.

On March 23, 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, the PPACA, which may have far reaching consequences for drug and device manufacturers like us. In particular, there are elements of this legislation that are aimed at promoting the greater use of comparative effectiveness research as well as various pilot and demonstration programs that have the potential to impact reimbursement and patient access for the company's products, and which may materially impact numerous aspects of our business. Additionally, the new legislation mandates fees on drug manufacturers totaling $2.5 billion in 2011, $2.8 billion in 2012 and 2013 and over $20 billion in the next ten years. These taxes represent a significant increase in the tax burden on the drug and device industries and may have a material and adverse impact on our operations and cash flow. Because this legislation is so recent, we do not yet know the full impact this legislation will have on our business.

In 2008, CMS implemented a new DRG system called Medicare-Severity DRG, or MS-DRG, with the goal of reducing the variability of per patient costs within each DRG. Within MS-DRG, patients are classified by similar diagnoses and procedures, as well as by three levels of severity, primarily due to complications. The addition of a severity classification has resulted in higher payments for critically ill patients. For example, the DRG for congenital heart surgery at the highest level of severity is paid at 190% of payment for the same procedure without complications. Similarly, major chest procedures are paid at 280% when severe versus similar procedures without complications. In addition, a required ICU stay in and of itself can qualify a patient for an increased severity classification due to the level of

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monitoring necessary. As a result, it is expected that DRG payments for most patients in ICUs will be higher than under the previous classification system.

Reimbursement to major private third-party payors for treatment of hospitalized patients follow one of three methodologies: Percent-of-Charge, Per-Diem or Diagnosis-Related Group-based, which is known as DRG. In addition, incremental payments may be made through negotiated terms, such as carve-outs (fixed payments for certain treatments), outliers, or stop-loss payments (such as for high-cost patients who exceed a pre-set threshold of costs).

During the past several years, the major private third-party payors have substantially revised their reimbursement methodologies in an attempt to contain their healthcare reimbursement costs. Recently, payors have increased use of the DRG-based system, in which each inpatient discharge is assigned a DRG code that classifies patients with similar diagnoses and procedures. These payments are not dependent on the length of admission, treatments needed, or the actual costs to the hospital. Should a patient cost less to treat than the DRG payment, the hospital can retain the overage. Alternatively, if a patient costs are more than the DRG payment, the hospital will only recognize additional reimbursement if a calculated threshold is surpassed and it cannot bill for the difference.

Private third-party payors continue to increase their emphasis on managed care, which has led to an increased emphasis on the use of cost-effective medical interventions by healthcare providers. In addition, through their purchasing power, these payors often seek discounts, price reductions or other incentives from medical product suppliers.

Mandatory Discounts and Rebates

Existing federal law requires pharmaceutical manufacturers to pay rebates to state governments, based on a statutory formula, on covered outpatient drugs reimbursed by the Medicaid program as a condition of having their drugs paid for by Medicaid. Rebate amounts for a product are determined by a statutory formula that is based on prices defined in the statute: average manufacturer price, or AMP, which must be calculated for all products that are covered outpatient drugs under the Medicaid program, and best price, which must be calculated only for those covered outpatient drugs that are innovator products, such as biologic products. Manufacturers are required to report AMP and best price for each of their covered outpatient drugs to the government on a regular basis. Additionally, some state Medicaid programs have imposed a requirement for supplemental rebates over and above the formula set forth in federal law, as a condition for coverage.

In addition to the Medicaid rebate program, federal law also requires that if a drug manufacturer wishes to have its outpatient drugs covered under Medicaid as well as under Medicare Part B, it must sign a "Master Agreement" obligating it to provide a formulaic discount of approximately 24% for drugs sold to the U.S. Departments of Defense and Veterans Affairs, and also provide Medicaid-like discounts under section 340B of the Public Health Service Act, for outpatient drugs sold to certain specified clinics and hospitals that are the recipients of federal assistance. These entities include, but are not limited to, disproportionate share hospitals, certain children's hospitals, federally-qualified health centers, certain family planning projects, Ryan White HIV clinics, state-operated AIDS Drug assistance programs, or ADAP, black lung clinics, comprehensive hemophilia diagnostic treatment centers, native Hawaiian health centers, and several others. The formula for determining the discounted purchase price under the 340B program is defined by statute and is based on the AMP and rebate amount for a particular product as calculated under the Medicaid drug rebate program, discussed above.

The recently signed PPACA includes a provision that raised the Medicaid minimum rebate from 15.1% to 23.1%, changed the rebate calculation for new formulations, and extended the rebate requirement for the first time to Medicaid managed care populations as well as to drugs provided to Medicare Part D full-benefit dual eligible individuals. Separately, the legislation also included a

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provision which was removed shortly before enactment that would have expanded the 340B drug pricing program to include new entity types as well as inpatient drug purchases by covered entity hospitals. Although we are not currently required to pay Medicaid rebates or to participate in the other mandatory discount programs such as 340B, there are many scenarios and reform proposals which could change our status, exposing us to mandatory rebate and discount requirements, which would have a material adverse effect on our business, financial condition and results of operations.

Employees

As of April 30, 2010, we employed 463 full-time employees. Of this number, 111 employees are engaged in research and development, 100 employees are involved in manufacturing operations, 56 employees are involved in distribution, and 107 employees are engaged in commercial operations (sales, marketing, and customer service) while 89 individuals provide general and administrative support. Of our employees, approximately 24% have earned advanced degrees. The total workforce includes eight employees who hold a medical degree (M.D. or D.V.M), 28 who hold a doctorate degree (Ph.D.), and 73 employees with masters and other graduate degrees (M.S., M.A., M.B.A or J.D.). Our employees are not represented by a labor union or covered by a collective bargaining agreement.

Facilities

Corporate Headquarters

Our corporate headquarters are located in Clinton, New Jersey, where we occupy approximately 60,000 square feet of office space. The lease expires in June 2011, but may be extended at our option for two additional, five-year terms. We also lease approximately 14,600 square feet of office space in Hampton, New Jersey. The lease expires in September 2011, but may be extended at our option for an additional, two-year term. Currently, we plan to lease one single location that will be able to support our growth for the next 10 years and will allow us to consolidate multiple leases into one corporate headquarters, which is located in the central New Jersey area.

International Locations

We have established offices in Australia, Japan and Canada to support our growth in those countries. In Japan and Canada, these offices primarily perform sales and marketing functions, while the distribution and logistics functions are handled by third-party providers. In Australia, third-party providers perform sales and marketing, distribution and logistic functions. Each of our international offices is staffed by a general manager and support staff.

Drug Manufacturing

We own our drug-manufacturing plant in Port Allen, Louisiana, where we have approximately 49,000 square feet of office, warehouse, laboratory and manufacturing space. The buildings are situated on approximately five acres. We also own approximately 10 additional acres of adjacent land that provides flexibility for future expansion. We also lease approximately 5,000 square feet of additional office, warehouse and manufacturing space in Geismar, Louisiana. The fixed-lease term expires in August 2010. Our intent is to extend this lease for an additional one-year term while we evaluate our ability to consolidate this additional warehouse and manufacturing space into our Port Allen facility. We also are in the process of equipping our regional service and distribution center in Coppell, Texas, with the capability to blend INOMAX. This facility will act as a back-up to our primary facility in Port Allen to provide manufacturing and warehousing capabilities, if required.

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Delivery System Manufacturing

Our drug-delivery system manufacturing facility is located in Madison, Wisconsin, where we lease approximately 15,000 square feet of manufacturing, research and development and warehouse space. The lease term expires in July 2013, but may be extended at our option for two additional three-year terms. We also lease approximately 1,100 square feet of additional office space in Madison, Wisconsin, which we plan to utilize to support future delivery system development and warehousing. The lease term expires in February 2012.

Research and Development

Our research and development facility is located in Seattle, Washington, where we lease approximately 8,000 square feet of laboratory and office space. The lease terminates on March 31, 2014.

Regional Service and Distribution Centers

Our seven regional service and distribution centers are located throughout the United States (Atlanta, Chicago, Dallas, Los Angeles, Port Allen, Somerset, New Jersey and San Francisco) to best support the immediate needs of our customers.

Legal Proceedings

From time to time, we have been and may again become involved in legal or regulatory proceedings arising in the ordinary course of our business. We are not presently a party to any material litigation or regulatory proceeding and we are not aware of any pending or threatened litigation or regulatory proceeding against us that could have a material adverse effect on our business, operating results, financial condition or cash flows.

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MANAGEMENT

The following table sets forth the name, age and position of each of our executive officers and directors as of April 30, 2010.

Name		Position

Daniel Tassé	50	Chairman, Chief Executive Officer, President and Director
Ralf Rosskamp, M.D.	57	Executive Vice President, Research and Development
Matthew M. Bennett	39	Senior Vice President, Legal and Corporate Development
James Briggs	38	Senior Vice President, Human Resources
Michael Kennedy	52	Senior Vice President, Engineering and Operations
Stephen Ross	44	Senior Vice President, Commercial Operations
Aldo E. Belloni, Ph.D.(1)	60	Director
Michael T. Flaherman	45	Director
Robert T. Nelsen(3)	46	Director
Howard Pien(1)(2)	52	Director
Bryan E. Roberts, Ph.D.(2)	43	Director
Alok Singh(1)(2)(3)	56	Director
Randy H. Thurman(3)	60	Director
Lota S. Zoth(1)	50	Director

(1): Member of the Audit Committee.
(2): Member of the Compensation Committee.
(3): Member of the Nominating and Governance Committee.

Daniel Tassé has served as our President, Chief Executive Officer and a member of our board of directors since January 2008. Mr. Tassé was appointed Chairman in October 2009. Prior to joining us, from October 2004 to January 2008, Mr. Tassé served as General Manager of the Pharmaceuticals and Technologies Business Unit of Baxter International, Inc., a global diversified healthcare company. Baxter's Pharmaceuticals and Technologies Business Unit includes the Anesthesia and Critical Care business, the Hospital IV Drug business, the Contract Manufacturing business and the Formulation Technology business. From July 2001 to October 2004, Mr. Tassé served as Vice President and Regional Director for Australasia at GlaxoSmithKline, a healthcare company. Mr. Tassé holds a B.Sc. in biochemistry from the University of Montreal. As our President and Chief Executive Officer, Mr. Tassé provides a critical contribution to our board of directors as a result of his extensive track record of business building in the healthcare industry, his strong background within critical care, his global management experience, and his detailed knowledge of the pharmaceutical industry, our company, employees, client base and competitors.

Ralf Rosskamp, M.D. has served as our Executive Vice President, Research and Development since October 2007. Prior to joining us, from October 2003 to May 2007, Dr. Rosskamp served as Executive Vice President of Research and Development at Kos Pharmaceuticals, Inc., a specialty pharmaceutical company. From December 1999 to September 2003, Dr. Rosskamp served as Vice President of Global Therapeutic Research and Development for Endocrinology, Metabolism, Rheumatology and Bone at Aventis Pharmaceuticals, a global pharmaceutical company. Dr. Rosskamp holds an M.D. from the University of Bonn (Germany).

Matthew M. Bennett has served as our Senior Vice President, Legal and Corporate Development since July 2007. Prior to joining us, from October 2003 to July 2007, Mr. Bennett held several positions of increasing responsibility, including Executive Vice President, General Counsel and Chief Administrative Officer at Viasys Healthcare, Inc., a healthcare technology company, where he was responsible for legal matters, business development, quality, regulatory affairs and human resources.

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From August 1997 to October 2003, Mr. Bennett was an attorney at Morgan, Lewis & Bockius LLP and was previously a litigator at Stradley, Ronon, Stevens & Young LLP. Mr. Bennett holds a B.A. in Political Science from Princeton University and a J.D. from Villanova University School of Law.

James Briggs has served as our Senior Vice President, Human Resources since August 2008. Prior to joining us, from March 2007 to August 2008, Mr. Briggs served as Director, Human Resources of Avaya Global Services, a global IP telephone products and services company. From April 2004 to March 2007, Mr. Briggs served as Vice President, Human Resources of General Electric's Access Distribution Unit, a global IT distributor. Prior to joining General Electric, he held several positions at Unilever, an international manufacturer of food, home care and personal care products, and The Pepsi Bottling Company, a manufacturer and distributor of Pepsi-Cola products. Mr. Briggs holds a B.A. in communications from the University of Illinois.

Michael Kennedy has served as our Senior Vice President, Engineering and Operations since October 2008. Prior to joining us, from August 2007 to October 2008, Mr. Kennedy served as Vice President, Technology Platform Development of the pharmaceuticals and technologies business of Baxter International, Inc., a global diversified healthcare company. From January 2005 to March 2007, Mr. Kennedy served as Chief Marketing Officer and Head of Product Development of Hollister, Incorporated, a chronic care medical products company. From March 1999 to January 2005, Mr. Kennedy served as General Manager of Comdisco Healthcare Group, which was acquired by General Electric, where he became Senior Vice President of Strategic Marketing for GE Healthcare Financial Services. Mr. Kennedy holds a B.S. in Chemical Engineering from the University of Washington and an M.B.A from Northwestern University's Kellogg School of Management.

Stephen Ross has served as our Senior Vice President, Commercial Operations since August 2008. Prior to joining us, from July 2007 to August 2008, Mr. Ross served as Senior Vice President, Sales and Marketing at Cytogen Corporation, a specialty pharmaceutical company. From October 2002 to June 2007, he held several positions, including Vice President, Specialty Business Units, at GlaxoSmithKline, a healthcare company. Mr. Ross holds a B.A. in economics from Brigham Young University and an M.B.A. from The Wharton School of the University of Pennsylvania.

Aldo E. Belloni, Ph.D. has served as a director since March 2007. Since 1980, Dr. Belloni has held several positions with Linde AG and its subsidiaries, and has served as a member of the Executive Board of Linde AG since January 2000. Dr. Belloni holds a Ph.D. in chemical engineering from the Milan Polytechnic Institute. We believe Dr. Belloni's qualifications to sit on our board of directors include his extensive experience in the industrial gas industry, including as a member of the Executive Board of Linde AG.

Michael T. Flaherman has served as a director since March 2007. Since 2003, Mr. Flaherman has served as a Managing Director, Investment Management Services, of New Mountain Capital, a private equity group. From March 2004 to April 2008, Mr. Flaherman served as a director of National Medical Health Card Systems, Inc., a publicly-traded healthcare company. Mr. Flaherman holds a B.A. in government from Harvard University and a master's degree in city planning from the Massachusetts Institute of Technology. We believe Mr. Flaherman's qualifications to sit on our board of directors include his experience as Chief Investment Officer of CalPERS, his financial expertise and his years of experience providing strategic advisory services across many industries.

Robert T. Nelsen has served as a director since March 2007. Since 1994, Mr. Nelsen has served as a Co-Founder, Assistant Secretary and Managing Director of ARCH Venture Partners, a venture capital firm focused on early-stage technology companies. Since 2000, Mr. Nelsen has served as a director of NeurogesX, Inc., a publicly-traded biopharmaceutical company focused on developing and commercializing pain management therapies. From 1994 to 2008, Mr. Nelsen served as a director of Adolor Corporation, a publicly-traded biopharmaceutical company. From 2002 to 2006, Mr. Nelsen also served as a director of Trubion Pharmaceuticals, Inc., a publicly-traded biopharmaceutical company.

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Mr. Nelsen also serves on the board of several privately held companies, including Sapphire Energy Corporation, Agios Pharmaceuticals, Inc., and Kythera Biopharmaceuticals, Inc. Mr. Nelsen holds a B.S. in biology and economics from the University of Puget Sound and an M.B.A. from the University of Chicago Graduate School of Business. We believe Mr. Nelsen's qualifications to sit on our board of directors include his extensive experience with pharmaceutical companies, his financial expertise and his years of experience providing strategic and financial advisory services to pharmaceutical and biotechnology organizations, including evaluating business plans involving clinical trials.

Howard Pien has served as a director since April 2010. Mr. Pien is the Principal of Howard Pien Consulting, LLC, a consulting and advisory company focusing on investment and business strategy in healthcare companies. From July 2007 to September 2009, Mr. Pien served as the Chief Executive Officer of Medarex, Inc. biotechnology company. Mr. Pien served as the President and Chief Executive Officer and a director of Chiron Corporation, a biopharmaceutical company, from April 2003 until Chiron's merger with Novartis AG in May 2006. Mr. Pien was elected Chairman of the Board of Directors of Chiron in May 2004. From December 2000 to March 2003, Mr. Pien worked at GlaxoSmithKline, a healthcare company, where he held several positions in GlaxoSmithKline's worldwide pharmaceuticals business, including President, Pharmaceuticals International. Mr. Pien previously held key positions in SmithKline Beecham's pharmaceuticals business in the United States, the United Kingdom, and North Asia, culminating in his tenure as President, Pharmaceuticals-North America. Prior to joining SmithKline Beecham, he worked six years for Abbott Laboratories and five years for Merck & Co. Mr. Pien currently serves as a director of ViroPharma Incorporated, a publicly-traded pharmaceutical development company, Vanda Pharmaceuticals Inc., a publicly-traded drug development company and ImmunoGen, Inc., a publicly-traded company engaged in anticancer therapeutic development. He is also a director of Arresto BioSciences, a privately held biotechnology company. Mr. Pien holds a B.S. from Massachusetts Institute of Technology and an M.B.A. from Carnegie-Mellon University. We believe Mr. Pien brings to our board of directors extensive experience in the pharmaceutical industry, including his management expertise as a chief executive officer of pharmaceutical and biotechnology companies and his extensive corporate governance expertise as a director of private and public companies.

Bryan E. Roberts, Ph.D. has served as a director since March 2007. Since 1997, Dr. Roberts has held several positions at Venrock, a venture capital firm, and currently serves as a Partner. Dr. Roberts also serves as a director of Ironwood Pharmaceuticals, Inc., a publicly-traded pharmaceutical company, and several private companies. Dr. Roberts has served on the board of directors of athenahealth, Inc., a publicly-traded healthcare company, XenoPort, Inc., a publicly-traded biopharmaceutical company and Sirna Therapeutics, Inc., a publicly-traded biotechnology company. Dr. Roberts holds a B.A. from Dartmouth College and a Ph.D. in chemistry and chemical biology from Harvard University. We believe Dr. Roberts' qualifications to sit on our board of directors include his extensive experience with healthcare, biopharmaceutical and biotechnology companies, his financial expertise and his years of experience providing strategic advisory services to diverse companies.

Alok Singh has served as a director since August 2006. Since September 2002, Mr. Singh has held several positions at New Mountain Capital, a private equity group, including Managing Director. Mr. Singh also serves on the boards of directors of Deltek Systems, Inc., a publicly-traded software company, and Validus Holdings, Ltd., a publicly-traded re-insurance company. Mr. Singh also serves on the boards of several privately held companies, including Overland Solutions, Inc., Appitis, Inc., Camber Corporation, EverBank Financial Corporation, and RedPrairie Holding, Inc. Mr. Singh holds a B.A. in economics from New York University and an M.B.A. in finance from New York University. We believe Mr. Singh's qualifications to sit on our board of directors include his financial expertise and his years of experience providing strategic advisory services to complex organizations, including as a public company director. As a Managing Director of New Mountain Capital, our largest stockholder, Mr. Singh has been instrumental in our growth since March 2007.

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Randy H. Thurman has served as a director since November 2007. Since November 2007, Mr. Thurman has served as a Senior Advisor of New Mountain Capital, a private equity group. Since June 2008, Mr. Thurman has served as Chairman of the Board of CardioNet, Inc., a publicly-traded medical technology company, and he has served as CardioNet, Inc.'s President and Chief Executive Officer since March 2009. From March 2001 to July 2007, Mr. Thurman served as Chairman of the Board, President and Chief Executive Officer of Viasys Healthcare, Inc. a publicly-traded respiratory, neurological, orthopedics and medical/surgical company, which he founded in 2001. Prior to joining Viasys Healthcare Inc., Mr. Thurman was Chief Executive Officer of Strategic Reserves LLC, participated in various entrepreneurial ventures including the start-up of two medical device companies and two genomics companies, and was Chairman of the Board of Enzon Inc. Previously, Mr. Thurman was Chairman and Chief Executive Officer of Corning Life Sciences Inc., which subsequently was spun off as two NYSE companies. Earlier in his career, Mr. Thurman was with Rorer Pharmaceuticals Inc. and led its acquisition of Revlon Healthcare and subsequent merger with Rhône-Poulenc. At Rorer, Mr. Thurman served as President of Rorer Pharmaceuticals Inc. and subsequently Rhône-Poulenc Rorer Pharmaceuticals Inc. Mr. Thurman holds a B.S. in economics from Virginia Polytechnic Institute and an M.A. in economics from Webster University. Mr. Thurman's experience as a public company director, along with his experience as the chief executive officer of a public company, demonstrates his leadership capability and extensive knowledge of complex financial and operational issues that public companies face. In addition, his experience as a chief executive officer and/or president of multiple healthcare companies brings thorough understanding of our business and industry and business acumen to our board of directors. We believe Mr. Thurman's extensive experience in the pharmaceutical, biotechnology and healthcare industries provides valuable background and insight to our board of directors.

Lota S. Zoth has served as a director since December 2007. Prior to joining us, from August 2002 to July 2007, Ms. Zoth served as Senior Vice President and Chief Financial Officer of MedImmune, Inc., a pharmaceutical company. From August 2000 to June 2002, Ms. Zoth served as Senior Vice President and Corporate Controller for PSINet, Inc., a software company. In May 2001, during her tenure at PSINet, Inc., PSINet, Inc. filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Since February 2008, Ms. Zoth has been a director of Hyperion Therapeutics, Inc., a privately held pharmaceutical company. Ms. Zoth holds a B.B.A. in accounting from Texas Tech University and is also a Certified Public Accountant. Because of Ms. Zoth's prior public company experience, including as Chief Financial Officer of MedImmune, Inc., and her financial experience and expertise, we believe Ms. Zoth is able to provide valuable input into our strategic and financial affairs as we begin operating as a publicly-traded company after completion of this offering. She also brings a thorough understanding of our business and industry.

Board Composition and Election of Directors

All of our directors are elected annually for a one-year term until the next annual meeting of stockholders.

Following the completion of this offering, (i) the New Mountain Entities will be entitled to elect (a) three directors, for so long as they beneficially 15% or more of our outstanding common stock, (b) two directors, for so long as they beneficially own less than 15% but more than 5% of our outstanding common stock and (c) one director, for so long as they own less than 5% of our outstanding common stock but more than one share of common stock and (ii) each of ARCH, the Venrock Entities and Linde, each voting as a separate class will be entitled to elect one director for so long as such holder owns 5% or more of our outstanding common stock. Messrs. Flaherman, Singh and Thurman were appointed to our board of directors by the New Mountain Entities, Mr. Nelsen was appointed to our board of directors by ARCH, Dr. Roberts was appointed to our board of directors by

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the Venrock Entities and Dr. Belloni was appointed to our board of directors by Linde. See "Description of Capital Stock—Series C Preferred Stock."

We will be deemed to be a "controlled company" under the rules established by The NASDAQ Global Market, and we will qualify for, and intend to rely on, the "controlled company" exception to the board of directors and committee composition requirements under the rules of The NASDAQ Global Market. Pursuant to this exception, we will be exempt from the rule that requires our board of directors to be comprised of a majority of "independent directors" and our compensation and nomination and governance committees to be comprised solely of "independent directors," as defined under the rules of The NASDAQ Global Market. The "controlled company" exception does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of the Sarbanes-Oxley Act and The NASDAQ Global Market rules, which require that our audit committee be composed of at least three members, each of whom will be independent within one year from the date of this prospectus.

We have no formal policy regarding board diversity. Our priority in selection of board members is identification of members who will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business and understanding of the competitive landscape.

There are no family relationships among any of our directors or executive officers.

Board Committees

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. The composition of each committee will be effective upon the closing of this offering.

Audit Committee

The members of our audit committee are Dr. Belloni, Messrs. Pien and Singh and Ms. Zoth. Ms. Zoth chairs the audit committee. Upon the closing of this offering, our audit committee's responsibilities will include:

•: appointing, approving the compensation of, and assessing the independence of the our registered public accounting firm;
•: overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm;
•: reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;
•: monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;
•: coordinating the oversight of our internal audit function;
•: discussing our risk management policies;
•: establishing procedures for the receipt and retention of accounting related complaints and concerns;
•: meeting independently with our internal auditing staff, our independent registered public accounting firm and management;

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•: reviewing and approving or ratifying any related person transactions; and
•: preparing the audit committee report required by SEC rules.

All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.

Our board of directors has determined that Ms. Zoth is an "audit committee financial expert" as defined in applicable SEC rules. We believe that the composition of our audit committee meets the requirements for independence under current NASDAQ and SEC rules and regulations.

Compensation Committee

The members of our compensation committee are Mr. Pien, Dr. Roberts and Mr. Singh. Mr. Singh chairs the compensation committee. Upon the closing of this offering, our compensation committee's responsibilities will include:

•: reviewing and making recommendations to our board with respect the compensation of our chief executive officer;
•: reviewing and approving the compensation of our other executive officers;
•: overseeing an evaluation of our executive officers;
•: overseeing and making recommendations with respect to equity compensation and equity incentive plans;
•: reviewing and making recommendations to our board with respect to director compensation;
•: reviewing and making recommendations to our board with respect to management succession planning;
•: reviewing and discussing annually with management our "Compensation Discussion and Analysis" disclosure required by SEC rules; and
•: preparing the compensation committee report required by SEC rules.

Nominating and Governance Committee

The members of our nominating and governance committee are Messrs. Nelsen, Singh and Thurman. Mr. Singh chairs the nominating and governance committee. Upon the closing of this offering, our nominating and governance committee's responsibilities will include:

•: identifying individuals qualified to become members of our board;
•: recommending to our board the persons to be nominated for election as directors and to each of our board's committees;
•: developing and recommending to our board corporate governance principles; and
•: overseeing an annual evaluation of our board.

Board Leadership Structure and Risk Oversight

Mr. Tassé serves as both chief executive officer and chairman of the board. Having one person serve as both chief executive officer and chairman of the board shows our employees, customers and other constituencies that we are under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. The board believes that this eliminates the potential for duplication of efforts and inconsistent actions and facilitates information flow between

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management and the board of directors, which are essential to effective governance. The board believes that the combined role of chief executive officer and chairman of the board, together with a lead director having the duties described below, is in the interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

Mr. Singh will serve as lead director. The lead director has the responsibility of consulting with the chairman of the board on board and committee meeting agendas, acting as a liaison between management directors and non-management directors and facilitating teamwork and communications between the management and non-management directors. Mr. Singh is a non-independent lead director and, as such, does not have all of the responsibilities that an independent lead director would typically have. In particular, Mr. Singh will not preside over the board's executive sessions of the independent directors.

Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. While the board of directors has the ultimate oversight responsibility for the risk management process, various committees of the board of directors also have responsibility for risk management. In particular, the audit committee's purpose is to assist in the Board's oversight of the Company's accounting and financial reporting processes and the audits of our financial statements, with a particular focus on assessing and mitigating financial risk. In setting compensation, the compensation committee also strives to create incentives that encourage a level of risk-taking behavior consistent with our business strategy.

Code of Business Conduct and Ethics

We currently have a code of business conduct and ethics. Prior to this offering, we plan to adopt a new code of business conduct and ethics that will apply to all of our employees, officers and directors and that includes provisions relating to accounting and financial matters. Upon the closing of this offering, our new code of business conduct and ethics will be available on our website at www.ikaria.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee.

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EXECUTIVE AND DIRECTOR COMPENSATION

The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plan and expectations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.

Compensation Discussion and Analysis

Overview

The purpose of the compensation discussion and analysis section is to discuss the principles underlying our compensation policies and decisions with respect to all of our executive officers, and specifically those who are named in the "Summary Compensation Table," or our "named executive officers," with a focus on the factors we rely upon most heavily in setting compensation for those individuals. Our named executive officers are:

•: Daniel Tassé, Chairman and Chief Executive Officer
•: Elizabeth Larkin, former Senior Vice President and Chief Financial Officer
•: Ralf Rosskamp, Executive Vice President, Research and Development
•: Matthew Bennett, Senior Vice President, Legal and Corporate Development
•: Michael Kennedy, Senior Vice President, Engineering and Operations

The role of our compensation committee is to assist our board of directors in the discharge of its responsibilities relating to our executive compensation program. Our compensation committee is responsible for establishing and administering our policies governing the compensation for our executive officers, including determining base salaries, cash bonuses and equity incentive compensation. Our compensation committee also considers the recommendations of our chief executive officer when determining the appropriate levels of compensation for each of our executive officers, including our named executive officers. However, our chief executive officer does not provide input on his own compensation. The members of our compensation committee are Messrs. Pien and Singh and Dr. Roberts. Mr. Singh is the chairman of the compensation committee.

Objectives and Philosophy of our Executive Compensation Program

We have designed our executive compensation program to help attract talented individuals to manage and operate all aspects of our business, to reward those individuals based on corporate results and individual performance, and to retain those individuals who continue to meet our expectations. We also intend for our executive compensation program to make us competitive within the pharmaceutical and biotechnology industries, where there is significant competition for talented leaders who possess the skills and experience to build and deliver on long-term value creation. We believe that the compensation of our executive officers should incentivize them to focus on the achievement of both short- and long-term business objectives and strategies. The primary objectives of our executive compensation program are to:

•: align the interests of our executive officers with the interests of our stockholders;
•: align the compensation of our executive officers with our business objectives, and provide financial rewards commensurate with results against our corporate goals;
•: assure that the structure of performance-based rewards fosters an environment of innovation and value delivery to our stockholders;

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•: support the retention of executive officers by providing opportunities to achieve both short- and long-term rewards based upon results; and
•: attract talented individuals, with the right skills and experience, to manage and operate our business.

To achieve these objectives, our compensation committee evaluates our executive compensation program at least annually, with the goal of setting the total target compensation opportunity for each executive officer at a level the compensation committee believes represents the value the executive officer contributes to our success, based on his or her performance, and maintains a competitive position with our peer group, described below. In addition, our executive compensation program ties a significant portion of the overall compensation of each executive officer to key strategic targets and stated financial goals of our company, which are established annually. We also provide a portion of our executive compensation in the form of stock-based awards that vest over time, which we believe helps to retain our executive officers and aligns their interests with those of our stockholders by allowing them to participate in the longer-term success of our company as reflected in stock price appreciation. Our 2010 long-term incentive plan, referred to as the 2010 plan, described below, includes provisions to utilize several forms of equity-based compensation, including stock options, restricted stock, restricted stock units, performance shares or units, and others. Our compensation committee evaluates the use of these forms of equity awards for our business and as a component of the total compensation package for each executive officer.

We target total compensation for each executive officer to be near the median range of total compensation for an executive in a similar position, based on benchmarking to the peer group described below. The compensation program for our executive officers consists of the following principal components:

•: Base Salary: Base salary represents a fixed portion of compensation, varies by position and individual performance over time, and is designed to recognize the experience, skills, knowledge and responsibilities required of our executive officers, including our named executive officers.
•: Cash Bonus: In addition to base salary, each executive officer is eligible for an annual cash bonus award pursuant to our annual cash bonus program. These cash bonus awards are intended to compensate executive officers for their specific contributions towards achieving our corporate goals, with further consideration for each executive officer's performance compared to individual goals and strategic objectives. Our corporate goals are reviewed and established at the beginning of each year with our compensation committee and approved by our board of directors. Individual goals for each executive officer are established with the chief executive officer to ensure alignment between the goals of our executive officers and our corporate goals, discussed elsewhere in this prospectus.
•: Long-Term Incentives: We also offer our executive officers long-term incentives, which have, to date, been equity-based incentives typically in the form of time-vested stock options. We grant stock-based awards to ensure that a significant portion of our executive officers' compensation is aligned with the interests of our stockholders as reflected in the value of our stock. Our decisions regarding the amount and type of equity incentive compensation, the allocation of equity, and the relative weighting of these awards as compared to other forms of compensation have been based on benchmarking to our peer group companies.

Our board of directors and the compensation committee selected these elements of compensation because they believe each is necessary or useful in achieving the objectives of our executive compensation program as set forth above. The compensation committee, at the time of this offering, has not adopted a formal policy as to the weighting of each compensation component, but rather relies on relevant market data, discussed below, to assist in determining the appropriate mix of executive compensation components.

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Total Target Compensation

The compensation committee reviews and considers the recommendations of our chief executive officer in determining the appropriate compensation for each executive officer, other than for our chief executive officer. Our chief executive officer provides recommendations for specific levels of base salary, target levels for cash bonus payments, and equity compensation awards for each executive officer, other than himself, based on his review and assessment of each executive officer's individual performance and potential to contribute to our future success. In making his recommendations, our chief executive officer also considers the peer group data discussed below.

Our compensation committee applies the same factors in reviewing and determining the compensation of our chief executive officer as it does for the other executive officers. The compensation committee considers total compensation of chief executive officers of our peer group companies discussed below as a starting point for determining competitive compensation for our chief executive officer. Based on our chief executive officer's level of responsibility, experience, and our overall corporate performance, the compensation committee then recommends any changes to his base salary, payments under the annual cash bonus program and equity compensation award to our board of directors for approval. Our chief executive officer has historically received more compensation than our other executive officers because he has the broadest responsibility and accountability toward ensuring the success of our business. This is consistent with our philosophy of tying compensation to the level of responsibility and influence over our corporate results and performance.

Historically, reviews have been conducted intermittently based on market conditions and individual circumstances. Following this offering, we intend to conduct reviews at the end of each year.

Peer Group Analysis

In establishing total target compensation levels for our executive officers, the compensation committee determines the ranges of market compensation that it believes will enable us to effectively compete for high performing, qualified executives. The compensation committee considers benchmarking against peer companies to be a necessary point of reference, although it does not believe that peer data should be the sole determining factor.

As part of the compensation committee's process for determining executive compensation, we conduct an annual benchmark review of executive compensation based on two sources. These sources are: (i) a select group of publicly-traded biotechnology, pharmaceutical and life sciences companies with similar operating characteristics and market capitalization to us, which we refer to as our proxy peer group, and (ii) a subset of the companies in the Global Life Sciences survey published by Radford, an AON company, which reviews the compensation payments and practices of approximately 600 participating companies, primarily pharmaceutical and biotechnology companies, covering base salary, cash bonus and long-term incentives, which we refer to as our Radford survey group. We refer to our proxy peer group and our Radford survey group together as our peer group.

The information for our proxy peer group is compiled by us from proxy statements and other public reports filed by these companies. The companies within the proxy peer group, which we selected in consultation with Towers Watson & Co. (formerly known as Watson Wyatt Worldwide, Inc.), or

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Towers Watson, an independent compensation consultant, were selected in 2008, reviewed by the compensation committee during 2009 and consist of:


• Amylin Pharmaceuticals, Inc.		• OSI Pharmaceuticals, Inc.
• BioMarin Pharmaceutical Inc.		• Prometheus Laboratories Inc.
• Cubist Pharmaceuticals, Inc.		• Sepracor Inc.
• Endo Pharmaceuticals Holdings Inc.		• The Medicines Company
• Medarex, Inc.		• Valeant Pharmaceuticals International
• Medicis Pharmaceutical Corporation		• ViroPharma Incorporated

In 2008, the compensation committee retained Towers Watson to assist in selecting the companies that comprise the proxy peer group, provide benchmark compensation data for executive officer positions and advise on our executive officer compensation plans generally. In 2009, the compensation committee retained Towers Watson to update benchmark data provided in 2008 and further advise on our executive officer compensation plans generally.

We use the information from our Radford survey group to supplement the information available for review from the proxy peer group. For our 2009 executive compensation, we benchmarked data for 22 companies within the Radford survey group with revenue and headcount similar to our company, including several firms included in our proxy peer group. Those companies are:


• Adams Respiratory Therapeutics, Inc.		• Myriad Genetics, Inc.
• Affymetrix, Inc.		• Nektar Therapeutics
• Alkermes, Inc.		• OSI Pharmaceuticals, Inc.
• Amylin Pharmaceuticals, Inc.		• PDL BioPharma, Inc.
• BioMarin Pharmaceutical Inc.		• Pharmion Corporation
• Caliper Life Sciences, Inc.		• Prometheus Laboratories Inc.
• Cubist Pharmaceuticals, Inc.		• Salix Pharmaceuticals, Ltd.
• Enzon Pharmaceuticals, Inc.		• Sciele Pharma, Inc.
• Gen-Probe Incorporated		• Sepracor Inc.
• Illumina, Inc.		• The Medicines Company
• MGI Pharma Inc.		• Vertex Pharmaceuticals Incorporated

As companies comprising our proxy peer group or Radford survey group change due to merger, acquisition, market capitalization or business model, the compensation committee will consider appropriate changes to both groups. Our goal is to ensure that we continue to measure our compensation practices against organizations from which we may recruit key executives, or otherwise consider as important benchmarks in our industry.

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Executive Compensation Components

Base Salaries.

The following table sets forth the annual base salary rate of our named executive officers as of December 31, 2009:

Name	Annual Base Salary as of December 31, 2009

Daniel Tassé, Chairman and Chief Executive Officer	$	425,000
Elizabeth Larkin, Former Senior Vice President and Chief Financial Officer	$	275,000
Ralf Rosskamp, Executive Vice President, Research and Development	$	420,000
Matthew Bennett, Senior Vice President, Legal and Corporate Development	$	335,000
Michael Kennedy, Senior Vice President, Engineering and Operations	$	300,000

Mr. Tassé's annual base salary in 2008 and 2009 was $425,000, which was his initial base salary when he became our chief executive officer in January 2008. In December 2009, the compensation committee recommended, and the board of directors subsequently approved, an increase to Mr. Tassé's annual base salary to $525,000, effective in January 2010. In making its recommendation to increase Mr. Tassé's base salary, our compensation committee considered two key factors: (i) Mr. Tassé's achievement of corporate goals over the prior two years, including for 2009, as discussed below under "—Cash Bonus Program" and (ii) the fact that Mr. Tassé's base salary was significantly below the median base salaries of chief executive officers at our peer group companies.

Ms. Larkin's annual base salary was $240,000 in 2007 and was increased to $250,000 in March 2008. In February 2009, the compensation committee increased Ms. Larkin's annual base salary to $275,000 to align her base salary more closely with those of executive officers of similar position at our peer group companies. Ms. Larkin's employment with us terminated in March 2010.

Dr. Rosskamp's annual base salary in 2007 and 2008 was $400,000. In May 2009, the compensation committee increased Dr. Rosskamp's annual base salary to $420,000, based on his individual performance and to align his base salary with those of executive officers of similar position at our peer group companies.

Mr. Bennett's annual base salary was $300,000 in 2007 and was increased to $315,000 in March 2008. The compensation committee increased Mr. Bennett's annual base salary to $335,000 in February 2009 and further increased it to $360,000 in February 2010, in each case based on his individual performance.

Mr. Kennedy's annual base salary for 2008 and 2009 was $300,000. In February 2010, the compensation committee increased Mr. Kennedy's annual base salary to $315,000, based on his individual performance and to align his base salary with those of executive officers of similar position at our peer group companies.

Cash Bonus Program. We have an annual cash bonus program under which cash bonuses may be paid annually to our executive officers, including our named executive officers, shortly after the end of each fiscal year.

The compensation committee believes that as an employee's level of responsibility increases, base salary as a percentage of the employee's total cash compensation should decrease and cash bonuses as a percentage of the employee's total cash compensation should increase. As such, executives with the greatest ability to impact our results have a greater cash bonus percentage target. For the year ended December 31, 2009, the target percentage and dollar amount for the annual cash bonus for each of our

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named executive officers, based on 100% achievement of the metric targets discussed below, were as follows:

Name			Target Annual Cash Bonus

Daniel Tassé, Chairman and Chief Executive Officer	100	%	$	425,000
Elizabeth Larkin, Former Senior Vice President and Chief Financial Officer	50	%	$	137,500
Ralf Rosskamp, Executive Vice President, Research and Development	50	%	$	210,000
Matthew Bennett, Senior Vice President, Legal and Corporate Development	50	%	$	167,500
Michael Kennedy, Senior Vice President, Engineering and Operations	50	%	$	150,000

Our compensation committee determines our annual cash bonus pool for our company first by calculating an initial aggregate amount based on financial performance and then second by adjusting this amount based on our performance compared to the strategic objectives described below.

The initial aggregate amount of the annual cash bonus pool is determined each year by our compensation committee based on two financial plan metrics: (i) achieving the revenue plan goal for the year and (ii) achieving the operating profit plan goal for the year. First, projected revenue and projected operating profit as a percentage of plan is calculated, establishing our percentage attainment. In 2009, when the compensation committee determined the amount of the annual cash bonus plan pool, our projected revenue was $272 million compared to a plan of $289 million, which resulted in 94% attainment, and our projected operating profit was $110 million compared to a plan of $95 million, which resulted in 116% attainment. The difference between the percentage attainment and 100% for each metric is multiplied by two, establishing our payout factor for each metric. These two payout factors are averaged to determine the initial bonus pool funding factor, which in 2009 was 110%.

In order to balance our focus on short- and long-term performance, our compensation committee has the discretion to increase or decrease the bonus pool funding factor by 20 percentage points to establish the final funding of the annual bonus pool. Our chief executive officer met with the compensation committee in December 2009 to discuss our actual and projected achievement compared to our 2009 strategic objectives. The compensation committee determined that the final funding of the 2009 cash bonus pool would be 100%, which is equal to $8.0 million. This determination was based on an analysis of the factors set forth in the table below.

Corporate Goals

Strategic Objectives

Performance

Meet our financial objectives

• Revenue of $289 million

• Operating profit of $95 million

• Projected revenue of $272 million

• Projected operating profit of $110 million

Drive the development of our pipeline

• Initiate proof of concept for IK-1001 and IK-2001

• Development of INOMAX and LUCASSIN

• Did not initiate proof of concept for IK-1001 or IK-2001

• Initiated INOMAX trial for BPD in 4^th quarter

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Corporate Goals	Strategic Objectives	Performance

Enhance INOMAX market position	• Sign revised billing model agreements with a set of current INOtherapy customers • Launch INOMAX DS • Institute revised customer satisfaction survey	• Agreements with 100% of target customers were signed • INOMAX DS was launched • Instituted revised customer satisfaction survey • Achieved a high customer satisfaction score
Flawless commercial execution	• INOtherapy revenue attainment of $289 million • Add 60 new customers for INOtherapy	• Projected INOtherapy revenue attainment of $272 million • Projected addition of 68 new customers for INOtherapy
Continually enrich our portfolio of product candidates	• Add two IND candidates • License one compound that we expect to deliver revenue growth after 2013	• Added IK-5001 and the IK-600X portfolio
Build a culture of excellence	• Drive toward improved quality standards	• Implemented improved reporting, review and quality control systems

At the end of each year, the compensation committee assesses the chief executive officer's performance and contribution towards achieving our strategic objectives. Based on this assessment, the compensation committee recommends to our board of directors the amount of the chief executive officer's annual cash bonus. The board takes into account the compensation committee's recommendation in determining the final cash bonus to be paid but has discretion to increase or decrease the amount based on its evaluation of individual performance.

At the end of each year, our chief executive officer assesses each executive officer's performance and contribution towards achieving our strategic objectives. Based on this assessment, he recommends to the compensation committee the amount of each executive officer's annual cash bonus. The compensation committee takes into account his recommendation in determining the final cash bonus to be paid, but has discretion to increase or decrease the amount based on its evaluation of individual performance.

Mr. Tassé's cash bonus award for 2009 was $500,000, which represents 118% of his target bonus award. In addition to the achievement of the strategic objectives as described in the table above, his individual contributions included: (i) strong executive leadership with clear strategic vision and direction, (ii) improving our cash flow, (iii) improving the sustainability of our business, and (iv) preparation for our initial public offering.

Ms. Larkin's cash bonus award for 2009 was $110,000, which represents 80% of her target bonus award. Her individual objectives for 2009 included: (i) complete an information technology reorganization, (ii) lead effort to revise accounting policies to align with new billing model, (iii) operate within determined finance and information technology budgets, (iv) improve monthly and quarterly financial close processes, and (v) improve internal controls. Her individual contributions included improving finance and information technology functions and operating within budgets.

Dr. Rosskamp's cash bonus award for 2009 was $105,000, which represents 50% of his target bonus award. His individual objectives for 2009 included: (i) initiate proof of concept studies for IK-1001 and inhaled carbon monoxide, (ii) initiate Phase 3 INOMAX trial for BPD, (iii) operate within determined research and development budgets, and (iv) enrich our portfolio with the addition of two IND

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candidates. His individual contributions included our in-licensing of IK-5001 and the IK-600X portfolio, initiating of a Phase 3 INOMAX trial for BPD and operating within budgets.

Mr. Bennett's cash bonus award for 2009 was $250,000, which represents 150% of his target bonus award. His individual objectives for 2009 included: (i) enrich our portfolio with the addition of two IND candidates, (ii) build a business development team, (iii) ensure the protection of key intellectual property, (iv) prepare and implement new customer contracts to support new billing model, and (v) operate within determined legal and business development budgets. His individual contributions included leading our licensing efforts for IK-5001, the IK-600X portfolio and other product candidates, building a business development team, establishing an intellectual property strategy, achieving all targets in support of our new customer billing model and operating within budgets.

Mr. Kennedy's cash bonus award for 2009 was $200,000, which represents 133% of his target bonus award. His individual objectives for 2009 included: (i) achieve INOMAX DS production levels, (ii) implement delivery system product development roadmap, (iii) achieve INOMAX production and quality levels, and (iv) operate within determined engineering and operations budgets. His individual contributions included surpassing target INOMAX DS production levels, implementing a robust product development roadmap and exceeding INOMAX production and quality levels while operating within budgets.

Other Bonuses. In addition to our cash bonus program described above, our compensation committee can, at its discretion, authorize the payment of cash sign-on bonus awards to executives in order to attract skilled talent to join us. The compensation committee did not approve any cash sign-on bonus awards to executive officers during 2009. However, on October 30, 2009, we paid Mr. Kennedy $100,000, which represented the second and final installment of his cash sign-on bonus award pursuant to his employment agreement.

Equity Incentive Awards. We also have an equity incentive award program intended to align our management and stockholder interests. Our compensation committee believes stock options and other equity-based awards reward executive officers based on our long-term performance.

We award stock options to our executives, including our named executive officers, in connection with the start of their employment and periodically thereafter. The size of equity awards granted to each executive officer is determined based on his or her level of responsibility and influence over our results, potential to contribute to our future success, and comparable value for similar positions in our peer group. Our compensation committee approves all equity awards to our executive officers, including our named executive officers, except for our chief executive officer. In the case of our chief executive officer, the compensation committee recommends equity awards to our board of directors for approval.

Historically, we have granted stock options to our executives, including named executive officers, that generally vest as to 25% of such awards on each anniversary of the date of grant for a period of four years following grant. The exercise price of each option is equal to the fair market value on the date of grant, which is determined by our board of directors.

In December 2009, the compensation committee granted stock options under our 2007 Stock Option Plan, referred to as the 2007 plan, to our executive officers, other than our chief executive officer, and recommended a stock option award for our chief executive officer, which was subsequently granted by our board of directors, as set forth in the table below for the named executive officers. Each stock option has a 10-year term and vests as to 25% of the shares underlying such option on each of December 14, 2010, 2011, 2012 and 2013. These stock options are not considered granted as of December 31, 2009 for accounting purposes. The grant date for accounting purposes is the date the exercise price is known and communicated to the employee, which was March 9, 2010 for purposes of the options approved by the board in December 2009. The per share exercise price for each of these options was $8.34.

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The following table sets forth the number of shares underlying stock options granted to our named executive officers in December 2009:

Name		Number of Shares of Common Stock Underlying Stock Option

Daniel Tassé, Chairman and Chief Executive Officer			450,000
Elizabeth Larkin, Former Senior Vice President and Chief Financial Officer			75,000
Ralf Rosskamp, Executive Vice President, Research and Development			75,000
Matthew Bennett, Senior Vice President, Legal and Corporate Development			200,000
Michael Kennedy, Senior Vice President, Engineering and Operations			125,000

Employment Agreements. Each of our named executive officers is a party to an employment agreement with us. These agreements, other than the agreement for our chief executive officer, have an initial term of one year and renew annually until terminated by us or by the executive officer with notice 90 days prior to any annual renewal date. The agreement for our chief executive officer has an initial term of two years and renews for additional two-year terms until terminated by us or by the chief executive officer with notice 90 days prior to any renewal date. The material terms of these employment agreements are described below.

Severance and Change in Control Benefits. Under their employment agreements, our named executive officers are entitled to certain severance and change in control benefits, the terms of which are described in detail below under "Executive Employment Agreements—Severance and Change in Control Arrangements."

Risks Arising from Compensation Policies and Practices

We have reviewed and evaluated the philosophy and standards on which our compensation plans have been developed and implemented across our company. It is our belief that our compensation programs do not encourage inappropriate actions by our executive officers. Specifically, we believe that our compensation plans and process avoid:

•: a compensation mix overly weighted toward annual bonus awards;
•: an excessive focus on stock option awards that would cause behavior to drive short-term stock price gains in lieu of long-term value creation; and
•: unreasonable financial goals or thresholds that would encourage efforts to generate near-term revenue with an adverse impact on long-term success.

We believe that our current business process and planning cycle fosters the following behaviors and controls that would mitigate the potential for adverse risk caused by the action of our executives.

•: We have defined processes for developing strategic and annual operating plans, approval of capital investments, internal controls over financial reporting, and other financial, operational and compliance policies and practices.
•: Annual review of corporate and individual objectives of the executive officers to align these goals with our annual operating and strategic plans, achieve the proper risk reward balance, and do not encourage unnecessary or excessive risk taking.
•: Incentive awards are based on a review of a variety of indicators, including both financial performance and strategic achievements, reducing the potential to concentrate on one indicator as the basis of an annual incentive award.
•: The mixes between fixed and variable, annual and long-term, and cash and equity compensation are designed to encourage strategies and actions that are in our long-term best interests.

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•: Discretionary authority by the compensation committee to adjust annual bonus funding and payments reduces business risk associated with our cash bonus program.
•: Stock option awards vest over a period of time. As a result of the longer time horizon to receive the value of a stock option award, the prospect of short-term or risky behavior is mitigated.

Tax and Accounting Considerations

Our compensation committee is mindful of the potential impact on us of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, which prohibits public companies from deducting certain executive compensation in excess of $1,000,000 paid to the chief executive officer and the three other officers (other than the chief financial officer) whose compensation is required to be disclosed to stockholders by reason of being highly compensated. While reserving our right to offer such compensation arrangements as may from time to time be necessary to attract and retain top quality management, the committee generally intends to structure such arrangements, where feasible, to minimize or eliminate the impact of the limitations of Section 162(m) of the Code.

Summary Compensation Table

The following table sets forth information regarding compensation earned by our chief executive officer, former chief financial officer, and our three other most-highly compensated executive officers during the year ended December 31, 2009.

For a more detailed description of the compensation paid to our named executive officers please refer to:

•: "Compensation Discussion and Analysis—Components of Executive Compensation" for information about the components of total compensation, including a discussion about awards of options and the amount of salary and cash bonus in proportion to total compensation; and
•: "Employment Agreements, Severance and Change in Control Agreements" for information about the material terms of each named executive officer's employment agreement.

SUMMARY COMPENSATION TABLE

Name and Principal Position

Daniel Tassé		2009	425,000	—		1,514,475	500,000	47,806	2,487,281
	Chairman and Chief Executive Officer
Elizabeth Larkin		2009	271,154	—		252,413	110,000	151,359	784,926
	Former Senior VP, Chief Financial Officer(4)
Ralf Rosskamp		2009	411,538	—		252,413	105,000	44,056	813,007
	Executive VP, Research and Development
Matthew Bennett		2009	331,923	—		673,100	250,000	45,464	1,300,487
	Senior VP, Legal and Business Development
Michael Kennedy		2009	300,000	100,000	(5)	420,688	200,000	44,624	1,065,312
	Senior VP, Engineering and Operations

(1): The amounts in this column reflect the aggregate accounting grant date fair value of stock options awarded to our named executive officers in accordance with Financial Accounting Standards Board, or FASB, Accounting Standard Codification Topic 718, Compensation—Stock Compensation. The options were not considered granted for accounting purposes until March 9, 2010, which is when the valuation was finalized and the

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exercise price was communicated to the executives. The weighted average assumptions used in determining the grant date fair value were risk-free rate of 2.34%, expected term of five years, expected volatility of 43%, and dividend yield of 0.0%.

(2): Our compensation committee determined to pay Mr. Tassé, Ms. Larkin, Dr. Rosskamp, Mr. Bennett and Mr. Kennedy annual cash bonus awards equal to 118%, 80%, 50%, 150% and 133% of such named executive officer's target award, respectively, for performance during the year ended December 31, 2009. See "—Grants of Plan-Based Awards" below for additional information related to these awards.
(3): Consists of the value of employee benefits shown below and the payment of $114,251 to Ms. Larkin under the Linde long-term incentive plan. Ms Larkin was the only executive officer who received awards under the Linde plan. Prior to termination of Ms. Larkin's employment with us in March 2010, an award vested on January 1, 2010 at a value of $99,602 and was subsequently paid by us. Upon her termination, all remaining unvested awards were cancelled. There is no obligation for us to make further payments to Ms. Larkin under the Linde plan.

Name	Medical		Dental		Life Insurance		AD&D		Long Term Disability		401(k) match		Annual Financial Planning		Total

Daniel Tassé	$	18,225	$	1,239	$	480	$	120	$	870	$	12,250	$	14,622	$	47,806
Elizabeth Larkin	$	11,690	$	692	$	380	$	96	$	764	$	8,864	$	14,622	$	37,108
Ralf Rosskamp	$	18,225	$	1,239	$	480	$	120	$	870	$	8,500	$	14,622	$	44,056
Matthew Bennett	$	18,225	$	1,239	$	464	$	116	$	870	$	11,781	$	12,769	$	45,464
Michael Kennedy	$	18,225	$	1,239	$	422	$	106	$	851	$	11,025	$	12,756	$	44,624

(4): Ms. Larkin's employment with us terminated in March 2010.
(5): Represents the second and final portion of Mr. Kennedy's sign-on bonus, due one year from his initial date of employment with the company.

Grants of Plan Based Awards

The following table provides information with respect to all plan based awards granted to the named executive officers during the year ended December 31, 2009.

For a more detailed description of the plan-based awards to out named executive officers, please refer to:

•: "—Components of Executive Compensation—Cash Bonus Program" for information regarding the design of the annual cash bonus program, including a description of the corporate goals and individual performance applicable to 2009 awards;
•: "—Components of Executive Compensation—Equity Incentive Awards" for information regarding our equity incentive award program, including a discussion of the size of equity awards granted to our named executive officers and the exercise price of each option; and
•: "—Stock Option and Other Compensation Plans" for information regarding our 2007 plan.

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GRANTS OF PLAN-BASED AWARDS
DURING FISCAL YEAR 2009

Name

Daniel Tassé	n/a	n/a	425,000	—	—	—
	12/17/2009	3/9/2010	—	450,000	8.34	1,514,475
Elizabeth Larkin	n/a	n/a	137,500	—	—	—
	12/17/2009	3/9/2010	—	75,000	8.34	252,413
Ralf Rosskamp	n/a	n/a	210,000	—	—	—
	12/17/2009	3/9/2010	—	75,000	8.34	252,413
Matthew Bennett	n/a	n/a	167,500	—	—	—
	12/17/2009	3/9/2010	—	200,000	8.34	673,100
Michael Kennedy	n/a	n/a	150,000	—	—	—
	12/17/2009	3/9/2010	—	125,000	8.34	420,688

(1): These amounts reflect the target cash bonus amounts under our 2009 annual cash bonus program. The target cash bonus amount for Mr. Tassé represented 100% base salary, and the target cash bonus amounts for each of Ms. Larkin, Dr. Rosskamp, Mr. Bennett and Mr. Kennedy represented 50% of base salary. The amounts actually paid to our named executive officers under the 2009 annual bonus program are shown above in the Summary Compensation Table in the column titled "Non-Equity Incentive Plan Compensation." There are no thresholds or maximum cash bonus amounts under our 2009 annual cash bonus program.
(2): Each stock option was granted under our 2007 plan, has a 10-year term and vests as to 25% of the shares underlying such option on each of December 14, 2010, 2011, 2012 and 2013.
(3): For a discussion of our methodology for determining the fair value of our common stock, see the "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Estimates."
(4): The amounts in this column reflect the aggregate accounting grant date fair value of stock options awarded to our named executive officers in accordance with Financial Accounting Standards Board, or FASB, Accounting Standard Codification Topic 718, Compensation—Stock Compensation. The options were not considered granted for accounting purposes until March 9, 2010, which is when the valuation was finalized and the exercise price was communicated to the executives. The weighted average assumptions used in determining the grant date fair value were risk-free rate of 2.34%, expected term of five years, expected volatility of 43%, and dividend yield of 0.0%.

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Outstanding Equity Awards

The following table sets forth information regarding all outstanding equity awards held by the named executive officers as of December 31, 2009. Certain of these equity awards are not considered outstanding as of December 31, 2009 for accounting purposes.

OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END

Name			Option Exercise Price ($)

Daniel Tassé	165,000	585,000	$	5.57	(1)	1/20/2018
		450,000	$	8.34	(2)	12/16/2019
Elizabeth Larkin	100,000	100,000	$	4.63	(3)	4/17/2017
		75,000	$	8.34	(2)	12/16/2019
Ralf Rosskamp	150,000	150,000	$	4.63	(4)	9/30/2017
		75,000	$	8.34	(2)	12/16/2019
Matthew Bennett	100,000	100,000	$	4.63	(5)	7/22/2017
		200,000	$	8.34	(2)	12/16/2019
Michael Kennedy	47,500	142,500	$	8.39	(6)	11/18/2018
		125,000	$	8.34	(2)	12/16/2019

(1): This option vests as to 22% of the shares on each of January 21, 2009, 2010, 2011 and 2012 and as to 12% of the shares on January 21, 2013.
(2): This option vests as to 25% of the shares on each of December 14, 2010, 2011, 2012 and 2013.
(3): This option vests as to 25% of the shares on each of April 18, 2008, 2009, 2010 and 2011.
(4): This option vests as to 25% of the shares on each of October 1, 2008, 2009, 2010 and 2011.
(5): This option vests as to 25% of the shares on each of July 23, 2008, 2009, 2010 and 2011.
(6): This option vests as to 25% of the shares on each of October 9, 2009, 2010, 2011 and 2012.

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Option Exercises and Stock Vested

The following table sets forth information regarding the vesting of stock during the year ended December 31, 2009 for each of our named executive officers. None of our named executive officers exercised any options during the year ended December 31, 2009.

OPTION EXERCISES AND STOCK VESTED

	Stock Awards

Name	Number of Shares Acquired on Vesting (#)			Value Realized on Vesting ($)
Daniel Tassé		90,000	(1)		865,800	(2)
Elizabeth Larkin		—			—
Ralf Rosskamp		—			—
Matthew Bennett		—			—
Michael Kennedy		—			—

(1): Mr. Tassé was granted 90,000 restricted stock units in 2008, which vested in full on July 21, 2009.
(2): The value realized upon vesting was equal to the fair market value of our common stock on the vesting date multiplied by 90,000 units. Mr. Tassé received a cash payment from us on September 4, 2009 as settlement in full of the restricted stock units.

Employment Agreements, Severance and Change in Control Arrangements

We have employment agreements in place with each of our named executive officers. The agreement with our chief executive officer is for a two-year term, commencing June 1, 2009 and ending May 31, 2011, and automatically renews for additional two-year terms thereafter unless notice of termination is given 90 days prior to any renewal date. The agreements with our other named executive officers are for one-year terms, commencing June 1, 2009 and ending May 31, 2010, and automatically renew for additional one-year terms thereafter unless notice of termination is given 90 days prior to any renewal date. Pursuant to the agreements, each of our named executive officers is entitled to a base salary and certain benefits as previously described, and is eligible to earn an annual bonus in an amount equal to a certain percentage of his or her base salary, as previously described.

If any of our named executive officers, other than our chief executive officer, (i) is terminated for any reason other than for "cause", death or disability, (ii) terminates his or her employment during the agreement term for "good reason", or (iii) terminates his or her employment at the end of an agreement term after receiving notice from the company that his or her term will not be extended, then such executive officer will be entitled to:

•: earned and accrued base salary, bonus, vacation time and other benefits;
•: a pro-rata portion of his or her annual bonus at the target level for the number of months worked in the calendar year in which such termination occurs;
•: monthly salary continuation payments for a period of 12 months from the date of termination in an aggregate amount equal to the sum of his or her base salary plus the greater of (i) his or her annual bonus at the target level or (ii) the actual annual bonus most recently paid to him or her;
•: health insurance coverage for 12 months following termination;
•: $18,263 in lieu of the annual financial planning, annual physical and life insurance benefits; and
•: immediate vesting of the portion of unvested equity compensation granted to him or her that would have become exercisable during the one-year period following the date of termination.

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If our chief executive officer (i) is terminated for any reason other than for "cause", death or disability, (ii) terminates his employment during the agreement term for "good reason", or (iii) terminates his employment at the end of an agreement term after receiving notice from the company that his term will not be extended, then he will be entitled to:

•: earned and accrued base salary, bonus, vacation time and other benefits;
•: a pro-rata portion of his annual bonus at the target level for the number of months worked in the calendar year in which such termination occurs;
•: monthly salary continuation payments for a period of 18 months from the date of termination in an aggregate amount equal to 1.5 multiplied by the sum of his base salary plus the greater of (i) his annual bonus at the target level and (ii) the actual annual bonus most recently paid to him;
•: health insurance coverage for 18 months following termination;
•: $27,395 in lieu of the annual financial planning, annual physical, and life insurance benefits; and
•: immediate vesting of the portion of unvested equity compensation granted to him that would have become exercisable during the 18 month period following the date of termination.

If any of our named executive officers is terminated for "cause" or by reason of death or disability, or terminates his or her employment other than for "good reason", such executive officer, or his or her estate or legal representative, will be entitled to a lump sum payment equal to his or her earned and accrued base salary, bonus, vacation and benefits through the date of termination.

Upon a "change in control", the unvested portion of any equity compensation granted to each of our named executive officers shall immediately become fully vested, whether or not a termination of employment occurs. If, within 18 months following a "change in control", any of our named executive officers, including our chief executive officer, (i) is terminated for any reason other than for "cause", death or disability, (ii) terminates his or her employment during the agreement term for "good reason", or (iii) terminates his or her employment at the end of an agreement term after receiving notice from the company that his or her term will not be extended, then, in addition to the severance payments described above, such executive officer will also be entitled to:

•: a lump sum change in control severance payment equal to 0.5 multiplied by the sum of his or her base salary plus the greater of (i) his or her annual bonus at the target level or (ii) the actual annual bonus most recently paid to him or her;
•: health insurance coverage for an additional six months;
•: a change in control benefit in the amount of $9,132, however, our chief executive officer would receive a change in control benefit in the amount of $9,314; and
•: immediate vesting of the unvested portion of any equity compensation granted to him or her following the change of control.

Our obligation to make the severance payments described above is conditioned upon the executive officer's continued compliance with the non-competition and confidentiality obligations set forth in his or her employment agreement and the executive officer's execution of a general release of claims against us. To the extent that any severance or compensation payment to any of our named executive officers, including our chief executive officer, constitutes an "excess parachute payment", within the meaning of Sections 280G and 4999 of the Internal Revenue Code, then such executive officer will be entitled to an additional gross-up payment equal to the sum of the amount of tax owed in connection with such "excess parachute payment" and any interest or penalties thereon. However, in the event that reducing such severance or compensation payments by 10% or less, but in any event not more than $250,000, would cause none of the severance or compensation payments to constitute "excess parachute

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payments", such payments will be reduced accordingly. The entitlement to receive these gross-up benefits terminates for our executive officers, and named executive officers, on December 31, 2010.

Under the employment agreements, "cause" means: (i) disloyalty or dishonesty resulting in the material personal enrichment of the executive at the material expense of our company; (ii) fraudulent conduct in connection with the material business or affairs of our company; (iii) conviction of a felony or any crime involving moral turpitude; (iv) gross misconduct that materially and adversely affects us; (v) any breach or intended breach of any company policies or procedures causing a material violation of such policies or procedures and causing material harm to us; or (vi) failure to provide 30 days advance written notice of resignation.

Under the employment agreements, "good reason" means, without the executive officer's consent: (i) any material and adverse change in the executive's position, title or status, job duties, authority or responsibilities; (ii) any material and adverse change in the obligation that the executive report to the chief executive officer (or for our chief executive officer, to the chairman and our board); (iii) any material and adverse breach of the executive's employment agreement; (iv) relocation of our headquarters more than 50 miles from its present location; or (v) any material and adverse change in the executive's compensation or benefits.

Under the employment agreements, a "change in control" shall have occurred if: (i) any person or entity, other than the New Mountain Entities or any of their affiliates, becomes the beneficial owner of more than 50% of our voting capital stock, (ii) any person or entity, other than the New Mountain Entities, has or obtains the right to elect a majority of our board, or (iii) substantially all of our assets are sold in a single transaction or series of transactions. This offering does not constitute a change in control for purposes of these agreements.

Potential Payments Upon Termination and a Change in Control

The following table presents maximum payment amounts under the existing employment agreements for each individual named executive officer had he or she been terminated without cause or resigned for good reason on December 31, 2009 under the circumstances set forth below.

			Termination Without Cause or For Good Reason ($)		Termination Without Cause or For Good Reason ($)

Name		Benefit	(Absent a Change in Control)		(In connection with a Change in Control)
Daniel Tassé		Severance Payment(1)		1,275,000		1,700,000
	Chairman and Chief Executive	Bonus Awards(2)		500,000		500,000
	Officer	Value of Stock Vesting Upon Termination(3)		914,100		1,620,450
		Health and Welfare Benefits(4)		56,591		75,637
		Conditional 280G Gross-Up(5)		—		949,891

		Total		2,745,691		4,845,978

Elizabeth Larkin		Severance Payment		—		—
	Former Senior VP, Chief	Bonus Awards		—		—
	Financial Officer(6)	Value of Stock Vesting Upon Termination		—		—
		Long-Term Incentive Plan Awards		—		—
		Health and Welfare Benefits		—		—
		Conditional 280G Gross-Up		—		—

		Total		—		—

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Table of Contents

			Termination Without Cause or For Good Reason ($)		Termination Without Cause or For Good Reason ($)

Name		Benefit	(Absent a Change in Control)		(In connection with a Change in Control)
Matthew Bennett		Severance Payment(7)		502,500		753,750
	Senior VP, Legal and Business	Bonus Awards(2)		250,000		250,000
	Development	Value of Stock Vesting Upon Termination(3)		185,500		371,000
		Health and Welfare Benefits(8)		37,727		56,591
		Conditional 280G Gross-Up		—		—

		Total		975,727		1,431,341

Ralf Rosskamp		Severance Payment(9)		650,000		975,000
	Executive VP, Research and	Bonus Awards(2)		105,000		105,000
	Development	Value of Stock Vesting Upon Termination(3)		278,250		556,500
		Health and Welfare Benefits(8)		37,727		56,591
		Conditional 280G Gross-Up(5)		—		(43,695	)

		Total		1,070,977		1,649,396

Michael Kennedy		Severance Payment(7)		450,000		675,000
	Senior VP, Engineering and	Bonus Awards(2)		200,000		200,000
	Operations	Value of Stock Vesting Upon Termination(3)		0		0
		Health and Welfare Benefits(8)		37,727		56,591
		Conditional 280G Gross-Up		—		—

		Total		687,727		931,591

(1): For termination without cause or for good reason, (i) without a change in control, this amount is equal to 18 months of base salary and target bonus and (ii) following a change in control, this amount is equal to the original 18 months of base salary and target bonus and a lump sum in the amount of six months of base and 50% of target bonus.
(2): This amount is equal to unpaid bonus earned for fiscal year 2009.
(3): This amount is equal to (i) the number of option shares that would vest as a direct result of the employment termination without cause or for good reason, assuming a December 31, 2009 employment termination or for termination without cause or for good reason in connection with a change in control, multiplied by (ii) the excess of fair market value of our common stock as of December 31, 2009, over the exercise price of the option. For a discussion of our methodology for determining the fair market value of our common stock, see the "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Estimates."
(4): This amount is equal to (i) without a change in control, (a) the cost of medical, dental and vision benefits coverage for 18 months and (b) $27,395 in lieu of annual financial planning, annual physical and life insurance benefits and (ii) following a change in control, (a) the cost of medical, dental

IKARIA, INC. S-1