RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position

We have not had commercial sales of any of our product candidates and may never become profitable.

We have accumulated a large deficit since inception that has primarily resulted from the significant research and development expenditures we have made. We expect that our losses will continue to be substantial for at least the short term and that our operating and general and administrative expenses will be significant and increase as we transition to a public company and in connection with our planned research and development and commercialization efforts, including our anticipated creation of a commercial organization. For the year ended December 31, 2010, we had a consolidated net loss of $13.7 million. As of December 31, 2010, we had a consolidated accumulated deficit of $85.7 million. Moreover, as of December 31, 2010, we owed $34.9 million in secured debt and accrued interest that is payable on demand to trusts controlled by our founder, Executive Chairman and principal stockholder, Dr. John N. Kapoor.

Our ability to become profitable depends upon our ability to generate significant continuing revenues. To generate revenues, we must succeed, either alone or with others, in developing, obtaining regulatory approval and acceptable DEA classification for, and manufacturing, selling and marketing, our product candidates, and in particular Fentanyl SL Spray and Dronabinol SG Capsule.

To date, our product candidates have not generated any revenues from commercial sales, and we do not know if or when we will generate any such revenue. Our ability to generate revenue depends on a number of factors, including, but not limited to:

Because of the numerous risks and uncertainties associated with our development efforts and other factors, we are unable to predict when we will generate revenues or become profitable, if ever. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis.

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Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations.

As of December 31, 2010, we owed $34.9 million in secured debt and accrued interest to trusts controlled by our founder, Executive Chairman and principal stockholder, Dr. John N. Kapoor. This secured debt is currently payable upon demand of the debt holder. This outstanding debt and related debt service obligations could have material adverse consequences to us, including:

We have significant and increasing cash burn and may require additional funding.

Our operations have consumed substantial amounts of cash since inception. Our cash flow used for operating activities in 2010 was $15.0 million. We expect our operating and general and administrative expenses and cash used for operations to continue to be significant and increase substantially as we transition to a public company and in connection with our planned research, development and commercialization efforts, including our anticipated creation of a commercial organization. We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through at least the next 12 months. We have based these estimates, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need to raise additional capital following this offering to fund our operations and continue to conduct clinical trials to support potential regulatory approval of marketing applications.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

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Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to you, restrict our operations or require us to relinquish proprietary rights.

We may need to raise additional funds to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be diluted. Any future debt financing into which we enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any borrowings under any future debt financing will need to be repaid, which creates additional financial risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations. In addition, if we raise additional funds through corporate collaboration and licensing arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates, or grant licenses on terms that are not favorable to us.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts, or other aspects of our business plan. We also may be required to relinquish, license or otherwise dispose of rights to product candidates or products that we would otherwise seek to develop or commercialize ourselves on terms that are less favorable than might otherwise be available. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.

Risks Related to Our Business and Industry

We are highly dependent on the success of our Fentanyl SL Spray, Dronabinol SG Capsule and our other product candidates, and we cannot give any assurance that any of these product candidates will receive regulatory approval or acceptable DEA classification, or be successfully commercialized.

We currently have no drug products for sale and, to date, we have not successfully commercialized any products. We have expended significant time, resources and effort on the development of our product candidates, and our future results of operations depend heavily on our ability to obtain regulatory approval and acceptable DEA classification, if applicable, for and successfully commercialize our product candidates. Moreover, we do not have internal new drug discovery capabilities, and our primary focus is on developing improved formulations and delivery methods for existing FDA-approved

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products. In the near-term, we are highly dependent on our ability to obtain regulatory approval for Dronabinol SG Capsule and Fentanyl SL Spray.

There can be no guarantee that the FDA will accept any of our submissions and approve any of our product candidates on our anticipated timelines, or at all, including our Dronabinol SG Capsule ANDA and NDA for Fentanyl SL Spray. The FDA may identify new or additional deficiencies related to our submissions. These deficiencies could require us to take a number of actions that could have a material adverse impact on our operations and business plan, including requiring us to undertake additional time-consuming and expensive clinical trials and manufacturing and testing activities, which could cause significant delay in the review and potential approval of our product candidates, or prevent us from receiving approval at all. Moreover, with respect to Dronabinol SG Capsule, any requirement by the FDA to produce additional test batches could result in significant increased costs and also prevent or significantly delay the potential approval of Dronabinol SG Capsule. In addition, the success of Dronabinol SG Capsule is also important in terms of generating near-term cash flows to help fund the commercialization of Fentanyl SL Spray and the development of our proprietary dronabinol and other product candidates, validate our dronabinol supply chain and internal manufacturing capabilities, and allow us to file a supplement to our ANDA for our Dronabinol RT Capsule product candidate.

If we do not obtain regulatory approval and acceptable DEA classification, if applicable, for and successfully commercialize our product candidates, and in particular for Dronabinol SG Capsule or Fentanyl SL Spray, on our anticipated timelines or at all, we may be unable to generate sufficient revenues to sustain and grow our business, our reputation would be harmed, our competitive position would be compromised, and our business, financial condition and results of operations will be materially adversely affected. In addition, delays in obtaining regulatory approval for any of our product candidates increases the chances that our competition will produce and obtain regulatory approval for competing products before us, which would likely have a material negative impact upon our competitive position and ability to generate revenue from sales of any approved products. This in turn could have a material adverse effect on our ability to execute on our business plan, develop our other product candidates or achieve or maintain profitability.

With respect to Dronabinol SG Capsule, prior to 2008, the FDA issued two “major deficiency” letters citing various deficiencies relating to our ANDA for our hard gelatin capsule formulation of this product candidate. In response to the FDA’s request, we made new registration batches of soft gelatin capsules and performed a new bioequivalence study. This study was completed and data from this study along with responses to other deficiencies was submitted to the FDA in the form of a major amendment in June 2010. On October 15, 2010, we received a letter from the FDA expressing the need for clarifications related to bioequivalence and we responded to this letter on November 15, 2010. In December 2010, we received a quality deficiency “minor” letter from the FDA related to Chemistry, Manufacturing and Control, or CMC, to which we responded in January 2011. Separately in January 2011, we received another deficiency letter from the FDA related to labeling comments to which we also responded in January 2011. On February 10, 2011, we submitted an electronic Final Product Label in response to a request from the FDA. Any failure to adequately respond to the FDA’s requests and deficiency letters could delay approval of Dronabinol SG Capsule and have a material adverse effect on our business plan.

We face significant competition from both branded and generic products, and our operating results will suffer if we fail to compete effectively.

Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources, including pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, drug delivery companies, academic institutions, government agencies and private and public research institutions, many of which have significantly greater financial, technical and other resources than us.

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If Fentanyl SL Spray receives regulatory approval, it will compete against numerous branded and generic products already being marketed and potentially those which are or will be in development. In the BTCP market, physicians often treat BTCP with a variety of short-acting opioid medications, including morphine, morphine and codeine derivatives and fentanyl. Some currently marketed products against which we will likely directly compete include Cephalon, Inc.’s Fentora and Actiq, BioDelivery Sciences International’s Onsolis, Nycomed International Management GmbH’s Instanyl and ProStrakan Group plc’s Abstral. Some generic fentanyl products against which we will compete are marketed by TEVA Pharmaceuticals USA and Watson Pharmaceuticals, Inc. In addition, we are aware of numerous companies developing other treatments and technologies for rapid delivery of opioids to treat BTCP, including transmucosal, transdermal, nasal spray, inhaled delivery systems and sublingual delivery systems, among others. For example, Archimedes Pharma Ltd.’s PecFent, a fentanyl nasal spray solution which has been approved in Europe, is currently under review by the FDA for approval in the United States. Additionally, we are aware of companies with product candidates in late stage development for BTCP, including AcelRx Pharmaceuticals, Inc.’s ARX-02 and Akela Pharma Inc.’s Fentanyl TAIFUN, both of which are Phase 3 ready. If these treatments and technologies are successfully developed and approved, they could represent significant additional competition for Fentanyl SL Spray.

With respect to our dronabinol product candidates, and in particular our generic Dronabinol SG Capsule, the market in which we will compete is challenging in part because generic products generally do not benefit from patent protection. If any of our dronabinol product candidates, and in particular Dronabinol SG Capsule, receive the requisite regulatory approval and acceptable DEA classification and are marketed, the competition from generic products which we will encounter may have an effect on our product prices, market share, revenues and profitability. We may not be able to differentiate any products that we may market from those of our competitors, successfully develop or introduce new products that are less costly or offer better performance than those of our competitors, or offer purchasers of our products payment and other commercial terms as favorable as those offered by our competitors. In addition, there are a number of established therapies and products already commercially available and under development by other companies that treat the indications for which we are developing dronabinol products and with which our product candidates will compete if approved. If we receive regulatory approval and acceptable DEA classification for our dronabinol product candidates, these product candidates will compete against therapies and products such as Abbott Laboratories’ Marinol, Marinol generics and Valeant Pharmaceutical International Inc.’s Cesamet. Moreover, Par Pharmaceutical Companies Inc. markets an approved generic version of Marinol and we believe that other companies are pursuing regulatory approval for generic dronabinol products. We cannot give any assurance that any such other companies will not obtain regulatory approval or acceptable DEA classification for, or commercialize their generic dronabinol products on a more rapid timeline or more successfully than us.

Moreover, our products will compete with non-synthetic cannabinoid drugs, including therapies such as GW Pharmaceuticals plc’s Sativex, especially in many countries outside of the United States where non-synthetic cannabinoids are legal and in the United States if non-synthetic cannabinoids are legalized. The DEA’s proposed rule issued on November 1, 2010, if finalized, would classify naturally-derived dronabinol derived from plant material as a Schedule III controlled substance if part of an approved ANDA. In addition, literature has been published arguing the benefits of natural cannabis, or marijuana, over dronabinol, and there are a number of states that have already enacted laws legalizing medicinal marijuana. Irrespective of its potential medical applications, there is some support in the United States for legalization of marijuana. We also cannot assess the extent to which patients utilize marijuana illegally to alleviate CINV, instead of using prescribed therapies such as approved dronabinol products. Furthermore, in the treatment of CINV, physicians typically offer conventional anti-nausea drugs prior to initiating chemotherapy, such as Sanofi-Aventis’ Anzemet, Eisai Inc./Helsinn Group’s Aloxi, Roche Holding AG’s Kytril, MonoSol Rx’s Zuplenz and GlaxoSmithKline plc’s Zofran and its generic equivalents, as well as Neurokinin 1 receptor antagonists on the market including

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ProStrakan’s SANCUSO and Merck & Co., Inc.’s Emend. To the extent that our proprietary dronabinol products compete in a broader segment of the CINV market, we will also face competition from these products.

Additionally, we are aware of companies with product candidates in late stage development for CINV, including A.P. Pharma’s APF530, which has received a Complete Response Letter from the FDA, Aphios Corp.’s Zindol, which is in Phase 2/3 development, Roche Holding/Helsinn Group’s netupitant, which is in Phase 3 development, and Tesaro’s Rolapitant, which is in Phase 2 development. If these products are successfully developed and approved over the next few years, they could represent significant competition for our dronabinol family of product candidates, if any are approved.

Our LEP-ETU product candidate, if approved for the treatment of metastatic breast cancer or other cancer indications, will compete with the leading taxanes currently on the market, including those with formulations that specifically incorporate paclitaxel as the active ingredient such as Bristol-Myers Squibb’s Taxol and its generic equivalents and Celgene Corporation’s Abraxane, as well as other taxanes, such as Sanofi-Aventis’ Taxotere. Furthermore, LEP-ETU could face future competition, if approved, from Cornerstone Pharmaceuticals’ new formulation of paclitaxel known as EmPac, which is undergoing preclinical studies. In addition, LEP-ETU would compete with other cytotoxic agents beyond the taxane class, including capecitabine, gemcitabine, ixabepilone and navelbine. Additionally, there are numerous biotechnology and pharmaceutical companies that currently have extensive development efforts and resources within oncology. Abbott Laboratories, Amgen Inc., AstraZeneca PLC., Bayer AG, Biogen Idec Inc., Eisai Co., Ltd., F. Hoffmann- LaRoche Ltd., Johnson and Johnson, Merck and Co., Inc., Novartis AG, Onyx Pharmaceuticals Inc., Pfizer Inc., Sanofi-aventis and Takeda Pharmaceutical Co. Ltd., are among some of the leading companies researching and developing new compounds in oncology.

We will also face competition from third parties in obtaining allotments of fentanyl and dronabinol under applicable DEA annual quotas, recruiting and retaining qualified personnel, establishing clinical trial sites and enrolling patients in clinical trials, and in identifying and acquiring or in-licensing new products and product candidates.

New developments, including the development of other drug technologies and delivery methods, occur in the pharmaceutical and life sciences industries at a rapid pace. Compared to us, many of our potential competitors have substantially greater:

As a result of these and other factors, our competitors may obtain FDA approval of their products more rapidly than us or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop products that are more effective, better tolerated, subject to fewer or less severe side effects, more useful, more widely-prescribed or accepted, or less costly than ours. If we receive regulatory approvals for our products, sales and marketing efficiency are likely to be significant competitive factors. Our plan is to build a commercial organization without using third-party sales or marketing channels in the United States for most of our proprietary product candidates if approved, and there can be no assurance that we can develop these capabilities in a manner that will be capital efficient and competitive with the sales and marketing efforts of our competitors, especially since some or all of those competitors could expend greater economic resources than we do and/or employ third-party sales and marketing channels.

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We are subject to numerous complex regulations and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

The research, testing, development, manufacturing, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, marketing, distribution, possession and use of our product candidates, among other things, are subject to regulation by numerous governmental authorities in the United States and elsewhere. The FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDC Act, and implementing regulations. Noncompliance with any applicable regulatory requirements can result in refusal to approve products for marketing, warning letters, product recalls or seizure of products, total or partial suspension of production, prohibitions or limitations on the commercial sale of products or refusal to allow the entering into of federal and state supply contracts, fines, civil penalties and/or criminal prosecution. Additionally, the FDA and comparable governmental authorities have the authority to withdraw product approvals that have been previously granted. Moreover, the regulatory requirements relating to our products may change from time to time and it is impossible to predict what the impact of any such changes may be.

We are developing product candidates that are controlled substances as defined in the Controlled Substances Act of 1970, or CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Fentanyl is listed by the DEA as a Schedule II substance under the CSA. Dronabinol in sesame oil and encapsulated in a soft gelatin capsule in the form previously approved by the FDA for the commercial sale of Marinol is currently listed by the DEA as a Schedule III substance under the CSA. Dronabinol in bulk or other product forms is currently classified by the DEA as a Schedule I substance under the CSA. If the FDA approves formulations of dronabinol which differ from Marinol, the DEA will have to make a scheduling determination and place the products in a schedule other than Schedule I in order for such products to be marketed in the United States.

The manufacture, shipment, storage, sale and use, among other things, of controlled substances that are pharmaceutical products are subject to a high degree of regulation. For example, all Schedule II substance prescriptions, such as prescriptions for fentanyl, must be written and signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.

The DEA also conducts periodic inspections of registered establishments that handle controlled substances. Facilities that conduct research, manufacture, distribute, import or export controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

Individual states also have controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states automatically schedule a drug when the DEA does so, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to

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meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

The anticipated development of a REMS program for Fentanyl SL Spray could cause significant delays in the approval process and would add additional layers of regulatory requirements that could significantly impact our ability to commercialize Fentanyl SL Spray and dramatically reduce its market potential.

Section 505-1 of the FDC Act permits the FDA to require sponsors to submit a proposed REMS program to ensure the safe use of the drugs in question following commercial approval. A REMS program is a strategic safety program that the FDA requires to ensure that the benefits of a drug continue to outweigh its risks. In determining whether a REMS program is necessary, the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, and whether the drug is a new molecular entity. A REMS program may be required to include various elements, such as a medication guide, patient package insert, a communication plan, elements to assure safe use, and an implementation system, and must include a timetable for assessment of the REMS program. Elements to assure safe use can restrict the prescribing, sale and distribution of drug products.

In September 2007 and in December 2007, the FDA issued a safety alert to healthcare professionals and consumers concerning recent reports of deaths and other adverse events in patients using approved TIRF products. The FDA has determined that TIRF products will be required to have a REMS program to ensure that the benefits of the drugs continue to outweigh the serious risks of overdose, abuse, misuse, addiction and serious complications due to medication errors. A classwide REMS program is being developed jointly by all manufacturers and IND application holders of TIRF products, and we participate actively in this program. This REMS program is expected to be a single shared program across the TIRF class of products. We expect that the FDA will approve a classwide REMS program in the second half of 2011. In addition, we continue to pursue a REMS program specific to our company as a potential alternative to the classwide REMS program.

There can be no assurance that the FDA will approve the classwide REMS program or our alternative individual REMS program that we submitted as part of our NDA submission on our anticipated timeline, or at all. Delays in the REMS program approval process could result in significant delays in the approval process for our Fentanyl SL Spray product candidate. In addition, as part of the REMS program relating to Fentanyl SL Spray, the FDA could require significant restrictions, such as restrictions on the prescribing, distribution and patient use of the product, which could significantly impact our ability to effectively commercialize Fentanyl SL Spray and dramatically reduce its market potential.

We have recently taken a number of significant actions aimed at growing our business and will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in managing our growth and executing our growth strategy.

Our management and personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. In November 2010, we completed the Merger, which resulted in Insys Pharma becoming our wholly-owned subsidiary. Prior to the Merger, Insys Pharma in September 2009 obtained assets which have given us the ability to manufacture our supply of dronabinol API internally through our manufacturing facility in Texas. Both of these transactions have significantly increased the complexity of our business operations. We recently expanded our management team and board of directors. In addition, we grew the number of our full-time employees from 12 as of December 31, 2009 to 32 as of December 31, 2010, due in large part to the Merger. We will need to further expand our managerial, operational, financial and other resources, and build a sales force and marketing infrastructure, in order to manage and fund our future operations and clinical trials, continue our research and development activities, and commercialize our product candidates, if approved.

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Our need to effectively manage our operations, growth and various projects requires that we:

In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants to perform a number of tasks for us, including tasks related to accounting and finance, clinical trial management, regulatory affairs, formulation development and other drug development functions. For example, in addition to seeking advice from our scientific advisory board, we utilize consultants for tasks such as state licensing procurement and accounting and book-keeping services. Our growth strategy may also entail expanding our use of consultants to implement these and other tasks going forward. Because we rely on consultants for certain functions of our business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There can be no assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively expand our organization by hiring new employees and expanding our use of consultants, we may be unable to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

If we are unable to establish sales and marketing capabilities or execute on our sales and marketing strategy, we may not be able to effectively market and sell any approved products and generate product revenue.

We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products, and we must build this organization or make arrangements with third parties to perform these functions in order to commercialize any products we successfully develop and for which we obtain regulatory approvals and acceptable DEA classifications, if applicable.

If Dronabinol SG Capsule or Dronabinol RT Capsule is approved, we intend to enter into a distribution agreement with a leading generic pharmaceutical company with respect to these products. There can be no assurances that we will be able to enter into such an arrangement on terms acceptable to us, or at all. If we are unable to do so, we will need to consider alternatives, such as establishing a commercial organization for these products. This would likely result in delays in our commercialization efforts and significantly increase the related costs and risks.

If Fentanyl SL Spray or our other proprietary dronabinol product candidates are approved, we expect to utilize an incentive-based sales model to market those products similar to that employed at Sciele Pharma and other companies previously led by members of our board, including our founder and Executive Chairman. Under this model, we expect to maintain a smaller and lower cost commercial organization than many of our competitors, which could hinder our efforts to broadly market any products that we are able to commercialize as compared to our competitors. The establishment of a commercial organization may be costly and time consuming and could delay any product launch. We cannot be certain that we will be able to successfully develop these capabilities on the economic terms we currently anticipate, if at all. If we are unable to establish our sales and marketing capabilities or any other capabilities as currently anticipated, we will need to consider alternatives, such as entering into

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arrangements with third parties to market and sell such products. Such an arrangement would likely result in significantly greater sales and marketing expenses or lower revenues than currently estimated in our business plan. Moreover, although we expect to rely on a sales model similar to that employed at companies previously led by members of our board of directors, we cannot assure you that we will be able to effectively implement such a model to market our products.

To the extent we receive the requisite approvals to market our product candidates internationally, we plan to enter into arrangements with third parties to market and sell our products as opposed to building an international commercial organization. We currently possess limited sales and marketing resources and may not be successful in establishing our own commercial organization for the United States or in establishing arrangements with third parties for international sales on acceptable terms, if at all.

We produce our dronabinol API internally and may encounter manufacturing failures that could delay the preclinical and clinical development or regulatory approval of our dronabinol product candidates, or their commercial production if approved.

Any performance failure on the part of our internal dronabinol API manufacturing operations could delay the preclinical and clinical development or regulatory approval of our dronabinol product candidates, and harm our reputation. Our internal manufacturing operations may encounter difficulties involving, among other things, production yields, regulatory compliance, quality control and quality assurance, obtaining DEA quotas which allow us to produce dronabinol in the quantities needed to execute on our business plan, as well as shortages of qualified personnel. Approval of our dronabinol product candidates could be delayed, limited or denied if the FDA does not approve and maintain the approval of our manufacturing processes and facilities. In addition, we may encounter difficulties with the manufacturing processes required to manufacture commercial quantities of dronabinol or the quantities needed for our preclinical studies or clinical trials. We are especially prone to such difficulties because we have no experience producing dronabinol in commercial quantities. Such difficulties could result in delays in our preclinical studies, clinical trials and regulatory submissions, in the commercialization of our product candidates if approved, or, in the recall or withdrawal of approved products from the market. If we fail to produce the required commercial quantities or quantities needed for our preclinical studies and clinical trials on a timely basis and upon terms that we find acceptable, we may be unable to meet demand for any of our product candidates that may receive approval, and could lose potential revenue.

We are only aware of two other manufacturers that are able to produce dronabinol in the United States. We are aware of only five manufacturers that hold Drug Master Files for the production of dronabinol in the United States. Because dronabinol is a controlled substance, inability to manufacture dronabinol in the United States would have a material adverse effect on our business given the regulatory restrictions associated with obtaining authorization to import and transport controlled substances into the United States. Moreover, we believe dronabinol is difficult to produce and if there was any problem in manufacturing it internally, we may not be able to identify a third party to manufacture it for us in a cost effective manner, if at all.

We must comply with current good manufacturing practices, or cGMP, enforced by the FDA through its facilities inspection program and review of submitted technical information. In addition, we must obtain and maintain necessary DEA and state registrations, and must establish and maintain processes to assure compliance with DEA and state requirements governing, among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. We must also apply for and receive a quota for these products. Any failure to comply with these requirements may result in penalties, including fines and civil penalties, suspension of production, suspension or delay in product approvals, product seizure or recall, operating restrictions, criminal prosecutions or withdrawal of product approvals, any of which could significantly and adversely affect our business. If the safety of any drug product or component is compromised due to a failure to adhere to applicable laws or for

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other reasons, we may not be able to obtain regulatory approval for or successfully commercialize the affected product candidate, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay or termination of preclinical studies and clinical trials, regulatory submissions, approvals or commercialization of our product candidates if approved, entail higher costs or result in our being unable to effectively commercialize our approved products. Certain changes in our dronabinol API manufacturing processes or procedures, including a change in the location where the material is manufactured, generally require prior FDA, or foreign regulatory authority, review and/or approval. We may need to conduct additional preclinical studies and clinical trials to support approval of such changes. This review and approval process may be costly and time-consuming, and could delay or prevent the launch of a product candidate.

We have no internal manufacturing capabilities other than for our dronabinol API, and if we fail to develop and maintain supply and manufacturing relationships with various third parties, we may be unable to develop or commercialize many of our product candidates.

We rely on a number of third parties for the development of our product candidates and their commercialization, if approved. Our ability to develop and commercialize many of our product candidates depends, in part, on our ability to successfully obtain the API (or starting materials for the API, as the case may be) and outsource most if not all of the aspects of their manufacturing at competitive costs, in accordance with regulatory requirements and in sufficient quantities for clinical testing and eventual commercialization. If we fail to develop and maintain supply relationships with these third parties, we may be unable to develop or commercialize our product candidates.

Manufacturers and suppliers are subject to regulatory requirements covering, among other things, manufacturing, testing, quality control and recordkeeping relating to our product candidates, and are subject to ongoing inspections by FDA, DEA and other regulatory agencies. We purchase the fentanyl API utilized in connection with our Fentanyl SL Spray and the starting materials for our dronabinol API from several third parties. We do not have long-term agreements with any of these parties, but rather purchase material on a purchase order basis. Moreover, some of the starting material for our dronabinol API is difficult to procure and produce. Our ability to obtain fentanyl API and the starting materials for our dronabinol API in sufficient quantities and quality, and on a timely basis, is critical to the successful completion of our related preclinical studies and clinical trials and the timeliness of their commercial sale. There is no assurance that these suppliers will continue to produce the materials in the quantities and quality and at the times they are needed, if at all, especially in light of the fact that we intend to significantly increase our orders for these materials in the near future, if approved. Moreover, the replacement of any of these suppliers, particularly the supplier of the starting material for our dronabinol API that is difficult to produce, could lead to significant delays and increase in our costs.

Our Dronabinol SG Capsule is manufactured and packaged by Catalent Pharma Solutions. Our Fentanyl SL Spray sub-component manufacturing is performed by AptarGroup, Inc., with the final fill, assembly and packaging of Fentanyl SL Spray currently performed by another third party. Though we have contracts in place with Catalent Pharma Solutions and AptarGroup, we do not have a contract in place with the third party responsible for the final fill, assembly and packaging of Fentanyl SL Spray. We are currently in the process of negotiating a contract with this third party and there can be no assurances these negotiations will result in a contract on terms acceptable to us, or at all. In addition, if there are problems relating to the equipment utilized to manufacture our Fentanyl SL Spray product candidate, we will be responsible for fixing or replacing that equipment. Any requirement to do so could result in unexpected costs and expenses and delay the production of this product candidate which could in turn negatively impact our business and development efforts.

The manufacture of pharmaceutical products generally requires significant expertise and capital investment, often including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production,

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particularly in scaling up and validating initial production. These problems can include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. We cannot assure you that any such issues relating to the manufacture of any of our products will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to commercially launch any approved product candidates or provide any product candidates for preclinical studies or clinical trials could be jeopardized. Any delay or interruption in our ability to commercialize approved product candidates will result in the loss of potential revenues and could adversely affect our ability to gain market acceptance for these products. In addition, any delay or interruption in the supply of preclinical study or clinical trial supplies could delay the completion of those studies or trials, increase the costs associated with maintaining our programs and, depending upon the period of delay, require us to commence new studies or trials at additional expense or terminate studies or trials completely.

Moreover, the facilities used by our third-party manufacturers must be approved by the applicable regulatory authorities. We do not control the manufacturing processes of third-party manufacturers and are currently completely dependent on them. If any of our third-party manufacturers cannot successfully manufacture product that conforms to our specifications and the applicable regulatory authorities’ strict regulatory requirements, they will not be able to secure or maintain regulatory approval for the manufacturing facilities. In addition, we have no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any other applicable regulatory authorities do not approve these facilities for the manufacture of our product candidates or if they withdraw any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market any approved product candidates.

Failures by the third-party suppliers or manufacturers could materially adversely affect our business and delay or impede the development and commercialization of our product candidates, and could have a material adverse effect on our business, results of operations, financial condition and prospects. And in the event we need to replace a current supplier or manufacturer, we cannot assure you that we would be able to do so on a timely basis or in a cost effective manner, or at all.

If we fail to attract and keep management and other key personnel, as well as our board members, we may be unable to successfully develop or commercialize our product candidates and implement our business plan.

Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific, medical and other personnel. We are highly dependent on our management, scientific and medical personnel, as well as our board members, including our founder and Executive Chairman, Dr. John N. Kapoor, our President and Chief Executive Officer, Michael L. Babich, our Director of Scientific Development, Dr. Daniel D. Von Hoff, and our Chief Medical Officer, Dr. Larry Dillaha. The loss of the services of any of these individuals could delay or prevent the development and commercialization of our product candidates and negatively impact our ability to successfully implement our business plan. If we lose the services of any of these individuals, we may not be able to find suitable replacements on a timely basis or at all, and our business would likely be harmed as a result. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. We employ all of our executive officers and key personnel on an at-will basis and their employment can be terminated by us or them at any time, for any reason and without notice. In order to retain valuable employees at our company, in addition to salary and cash incentives, we provide incentive stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected by movements in our

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stock price that are beyond our control, and may at any time be insufficient to counteract offers from other companies.

We may not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the Phoenix, Arizona area where we are headquartered and nearby geographic locales such as Southern California. Our industry has experienced a high rate of turnover of management personnel in recent years. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts. Many of the other biotechnology and pharmaceutical companies with whom we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than that which we have to offer. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede significantly the achievement of our business objectives, our ability to raise additional capital and our ability to implement our business strategy.

In addition, we have scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.

Our short operating history as a combined company and the recent additions to our management team and board of directors make it difficult to evaluate our business and prospects and may increase the risk of your investment.

In November 2010, we completed the Merger, which resulted in Insys Pharma becoming our wholly-owned subsidiary. We therefore have a short operating history as a combined company. Moreover, our business has had limited operations in the several years immediately prior to the Merger. Our Chief Executive Officer joined Insys Pharma in 2007 and was appointed as our Chief Executive Officer in March 2011. Our Chief Financial Officer was promoted to that position from Corporate Controller in March 2011. Our Chief Medical Officer joined Insys Pharma in April 2010. Our Director of Scientific Development started working with us in December 2010. Moreover, three members of our board of directors joined us in March 2011. In addition, we have not yet demonstrated an ability to obtain regulatory approval for or commercialize any product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successful development and commercialization of pharmaceutical products or if our management team and board or directors had been with us and working together for a longer period of time.

Failure to obtain or maintain Schedule III classification for any of our dronabinol product candidates would substantially limit our ability to produce and commercialize any such product candidates.

The DEA generally regulates dronabinol as a Schedule I controlled substance, except in the case of the FDA-approved Marinol product and its generics, which are Schedule III controlled substances. Schedule I controlled substances are deemed not to have any medically recognized use and may not lawfully be commercially sold or marketed. After the initial FDA approval of Marinol in 1985, the DEA scheduled dronabinol in sesame oil and encapsulated in a soft gelatin capsule as a Schedule II substance. In 1999, the DEA promulgated a regulation that reclassified this formulation as a Schedule III controlled substance. This regulation directly corresponds to the product characteristics of Marinol, whose sponsor had petitioned the DEA for the scheduling change. DEA regulations currently limit the formulation of FDA-approved dronabinol products that are classified in Schedule III. Specifically, classification in Schedule III is limited to “dronabinol (synthetic) in sesame oil and encapsulated in a soft

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gelatin capsule in” an FDA-approved product. There is a possibility that generic versions of Marinol would not meet these specific conditions, and therefore, would not be classified as a Schedule III substance, but rather would be considered as Schedule I products until otherwise scheduled for marketing. Currently, several products are the subject of ANDAs under review by the FDA, including our application for Dronabinol SG Capsule. On November 1, 2010, the DEA issued a Notice of Proposed Rulemaking concerning the listing of approved drug products containing dronabinol in Schedule III. The DEA proposed rulemaking would amend the scheduling regulations to expand the Schedule III listing of dronabinol to include formulations having naturally-derived dronabinol and hard gelatin capsules. If this ruling is allowed, it may increase the number of generics approved as we believe there are active ANDAs which utilize naturally-derived dronabinol and hard gelatin capsule technology. The DEA may ultimately schedule Dronabinol SG Capsule and Dronabinol RT Capsule, if approved, under a schedule other than Schedule III. These product candidates are also subject to regulation by state-controlled substance authorities. We cannot assure you that Dronabinol SG Capsule and Dronabinol RT Capsule, if approved, will be classified as Schedule III substances, in the timeline that we currently anticipate, or at all.

In addition, because the DEA currently regulates the scheduling of dronabinol on a product-specific basis as opposed to regulating all dronabinol-containing products under one schedule, we believe that the DEA will also need to make individual scheduling decisions with respect to our proprietary dronabinol product candidates if approved, based on, among other factors, assessments of the drug abuse potential for each of our formulations. Therefore, even if the DEA agrees to classify Dronabinol SG Capsule under Schedule III, because our other proprietary dronabinol product candidates will, if approved, represent novel dosage forms, and in the case of the Dronabinol Inhalation Device, a novel route of administration for dronabinol, the DEA may determine that stricter scheduling controls than those applicable to Schedule III controlled substances are appropriate for the additional product candidates. In fact, these product candidates may default to Schedule I until the DEA completes a scheduling action for them. Moreover, there may be significant delay in the issuance of DEA’s scheduling decisions with respect to our products following FDA approval, if such approval is granted. Even with FDA approval, we will not be able to market any of our controlled substance products until the DEA has issued a scheduling decision with respect to each drug product.

Because the restrictions on the manufacture, sale, distribution, prescribing, and dispensing of Schedule II substances are greater than for Schedule III substances, failure to obtain Schedule III classification for our dronabinol product candidates could significantly impact our anticipated ability to produce and commercialize any such dronabinol products and would have a material adverse effect on our business and ability to generate revenue. For example, Schedule II drugs or substances may not be dispensed without the written prescription of a practitioner, and prescriptions for these drugs or substances may not be refilled. Although the DEA regulates the frequency of Schedule III prescription refills, physicians may call in the prescriptions and they may be refilled. A failure by the DEA to respond favorably to our classification petition before, or in a timely manner after, FDA approval of our dronabinol product candidates, and in particular our Dronabinol SG Capsule product candidate, or a refusal by the DEA to grant our request to schedule our dronabinol product candidates under Schedule III, if approved by the FDA, would have an adverse impact on our ability to promptly or effectively commercialize such products.

Even if we obtain regulatory approvals and acceptable DEA classifications for our fentanyl and dronabinol product candidates or any other product candidate, if those products do not achieve broad market acceptance among physicians, patients, hospitals, healthcare payors and the medical community, we will likely generate limited revenues from sales of those products.

Even if our product candidates receive regulatory approval and acceptable DEA classification, if applicable, they may not gain market acceptance among physicians, patients, healthcare payors, the medical community and other third parties. Coverage and reimbursement of our product candidates by

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third-party payors, including government payors, generally is also necessary for commercial success. The degree of market acceptance of any of our approved products will depend on a number of factors, including:

Our ability to successfully sell generic products in particular, such as Dronabinol SG Capsule if approved, depends in large part on the acceptance of those products by third parties such as wholesalers, pharmacies, physicians and patients. Although the brand-name products generally have been marketed safely for many years prior to the introduction of a generic alternative, there is a possibility that one of our generic products could produce an unanticipated clinical side effect, or be considered less effective or less convenient, or otherwise inferior, to the branded product, which could result in an adverse effect on our ability to achieve acceptance by third parties.

In addition, fentanyl and dronabinol treatments can be costly to third-party payors and patients. Accordingly, hospitals and physicians may resist prescribing our products and third-party payors and patients may not purchase our products due to cost. If any of our product candidates are approved and receive acceptable DEA classifications but do not achieve an adequate level of acceptance by physicians, patients, hospitals, healthcare payors and the medical community, we may not generate sufficient revenue from these products and we may not become or remain profitable.

Furthermore, the potential market for dronabinol products may not expand as anticipated or may even decline based on numerous factors, including the introduction of superior alternative products and regulatory action negatively impacting the dronabinol market. Moreover, even if we obtain regulatory approval for our dronabinol product candidates and they are successfully commercialized, there is no guarantee that introduction of improved formulations of dronabinol will result in expansion of the dronabinol market or permit us to gain share in that market or maintain or increase any market share we may capture. New dronabinol products that we introduce could potentially replace our then currently marketed dronabinol products, thus not impacting the overall size of the market or increasing our overall share of that market. If we are unable to expand the market for the medical use of dronabinol or gain, maintain or increase market share in that market, this failure would have a material adverse effect on our ability to execute on our business plan and ability to generate revenue.

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Even if our Dronabinol SG Capsule is approved by the FDA and classified as a Schedule III substance by the DEA, the FDA may not conclude that our planned approach for regulatory approval for Dronabinol RT Capsule is appropriate and may require us to provide additional data prior to approval.

If our Dronabinol SG Capsule is approved by the FDA and classified as a Schedule III substance by the DEA, we intend to submit an sANDA for a dronabinol soft gel formulation that is stable at room temperature, or Dronabinol RT Capsule. If the FDA does not allow us to pursue the sANDA pathway, we may be required to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for Dronabinol RT Capsule, and the complications and risks associated with this product candidate, may increase. Moreover, the inability to obtain regulatory approval of Dronabinol RT Capsule through an sANDA would likely delay our ability to market this product on the timeline anticipated, and potentially result in competitors’ products reaching the market more quickly than our product candidate, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue regulatory approval via an sANDA, we cannot assure you that Dronabinol RT Capsule will receive the requisite approvals and acceptable DEA classification for commercialization.

If the FDA does not conclude that certain of our product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

We are developing several proprietary dronabinol product candidates, including Dronabinol Oral Solution, Dronabinol Inhalation Device and Dronabinol IV Solution, for which we intend to seek FDA approval through the Section 505(b)(2) regulatory pathway. In addition, we have submitted an NDA for approval of our Fentanyl SL Spray product candidate under Section 505(b)(2) of the FDC Act. Section 505(b)(2), if applicable to us under the FDC Act would allow an NDA we submit to FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for our product candidates by potentially decreasing the amount of clinical data that we would need to generate in order to garner FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for these product candidates, and complications and risks associated with these product candidates, would likely substantially increase. We would likely need to obtain substantially more additional funding than currently anticipated, which could result in significant dilution to the ownership interests of our then existing stockholders to the extent we issue equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway would likely result in new competitive products reaching the market more quickly than our product candidates, which would likely materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.

In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and

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Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months or longer depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to accelerated drug development or earlier approval.

Moreover, even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.

Annual DEA quotas on the amount of dronabinol allowed to be produced in the United States and our specific allocation of dronabinol by the DEA could significantly limit the clinical development of our dronabinol product candidates as well as the production or sale of any dronabinol product candidates for which we obtain regulatory approval.

Dronabinol, a Schedule I substance, is subject to the DEA’s production and procurement quota scheme. The DEA establishes annually an aggregate quota for the amount of dronabinol that may be produced in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount of dronabinol that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We are required to receive an annual quota from the DEA in order to manufacture and produce dronabinol. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year and has substantial discretion in deciding whether or not to make such adjustments. The DEA’s aggregate production quota for dronabinol was 312.5 kilograms for each of 2005, 2006, 2007, 2008, 2009 and 2010. For 2011, this aggregate production quota was increased to 393.0 kilograms. For 2011, we were allocated what we believe is a sufficient quantity of dronabinol to meet our currently anticipated testing and production needs through 2011. However, we may need additional amounts of dronabinol in future years to implement our business plan.

In terms of the allocation of our dronabinol quota for 2011, a significant portion will be used for our planned production of Dronabinol SG and Dronabinol RT Capsules, if approved. Because we are allocated a finite amount of dronabinol for 2011, changes in the amount of dronabinol used for a certain purpose will impact other parts of our business plan utilizing dronabinol.

We do not know what amounts of dronabinol other companies developing dronabinol product candidates may have requested for 2011 or will request in future years. The DEA, in assessing factors such as medical need, abuse potential and other policy considerations, may have chosen to set the aggregate dronabinol quota for 2011 lower than the total amount requested by the companies, and may do so in the future. Though companies are permitted to petition the DEA to increase the aggregate quota for dronabinol in a given year after it is initially established, there is no guarantee the DEA would act upon such a petition. The success of our business plan will depend in part on our being able to expand the overall market for the medical use of dronabinol by introducing new dronabinol formulations, and to sell significant amounts of our approved dronabinol products. In order to do so, we will need to receive from the DEA significantly increased allotments of dronabinol quotas over time and likely an increase in the aggregate annual quota. Any delay or refusal by the DEA in establishing quotas necessary for us to execute on our business plan could negatively impact our preclinical studies and clinical trials, as well

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as our ability to sell any approved products, which would in turn have a material adverse effect on our business, our ability to execute on our business plan, our financial position and results of operations, our prospects, and our ability to generate revenue to fund the development of our other product candidates.

Clinical trials for our product candidates are expensive, time consuming, uncertain and susceptible to change, delay or termination.

Clinical trials are very expensive, time consuming and difficult to design and implement. Even if the results of our clinical trials are favorable, we estimate that the clinical trials for a number of our product candidates will continue for several years and may take significantly longer than expected to complete. In addition, we, the FDA, an Institutional Review Board, or other regulatory authorities, including state and local, may suspend, delay or terminate our clinical trials at any time, or the DEA could suspend or terminate the registrations and quota allotments we require in order to procure and handle controlled substances, for various reasons, including:

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Generally, there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. In the event that that the FDA does not approve our NDA for Fentanyl SL Spray or our ANDA for Dronabinol SG Capsule, or we abandon or are delayed in our clinical development efforts related to our other dronabinol and fentanyl product candidates, LEP-ETU or any of our other product candidates, we may not be able to generate sufficient revenues or obtain financing to continue our operations or become profitable, we may not be able to execute on our business plan effectively, our reputation in the industry and in the investment community would likely be significantly damaged and our stock price would likely decrease significantly.

The results of preclinical studies and clinical trials are not necessarily predictive of future results, and our current product candidates may not have favorable results in later studies or trials.

Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results. Favorable results in our early studies or trials may not be repeated in later studies or trials, including continuing preclinical studies and large-scale clinical trials, and our product candidates in later stage trials may fail to show desired safety and efficacy despite having progressed through earlier trials. Preclinical data and limited clinical results for our product candidates may differ from results from studies in larger numbers of subjects drawn from more diverse populations treated for longer periods of time. Preclinical data also may not predict the ability of the product candidates to achieve or sustain the desired effects in the intended population or to do so safely. Unfavorable results from ongoing preclinical studies or clinical trials could result in delays, modifications or abandonment of ongoing or future clinical trials. In addition, we may report top-line data from time to time, which is based on a preliminary analysis of key efficacy and safety data, and is subject to change following a more comprehensive review of the data related to the applicable clinical trial. Any of our planned later stage clinical trials may not be successful for a variety of reasons, including the clinical trial designs, the failure to recruit or enroll a sufficient number of suitable subjects, undesirable side effects and other safety concerns, and the inability to demonstrate efficacy or safety.

We rely on third parties to conduct and oversee our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.

We rely on third-party CROs to conduct and oversee our clinical trials. For example, for our proprietary LEP-ETU product candidate, we have contracted with Excel Life Sciences based out of India to serve as our master CRO for our Phase 2 clinical trial in metastatic breast cancer. We also intend to engage a CRO to conduct our Dronabinol Oral Solution pivotal bioequivalence study.

We also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s good clinical practice regulations and DEA and state regulations governing the handling, storage, security and recordkeeping for controlled substances. These CROs and third parties

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play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical and preclinical studies, and control only certain aspects of their activities.

If any of our clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

We conducted clinical trials outside the United States and the FDA may not accept data from any such trial. Furthermore we may choose to conduct additional trials in any of our product lines outside the United States and the FDA may not accept data from such trials.

We have conducted and may in the future choose to conduct one or more of our clinical trials outside the United States. For example, our Phase 3 Fentanyl SL Spray safety trial was conducted at 46 sites in the United States and 10 sites in India. In addition, we have conducted a Phase 2 clinical trial in India on patients with metastatic breast cancer for LEP-ETU. In addition, though we are not conducting this trial, we are currently providing the dronabinol API for and paying certain monitoring fees in connection with an ongoing Phase 3 clinical trial for the use of dronabinol in the treatment of multiple sclerosis, or MS, in the United Kingdom. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the study must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. The FDA has advised us that the patient population in which our clinical studies are conducted should be representative of the population for whom we intend to label the product in the United States. In addition, such studies would be subject to the applicable local laws and FDA acceptance of the data would be dependent upon its determination that the studies also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept any such data, that would likely result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan.

We are subject to uncertainty relating to healthcare reform measures and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our product candidates’ commercial success.

Our ability to commercialize any approved product candidates successfully will depend in part on the extent to which governmental authorities, private health insurers and other third-party payors establish appropriate coverage and reimbursement levels for our product candidates and related treatments. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors are increasingly imposing additional requirements and restrictions on coverage and limiting reimbursement levels for medical products. For example, federal and state governments reimburse covered prescription drugs at varying rates below average wholesale price. These restrictions and limitations influence the purchase of healthcare services and products. Legislative proposals to reform healthcare or reduce costs under government insurance programs may result in lower reimbursement for our product candidates or exclusion of our product candidates from coverage and reimbursement programs. The cost containment measures that healthcare payors and providers are instituting and the effect of any healthcare reform could significantly reduce our revenues from the sale of any approved product. We

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cannot provide any assurances that we will be able to obtain third-party coverage or reimbursement for our product candidates in whole or in part.

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenues and profitability and the future revenues and profitability of our potential customers. For example, the Medicare Part D prescription drug benefit allows beneficiaries to obtain prescription drug coverage from private sector plans, which can limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If our products are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could be harmed. The State Medicaid programs also generally provide reimbursement for our commercial products, at reimbursement rates that are below the published average wholesale price and that vary from state to state. In return for including pharmaceutical products in the Medicaid programs, manufacturers have agreed to pay a rebate to state Medicaid agencies that provide reimbursement for those products. Pursuant to the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or PPACA, an increase in the Medicaid rebate rate from 15.1 to 23.1% became effective on January 1, 2010, and the volume of rebated drugs has been expanded to include beneficiaries in Medicaid managed care organizations, effective as of March 23, 2010. The PPACA also includes a 50% discount on brand name drugs for Medicare Part D participants in the coverage gap. The law also revises the definition of “average manufacturer price” for reporting purposes (effective October 1, 2010), which could increase the amount of the Medicaid drug rebates paid to states once the provision is effective.

The PPACA is expected to substantially impact the U.S. pharmaceutical industry and how health care is financed by both governmental and private insurers. Some of the specific PPACA provisions, among other things:

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There also have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of healthcare may adversely affect one or more of the following:

In certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may, in some cases, be unavailable. In the United States, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and the changes to the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our products and generate revenues. It is also possible that other proposals having a similar effect will be adopted.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

In addition to FDA and DEA restrictions on the marketing of pharmaceutical products and federal and state restrictions on distributing and prescribing these products, several other types of state and federal laws have been applied to protect individually identifiable health information and restrict certain marketing practices in the pharmaceutical and medical device industries. These healthcare laws include The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HIPAA, and fraud and abuse statutes such as the anti-kickback and false claims statutes.

HIPAA mandates, among other things, standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent then HIPAA. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws and potential liability associated with failure to do so could adversely affect our business.

The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or, in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not, in all cases, meet all of the criteria for safe harbor protection from anti-kickback liability.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be

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made, a false statement to get a false claim paid. In addition, HIPAA created federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would be reimbursed by federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing of the product for unapproved, and thus non-reimbursable, uses. There are also federal “sunshine” laws that require transparency regarding financial arrangements with health care providers, such as the reporting and disclosure requirements imposed by PPACA on drug manufacturers regarding any “transfer of value” made or distributed to prescribers and other health care providers. Sanctions under these laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment.

The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Some states, such as California, Massachusetts and Vermont, also mandate implementation of corporate compliance programs to ensure compliance with these laws.

Because of the breadth of these laws and the fact that their provisions are open to a variety of interpretations, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Moreover, recent health care reform legislation has strengthened these laws. For example, PPACA amends the intent requirement of the federal anti-kickback and criminal health care 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 federal false claims laws. We also expect there will continue to be federal and state laws and/or regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to health care fraud abuse laws and/or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain. Any government challenge of our business practices could have a material adverse effect on our business, financial condition and results of operations.

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, provide accurate information to the FDA, comply with applicable manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, 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, or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and 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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We use hazardous materials, chemicals and controlled substances in our research and development and manufacturing activities and we may incur significant costs complying with the environmental, health and safety laws and regulations that govern such use. In addition, if we fail to comply with the applicable environmental, health and safety regulations, we could be exposed to significant liabilities.

Our research and development as well as manufacturing activities involve the use of potentially harmful hazardous materials, chemicals and controlled substances that could be hazardous to human health and safety or the environment and which are subject to a variety of federal, state and local laws and regulations governing their use, generation, manufacture, storage, handling and disposal. These materials and various wastes resulting from their use are stored at our facility pending ultimate use and disposal. We cannot completely eliminate the risk of contamination, which could cause:

In such an event, we may be held liable for any resulting damages, and any such liability could exceed our resources. Although we carry insurance in amounts and type that we consider commercially reasonable, we do not carry specific biological or hazardous waste insurance coverage.

Since the starting materials we utilize to manufacture dronabinol are sourced out of India, we are exposed to a number of risks and uncertainties associated with that geographic region.

The suppliers of the starting materials we utilize to manufacture dronabinol are located in India. This exposes us to a number of risks and uncertainties outside our control. India has suffered political instability in the past due to various factors including the failure of any party to win an absolute majority in the Indian Parliament for several years. There have also been armed conflicts between India and neighboring Pakistan. Moreover, extremist groups within India and neighboring Pakistan have from time to time targeted Western interests. In addition, India is susceptible to natural disasters such as earthquakes and floods. Political instability, future hostilities with countries such as Pakistan, targeting of our interests by extremist attacks, and earthquakes or other natural disasters in India could harm our operations and impede our ability to produce dronabinol on our anticipated timeline, or at all.

If we fail to successfully develop, identify and acquire or in-license additional products or product candidates, we may have limited growth opportunities.

As resources allow and opportunities present themselves, we intend to enhance our pipeline of new products and product candidates through acquisition or in-licensing. The success of this strategy will depend upon our ability to effectively identify, select and acquire or in-license pharmaceutical products or product candidates.

The process of proposing, negotiating and implementing the acquisition or in-license of a product or product candidate is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for these products or product candidates. We have limited resources to identify and execute acquisition or in-licensing transactions. Even if we acquire or in-license additional products or product candidates, we have limited resources to integrate the acquired or licensed assets into our current infrastructure. In addition, we may devote resources to potential acquisition or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts after expenditure of considerable time and resources. We may not be able to acquire the rights to additional products or product candidates on terms that we find acceptable, or at all.

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Future acquisition and in-licensing transactions may entail numerous operational and financial risks including:

Product candidates that we acquire or in-license will likely require additional development efforts prior to commercial sale, including product development, extensive clinical testing and approval by the FDA and other applicable regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe or effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products or product candidates that we acquire or in-license will be manufactured profitably or achieve market acceptance.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. For example, in November 2010, we completed the Merger which resulted in Insys Pharma becoming our wholly-owned subsidiary. Previously, in September 2009, Insys Pharma obtained assets which have given us the ability to manufacture our supply of dronabinol API internally through our manufacturing facility in Texas. Additional potential transactions include a variety of different business arrangements, spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could harm our operations and financial results.

We may not realize any benefits and may experience detriments as a result of the combination of Insys Therapeutics and Insys Pharma.

We may not realize any benefits from the integration of the businesses of Insys Therapeutics and Insys Pharma. The timely, efficient and successful integration of the businesses will entail execution of a number of tasks, including the following:

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We may encounter difficulties successfully managing a larger and more diverse organization and may encounter significant delays in achieving successful management of our organization. Integration of our business operations will involve risks and may not be successful. These risks include the following:

We may not succeed in addressing these risks or any other problems encountered in connection with the integration of our businesses. The inability to integrate successfully the operations, technology and personnel of our businesses, or any significant delay in achieving integration, could have a material adverse effect on our business, results of operations and prospects, and on the market price of our common stock.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.

Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary.

We may incur substantial liabilities from any product liability claims if our insurance coverage for those claims is inadequate.

We face an inherent risk of product liability exposure related to the testing, manufacturing and marketing of our product candidates in human clinical trials, and will face an even greater risk if we sell our product candidates commercially. Common adverse events for dronabinol products include: abdominal pain, nausea, vomiting, dizziness, euphoria, paranoid reaction, somnolence, abnormal thought patterns, and difficulty with concentration/attention. Common adverse events for fentanyl products include: nausea, dizziness, somnolence, vomiting, asthenia or lack of energy and strength and anxiety. An individual may bring a liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

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We have obtained product liability insurance coverage for our clinical trials with a $1 million per occurrence and $2 million aggregate limit, together with an umbrella policy of $3 million for each occurrence and $3 million aggregate limit. Our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate coverage terms to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if regulatory approval is obtained for any of our product candidates. However, we may be unable to obtain this product liability insurance on commercially reasonable terms or with insurance coverage that will be adequate to satisfy any liability that may arise. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects which are less severe than those of our product candidates. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Our ability to utilize our net operating loss carryforwards, or NOLs, and research and development income tax credit carryforwards may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, substantial changes in our ownership may limit the amount of NOLs and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income, if any. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the NOLs before they expire. The closing of this offering, together with the other transactions that have occurred since our inception, may trigger an ownership change pursuant to Sections 382 and 383, which could further limit the amount of NOLs that could be utilized annually in the future to offset taxable income, if any. Any such limitation, whether as the result of prior transactions, sales of common stock by our existing stockholders or additional sales of common stock by us after this offering, could have an adverse effect on our results of operations.

On November 8, 2010, Insys Therapeutics, Inc. effected the Merger in a transaction that was accounted for as a reverse acquisition and resulted in a change of 50% or more of the ownership of NeoPharm. As of the Merger date, NeoPharm had $274.0 million of federal NOLs which were scheduled to expire in tax years 2011 to 2029. Under Section 382 of the Code, our utilization of the pre-Merger federal NOLs of NeoPharm to offset our post-Merger federal taxable income is significantly limited due to the Merger. Prior to the Merger, NeoPharm had completed a partial analysis of ownership changes under Section 382 of the Code to determine if a change in control of NeoPharm had occurred. Based on NeoPharm’s partial analysis, no change in control was identified, based on the review of eight test dates covering a four-year period ended December 31, 2007. A complete formal analysis of ownership change would have to be performed in order to obtain certainty that a change in control of NeoPharm had not occurred prior to the Merger, which could further limit the utilization of the NeoPharm pre-Merger NOLs by us. Based on the above, we have estimated the amount of pre-Merger federal NOLs of NeoPharm that are available to offset our post-Merger income is limited to approximately $158,000 a year for 20 years, or cumulatively $3.2 million. For state income tax purposes, we have $274.0 million of state NOLs. We have placed a valuation

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allowance on our deferred tax assets, which include the federal and state NOLs, for it is not more likely than not that such amounts will be realized.

Our product candidates contain controlled substances, the use of which may generate public controversy.

Fentanyl is a Schedule II controlled substance narcotic derivative and despite the strict regulations on the marketing, prescribing and dispensing of Schedule II substances, illicit use and abuse of fentanyl products is well-documented. Moreover dronabinol, though synthetic, is a cannabinoid. Since our product candidates contain controlled substances, regulatory approval of these product candidates may generate public controversy. Political and social pressures and adverse publicity could lead to delays in, and increased expenses for, and limit or restrict the introduction and marketing of our product candidates.

Import/export regulations and tariffs may change and increase our operating costs.

We are subject to risks associated with the regulations relating to the import and export of products and materials. In particular, for dronabinol, we obtain the two chemicals that are used as starting materials for its production from suppliers in India. We cannot predict whether the import and/or export of our products will be adversely affected by changes in, or enactment of new quotas, duties, taxes or other charges or restrictions imposed by India or any other country in the future. Any of these factors could have a material adverse effect on our operating costs.

Currency exchange rate fluctuations may increase our costs.

The exchange rate between the U.S. dollar and non-U.S. currencies in which we trade to conduct our business have and will likely fluctuate in the future. Any appreciation in the value of these non-U.S. currencies would result in higher expenses for our company. We do not have any hedging arrangements to protect against such exchange rate exposures.

Risks Relating to Our Intellectual Property

We may not be able to obtain and enforce patent rights or other intellectual property rights that cover our product candidates, such as Fentanyl SL Spray, Dronabinol RT Capsule, Dronabinol Oral Solution, Dronabinol Inhalation Device, Dronabinol IV Solution and LEP-ETU and are of sufficient breadth to prevent third parties from competing against us.

Our success with respect to our product candidates, such as Fentanyl SL Spray, Dronabinol RT Capsule, Dronabinol Oral Solution, Dronabinol Inhalation Device, Dronabinol IV Solution and LEP-ETU will depend in part on our ability to obtain and maintain patent protection in both the United States and other countries, to preserve our trade secrets, and to prevent third parties from infringing upon our proprietary rights on our product candidates. Our ability to protect any of our approved drug products from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and enforceable patents. Fentanyl, dronabinol and paclitaxel have been approved for many years and therefore our ability to obtain any patent protection is limited. Composition of matter patents on active pharmaceutical ingredients are a particularly effective form of intellectual property protection for pharmaceutical products as they apply without regard to any method of use or other type of limitation. However, we will not be able to obtain composition of matter patents or methods of use patents that cover the active pharmaceutical ingredients in any of our product candidates. As a result, competitors who obtain the requisite regulatory approval can offer products with the same active ingredients as our product candidates so long as the competitors do not infringe any formulation patents that we may obtain or license, if any.

The only patent protection that we can expect will cover, our fentanyl, dronabinol and LEP product candidates consists of patents relating to formulations and methods of treatment using certain

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formulations. Formulation patents protect the product only when competitors use a similar formulation. However, this type of patent does not limit a competitor from making and marketing a product that is intended to be used in the same indication as long they use a different dosage form and/or formulation. Any formulation patents that we may obtain may be too narrow in scope and thus easily circumvented by competitors.

We have multiple pending patent applications in the United States and in some foreign jurisdictions that attempt to cover our formulations for our fentanyl, dronabinol, and LEP product candidates. We have no issued patents in the United States, or in many foreign countries, that pertain to either fentanyl or dronabinol formulations. We can give no assurances that any patents will issue, that if they do issue, they will provide sufficient protection against competitors, or that they would be valid and enforceable.

Due to evolving legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, our ability to maintain, obtain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any patents we may obtain or license may not provide us with sufficient protection for our product candidates and products to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies. In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Even if patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be held valid or enforceable by the courts or will provide us with any significant protection against competitive products or otherwise be commercially valuable to us. Patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications remain confidential in the United States Patent and Trademark Office, or USPTO, for the entire time prior to issuance as a U.S. patent. Similarly, publication of discoveries in scientific or patent literature often lag behind actual discoveries. Consequently, we cannot be certain that we or our licensors were the first to invent, or the first to file patent applications on our product candidates or products. In the event that a third party has also filed a U.S. patent application relating to our drug product or a similar invention, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial and it is possible that our efforts would be unsuccessful, resulting in a loss of our U.S. patent position.

In addition, third parties may challenge our in-licensed patents and any of our own patents that we may obtain, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. Litigation or other proceedings to enforce or defend intellectual property rights is very complex, expensive, and may divert our management’s attention from our core business and may result in unfavorable results that could adversely affect our ability to prevent third parties from competing with us.

The laws of some foreign jurisdictions do not provide intellectual property rights to the same extent as in the United States and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded from effectively protecting our intellectual property in foreign jurisdictions, our business prospects could be substantially harmed. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.

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The degree of future protection of our proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

If we or our licensors fail to appropriately prosecute and maintain patent protection for these product candidates or other product candidates that we may develop, our ability to develop and commercialize these or any other product candidates we develop may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual property rights relating to these product candidates could have a material adverse effect on our business, financial condition and results of operation.

Proprietary trade secrets and unpatented know-how are also very important to our business. Although we have taken steps to protect our trade secrets and unpatented know-how, by entering into confidentiality agreements with third parties, and confidential information and inventions agreements with certain employees, consultants and advisors, third parties may still obtain this information or we may be unable to protect our rights. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secret information.

We are a defendant in a lawsuit to seek rescission of invention assignments, and we may not prevail.

Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidential information and inventions agreements, we cannot provide any assurances that all such agreements have been duly executed or will be held enforceable.

For example, in September 2009, Insys Pharma and certain of its officers and directors, as well as their spouses, were named as defendants in a lawsuit in Arizona Superior Court brought by Santosh Kottayil, certain of his family members and a trust of which Dr. Kottayil is the trustee. Dr. Kottayil formerly served as President, Chief Scientific Officer and a director of Insys Pharma, among other positions. The complaint brought a cause of action, among others, seeking to rescind Dr. Kottayil’s assignment to Insys Pharma of his interest in all of the fentanyl and dronabinol patent applications we own and to recover the benefits of those interests. Insys Pharma and the other defendants answered and

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filed counter-claims to Dr. Kottayil’s complaint. If the patent assignments are successfully rescinded, we will not have exclusive patent rights covering our fentanyl and dronabinol product candidates, and such exclusive patent rights may not be available to us on acceptable terms, if at all, which would have a material adverse effect on our business. If the assignments are rescinded, Kottayil could assign his interest in the fentanyl and dronabinol patent applications to a competitor and we would not be able to prevent generic copies of our products. Please see the section entitled “Legal Proceedings.”

We license patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects may be harmed.

We are party to a number of license agreements that give us rights to third-party intellectual property that are necessary or useful for our business. For example, we have obtained a license from Georgetown University for LEP-ETU. We may enter into additional license agreements to use third- party intellectual property in the future. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents issue from these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would, and in certain licenses, we only maintain the right to enforce the patents if the applicable licensor fails or decides to not take any action. In addition, our licensors may terminate their agreements with us in the event we breach the applicable license agreement and fail to cure the breach within a specified period of time. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming to defend such litigation, and an unfavorable outcome in that litigation may have a material adverse effect on our business.

Our commercial success also depends upon our ability and the ability of our future collaborators to develop, manufacture, market and sell our product candidates and to use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products. Furthermore, we may not have identified all U.S. and foreign patents or published applications that affect our business either by potentially blocking our ability to commercialize our product candidates or by covering similar technologies that affect our target markets. Because patent applications can take many years to issue, there may be currently pending applications, which may later result in issued patents that our product candidates or proprietary technologies may infringe.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates and/or proprietary technologies infringe their intellectual property rights. If one of these patents was found to cover our product candidates, proprietary technologies or their uses or manufacturer, we or our future collaborators could be required to pay damages and could be unable to commercialize our product candidates or to use our proprietary technologies unless we or they obtained a license to the patent. A license may not be available to us or our future collaborators on acceptable terms, if at all. Thus, we could be prevented from commercializing the product for many years until the patent expires which would have a material adverse effect on our business. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable right which could prohibit us from making, using or selling our products, technologies or methods.

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There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries generally. And in particular, the generic drug industry is characterized by frequent litigation between generic drug companies and branded drug companies. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

We have not conducted an extensive search of patents issued to third parties, and no assurance can be given that third-party patents containing claims covering our product candidates, technology or methods do not exist, have not been filed, or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas or fields, we believe there is a significant risk that third parties may allege they have patent rights encompassing our products, technology or methods. Other product candidates that we may in-license or acquire could be subject to similar risks and uncertainties.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.

As is common in the biotechnology and pharmaceutical industry, certain of our employees were formerly employed by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Moreover, we engage the services of consultants to assist us in the development of our product candidates, many of whom were previously employed at or may have previously been or are currently providing consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. For example, on November 2, 2007, we received a letter from counsel for Solvay Pharmaceuticals, Inc. and Unimed Pharmaceuticals, Inc., or Abbott (Solvay/Unimed), in which Abbott (Solvay/Unimed) asserted that we may have used its confidential and proprietary information in the development of our dronabinol technology and products, and requested various information and written assurances from us. Abbott (Solvay/Unimed)’s letter contains broad allegations concerning its Marinol manufacturing and business strategy, but does not specifically identify any particular confidential or proprietary information allegedly used by us. The allegations appear to be based primarily on the fact that our founder worked for Abbott (Solvay/Unimed) several years ago. We responded to Abbott (Solvay/Unimed) denying these allegations on November 14, 2007 and informed them at that time that we do not intend to comply with any of the requests made in their letter. On January 25, 2008, we received another letter from counsel for Solvay that mainly reasserted the allegations and repeated the request for information and

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assurances made in the November 2, 2007 letter. In response, on January 30, 2008, we responded to Solvay, once again denying their assertions and informing them we do not intend to comply with their requests. After this latest response, we have had no further communications. There can be no assurance, however, that Abbott (Solvay/Unimed) will not take further legal action with respect to such assertions or allegations. Any such litigation would likely be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.

Risks Related to This Offering and Ownership of Our Common Stock

Our Executive Chairman and principal stockholder can individually control our direction and policies, and his interests may be adverse to the interests of our stockholders.

As of December 31, 2010, our founder, Executive Chairman and principal stockholder, Dr. John N. Kapoor, beneficially owned approximately 93% of our capital stock outstanding as of December 31, 2010 on an as-converted basis. Upon the closing of this offering, assuming no exercise of the underwriters’ option to purchase additional shares, Dr. Kapoor will beneficially own approximately     % of our outstanding shares of common stock. By virtue of his holdings, Dr. Kapoor can and will continue to be able to effectively control the election of the members of our board of directors, our management and our affairs and prevent corporate transactions such as mergers, consolidations or the sale of all or substantially all of our assets that may be favorable from our standpoint or that of our other stockholders or cause a transaction that we or our other stockholders may view as unfavorable. Accordingly, this concentration of ownership may harm the market price of our common stock by:

In addition, sales of shares beneficially owned by Dr. Kapoor could be viewed negatively by third parties and have a negative impact on our stock price. Moreover, upon his passing, we cannot assure you as to how these shares will be distributed and subsequently voted.

Moreover, trusts controlled by Dr. Kapoor have been the sole source of financing for Insys Pharma to date. As of December 31, 2010, we owed $34.9 million in secured debt and accrued interest to Dr. Kapoor’s trusts. Dr. Kapoor’s interest as a holder of our debt may conflict with your interest as a holder of our common stock. In addition, if we were to agree to convert some or all of our debt held by Dr. Kapoor’s trusts, then Dr. Kapoor’s beneficial ownership in the common stock of our company would increase.

If we are unable to successfully remediate the material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

In connection with the audit of our consolidated financial statements for the year ended December 31, 2010, our management and independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our management and independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting as of December 31, 2010 in accordance with the provisions of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. Had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional control deficiencies may have been identified by management or our independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses.

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Our management and independent registered public accounting firm identified a material weakness related to a lack of sufficient staff with appropriate training in GAAP and SEC rules and regulations with respect to financial reporting. This deficiency resulted in a more than remote likelihood that a material misstatement of our annual and interim financial statements would not be prevented or detected. As a result, audit adjustments to our financial statements were identified during the course of the audit. Currently, we have only one designated finance and accounting employee, our new Chief Financial Officer, and rely on consultants to provide many accounting, book-keeping and administrative services. In an effort to remediate this material weakness, we intend to hire additional finance and accounting personnel, build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures in 2011 and 2012. For example, we have begun a search for a controller and expect to fill that position in 2011. We cannot assure you that we will be successful in these hiring efforts or that these measures will significantly improve or remediate the material weakness described above. We also cannot assure you that we have identified all or that we will not in the future have additional material weaknesses. Accordingly, material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting for purposes of our attestation required by reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or Section 404 of the Sarbanes-Oxley Act after this offering. The standards required for a Section 404 assessment under the Sarbanes-Oxley Act will require us to implement additional corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. These stringent standards require that our audit committee be advised and regularly updated on management’s review of internal controls. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal controls adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results accurately or in a timely manner and our business and stock price may suffer.

Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Nasdaq Stock Market Rules, or Nasdaq rules. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition.

The Sarbanes-Oxley Act will require, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. We are in the process of documenting, reviewing and, where appropriate, improving our internal controls and procedures in preparation for compliance with the SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting and, if we are an accelerated filer, a report by our independent auditors addressing these assessments. Both we and potentially our independent auditors will be testing our internal controls in connection with the Section 404 requirements and could, as part of that documentation and testing, identify material weaknesses, significant deficiencies or other areas for further attention or improvement. Implementing any appropriate changes to our internal controls may require specific compliance training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in

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maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to satisfy the requirements of Section 404 on a timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could cause the market value of our common stock to decline.

In accordance with Nasdaq rules, we will be required to maintain a majority independent board of directors. We also expect that the various rules and regulations applicable to public companies will make it more difficult and more expensive for us to maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If we are unable to maintain adequate directors’ and officers’ insurance, our ability to recruit and retain qualified directors, especially those directors who may be deemed independent for purposes of Nasdaq rules, and officers will be significantly curtailed.

Compliance with these reporting rules, Sarbanes-Oxley Act and Nasdaq requirements will require us to build out our accounting and finance staff. Our Chief Financial Officer is the only dedicated accounting and finance employee currently employed by us. We will need to expand our accounting and financing staff, and our failure to adequately do so would harm our ability to comply with the requirements listed above.

We expect that the price of our common stock will fluctuate substantially.

Following this offering, the market price for our common stock is likely to be volatile, in part because there has not been a true public market for the common stock of our combined entity prior to this offering. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

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In addition, the stock markets, and in particular the Nasdaq Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

There may not be a viable public market for our common stock.

Although our common stock was once traded on the Nasdaq Capital Market and some of our common stock is currently quoted on the Pink Sheets, a centralized electronic quotation service for over-the-counter securities, immediately prior to this offering there is no liquid public market on which our common stock is actively and readily traded. The initial public offering price of our common stock for this offering will be determined through negotiations between us and the representatives of the underwriters, and may not be indicative of the market price of our common stock following this offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all.

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Future sales of our common stock or securities convertible into our common stock may depress our stock price.

Sales of a substantial number of shares of our common stock or securities convertible into our common stock in the public market could occur at any time. These sales, or the perception in the market 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 outstanding shares of common stock based on the number of shares outstanding as of                      2011. This includes the shares that we are selling in this offering, which may be resold in the public market immediately unless held by an affiliate of ours. 28,408,482 of the remaining shares were outstanding prior to the Merger and, unless held by an affiliate of ours, substantially all of these shares will also be eligible for resale on the public market immediately, and              of the remaining shares may be sold after the expiration of lock-up agreements at least 180 days after the date of this prospectus pursuant to Rule 144 or Rule 701 under the Securities Act of 1933, as amended, or the Securities Act, unless held by an affiliate of ours, as more fully described in the section entitled “Shares Eligible for Future Sale.”

Moreover, we also intend to register all shares of common stock that we may issue after this offering under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described above and in the section entitled “Underwriting—Lock-Up Agreements.”

If a large number of shares of our common stock or securities convertible into our common stock are sold in the public market after they become eligible for sale, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

Anti-takeover provisions in our charter documents and Delaware law might deter acquisition bids for us that you might consider favorable.

Our amended and restated certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors. These provisions:

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing so as to cause us to take certain corporate actions you desire.

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If you purchase shares of common stock sold in this offering, you will incur immediate and substantial dilution.

If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of $             per share, because the initial public offering price of $             is substantially higher than the pro forma as adjusted net book value per share of our outstanding common stock as of                     , 2011. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. Moreover, investors who purchase shares of common stock in this offering will contribute approximately     % of our total funding to date but will own only     % of our outstanding shares. In addition, you may also experience additional dilution upon future equity issuances, including upon conversion of any outstanding debt, or the exercise of stock options to purchase common stock granted to our employees, consultants and directors under our stock option and equity incentive plans. Please see the section entitled “Dilution.”

Because management has broad discretion as to the use of the net proceeds from this offering, you may not agree with how we use them, and such proceeds may not be applied successfully.

Our management will have considerable discretion over the use of proceeds from this offering. We intend to use the net proceeds from this offering:

In addition, a portion of the net proceeds may also be used to acquire or license products, technologies or businesses. However, we do not currently have any specific plans for use of the net proceeds from this offering, nor have we performed studies or made preliminary decisions with respect to the best use of the capital resources resulting from this offering. As such, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The continued operation and expansion of our business will require substantial funding. Accordingly, we do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

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