Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial condition, including statements with respect to the safety, efficacy and potential benefits of our products and products under development, expectations with respect to the timing and success of the development and commercialization of our products and product candidates, expectations with respect to acquisitions of technologies, product candidates, approved products and/or businesses, the timing and success of the submission, acceptance and approval of regulatory filings, the scope of patent protection with respect to our products and product candidates, our review of government pricing and the related restatement of certain historical financial statements and information with respect to the other plans and strategies for our business and the business of our subsidiaries. All statements other than statements of historical facts included in this report regarding our strategy, future operations, timetables for product testing, development, regulatory approvals and commercialization, acquisitions, financial position, costs, prospects, plans and objectives of management are forward-looking statements. When used in this report the words "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "estimate," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report.

You should read these forward-looking statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition or state other "forward-looking" information. You should be aware that the occurrence of any of the events described under "Risk Factors" and elsewhere in this report could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline.

We cannot guarantee any future results, levels of activity, performance or achievements. The forward-looking statements contained in this quarterly report on Form 10-Q represent our expectations as of the date of this quarterly report on Form 10-Q and should not be relied upon as representing our expectations as of any other date. Subsequent events and developments will cause our expectations to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so, even if our expectations change.

Executive Overview

We are a research-based pharmaceutical company dedicated to discovering, developing and commercializing innovative pharmaceutical products targeted to address large and growing markets and unmet medical needs.

Our currently marketed products are:

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º XOPENEX® (levalbuterol HCl) Inhalation Solution, a short-acting bronchodilator, for the treatment or prevention of bronchospasm in patients six years of age and older with reversible obstructive airway disease;

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º XOPENEX HFA® (levalbuterol tartrate) Inhalation Aerosol, a hydrofluoroalkane, or HFA, metered-dose inhaler, or MDI, for the treatment or prevention of bronchospasm in adults, adolescents and children four years of age and older with reversible obstructive airway disease;

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º LUNESTA® (eszopiclone) for the treatment of insomnia in adults;

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º OMNARIS™ (ciclesonide) Nasal Spray, an intranasal formulation of ciclesonide for the treatment of nasal symptoms associated with seasonal allergic rhinitis in adults and children six years of age and older, and with perennial allergic rhinitis in adults and adolescents 12 years of age and older; and

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º ALVESCO® HFA (ciclesonide) Inhalation Aerosol, an inhaled corticosteroid in an HFA MDI formulation for the maintenance treatment of asthma as prophylactic therapy in adult and adolescent patients 12 years of age and older.

In January 2008, we obtained from Nycomed GmbH, or Nycomed, the exclusive United States distribution rights to OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol. We commercially introduced OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol in April 2008 and September 2008, respectively.

In June 2008, in order to establish a Canadian commercial presence, we acquired the outstanding capital stock of Oryx Pharmaceuticals, Inc., or Oryx, a specialty pharmaceutical company that markets branded prescription pharmaceutical products to physician specialists and hospitals within Canada and is focused in the cardiovascular, central nervous system disorder, pain and infectious disease therapeutic areas. Following the acquisition of Oryx, in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, we began operating in two segments distinguished by strategic business units that offer different products. Sepracor Inc., which consists of Sepracor and our subsidiaries other than Oryx, which currently engage in the discovery, research and development and commercialization of pharmaceutical products, represents one segment and Oryx, which currently engages in the licensing and commercialization of unique pharmaceutical products is the other segment. Since there are no differences among our operating segments that are material to an understanding of our business as a whole, we present the discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. The accounting policies of both segments are the same as those described in the summary of significant accounting policies, which are contained in our annual report on Form 10-K and filed with the Securities and Exchange Commission, or SEC.

We market our products in the United States to primary care physicians, allergists, pulmonologists, pediatricians, hospitals, psychiatrists and sleep specialists, as appropriate, primarily through our sales organization currently comprised of approximately 1,700 sales professionals (although the actual number of sales representatives varies from time to time due to attrition in the ordinary course of business). In May 2008, in an effort to maximize the commercial opportunity of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol, we entered into an agreement with a contract sales organization for the services of additional sales professionals. In September 2008, approximately 400 sales professionals commenced selling certain of our products pursuant to this agreement. In addition, we have entered into out-licensing arrangements with respect to the sale of eszopiclone outside of the United States, Canada and Mexico and with respect to several other compounds. We expect to commercialize any additional products that we may successfully develop or acquire through our own or a contract sales force, co-promotion agreements and/or out-licensing partnerships. Factors that will be critical for us in achieving near-term success include our ability to:

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º increase our LUNESTA revenues, despite increasing competition;

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º grow XOPENEX Inhalation Solution revenues outside of the Medicare market by maintaining targeted sales and marketing efforts aimed at the retail and hospital market segments. Revenues

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º continue to increase our XOPENEX HFA revenues;

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º successfully market and sell BROVANA, particularly in the home health care market segment, which could be adversely affected by potential restrictions on Medicare Part B reimbursement or changes in the Medicare Part B reimbursement amount for BROVANA;

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º successfully commercialize OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol;

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º manage expenses effectively to help preserve profitability and positive cash flow from operations; and

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º maintain patent protection for our products, including successful enforcement of our patents, particularly for XOPENEX Inhalation Solution for which six Abbreviated New Drug Applications, or ANDAs, have been submitted to the Food and Drug Administration, or FDA.

We believe that success in each of these areas should allow us to continue to be profitable in the near term and provide us the ability to repay our outstanding convertible debt of $689.5 million if and when it comes due. If not converted, repurchased at the noteholders' or our option, or otherwise refinanced earlier, the principal amount of this debt becomes due as follows:

       Principal Amount of Convertible Debt Outstanding   Maturity Date
       $72,800,000                                        December 2008
       $148,020,000                                       December 2010
       $468,700,000(1)                                             2024 (2)


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   º (1)

º (2)
º These notes may be converted into cash at the option of the noteholders in October 2009, 2014, 2019 and 2024, as well as under certain other conditions.

Our long-term success depends in part on our ability to continue to sell our commercialized products, including successful commercialization of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol, our ability to build upon our current business and our ability to successfully develop or acquire and commercialize new products and product candidates.

We expect that sales of LUNESTA and XOPENEX Inhalation Solution will represent the majority of our total revenues in 2008. We do not have long-term sales contracts with our customers, and we rely on purchase orders for sales of our products. Reductions, delays or cancellations of orders for our marketed products could adversely affect our operating results. If sales of our marketed products do not meet our expectations, we may not have sufficient revenue to achieve our business plan and our business will not be successful.

In 2008, we expect to be profitable for the year on an operating and net income basis. We expect sales and marketing expenses to continue to decrease as compared to 2007 as we have reduced marketing programs related to LUNESTA, partially offset by costs incurred related to the commercial introductions of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol in April 2008 and September 2008, respectively. Research and development expenses for fiscal year 2008 are expected to increase as compared to fiscal year 2007 as we continue to invest in research and development activities relating to LUNESTA and our earlier-stage drug candidates, as well as increased drug discovery efforts and development activities for ciclesonide and eslicarbazepine acetate, an anti-epileptic compound that we licensed in late 2007 from Bial-Portela & Ca, S.A., or Bial. As part of our business strategy, we

have and expect to continue considering and, as appropriate, consummating acquisitions of other technologies, product candidates, approved products and/or businesses. We can provide no assurance that we will be successful in completing any such future acquisitions.

Significant 2008 Developments and Recent Corporate Development and Licensing Transactions

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º In October 2008, we announced that the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency Committee, or EMEA, for Medicinal Products for Human Use issued a positive opinion recommending to grant a marketing authorization for LUNIVIA® brand eszopiclone in the European Union, or EU, for the treatment of insomnia. The EU labeling provides for patients who require longer-term therapy to be treated for up to six months, with the usual course of therapy for typical patients being short-term. LUNIVIA is marketed in the United States under the brand name LUNESTA. We have requested a re-examination of the opinion relating to the exclusion of a new active substance designation that we believe would enable more favorable commercialization of the product.

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º In September 2008, we introduced ALVESCO HFA Inhalation Aerosol, an inhaled corticosteroid in a HFA MDI formulation for the maintenance treatment of asthma as prophylactic therapy in adult and adolescent patients 12 years of age and older.

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º In August 2008, Richard Ranieri was elected to the newly-created position of Executive Vice President, Human Resources and Administration.

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º In June 2008, 1765800 Ontario Limited, a wholly-owned subsidiary of Sepracor incorporated under the laws of the Province of Ontario, which was subsequently named Sepracor Canada, Inc., completed the acquisition of 100% of the issued and outstanding common stock of Oryx pursuant to the share purchase agreement dated April 30, 2008, by and among Sepracor, 1765800 Ontario Limited, Oryx, Cobalt Pharmaceuticals, Inc., or Cobalt, and Melville Holdings Limited, which we refer to together with Cobalt as the Sellers, and Arrow Group
A.p.S. Under the terms of the agreement, the Sellers were paid $50.0 million in cash, subject to a post-closing working capital adjustment. The Sellers are also entitled to receive milestone payments of up to an aggregate of $20.0 million upon the accomplishment of various regulatory milestones. Oryx is now an indirect wholly-owned subsidiary of Sepracor.

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º In May 2008, David P. Southwell entered into a severance and consulting agreement with Sepracor pursuant to which Mr. Southwell resigned as our Executive Vice President and Chief Financial Officer on May 20, 2008. Mr. Southwell will continue to serve as our consultant through December 31, 2008 to assist in the transition of his work and to provide such other advice and assistance on corporate projects as reasonably requested by our Chief Executive Officer.

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º In May 2008, our board of directors appointed Robert F. Scumaci to the position of Executive Vice President and Chief Financial Officer, effective May 20, 2008. Prior to his appointment to this position, Mr. Scumaci had served as our Executive Vice President, Corporate Finance and Administration since February 2001 and as our Treasurer since March 1996. Mr. Scumaci served as our Senior Vice President, Finance and Administration from March 1996 to February 2001 and as our Vice President and Controller from March 1995 until March 1996.

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º In May 2008, we entered into a definitive agreement with a contract sales organization for the services of additional sales professionals that are primarily responsible for selling products in our respiratory portfolio. In September 2008, approximately 400 sales professionals commenced selling these products pursuant to this agreement. We are responsible for the management and training of these sales professionals and for providing all promotional materials and samples

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º In April 2008, we introduced OMNARIS Nasal Spray, an intranasal formulation of ciclesonide for the treatment of nasal symptoms associated with seasonal allergic rhinitis in adults and children six years of age and older, and with perennial allergic rhinitis in adults and adolescents 12 years of age and older.

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º In April 2008, we entered into a license and development agreement with Arrow International Limited, or Arrow, for the development, commercialization, marketing, sale and distribution of Arrow's levalbuterol/ipratropium combination inhalation solution product in current and all future formulations and delivery modes, or the Levalbuterol/ipratropium Product, throughout the world. We paid Arrow an upfront payment of $500,000 upon execution of the agreement. We are also required to pay Arrow $25.0 million on December 15, 2009 and $25.0 million on December 15, 2010 as further consideration for the transfer of know-how and the grants of rights and licenses to the Arrow technology, provided Arrow is not in material breach of certain of its obligations under the agreement, as well as a milestone payment of $20.0 million upon receipt of marketing approval for the Levalbuterol/ipratropium Product in the United States. We will also pay single-digit royalties that escalate based on product sales, subject to Arrow's one-time option in the fourth quarter of 2009 to receive a lump sum discounted amount of $23.5 million in lieu of ongoing royalty payments. Arrow has the right to manufacture and supply us with our requirements of the Levalbuterol/ipratropium Product. If Arrow elects not to manufacture and supply the Levalbuterol/ipratropium Product to us, we will have the right to manufacture or arrange for the manufacture of the Levalbuterol/ipratropium Product.

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º In April 2008, we also entered into a license and development agreement with Arrow for know-how and intellectual property rights related to stable sterile suspension formulations, for use in the development, commercialization, marketing, sale and distribution of an inhalation pharmaceutical product containing ciclesonide as its only active ingredient and an inhalation pharmaceutical product containing both ciclesonide and arformoterol as its active ingredients, throughout the world, collectively referred to as the Ciclesonide Products. The agreement also includes rights to Arrow's "U-Bend" packaging technology, which allows increased accuracy in dosing through a novel U-Bend ampule design. We paid Arrow an upfront payment of $500,000 upon execution of the agreement. We are also required to pay Arrow $10.0 million on December 15, 2009 and $10.0 million on December 15, 2010, as further consideration for the transfer of know-how and the grants of rights and licenses to the Arrow technology, provided Arrow is not in material breach of certain of its obligations under the agreement, as well as milestone payments of up to an aggregate of $27.5 million upon the achievement of certain regulatory milestones relating to both of the Ciclesonside Products. We will also pay single-digit royalties on sales of the Ciclesonide Products, subject to Arrow's one-time options in the fourth quarter of 2009 to receive an aggregate lump sum discounted amount of up to $37.9 million in lieu of ongoing royalty payments.

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º In April 2008, we entered into a settlement and license agreement with Breath Limited, or Breath, to resolve the patent infringement litigation involving certain XOPENEX Inhalation Solution products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL). The agreement permits Breath to sell its generic versions of these products in the United States under the terms of an exclusive 180-day license from us commencing on August 20, 2012, and a non-exclusive license thereafter. Upon launch, Breath would pay us a double-digit royalty on gross profits generated from the sales of generic versions of these products. Under the agreement, Breath agrees not to sell any of the products covered by our patents that are the subject of the license before the date on which the license commences. On May 1, 2008, the parties submitted to the court an agreed order of dismissal without prejudice, which the court approved. The settlement and

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º In April 2008, we also entered into a supply agreement with Breath, whereby, effective August 20, 2012, we will exclusively supply certain levalbuterol products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) to Breath, under our New Drug Application, or NDA, for a period of 180 days, which we refer to as the Initial Term, and on a non-exclusive basis for up to an additional two and one-half year period thereafter. In addition to the royalties described above, Breath will pay us on a cost plus margin basis for supply of the XOPENEX Inhalation Solution products. The supply agreement contains provisions regarding termination for cause and convenience, including either party's right to terminate the agreement at any time after the Initial Term upon nine months written notice. Both the exclusive license under the settlement agreement and the exclusive supply obligations under the supply agreement could become effective prior to August 20, 2012, if a third-party launches a generic version of those dosages of our XOPENEX Inhalation Solution products or if the parties otherwise mutually agree.

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º In January 2008, we notified the Centers for Medicare and Medicaid Services, or CMS, that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, we identified a material weakness in our internal controls related to these potential errors and our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by this material weakness. See also Part I, Item 4, "Controls and Procedures", regarding the material weakness of our internal controls and remediation plan with respect thereto.

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º In January 2008, we entered into an agreement with Nycomed for the exclusive distribution, development and commercialization in the United States, its territories and possessions, of Nycomed's compound ciclesonide, and products incorporating such compound, including OMNARIS Nasal Spray for use in the treatment of allergic rhinitis and ALVESCO HFA Inhalation Aerosol for use in the treatment of asthma. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. We will also compensate Nycomed for supplying finished product pursuant to the agreement, including a supply price for the products, which will be based on Nycomed's manufacturing costs plus a percentage of such costs, and make quarterly royalty payments to Nycomed based on our net sales of the products.

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º In December 2007, we entered into a license agreement with Bial for the development and commercialization in the United States and Canada of eslicarbazepine acetate, Bial's anti-epileptic compound that Bial refers to as BIA 2-093 and which we now refer to as SEP-0002093. Pursuant to the agreement, we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, including $10.0 million we paid to Bial in May 2008 upon achievement of one such milestone, and which could include up to an additional $90.0 million if all other milestones are met. We will also compensate Bial for providing finished product pursuant to a supply agreement that is expected to be entered into by the parties, which will be calculated as a percentage of the average net selling price for finished tablets, and make milestone payments to Bial upon FDA approval of additional indications, if any.

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º In September 2007, we entered into an agreement with Glaxo Group Limited, or GSK, an affiliate of GlaxoSmithKline, for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States, for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA® brand eszopiclone for the treatment of

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º In July 2007, we entered into an agreement with Eisai Co. Ltd., or Eisai, for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or the active ingredient of our eszopiclone product.

Three Month Periods ended September 30, 2008 and 2007

Revenues

Product Sales Revenue

Product sales were $289.3 million and $271.8 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 6%.

Sales of LUNESTA were $154.7 million and $160.7 million for the three months ended September 30, 2008 and 2007, respectively, a decrease of approximately 4%. The decrease is primarily the result of a 9% decrease in the number of units sold, which we believe is primarily the result of the April 2007 commercial introduction of zolpidem tartrate, the generic equivalent to AMBIEN®, and a reduction in selling and marketing resources. Partially offsetting this decrease was an increase in gross selling price of approximately 21%, which resulted in a net selling price increase of approximately 6%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

Sales of XOPENEX Inhalation Solution were $77.9 million and $91.6 million for the three months ended September 30, 2008 and 2007, respectively, a decrease of approximately 15%. The decrease was primarily due to a decrease in number of units sold of approximately 21%, which we believe is partially the result of a decline in units sold in the home health care market, which are subject to reimbursement under Medicare Part B. The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol. Due to the decrease in the . . .