UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

For the fiscal year ended June 30, 20112012

or

For the transition period from                      to                     

Commission File Number 000-51122

PSIVIDA CORP.

(Exact name of registrant as specified in Its charter)

Registrant’s telephone number, including area code: (617) 926-5000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price of the common stock on the NASDAQ Global Market on December 31, 2010,2011, the last trading day of the registrant’s most recently completed second fiscal quarter, was approximately $82,346,000.$20,408,000.

There were 20,750,64223,297,011 shares of the registrant’s common stock, $0.001 par value, outstanding as of September 9, 2011.24, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

Specified portions of the registrant’s definitive proxy statement, to be filed in connection with the Annual Meeting of Stockholders to be held on November 29, 2011,December 14, 2012, are incorporated by reference into Part III of this Annual Report on Form 10-K.

PSIVIDA CORP.

Form 10-K

For the Fiscal Year Ended June 30, 20112012

Table of Contents

PART I

Preliminary Note Regarding Forward-Looking Statements

This Form 10-K and our 20112012 Annual Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Forward-looking statements are inherently subject to risks, uncertainties and potentially inaccurate assumptions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. All statements other than statements of historical fact could be deemed forward-looking statements, including, without limitation, any expectations of revenue, expenses, cash flows, earnings or losses from operations, capital or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product research, development and commercialization timelines; any statements of expectations or belief; and any statements of assumptions underlying any of the foregoing. We often, although not always, identify forward-looking statements by using words or phrases such as the following: “likely”, “expect”, “intend”, “anticipate”, “believe”, “estimate”, “plan”, “project”, “forecast” and “outlook”.

We cannot guarantee that the results and other expectations expressed, anticipated or implied in any forward-looking statement will be realized. The risks set forth under Item 1A of this Form 10-K describe major risks to our business, and you should read and interpret any forward-looking statements together with these risks. A variety of factors, including these risks, could cause our actual results and other expectations to differ materially from the anticipated results or other expectations expressed, anticipated or implied in our forward-looking statements. Should known or unknown risks materialize, or should our underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected in the forward-looking statements. You should bear this in mind as you consider any forward-looking statements.

Our forward-looking statements speak only as of the dates on which they are made. We do not undertake any obligation to update any forward-looking statement, whether to reflect new information, future events or otherwise. You are advised, however, to consult any further disclosures we may make in our future reports to the SEC on our website, www.psivida.com, or otherwise.

Introduction

We develop tiny, sustained release,sustained-release, drug delivery products designed to deliver drugs at a controlled and steady rate for months or years. We are currently focused on treatment of chronic diseases of the back of the eye utilizing our core technology systems,platforms, Durasert™ and BioSilicon™. We currently have three approved products and two principal product candidates under development, which represent successive generations of our Durasert technology platform. We have developed three of the four sustained release devices for treatment of retinal diseases currently approved in the U.S. or the European Union (EU).

ILUVIEN.Our most recently approved product, ILUVIEN^® for the treatment of Diabetic Macular Edema (DME), our most advanced product candidate, is currently under review by the U.S. Food and Drug Administration (FDA). An investigator-sponsored Investigational New Drug (IND) opened for an injectable, insert designed to treat uveitis affecting the posterior segment of the eye (posterior uveitis) of the same design as ILUVIEN and an investigator-sponsored trial is ongoing for an injectable bioerodible insert designed to treat glaucoma and ocular hypertension. Our two FDA-approved products provide long-term, sustained drug delivery to treat two other chronic diseases of the retina.

ILUVIEN.We licensed the third generation injectable Durasert insert that deliverssustained-release micro-insert delivering the corticosteroid fluocinolone acetonide (FAc) over a period of up to 3 years for the treatment of vision impairment associated with chronic diabetic macular edema (DME) considered insufficiently responsive to available therapies. ILUVIEN is being developed by our licensee Alimera Sciences, Inc. (Alimera).

ILUVIEN has received marketing authorization in the United Kingdom, Austria, France, Germany and Portugal, and marketing authorization is pending in Italy and Spain. The International Diabetes Federation has estimated that approximately 19.1 million people in these seven countries have diabetes, of which Alimera has estimated that approximately 1.1 million suffer from vision loss associated with DME. Alimera has announced its intention to proceed with the direct commercialization of ILUVIEN in Germany, the U.K. and France in 2013.

To date, Alimera has not received marketing approval for ILUVIEN in the treatmentU.S. Following receipt of a Complete Response Letter in November 2011 (2011 CRL) from the U.S. Food and preventionDrug Administration (FDA), and based on a meeting with the FDA in June 2012, Alimera has reported that it intends to resubmit its New Drug Application (NDA) for ILUVIEN for DME in early 2013. Alimera further reported that it intends to include additional analysis of eye diseases in humans (other than uveitis). This insert is being developed by Alimera underthe benefits and risks of ILUVIEN based upon the clinical data from its brand name ILUVIEN. Alimeratwo previously completed twopivotal Phase III clinical trials (FAME™ Study) and to focus on the population of ILUVIENpatients for which regulatory approval has been granted in the various EU countries.

Product Development. We are pursuing the treatment of DME, a leading causechronic non-infectious uveitis affecting the posterior segment of vision lossthe eye (posterior uveitis) as another indication for people under the agesame injectable micro-insert used in ILUVIEN. We did not license this indication to Alimera. The FDA has cleared our Investigational New Drug application (IND), permitting us to move directly to two Phase III trials for this indication without the necessity of 65 estimated to affect over 1,000,000 peoplefirst conducting Phase I or Phase II trials. The FDA has agreed that the primary end point in these trials will be recurrence of uveitis within 12 months and that we can reference much of the United States.

Alimera submitted an NDAdata, including the clinical safety data, from the clinical trials for ILUVIEN for DMEDME. We plan to enroll a total of approximately 300 patients in our clinical trials and to utilize an inserter with a different design and a smaller gauge needle than the FDA in June 2010 based on month 24 data from the FAME Study, received a Complete Response Letter (CRL) in December 2010 and resubmitted an NDA to the

FDA to respond to the CRL in May 2011. Alimera expects a response from the FDA in November 2011. Alimera stated that if approved, it plans to commercialize ILUVIEN for DME in the U.S. as soon as early 2012. In July 2010, Alimera submitted a Marketing Authorization Applicationplanned commercial inserter for ILUVIEN for DME toDME. Because this micro-insert delivers the Medicines and Healthcare Products Regulatory Agency (MHRA)same drug as our approved Retisert^® product for posterior uveitis, we expect these trials will show efficacy. Further, as the same micro-insert was used in the United KingdomILUVIEN trials, we expect to observe a side-effect profile in uveitis patients comparable to that seen in DME patients. As a result, we are optimistic that this micro-insert will be efficacious for posterior uveitis with a favorable risk/benefit profile and fewer side effects compared to other regulatory authorities in Europe. Alimera reports that it anticipates submitting the final response to the MHRA and the other European regulatory authorities by December 31, 2011.

Under our collaboration agreement with Alimera, in addition to treating DME, ILUVIEN is also being studied in three Phase II clinical trials for the treatment of the dry form of Age-Related Macular Degeneration (AMD), the wet form of AMD and Retinal Vein Occlusion (RVO).

Other Product Development. In September 2011, anRetisert. An investigator-sponsored IND opened for a Phase I/II study of the safety and efficacy of our injectable, sustained release insert delivering FActhis micro-insert for the treatment of posterior uveitis. The insertuveitis is the same design as the insert being developed by Alimera for the treatment of DME and delivers the high and low dose of FAc used in the FAME Study. We did not license Alimera the rights to use the insert for uveitis. If successful, we plan to advance this product candidate into pivotal multi-center Phase III trials and reference the NDA for ILUVIEN for DME (including the clinical data from the FAME Study and the manufacturing and stability data) in potential posterior uveitis regulatory filings. We also plan to use a new inserter, with a smaller gauge needle than that used in the FAME Study, in any future posterior uveitis Phase III trials.ongoing.

Under our recently amended collaborative researchWe are also developing a bioerodible, injectable micro-insert delivering latanoprost (the Latanoprost Product) to treat glaucoma and license agreementocular hypertension. An investigator-sponsored Phase I/II dose-escalation study is ongoing to assess the safety and efficacy of this micro-insert in patients with elevated intraocular pressure (IOP). We have granted Pfizer, Inc. (Pfizer), we granted Pfizer an exclusive option under various circumstances to license the worldwide development and commercialization worldwide of an injectable, bioerodible sustained release insert delivering latanoprost (Latanoprost Product)the Latanoprost Product for the treatment of human ophthalmic disease or conditions other than uveitis. An investigator-sponsored Phase I/II dose-escalation study has been initiated to assess

We are investigating the safety and efficacyuse of this insert, which utilizes a fourth generation of our Durasert technology in patients with elevated IOP.

In August 2011, we entered into an evaluation agreement with Hospital for Special Surgery (HSS) to investigate our Durasert drug delivery technologies in orthopedics.the treatment of orthopedic diseases.

ApprovedBioSilicon.The second key technology platform we are targeting is BioSilicon, which uses fully-erodible, nanostructured, porous material for sustained drug delivery. Our primary focus is on Tethadur™, an application of BioSilicon technology designed to provide sustained delivery of large biologic molecules, including proteins, antibodies and peptides. The sizes of the pores in the BioSilicon material are manufactured using nanotechnology to accommodate specific protein, peptide or antibody molecules that are then released on a sustained basis over time as the material bioerodes. Our BioSilicon technology can also be designed to deliver smaller molecules. We are investigating the use of BioSilicon in our Latanoprost Product and the use of Tethadur in other ophthalmic applications.

FDA-Approved Products.Our two FDA-approved products utilize two earlier generations of our Durasert technology system second-generation Retisert^® for the treatment of posterior uveitis, and first-generation Vitrasert^® for the treatment of AIDS-related cytomegalovirus (CMV) retinitis. We have licensed both of these products and the technologies underlying them to Bausch & Lomb Incorporated (Bausch & Lomb).are surgically implanted. Second-generation Retisert delivers FAc to provide sustained release treatment of posterior uveitis for approximately two and a half years, and first-generation Vitrasert^® delivers ganciclovir to provide sustained release treatment of AIDS-related cytomegalovirus (CMV) retinitis for six to nine months. We licensed both of these products to Bausch & Lomb.

BioSilicon.BioSilicon, the second key technology system we are targeting for sustained drug delivery, utilizes fully-erodible, nanostructured, porous material. Our primary focus is on Tethadur™, which utilizes BioSilicon to deliver large biologic molecules, including peptides and proteins, on a sustained basis. Our BioSilicon technology is also designed to deliver smaller molecules.

Medidur™, Durasert™, Tethadur™, BioSilicon™, BrachySil™ and CODRUG™ are our trademarks. Retisert^® and Vitrasert^® are Bausch & Lomb’s trademarks. ILUVIEN^® and FAME™ are Alimera’s trademarks. This Annual Report also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners.

Market Overview

Drug Delivery Generally

The therapeutic value of a drug depends on its distribution throughout the body, reaction with the targeted site, reaction with other tissues and organs in the body and clearance from the body. In an ideal treatment, the appropriate amount of drug is delivered to the intended site at an adequate concentration and maintained there for

a sufficient period of time without causing adverse effect to other tissues and organs. Accordingly, the manner in which a drug is delivered can be as important to the ultimate therapeutic value of the treatment as the intrinsic properties of the drug itself.

Drugs are typically administered systemically by oral dosing or by injection, and are subsequently dispersed throughout the body via the circulatory system. In many cases, systemic administration does not deliver drugs to the intended site at an adequate concentration for a sufficient period of time or fails to achieve the maximum potential therapeutic benefit.

Because systemically delivered drugs disperse throughout the body, they often must be administered at high dosage levels in order to achieve sufficient concentrations at the intended site. Some areas of the body, such as the eyes, joints, brain and nervous system, have natural barriers that impede the movement of drugs to those areas, requiring the administration of even higher systemic doses. These high dosage levels can cause harmful side effects when the drug interacts with other tissues and organs.

Timely and repeated administration of drugs is often necessary to maintain therapeutic drug levels over an extended period of time. However, patients often fail to take drugs as prescribed or fail to attend follow-up visits and, as a result, they do not receive the potential therapeutic benefit. The risk of patient noncompliance increases if multiple drugs are required, if the dosing regimen is complicated or if the patient is elderly or cognitively impaired.

Due to the drawbacks of traditional systemic drug delivery, the development of methods to deliver drugs to patients in a more precise, controlled fashion over sustained periods of time has become a multi-billion dollar industry. Such methods include oral and injectable controlled-release products and skin patches. These methods seek to improve the consistency of the dosage over time and extend the duration of delivery. However, most of these methods still cannot provide constant, controlled dosage or deliver drugs for a sufficiently long duration. This reduces their effectiveness for diseases that are chronic or require precise dosing. In addition, most of these methods still deliver drugs systemically and, as a result, can still cause adverse side effects throughout the body.

Ophthalmic Drug Delivery

Delivery of drugs to treat back-of-the-eye diseases is a significant issue in ophthalmology. Due to the effectiveness of the blood/eye barrier, it is difficult for systemically administered drugs to reach the eye in sufficient quantities to have a beneficial effect without adverse side effects to other parts of the body. There is a need for drug delivery inside the eye in a manner that is safe, effective and practical for long-term use. While there are currently many approaches to delivering medications to the eye, most do not achieve sufficient and consistent concentrations within the eye for the appropriate period of time.

Injecting drugs in solution directly into the back of the eye can achieve effective, but often transient, drug levels in the eye, requiring repeated injections. Examples include Macugen^® (pegaptanib sodium) and Lucentis^® (ranibizumab, formerly RhuFab V2)(ranibizumab), both of which may beare injected into the eye as frequently as approximately every four to sixeight weeks. Apart from inconvenience and cost, repeated intravitreal injections carry risks, including intraocular infection, perforated sclera, vitreous hemorrhage and cataract formation.

Technologies and Products

Our primary technology systems are Durasert and BioSilicon.

Durasert Technology System

ILUVIEN, Retisert and Vitrasert, as well as our latanoprostglaucoma and posterior uveitis product candidates, use different generations of our proprietary Durasert technology system, which delivers specific quantities of drugs directly to a target site in the body at controlled rates for predetermined periods of time ranging from weeks to

years. The Durasert technology system is designed to provide the benefits of direct delivery of appropriate quantities of drug over an extended period, while addressing the drawbacks of systemic drug delivery, including adverse side effects characteristic of high dosing levels and reduced treatment benefits due to variations in drug levels at the target site. The Durasert technology system has three principal attributes designed to deliver these advantages:

The Durasert technology system usesconsists of a drug core with one or more surrounding polymer layers. The drugDrug release is controlled by the permeability of the polymer layers. By changing the designelements of the Durasert technology system,design, we can control both the rate and duration of release to meet different therapeutic needs. We believe that the Durasert technology system can be used to deliver a wide variety of different drugs.

OurThe portfolio of our Durasert products and product candidates being developed by us alone or in partnership with others includes:

TBD

Vitrasert treatsis approved in the U.S. and the EU for the treatment of CMV retinitis, a blinding eye disease that occurs in individuals with advanced AIDS. Vitrasert, which is surgically implanted through a 5-6 mm incision, provides sustained treatment for six to eight months through the intravitreal delivery of the anti-viral drug ganciclovir. Studies have shown that Vitrasert is one of the most effective approved treatments for CMV retinitis. Vitrasert has been sold since 1996, in the United States and abroad, first by Chiron Corporation and subsequently by Bausch & Lomb. Although CMV retinitis was relatively common in AIDS patients in the early 1990s, improvements in the treatment of AIDS/HIV

have since significantlydecreasedsignificantly decreased the incidence of the disease in more developed countries. Accordingly, sales of Vitrasert, have decreased significantly.and associated royalty income to us, are not material.

Other Durasert Product Candidates

Posterior Uveitis Product Candidate

We are pursuing the use of the same micro-insert used in ILUVIEN for the treatment of posterior uveitis, the same indication for which Retisert is approved. We did not license Alimera the right to use our technology, including this micro-insert, for development of a product to treat uveitis. In the U.S., posterior uveitis affects approximately 175,000 people and is responsible for approximately 30,000 cases of blindness, making it the third largest cause of blindness.

The FDA has cleared our IND for this indication, permitting us to move directly to two Phase III trials, with a primary endpoint of recurrence of uveitis within 12 months, without the necessity to first conduct Phase I or Phase II trials. We currently plan to enroll a total of approximately 300 patients and to utilize an inserter with a different design and a smaller gauge needle than the commercial inserter to be used by Alimera for ILUVIEN for DME in the EU. The FDA will permit us to reference much of the data, including clinical safety data, from the ILUVIEN NDA for DME. Because this micro-insert delivers the same drug as our approved Retisert product for posterior uveitis, we expect these trials will show efficacy. Further, as the same micro-insert was used in the ILUVIEN trials, we expect to observe a comparable side-effect profile in posterior uveitis patients as was seen in DME patients. As a result, we are optimistic that this micro-insert will be efficacious for posterior uveitis with a favorable risk/benefit profile and fewer side effects compared to Retisert.

An investigator-sponsored Phase I/II dose-ranging study of the safety and efficacy of this micro-insert for the treatment of posterior uveitis is ongoing. To date, three out of a projected six patients have been enrolled in this study.

Glaucoma Latanoprost Glaucoma Product Candidate.

In connection with our June 2011 amended Pfizer collaboration, we are developing a newan injectable, bioerodible drug delivery implantmicro-insert for the treatment of glaucoma and ocular hypertension. The Latanoprost Product is designed to provide long-term, sustained releasedelivery of latanoprost, currently the most commonly prescribed agent for the reduction of IOP in patients with ocular hypertension and glaucoma worldwide. This product candidate is based on a fourth generation of our Durasert technology system. The implantmicro-insert is designed to be injected under the conjunctiva into the sclera by an eye care professional in a minimally invasive, outpatient procedure. This product is subject to an option by Pfizer described below under “Strategic Collaborations—Pfizer”.

This Durasert implant is being evaluated in an investigator-sponsored Phase I/II dose-escalating study designed to assess the safety and efficacy of the implant in patients with elevated IOP. We are currently developing a prototype of this implant that contains BioSilicon to assist in the delivery of latanoprost. A pre-clinical study is ongoing to evaluate the new prototype design. If successful, we plan to advance the new prototype into a multi-center Phase II trial.

Posterior Uveitis Product Candidate

In September 2011, an investigator-sponsored IND opened for a Phase I/II study of the safety and efficacy of our injectable, sustained release insert delivering FAc for the treatment of posterior uveitis. The insert is the same design as the insert being developed by Alimera for the treatment of DME and delivers the high and low dose of FAc used in the FAME Study. We did not license Alimera the rights to use the insert for uveitis. If successful, we plan to advance this product candidate into pivotal multi-center Phase III trials and reference the NDA for ILUVIEN for DME (including the clinical data from the FAME Study and the manufacturing and stability data) in potential posterior uveitis regulatory filings. We also plan to use a new inserter, with a smaller gauge needle than that used in the FAME Study, in any future posterior uveitis Phase III trials.

BioSilicon Technology System

Our BioSilicon technology system utilizes a fully-erodible, “honeycomb” structure of nano-porous, elemental silicon to deliverprovide sustained delivery of therapeutics. Products utilizing this system areBioSilicon is biocompatible and biodegradable. Our primary focus is on Tethadur, which utilizesan application of BioSilicon technology designed to deliverprovide sustained delivery of large biologic molecules, including peptides and proteins,proteins. In this application, the sizes of the pores in the BioSilicon material are manufactured using nanotechnology to accommodate specific protein, peptide or antibody molecules, which are then released on a sustained basis.basis over time as the material bioerodes. Our BioSilicon technology can also be tailoreddesigned to deliver smaller molecules. Based on results of our preliminary studies, we are currently targeting the BioSilicon technology as a key second prong of our drug delivery technology platform.

Evaluation Agreements

We have evaluation agreements with various companies to evaluate our Durasert and BioSilicon technology systems for the treatment of various ophthalmic and other diseases. In addition, Hospital for Special Surgery is evaluating our Durasert technology for the treatment of orthopedic diseases.

Strategic Collaborations

We have entered into a number of collaboration/license agreements to develop and commercialize our product candidates and technologies. In all of our collaboration agreements, we retain the right to use and develop the underlying technologies outside of the scope of the exclusive licenses granted.

Alimera

Under a collaboration agreement with Alimera, as amended in March 2008 (the “Restated Alimera Agreement”),In February 2005, we granted Alimera an exclusive worldwide license to manufacture, develop, market and sell ILUVIEN for the treatment and prevention of eye diseases in humans other than uveitis. The Restated Alimera AgreementWe also providesgranted Alimera a worldwide non-exclusive license to manufacture, develop, market and sell certain additional Durasert-based products (1) to deliver a corticosteroid and no other active ingredient by a direct delivery method to the back of the eye or (2) to treat DME by delivering a compound throughby a direct delivery method through an incision no smaller than that required for a 25-gauge or larger needle, in each case solely for the treatment and prevention of eye diseases in humans other than uveitis. The non-exclusive license is

limited to those products that (i) are not an implant required to be surgically inserted through an incision of at least 2 mm in the scelera into the vitreous, are secured in the posterior of the eye, cannot be injected, and use a certain reservoir design, (ii) have a drug core within a polymer layer (with certain limitations regarding chemically bonded combinations of active agents), and (iii) are approved, or designed to be approved, to deliver a corticosteroid and no other active ingredient by a direct delivery method to the posterior portion of the eye, or to treat DME by delivering a compound by a direct delivery method through an incision required for a 25 gauge25-gauge or larger needle. With the exception of the licenses earlier granted to Bausch & Lomb, during the term of the collaboration agreement, we are not permitted to use, or grant a license to any third party to use, suchthe licensed technologies to make or sell any products that are or would be (but for delivering a corticosteroid in combination with another active ingredient) subject to the non-exclusive license granted to Alimera.

Under our originalthe collaboration agreement, entered into in February 2005, we and Alimera agreed to collaborate on the development of ILUVIEN for DME and to share the development expenses equally. In connection with thea March 2008 Restated Alimera Agreement,amendment of the collaboration agreement, we received consideration of $12.0 million in cash and a $15.0 million conditional note (paid in full in April 2010), and Alimera cancelled $5.7 million of accrued development cost liabilities, including relatedcosts, penalties and accrued interest that we owed Alimera as of March 14, 2008.at that date. In addition, Alimera gave us an interest-bearing $15.0 million conditional note, agreed to pay us a $25.0 million milestone payment upon the first product to be approved by the FDA approval of ILUVIEN for DMEunder the collaboration agreement and assumed all financial responsibility for the development of licensed products under the Restated Alimera Agreement (including reimbursement of approved development costs incurred by us in support of the ongoing clinical studies of ILUVIEN) and anticipated regulatory submissions. In exchange, we decreased our share in any futurenet profits, as defined, on sales of ILUVIEN by Alimera on a country-by-country

basis from 50% to 20%, subject to an offset of 20% of pre-profitability commercialization costs,net losses, as defined, previously incurred by Alimera. In the eventAlimera on a country-by-country basis. If Alimera sublicenses commercialization, we are entitled to receive 20% of royalties and 33% of non-royalty consideration received by Alimera, less certain permitted deductions. Alimera has indicated that it intends to commercialize ILUVIEN, if approved, through a direct sales force in the United States and to seek marketing collaboration partners for the commercialization of ILUVIEN outside of the United States.

Through March 31, 2010, we received total interest payments of approximately $2.5 million on the conditional note. In April 2010, following consummation of its initial public offering, Alimera paid the $15.0 million conditional note in full, together with an additional $225,000 of accrued and unpaid interest.

We derived revenues of $192,000 in the year ended June 30, 2011 (fiscal 2011), $22.3 million in the year ended June 30, 2010 (fiscal 2010) and $11.8 million in the year ended June 30, 2009 (fiscal 2009) under the Restated Alimera Agreement.

Either party may terminate the collaboration agreement for the other party’s uncured material breach.breach under various conditions and upon various bankruptcy events. We may terminate the Restated Alimera Agreementcollaboration agreement with respect to a particular product if Alimera notifies us that it is abandoning or has abandoned such product, in which case the agreement provides for specific, exclusive remedies.

Pfizer

In April 2007, we entered into an exclusive worldwide Collaborative Research and License Agreement (the “OriginalOriginal Pfizer Agreement”)Agreement) with Pfizer for the use of certain of our technologies in ophthalmic applications that were not licensed to others. Under this agreement, we engaged in a joint research program, and Pfizer had an exclusive license to market any products developed under the agreement.

In June 2011, we entered into an Amended and Restated Collaborative Research and License Agreement (the “RestatedRestated Pfizer Agreement”)Agreement) to focus solely on the development of a sustained release bioerodible implant designed to deliver latanoprost by subconjunctival injection. Under the Restated Pfizer Agreement, we granted Pfizer an exclusive option under various circumstances to a license to develop and commercialize worldwide the Latanoprost Product for human ophthalmic disease or conditions other than uveitis. We are eligible to receive future consideration of up to $166.5 million plus royalties, we regained all rights to our intellectual property in ophthalmic applications previously included in the Original Pfizer Agreement other than pursuant to the Restated Pfizer Agreement, and we have rights to develop and commercialize the Latanoprost Product if Pfizer does not exercise its option.

Under the Restated Pfizer Agreement, Pfizer paid us $2.3 million in cash as an upfront payment, and we agreed to use commercially reasonable efforts to develop the Latanoprost Product at our expense, and with technical assistance from Pfizer, for at least one year and thereafter, at our option, through completion of Phase II clinical trials, as defined. An investigator-sponsored Phase I/II dose-escalation study has been initiatedis ongoing to assess the safety and efficacy of this insert. Upon completion of Phase II clinical trials, Pfizer has the option to acquire, upon payment of $20 million, an exclusive, worldwide license to develop and commercialize the Latanoprost Product for ophthalmic disease in humans other than uveitis. If Pfizer exercises its option, it must use commercially reasonable efforts at its expense to develop and commercialize the Latanoprost Product, and we are eligible to receive development, regulatory and commercial milestone payments that could total up to $146.5 million and double-digit royalties based on net sales of the Latanoprost Product. If Pfizer does not exercise this option, we will be ablehave the right to develop and commercialize the Latanoprost Product on our own or with a partner, with rights to Pfizer intellectual property necessary to develop and commercialize the Latanoprost Product. If we elect to cease development of the Latanoprost Product prior to completion of Phase II clinical trials, Pfizer also has an option to acquire, upon payment of a lesser option fee, an exclusive, worldwide license to develop and commercialize the Latanoprost Product for ophthalmic disease in humans other than uveitis at its expense. In this case, Pfizer must also use commercially reasonable efforts to develop and commercialize the Latanoprost Product, and we are eligible to receive lesser development, regulatory and commercial milestone payments and a lower royalty on net sales of the Latanoprost Product. If Pfizer does not exercise this option, we will be ablehave the right to develop and commercialize the Latanoprost Product on our own or with a partner, with rights to Pfizer intellectual property necessary to develop and commercialize the Latanaprost Product, following a one-year cessation of development activities.

Either Pfizer or we may terminate the Restated Pfizer Agreement for various reasons, including in the event of a material breach of this agreement that is not cured within the applicable cure period or if the other party enters into bankruptcy or similar proceedings. Pfizer may terminate this agreement at its sole discretion on 60 days’ notice. In the event Pfizer terminates in its discretion on 60 days’ notice or we terminate for Pfizer’s material breach, we have the right to develop and commercialize the Latanoprost Product.

The Restated Pfizer Agreement replaces all of the rights and obligations under the Original Pfizer Agreement, except for confidentiality and indemnification provisions.

Pfizer owns approximately 9.0%8.0% of pSivida’s total shares outstanding as of August 31, 2011.2012.

Bausch & Lomb

Retisert was developed and commercialized under a 2003 amended licensing agreement with Bausch & Lomb, and Vitrasert was developed and commercialized under a 1992 agreement with Chiron Vision, which was subsequently acquired by Bausch & Lomb.

Bausch & Lomb has a worldwide exclusive license to make and sell Vitrasert and our first-generation products (as defined in the agreement, including the Retisert device) in return for royalties based on sales. We agreed with Bausch & Lomb not to develop, license or commercialize a product designed to receive regulatory approval to treat uveitis, but only for so long as Bausch & Lomb is actively commercializing a product the net sales of which bear the base royalty payable to us that is not subject to any royalty reduction or offset and Bausch & Lomb has not developed or commercialized a uveitis product that does not bear such royalties. Bausch & Lomb can terminate its agreement with us without penalty at any time upon 90 days’ written notice.

Intrinsiq

In January 2008, we granted an exclusive field-of-use license to Intrinsiq Materials Cayman Limited (Intrinsiq) for the development and commercialization of nutraceutical and food science applications of BioSilicon, under which we received aggregate license fee and minimum royalty payments of $1.7 million through June 2011. In February 2009, we entered into a 2-year supply agreement with Intrinsiq under which we

leased certain equipment to Intrinsiq for their use in manufacturing BioSilicon material for total payments of $122,000. In July 2011, we purchased BioSilicon-related capital equipment and intellectual property assets of Intrinsiq for $223,000, and assumed four Intrinsiq employees. In connection with this asset purchase agreement, Intrinsiq terminated its field-of-use license agreement.

Research and Development

Our primary activity is the developmentclinical and pre-clinical research programs primarily consist of products based onophthalmic applications of our technology systems. Our research and development expenses were $7.0 million in the year ended June 30, 2012 (fiscal 2012), $6.9 million in fiscalthe year ended June 30, 2011 (fiscal 2011) and $7.0 million in fiscalthe year ended June 30, 2010 and $8.0(fiscal 2010). Of these amounts, $4.2 million in fiscal 2009. Of these amounts,2012, $3.2 million in fiscal 2011 and $3.4 million in fiscal 2010 and $4.4 million in fiscal 2009 were incurred for costs of research and development personnel, clinical trials,and pre-clinical studies, contract services, testing and laboratory facilities. Fiscal 2011 costs were reduced by a one-time IRS grant award of $208,000. All such costs were charged to operations as incurred. The remaining expense of $2.8 million in fiscal 2012, $3.7 million in fiscal 2011 and $3.6 million in each of fiscal 2010 and fiscal 2009 consisted of non-cash charges for amortization of intangible assets, depreciation of property, plant and equipment and stock-based compensation expense specifically allocated to research and development personnel. In addition, during fiscal 2012 we recorded a $14.8 million intangible asset impairment write-down, which is classified as a separate category of operating expenses in the accompanying consolidated statement of operations.

Intellectual propertyProperty

Our intellectual property rights are crucial to our business. We hold or are licensed patents relating to our core technology systems in the United States and international markets. The following table provides general

details relating to our owned and licensed patents (including both patents that have been issued and applications that have been accepted for issuance) and patent applications as of August 31, 2011:2012:

Employees

We had 2629 employees as of August 31, 2011.2012. None of our employees is covered by a collective bargaining agreement.

Sales and Marketing

We have no marketing or sales staff. We depend on collaborative partners to market our products. Significant additional expenditures would be required for us to develop an independent sales and marketing organization.

Reimbursement

The successful commercialization of our current products depends, and of any future products will depend, in significant part on the extent to which reimbursement of the cost of the products and the related administration procedures will be available from government health administration authorities, private health insurers and other organizations. Medicaid and Medicare, most major health maintenance organizations and most health insurance carriers reimburse $4,240 for the cost of the Vitrasert implant, with associated surgical fees reimbursed separately. The Centers for Medicare and Medicaid Services designated Retisert as eligible for Medicare reimbursement at the rate of $19,345, with associated surgical fees reimbursed separately. Alimera reported that it is pursuing pricing and reimbursement discussions in certain EU countries for which marketing authorization of ILUVIEN has been received.

Competition

We are engaged in healthcare product development, an industry thatThe market for products treating back-of-the-eye diseases is highly competitive and is characterized by extensive research efforts and rapid technological progress. We believe that pharmaceutical,face substantial competition for our products and product candidates. Pharmaceutical, drug delivery and biotechnology companies, as well as research organizations, governmental entities, universities, hospitals, other nonprofit organizations and individual scientists, have developed and are seeking to develop drugs, therapies and novel delivery methods to treat our targeted diseases. We have, or expect to face, significant competition for all of our products and product candidates. Most of our competitors and potential competitors are larger, more wellbetter established and more experienced and have substantially more resources than us or Alimera.

Many companies are pursuing Competitors may reach the market earlier than us or Alimera, may have obtained or could obtain patent protection that dominates or adversely affects our products to treat back-of-the-eye diseases. These include the following:

QLT Inc. is developing a punctal plug latanoprost implant for sustained release for more than one month. This product recently completed a Phase II clinical trial.

Other companies, including Glaxo SmithKline (GSK), MacuSight, Inc., Thrombogenics NV and Novagali Pharma S.A., are developing drug therapies or sustained delivery platforms for the treatment of ocular disease.

competitive advantages. We believe that competition for treatments of back-of-the-eye diseases is based upon the effectiveness of the treatment, potential side effects, time to market, reimbursement and price.price, reliability, availability, patent position, and other factors.

Many companies have or are pursuing products to treat back-of-the-eye diseases, which are or would be competitive with our products and product candidates. Some of these include the following:

Many other companies, including Glaxo SmithKline plc, Thrombogenics NV and Novagali Pharma S.A., are seeking to develop drug therapies or sustained delivery platforms for the treatment of ocular disease.

Revenues

We operate in one segment. The following table summarizes our revenues by type and by geographical location. Revenue is allocated geographically by the location of the subsidiary that earns the revenue. For more detailed information regarding our operations, see our Consolidated Financial Statements commencing on page F-1.

Government Regulation

The FDA and comparable regulatory agencies in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical and radiological products. These agencies regulate, among other things, the research, development, testing, manufacture, quality control, labeling, storage, record-keeping, approval, distribution, advertising and promotion of our drug delivery products. The process required by the FDA under the new drug provisions of the Federal Food, Drug, and Cosmetic Act before our products may be marketed in the United States generally involves the following:

The testing and approval process requires substantial time, effort and financial resources, and wevaries substantially based upon the type, complexity and novelty of the product. We cannot be certain that any approval will be granted on a timely basis, if at all.

Pre-clinical tests include laboratory evaluation of the product, its chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of the product. The results of the pre-clinical tests, together with manufacturing information, analytical data and protocols for proposed human clinical trials, are submitted to the FDA as part of an IND, which must become effective before the IND sponsor may begin human clinical trials. The IND automatically becomes effective 30 days after receipt by the FDA unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the proposed clinical trials as outlined in the IND, and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. There is no certainty that pre-clinical trials will result in the submission of an IND, or that submission of an IND will result in FDA authorization to commence clinical trials.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and any efficacy criteria to be evaluated.

Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent institutional review board (IRB) at the institution where the study will be conducted. The IRB will consider, among other things, ethical factors, safety of human subjects and possible liability of the institution. Some clinical trials, called “investigator-sponsored” clinical trials, are conducted by third-party investigators.investigators responsible for the regulatory obligations associated with sponsorship of a clinical trial. The results of these trials may be used as supporting data by a company in its application for FDA approval, provided that the company has contractual rights to use the results.

Human clinical trials are typically conducted in three sequential phases which may overlap:

In the case of products for life-threatening diseases such as cancer, or severe conditions such as blinding eye disease, or for products that require invasive delivery, the initial human testing is often conducted in patients with the disease rather than in healthy volunteers. Since these patients already have the targeted disease or condition, these studies may provide initial evidence of efficacy traditionally obtained in Phase II trials, and so these trials are frequently referred to as Phase I/II or IIa trials.

We cannot be certain that we or our collaborative partners will successfully complete Phase I, Phase II or Phase III testing of our product candidates within any specific time period, if at all. Furthermore, we, our collaborative partners, the FDA, the IRB, foreign regulatory authorities or the sponsor, if any, may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

The Food and Drug Administration Amendments Act of 2007 (FDAAA) is designed to provide the public with more easily accessible information about the safety and efficacy of marketed drugs and the FDA with increased authority to ensure drug safety. The FDAAA requires that we register each controlled clinical trial, aside from a Phase I trial, on a website (www.ClinicalTrials.gov) administered by National Institutes of Health (NIH), including descriptive information (e.g., a summary in lay terms of the study design, type and desired outcome), recruitment information (e.g., target number of participants and whether healthy volunteers are accepted), location and contact information and administrative data (e.g., FDA identification numbers). Within one year of a trial’s completion, information about the trial, including characteristics of the patient sample, primary and secondary outcomes, trial results written in lay and technical terms and the full trial protocol must be submitted to the FDA. The information is then posted to the website, unless the drug has not yet been approved, in whichapproved. In that case the FDA posts the information is posted shortly after approval. An NDA supplement and certain other submissions to theproduct approval has been obtained. The FDA requirerequires certification of compliance with theall relevant FDAAA clinical trials reporting requirements.requirements during product development.

The results of product development, pre-clinical studies and clinical studies are submitted to the FDA as part of an NDA for approval of the marketing and commercial shipment of the product. The FDA may deny an NDA if the applicable regulatory criteria are not satisfied, or may require additional clinical data. Even if the additional data are submitted, the FDA ultimately may decide that the NDA does not satisfy the criteria for approval. As a condition of approval, the FDA may require post-marketing “Phase IV”a sponsor to conduct additional clinical trials to confirm that the drug is safe and effective for its intended uses. Once issued, the FDA may withdraw product approval for non-compliance with regulatory requirements or if safety or efficacy problems occur after the product reaches the market. The FDA may also require surveillance programs to monitor approved products which have been commercialized. The FDA also has the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs.

Satisfaction of FDA requirements or similar requirements of foreign regulatory agencies typically takes several years or more, and the actual time required may vary substantially based upon various factors, including the type, complexity and novelty of the pharmaceutical product. Such government regulationvaries substantially. Regulatory authorities may delay or prevent marketing of potential products for a considerable period of time or prevent it entirely, and may imposerequire costly procedures upon our activities.in order to obtain regulatory approval. The time and expense required to obtain FDA or foreign regulatory clearance or approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. Success in pre-clinical or early stage clinical trials does not assure success in later stage clinical trials. Data from pre-clinical and clinical activities ismay not alwaysbe conclusive, and may be susceptible to varying interpretations, which could delay or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be subject to significant limitations based on data from pre-clinical and clinical activities. Further, discoveryAfter initial FDA or foreign regulatory approval has been obtained, we or our collaborative partners could be required to conduct further studies to provide additional data on safety or efficacy or, should we desire, to gain approval for the use of previously unknowna product as a treatment for additional clinical indications. The FDA or foreign regulatory authorities may also require surveillance programs to monitor approved products which have been commercialized and may require changes in labeling. Once issued, the FDA or foreign regulatory authorities may withdraw product approval for non-compliance with regulatory requirements or if safety or efficacy problems occur or are demonstrated in connection with a product’s use may result in restrictions onsubsequent studies after the product or even complete withdrawal ofreaches the product from the market.

Any product manufactured or distributed under FDA or foreign regulatory approval is subject to pervasive and continuing regulation by the FDA, includingregulation. All manufacturers must comply with regulations related to requirements for record-keeping and reporting adverse experiences with the product. Drug manufacturersproduct, and their subcontractors are required to register with the FDA and state agencies. Drug manufacturers and their subcontractors aremay also subjectrequire surveillance programs to periodic unannounced inspections bymonitor approved products that have been commercialized. The FDA has the FDA and state agencies for compliance with good manufacturing practices, which impose procedural and documentation requirements upon us and our third-party manufacturers.

The passagepower to require changes in product labeling or to prevent further marketing of a product based on the FDAAA significantly enhanced the FDA’s authority to regulate drugs post-approval.results of these post-marketing programs. For certain drugs that the FDA determines pose risks that outweigh the benefits, FDA approval may be subject to the manufacturers’ continued adherence to a Risk Evaluation Mitigation Strategy (REMS). REMS, which are tailored to specifically address the risks of a given drug, may contain elements that restrict distribution of the drug to certain physicians, pharmacists and patients, or that require the use of communication tools such as letters to healthcare providers and patients detailing the risks associated with the drug. In additionForeign regulatory authorities also regulate post-approval activities.

Commercial drug manufacturers and their subcontractors are required to REMS, the FDAAA also providesregister with the FDA with increased authorityand state agencies. Drug manufacturers and their subcontractors are also subject to require the manufacturer to conduct post-approval clinical trials and to submit drug advertisements toperiodic unannounced inspections by the FDA and state agencies for review before dissemination.compliance with good manufacturing practices, which impose procedural and documentation requirements upon us and our third-party manufacturers.

We are also subject to numerous other federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

We and our collaborative partners are also subject to foreign regulatory requirements governing human clinical trials and marketing approval for pharmaceutical products sold in their countries. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely by country. Whether or not FDA approval is obtained, we or our collaborative partners must obtain approval of a product by the comparable regulatory authorities of foreign countries before manufacturing or marketing the product in those countries. The approval process varies from country to country, and the time required for these approvals may differ substantially from that required for FDA approval. There is no assurance that clinical trials conducted in one country will be accepted by other countries, or that approval in one country will result in approval in any other country. For clinical trials conducted outside the U.S., the clinical stages generally are comparable to the phases of clinical development established by the FDA.

The time and expense required to perform the clinical testing necessary to obtain FDA clearance or approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. Even after initial FDA or other foreign regulatory approval has been obtained, we or our collaborative partners could be required to conduct further studies to provide additional data on safety or efficacy or, should

we desire, to gain approval for the use of a product as a treatment for additional clinical indications. In addition, use of a product during testing and after marketing approval has been obtained could reveal side effects which, if serious, could limit uses, or in the most serious cases, result in a market withdrawal of the product or expose us to product liability claims.

Corporate Information

pSivida Corp. was organized as a Delaware corporation in March 2008. Its predecessor, pSivida Limited, was formed in December 2000 as an Australian company incorporated in Western Australia. On June 19, 2008, we reincorporated from Western Australia to the United States (the Reincorporation). Except as otherwise indicated, references in this Annual Report to “pSivida”, “the Company”, “we”, “us”, “our” or similar terms refer to pSivida Limited, a West Australia corporation, and its subsidiaries prior to June 19, 2008, and refer to pSivida Corp., a Delaware corporation, and its subsidiaries from such date. All share amounts and all information relating to options and warrants in this Annual Report have been retroactively adjusted to reflect the Reincorporation share exchange ratio, unless otherwise stated. Our principal executive office is located at 400 Pleasant Street, Watertown, Massachusetts 02472 and our telephone number is (617) 926-5000.

Additional Information

Our website address is http://www.psivida.com. Information contained on, or connected to, our website is not incorporated by reference into this Annual Report on Form 10-K. Copies of our annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge through our website under “SEC Filings” as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission (SEC).

ITEM 1A.

RISK FACTORS

RISKS RELATED TO OUR COMPANY AND OUR BUSINESS

We have a history of losses and expect to continue to incur losses for the foreseeable future.

With the exception of fiscal 2010, we have incurred operating losses since our inception in 2000, and our fiscal 2010 net income resulted from a one-time event. We do not currently have any assured sources of revenues. We do not know the timing and extent of any revenues we may receive from ILUVIEN for DME. Although ILUVIEN has been approved in five EU countries for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies, we do not know when Alimera will receive marketing authorization in two remaining EU countries or complete pricing and reimbursement discussions, whether those pricing and reimbursement discussions will be requiredsatisfactory, whether Alimera will be successful in directly commercializing ILUVIEN for DME, and if and when, and to seekwhat extent, we will earn revenues from the commercialization of ILUVIEN for DME in the EU. Unless and until Alimera receives FDA approval of ILUVIEN for DME, we will not be entitled to receive the $25.0 million milestone payment that would be due on such an approval, nor will we earn any revenues from sales of ILUVIEN for DME by Alimera in the U.S. We will receive funding under our Restated Pfizer Agreement only if Pfizer exercises its option with respect to the Latanoprost Product, which becomes exercisable only if we complete Phase II clinical trials, which have yet not been initiated, or if we cease development of the Latanoprost Product prior to completion of those trials. There is no assurance that Pfizer will exercise its option. Our royalty income from Bausch & Lomb is not expected to increase to a level sufficient to sustain our operations and may decline. Our ability to achieve profitability will depend upon Alimera’s ability to commercialize ILUVIEN for DME and our or any other licensees’ ability to achieve regulatory approval and sufficient revenues from commercialization of one or more of our product candidates.

We expect to need additional capital in orderresources to fund our operations, and our ability to obtain additional capitalthem is uncertain.

OurWe expect to continue to generate negative cash flows from operations unless and until ILUVIEN for DME achieves sufficient revenues from commercialization or one or more of our product candidates achieves regulatory approval and sufficient revenues from commercialization. During the past three fiscal years, we have financed our operations primarily from consideration received from our collaborative partners, including license fees, research and development funding and contingent note payments, and from the proceeds of offerings of our common stock and warrants. We currently have no committed funding from collaborative partners. We believe that our cash, cash equivalents and marketable securities totaled $24.1of $14.6 million at June 30, 2011. We believe we can fund2012 together with the $4.7 million net proceeds of an August 2012 offering of common stock and warrants and expected royalty income from Bausch & Lomb should enable us to maintain our current and planned operations as currently conducted into at leastthrough calendar year 2013. WhetherOur capital resources would be enhanced if Alimera successfully commercializes ILUVIEN for DME in the EU and if ILUVIEN for DME were approved and successfully commercialized in the U.S., although even so, the amount and timing of our receipt of any revenues from such activities is uncertain. Accordingly, we will require, or desire,expect to need additional resources to complete our planned Phase III trials for our posterior uveitis micro-insert and to fund our operations. Our need for additional capital resources will be influenced by manythe following factors, including, but not limited to:among others:

In particular,We may seek additional capital resources through possible new collaborative or licensing agreements and/or possible other agreements and transactions (which may include sales of assets or securities). Many factors relating to our future cash position depends significantly on approval of ILUVIEN bycompany, such as the FDA and foreign regulatory authorities2011 CRL and the initiation and successstatus of marketingFDA approval with respect to ILUVIEN for DME, the status of ILUVIEN. Alimera has agreed to pay us $25 million upon FDA approvalcommercialization of ILUVIEN for DME. In addition, we will be entitled to 20% of any future profits, as defined, on sales of ILUVIEN by Alimera, subject to an offset of 20% of defined pre-profitability commercialization costs incurred by Alimera. In the event Alimera sublicenses commercialization, we would receive 20% of royalties and 33% of non-royalty consideration received by Alimera, less certain permitted deductions. However, there is no assurance that the FDA or other regulatory authorities will approve ILUVIEN or that ILUVIEN will achieve market acceptance even if it is approved. If we determine that it is desirable or necessary to raise additional capitalDME in the future, we do not know if it will be available when needed or on terms favorable to us orEU, and the status of development of our stockholders. Theproduct candidates, as well as the state of the economy and the financial and credit markets, at the time we seek additional financing may make itour ability to secure additional capital resources more difficult and more expensive to obtain.obtain or result in less favorable terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and potential dilutive equity, and funding through collaboration, licensing or other agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products.products, additional equity financing may be dilutive to stockholders, and debt financing may involve restrictive covenants or other unfavorable terms and potential dilutive equity. If adequate financing is not available if and when needed, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs, postpone or cancel the pursuit of product candidates, including pre-clinical and clinical trials and new business opportunities, reduce staff and operating costs or otherwise significantly curtail our operations to reduce our cash requirements.

We have a history of lossesrequirements and may incur losses in the future.

We have incurred operating losses sinceextend our inception in 2000 except for fiscal 2010. For fiscal 2010, we recorded net income of $8.8 million, primarily due to the accelerated payment in full by Alimera of its $15.0 million conditional note. For fiscal 2011 and 2009, we incurred net losses of $8.6 million and $2.5 million, respectively. We expect to incur net losses for the foreseeable future unless ILUVIEN is approved and successfully commercialized. Even if ILUVIEN is approved and marketed, our profit share on sales of ILUVIEN, combined with any royalty income from our current products, and any other sources of revenue, may not be sufficient to result in profitability on an ongoing basis.capital.

If we are required to impair the recorded value of our intangible assets under GAAP is further impaired, our financial results could be adversely affected, which could adversely affect the price of our securities.

ImpairmentWe recorded significant amounts of intangible assets in connection with earlier acquisitions. We took impairment charges of $3.1 million with respect to the value of our Durasert intangible asset and $11.7 million with respect to the value of our BioSilicon intangible asset as of December 31, 2011. We have $4.2 million of intangible assets on our balance sheet as of June 30, 2012, of which $2.9 million relates to our Durasert technology and $1.3 million relates to our BioSilicon technology. We will continue to conduct impairment analyses of our intangible assets as required, and we would be required to take additional impairment charges in the future if any recoverability assessments of those assets reflect fair market values which are less than our recorded values, and such charges could be significant. The carrying values of our Durasert and BioSilicon technology systems could be impaired if there is a future triggering event, including, without limitation, adverse events with respect to the timing and status of clinical development, regulatory approval and success of commercialization of products using those technologies, and significant changes in our market capitalization. Further impairment charges on our intangible assets could have a material adverse effect on our results of operations, which could, in turn, adversely affect the price of our securities. We recorded significant amounts of intangible assets in connection with earlier acquisitions. We took a $60.1 million impairment charge on goodwill as of June 30, 2008 (which reduced the carrying value of our goodwill to zero) and a $45.3 million impairment charge on the recorded value of our Durasert intangible asset as of June 30, 2007. We still had $21.6 million of intangible assets on our balance sheet as of June 30, 2011, of which $14.7 million related to our BioSilicon technology and $6.9 million related to our Durasert technology. We will continue to conduct impairment analyses of our intangible assets as required, and we may be required to take impairment charges in the future, which could be significant. If there is a significant change in the estimation of the projected undiscounted net cash flows for the products and product candidates utilizing the Durasert and BioSilicon technology systems, the carrying value of the respective assets could be impaired. We expect to have further information about whether we will advance the Latanoprost Product utilizing BioSilicon technology into more advanced clinical trials in late fiscal 2012, and if we do not do so, the BioSilicon intangible asset could become fully impaired.

Our results could be adversely affected by non-cash charges due to fluctuations in the fair values of certain of our outstanding warrants, which could adversely affect the price of our securities.

We previously issued warrants denominated in Australian dollars (A$). The fair values of these warrants have been recorded as derivative liabilities on our balance sheet. We are required to assess the fair value of these warrants at each balance sheet date, and changes in their fair values result in adjustments to our recorded derivative liabilities, and corresponding income or expense in our statements of operations. The fair values of these warrants are sensitive to changes in our share price, among other factors, and are measured using the Black-Scholes valuation model. Fluctuations in the fair values of these warrants will continue to affect our operating results until these warrants expire in July 2012.

Our operating results may fluctuate significantly from period to period.

Our operating results have fluctuated significantly from period to period in the past and may continue to do so in the future due to many factors, including:

Due to fluctuations in our operating results, quarterly comparisons of our financial results may not necessarily be meaningful, and investors should not rely upon such results as an indication of future performance.

In addition, investors may react adversely if our reported operating results are less favorable than in a prior period or are less favorable than those anticipated by investors in the financial community, which may result in a decreasefurther decreases in our stock price.

Our royalty income from Bausch & Lomb may continue to decline.

The annual trend of theOur royalties from Bausch & Lomb for Retisert (including the historical amounts previously retained by Bausch & Lomb) and Vitrasert has declined and may continue to do so.decline. There is no assurance that Bausch & Lomb will continue to market either or both of these products. We do not expect that our royalty paymentsincome from Bausch & Lomb for these products will ever become a material source of revenue for us.

RISKS RELATED TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND PRODUCT CANDIDATES

We doWithout FDA regulatory approval for ILUVIEN for DME, Alimera will be unable to commercialize the product in the U.S. and we will not knowreceive payments to which we would be entitled upon such approval and from successful commercialization, which could materially impair our financial prospects.

Alimera received a 2010 CRL from the FDA with respect to its NDA for ILUVIEN for DME, which included 24 month data from the FAME Study, and received the 2011 CRL in response to the resubmitted NDA, which responded to the 2010 CRL and included 36 month data. In the 2011 CRL, the FDA stated that it was unable to approve the NDA because it did not provide sufficient data to support that ILUVIEN is safe and effective in the treatment of patients with DME, that the risks of adverse reactions shown for ILUVIEN in the FAME Study were significant and were not offset by the benefits demonstrated by ILUVIEN in these clinical trials and that Alimera will need to conduct two additional clinical trials to demonstrate that the product is safe and effective for the proposed indication. Based on a recent meeting with the FDA, Alimera has indicated its intention to resubmit its NDA for ILUVIEN for DME to the FDA in early 2013 using data from the FAME Study and to focus on the population of patients with chronic DME considered insufficiently responsive to available therapies, the same indication for which regulatory approval has been granted in various EU countries. There is no assurance when or if Alimera will resubmit its application or that Alimera will be able to demonstrate to the FDA that the benefits outweigh the risks of ILUVIEN for DME using data from the FAME Study, that additional clinical trials will not be required, that the population of chronic DME patients will be acceptable to the FDA or other regulatory authoritiesthat Alimera will approve ILUVIEN for DME. If Alimera is unablebe able to obtain regulatory approval for and successfully commercialize ILUVIEN, or if Alimera experiences significant delays in doing so, our business will be materially harmed.

Alimera will not be able to market ILUVIEN for DME in the U.S. unlessAccordingly, ILUVIEN for DME may never be approved and until it receivesmarketed in the U.S., in which case we would not receive the milestone payment to which we would be entitled on FDA approval, and in foreign jurisdictions until it receives necessary regulatory approvals. Our ability to generate significantor any revenues from this product depends on the ability ofcommercialization, which would be materially adverse to our business. Further, we do not know whether Alimera will continue to obtain regulatoryseek to develop, or receive approval for and successfully commercialize ILUVIEN. In December 2010, Alimera received a CRL from the FDA in response to Alimera’s NDA filed on the basis of 24-month clinical readout data from the Fame Study, which communicated the FDA’s decision that the NDAor other regulatory agencies for, ILUVIEN for DME couldthe treatment of other eye conditions currently being studied under Alimera’s agreement with us.

We do not be approved in its then present form. In the CRL, the FDA asked for analysesknow if and when we will receive revenues from any commercialization of safety and efficacy of the clinical readout of data from the FAME Study through month 36 (“36 Month Data”), including certain exploratory analyses in addition to analyses previously submitted in the NDA, to further assess the relative benefits and risks of ILUVIEN. In the CRL, the FDA also requested additional information regarding controls and specifications concerning the manufacturing, packaging and sterilization of ILUVIEN and indicated that the FDA had observed deficiencies in cGMP during facility inspections of two of Alimera’s third-party manufacturers, which were completed in August and September of 2010, and that all facilities and controls will need to comply with cGMP.

Alimera resubmitted an NDA to the FDA on May 12, 2011 to respond to the CRL, including analyses of safety and efficacy data through month 36 of the FAME Study, and additional information regarding controls and specifications on the manufacturing, packaging and sterilization of ILUVIEN. The resubmission also included data from analyses of a subgroup of chronic DME patients in the FAME Study. The subgroup was not specified in the protocol for the FAME Study. Alimera reported that the FDA classified the response as a Class 2 resubmission, resulting in a six-month review period and a PDUFA date by which Alimera can reasonably expect a response from the FDA of November 12, 2011. Alimera also reported that the FDA has subsequently indicated it will not call an advisory committee during its review.

Alimera has reported that it believes the deficiencies in cGMP noted by the FDA in the CRL have been resolved and that no further action is required because the FDA issued letters to both of these third-party manufacturers indicating that the inspections were now closed. Alimera has indicated that the ILUVIEN injection system will not require a separate device application, but it must meet the safety and regulatory requirements of the applicable regulatory authorities when evaluated as part of the drug product marketing application.

In the NDA, Alimera included analyses of the 24 Month Data utilizing the full data set of all 956 patients randomized into Alimera’s FAME Study, with data imputation employed using LOCF for data missing because of patients who discontinued the trial or were unavailable for follow-up (the “Full Analysis Set”) as well as other data sets including one that excludes from the Full Analysis Set three patients who were enrolled but never treated, excludes data collected for patients subsequent to their use of treatments prohibited by Alimera’s FAME

Study protocol and imputes the last observation prior to the protocol violation forward to month 24 using the LOCF method (the “Modified ART Data Set”). Both Alimera and we believed that the FDA would consider the Full Analysis Set the most relevant population for determining the safety and efficacy of ILUVIEN based on the 24 Month Data. The primary efficacy endpoint at month 24 was met with statistical significance for both the low dose and the high dose of ILUVIEN in both trials using the Full Analysis Set. However, Alimera’s FAME Study protocol did not include the Full Analysis Set. The FAME Study protocol provides that the primary assessment of efficacy will be based on the Modified ART Data Set. Statistical significance was not achieved at month 24 for either the low dose or the high dose of ILUVIEN in one trial using the Modified ART Data Set. Although the CRL requested certain exploratory analyses with respect to the 36 Month Data, it did not specify what data set or sets Alimera should utilize to analyze the 36 Month Data. Based on Alimera’s communication with the FDA that the Full Analysis Set is the same as the FDA definition of Intent-to-Treat with Last Observation Carried Forward (“ITT with LOCF”), Alimera analyzed the 36 Month Data utilizing the Full Analysis Set and provided those analyses to the FDA in Alimera’s resubmission of the NDA for ILUVIEN. However, there is no assurance that the FDA will utilize the Full Analysis Set and not require the use of the Modified ART Data Set or another data set in determining whether ILUVIEN is safe and effective.

In order to obtain approval to market ILUVIEN for DME in the U.S., Alimera will need to demonstrate toEU and the FDA that ILUVIEN for DME is safe and efficacious and satisfy the FDA on eachextent of the issues raised in the CRL. those revenues.

There is no assurance that the 36 Month Data for the full patient population or for the subgroup with chronic DME or other responses provided by Alimeraif and its third-party manufacturerswhen, and to what extent, we will be sufficient to satisfy the FDA. The FDA may not grant marketing approval or it may request additional information from Alimera, including requesting data from additional clinical trials (which could include new clinical trials consisting solely of patients with chronic DME), and ultimately may not grant marketing approval for ILUVIEN. The FDA may limit the approval for ILUVIEN to a subgroup of DME patients such as those diagnosed with DME for three or more years.

We manufactured the clinical materials for Alimera’s FAME Study and PK Study and the Phase II clinical trials being conducted for the use of ILUVIEN for the treatment of dry AMD and wet AMD. Alimera plans to use a third-party contract manufacturer to manufacture ILUVIEN for DME for commercial sales. Alimera reports that it has discussed its approach to show equivalency of our manufacturing process to the commercial manufacturing process with the FDA, the MHRA and the German Bundeninstitut fur Arneimittel und Medizinprodukte and that the CRL and the assessment reports receivedreceive revenues from the European Health Authorities did not raise an issue with respect to the demonstrationcommercialization of equivalency between the manufacturing processes. However, there is no assurance that they will not raise such an issue.

In addition to approval in the U.S., Alimera will also require regulatory approvals to sell ILUVIEN for DME in other countries,the EU. To date, Alimera has received marketing authorization from Austria, France, Germany, Portugal and the U.K., but still must obtain separate national licenses in Italy and Spain, and there is no assurance that Alimera will receive those approvals. In July 2010, usinglicenses, what the Decentralized Procedure, Alimera submittedterms of the licenses will be and whether their issuances will be delayed beyond Alimera’s expectations, which could delay Alimera’s commercialization of

ILUVIEN for DME in Italy and Spain. There is no assurance as to what level of governmental pricing and reimbursement will be permitted, particularly in light of the ongoing budget crises faced by a Marketing Authorization Applicationnumber of countries in the EU. NICE, for example, has issued draft guidance that ILUVIEN tois not recommended for the MHRAtreatment of chronic DME in the U.K. Prices of drugs in the EU are regulated and are generally lower than those in the United Kingdom,States, which serves ascould affect the Reference Member State, and to regulatory authorities in Austria, France, Germany, Italy, Portugal and Spain. In November 2010, Alimera received a preliminary assessment reportamount of any revenues from the MHRA followed by additional comments from other health authorities in December 2010. In July 2011, Alimera submitted draft responses to the clinical and non-clinical and quality questions to the MHRA. The submission included the additional safety and efficacy data through the final readout at the endcommercialization of the FAME Study. Alimera reports that the MHRA will provide comments to Alimera’s draft response and that Alimera anticipates submitting the final response to the MHRA and other health authorities by December 31, 2011.

If Alimera is not successful in obtaining regulatory approval for and commercializing ILUVIEN for DME or is significantly delayed in doing so, our business will be materially harmed. Alimera’s abilitythe EU. Alimera has announced its intention to commercialize ILUVIEN will depend on, among other things, its ability to:

Regulatory agencies require carcinogenicity studiesmanage a successful commercial operation in animalsthe EU or that it will have sufficient capital to identify tumorigenic potentialdo so. Further, because we are entitled to net profit participation on sales of ILUVIEN if Alimera markets ILUVIEN directly and a percentage of royalties and non-royalty consideration if Alimera sublicenses the marketing of ILUVIEN, the amount and timing of any revenues we receive will be affected by the manner in orderwhich Alimera determines to assess the relevant riskmarket ILUVIEN in humans as a result of systemic exposure.other countries. Although Alimera has reported that based on month 18 readouts from its open-label Phase II human pharmacokinetic clinical trial (PK Study), which indicated that there was negligible systemic absorption of FAc in patients being treated with ILUVIEN, Alimera submitted a carcinogenicity waiver in its submissionsit intends to the FDA and European health authorities. Although the FDA did not specifically state in the CRL that the waiver has been granted, the CRL did not include any requirement to conduct a carcinogenicity study. The Preliminary Assessment Report issued by the MHRA stated that the lack of single-dose, carcinogenicity and reproductive and developmental toxicity studies with ILUVIEN is acceptable. Alimera reported that if it is required to perform carcinogenicity studies of ILUVIEN in animals, theseek marketing approval of ILUVIEN couldfor DME in additional EU countries, there is no assurance that Alimera will apply for or obtain any additional approvals. Further, we cannot project what the demand will be delayed by up to 36 months.for ILUVIEN for DME if marketed in the EU.

Both ILUVIEN utilizesand our micro-insert for posterior uveitis deliver FAc, a corticosteroid used in ILUVIEN that has demonstrated undesirable side effects in the eye, which may affect the approvability and the success of ILUVIEN, therefore, will be dependent upon achieving an acceptable risk/benefit profile.these micro-inserts for DME, posterior uveitis and other eye diseases.

Both ILUVIEN utilizesand our micro-insert for posterior uveitis of the same design deliver the non-proprietary corticosteroid FAc, a corticosteroid whose use in the eye has beenwhich is associated with undesirable side effects in the eye, such as cataract formation and increased incidence of elevated IOP,intraocular pressure, which may increase the risk of glaucoma. Upon reviewglaucoma and related surgery to manage those side effects. In the 2011 CRL, the FDA stated that the risks of Alimera’s NDAadverse reactions shown for ILUVIEN for DME in the low dose ofFAME Study were significant and were not offset by the benefits demonstrated by ILUVIEN for DME in those clinical trials. To date, Austria, France, Germany, Portugal and the U.K. have granted marketing authorization to ILUVIEN for the treatment of vision impairment associated with chronic DME as well asconsidered insufficiently responsive to available therapies, but there is no assurance that ILUVIEN for DME will receive marketing authorization from the analysisItalian and Spanish or any other regulators. These side effects may affect the approvability of ILUVIEN for the other eye conditions for which it is being studied, and even if approved, these side effects may adversely affect the successful marketing of ILUVIEN. Although our approved Retisert product for posterior uveitis and our product candidate for the same condition both deliver FAc, there is no assurance that our micro-insert of the 36 Month Data, includingsame design as ILUVIEN for the subgroup data, the FDA may conclude that Alimera’s FAME Study did nottreatment of posterior uveitis will be able to demonstrate that ILUVIEN has sufficient levelsit is safe and efficacious for the treatment of efficacy to outweigh the risks associated withposterior uveitis in light of its side-effect profile. Conversely, the FDA may conclude that ILUVIEN’s side-effect profile does not demonstrate an acceptable risk/benefit relationship in line with ILUVIEN’s demonstrated efficacy. In the event of such conclusions, Alimera may not receive regulatory approvalexpected side effects from the FDA or from similar regulatory agencies in other countries.FAc.

Even if Alimera receives regulatory approval for ILUVIEN, the FDA and other regulatory agencies may impose limitations on the indicated uses for which ILUVIEN may be marketed, may subsequently withdraw approval for ILUVIEN or may take other actions against ILUVIENThere is no assurance that would be adverse to our business.

Regulatory agencies generally approve products for particular indications. Alimera has indicated that it filed the subgroup dataPfizer will exercise its option with respect to patients diagnosedthe Latanoprost Product or that we will receive any further financial consideration under the Restated Pfizer Agreement.

In June 2011, we amended our Collaborative Research and License Agreement with DME for three or more years in supportPfizer to focus solely on the development of the pending NDA. ItLatanoprost Product. Development of this product through Phase II clinical trials is possibleat our own expense. Pfizer has an option for an exclusive, worldwide license to develop and commercialize the Latanoprost Product upon our completion of Phase II clinical trials or if we cease development of the Latanoprost Product prior to completion of those trials. There is no assurance that we will commence or complete the Phase II clinical trials for the Latanoprost Product, that if completed, the trials will be successful, that Pfizer will, in any event, exercise its option or that if exercised, that Pfizer will commence Phase III clinical trials or that the FDA would approve ILUVIEN only for this subgroup of patients, which may reduceLatanoprost Product will achieve successful Phase III trial results, regulatory approvals or commercial success. As a result, there is no assurance that we will receive any further licensing, milestone or royalty payments under the size of the potential market for ILUVIEN. The FDA or another regulatory authority may further limit the indications of use.

Additionally, product approvals, once granted, may be withdrawn if problems occur after initial marketing. If and when ILUVIEN does receive regulatory approval or clearance, the marketing, distribution and manufacture of ILUVIEN will be subject to regulation by the FDA in the United States and by similar entities in other countries. Alimera will need to comply with facility registration and product listing requirements of the FDA and similar entities in other countries, and will need to adhere to the FDA’s Quality System Regulations. Noncompliance with applicable FDA and similar entities’ requirements could result in warning letters, fines, injunctions, civil penalties, recall or seizure of ILUVIEN, total or partial suspension of production, refusal of regulatory agencies to grant approvals, withdrawal of approvals by regulatory agencies or criminal prosecution. Alimera also will need to maintain compliance with federal, state and foreign laws regarding sales incentives, referrals and other programs.Restated Pfizer Agreement.

If we or our licensees are unable to or do not complete clinical trials for our product candidates or do not receive the necessary regulatory approvals, we or our licensees will be unable to commercialize our product candidates.

Our current and future activities are and will be subject to stringent regulation by governmental authorities both in the United StatesU.S. and in any other countrycountries in which our products are marketed. Before we or our licensees can manufacture, market and sell any of our product candidates, approval from the FDA and/or foreign regulatory authorities is required.required to market in the applicable jurisdictions. Generally, in order to obtain these approvals, pre-clinical studies and clinical trials must demonstrate that each of thesea product candidatescandidate is safe for human use and effective for its targeted disease or condition.

Our product candidates, otherOther than ILUVIEN for DME, none of our product candidates has completed or is in pivotal clinical trials. An investigator-sponsored Phase I/II study of the Latanoprost Product is ongoing, but we have not commenced Phase II clinical trials; the FDA has cleared our IND to treat posterior uveitis with our injectable sustained-release micro-insert and we are in early stages of development.now permitted to move directly to two Phase III trials to treat patients with posterior uveitis, but we have not commenced pivotal trials; and we have no ongoing pre-clinical or clinical studies with respect to BioSilicon product candidates. Product development at all stages involves a high degree of risk, and only a small proportion of research and development programs result in anproduct candidates that advance to pivotal clinical trials or to approved product.products. There is no assurance that evaluation agreements we have with third parties will result in any product candidates or licenses, or that we or our licensees will commence or continue clinical trials for any of our product candidates. If clinical trials conducted by or for us or our licensees for any of our product candidates do not provide the necessary evidence of safety and efficacy, those product candidates could notcannot be manufactured and sold, and wouldwill not generate revenues. Initial andor subsequent clinical trials may not be initiated by or for us or our licensees for product candidates or may be delayed or fail due to many factors, including the following:

Results from pre-clinical testing and early clinical trials often do not accurately predict results of later clinical trials. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. Data from pre-clinical studies, early clinical trials and interim periods in multi-year trials are preliminary and may change, and final data from pivotal trials for such products may differ significantly. Adverse side effects may develop that delay, limit or prevent the regulatory approval of products, or cause such regulatory approvals to be limited or even rescinded. Additional trials necessary for approval may not be undertaken or may ultimately fail to establish the safety and efficacy of our product candidates.

The FDA or other relevant regulatory agencies may not approve our product candidates for manufacture and sale, and any approval by the FDA does not ensure approval by other regulatory agencies or vice versa (which

could require us to comply with numerous and varying regulatory requirements, possibly including additional clinical testing). Any product approvals we or our licensees achieve could also be withdrawn for failure to comply with regulatory standards or due to unforeseen problems after the products’ marketing approval. In either case, marketing efforts with respect to the affected product would have to cease. In addition, the FDA or other regulatory agencies may impose limitations on the indicated uses for which a product may be marketed.marketed, which may reduce the size of or otherwise limit the potential market for the product.

In addition to testing, regulatory agencies impose various requirements on manufacturers and sellers of products under their jurisdiction, such as packaging, labeling, manufacturing practices, record keeping and reporting. Regulatory agencies may also require post-marketing testing and surveillance programs to monitor a product’s effects. Furthermore, changes in existing regulations or the adoption of new regulations could prevent us from obtaining, or affect the timing of, future regulatory approvals.

We have a limited ability to develop and market products ourselves. If we are unable to find marketingdevelopment or commercializationmarketing partners, or our marketingdevelopment or commercializationmarketing partners do not successfully develop or market our products, we may be unable to effectively develop and market products on our own.

We have limited product development capability and no marketing or sales staff. Developing products and achieving market acceptance for them can require extensive and substantial efforts by experienced personnel as well as expenditure of significant funds. We may not be able to establish sufficient capabilities necessary to develop products and achieve market penetration ourselves.

Our business strategy includes entering into collaborative and licensing arrangements for the development and commercialization of our product candidates, and we currently have collaboration and licensing arrangements with Alimera, Pfizer and Bausch & Lomb. The curtailment or termination of any of these arrangements could adversely affect our business, our ability to develop and commercialize our products, product candidates and proposed products and our ability to fund operations.

The success of these and future collaborative and licensing arrangements will depend heavily on the experience, resources, efforts and activities of our licensees. Our licensees have, and are expected to have, significant discretion in making decisions related to the development of product candidates and the

commercialization of products under these collaboration agreements. Risks that we face in connection with our collaboration and licensing strategy include the following:

To the extent that we choose not to, or we are unable to, enter into future license agreements with marketing and sales partners and, alternatively, seek to market and sell products ourselves, we would experience increased

capital requirements to develop the ability to manufacture, market and sell future products. We may not be able to manufacture, market or sell our products or future products independently in the absence of such agreements.

Our current licensees may terminate their agreements with us at any time, and if they do, we will lose the financial benefits of those agreements and may not be able to develop and sell products currently licensed to them.

Our licensees have rights of termination under our agreements with them. Exercise of termination rights by one or more of our licensees may leave us without the financial benefits and development, marketing or sales resources provided under the terminated agreement, which may have an adverse effect on our business, financial condition and results of operations. Additionally, our interests may not continue to coincide with those of our partners, and our partners may develop, independently or with third parties, products or technologies that could compete with our products. Further, disagreementswe may disagree with our partners over the rights orand obligations under those agreements, including ownership of technologies or other proprietary interests, may occur.

In June 2011, we amended and restated our Original Pfizer Agreement to focus solely on the developmentnoncompetition, payments or other issues, which could result in breach of the Latanoprost Product. agreements including related damages or injunctive relief or termination.

Pfizer may terminate the Restated Pfizer Agreement with respect to the Latanoprost Product without penalty at any time and for any reason upon 60 days’ written notice. We have exclusively licensed our technology underlying Vitrasert and Retisert to Bausch & Lomb, which can terminate its agreement with us without penalty at any time upon 90 days’ written notice. We have exclusively licensed the technology underlying ILUVIEN for DME and certain ophthalmic applications to Alimera. Alimera has financial responsibility for the development of ILUVIEN and any other licensed products developed under our collaboration agreement, along with sole responsibility for the commercialization of such licensed products. Alimera may abandon the development and commercialization of any licensed product at any time.

Any of Pfizer, Alimera or Bausch & Lomb may decide not to continue to develop, exercise options or commercialize any or all of the licensed products under their respective agreements, change strategic focus, or pursue alternative technologies instead of our technologies or develop competing products. While Pfizer and Bausch & Lomb have significant experience in the ophthalmic field and have substantial resources, there is no assurance whether, and to what extent, that experience and those resources will be devoted to our technologies. Alimera has limited

experience and if approved,limited financial resources, and ILUVIEN would be itsfor DME is Alimera’s first commercial product. Because we do not currently have sufficient funding or internal capabilities to develop and commercialize our products and product candidates, decisions, actions, breach or termination of these agreements by Pfizer, Bausch & Lomb or Alimera could delay or stop the development or commercialization of any of the products or product candidates licensed to such entities.

If products of our competitors and potential competitors develop products that receive regulatory approval before our product candidates are approved or reach the market prior to our product candidates,earlier, are more effective, or have fewer side effects, than our products or product candidates or are more effectively marketed or cost less, our products or product candidates may not be approved, may not achieve the sales we anticipate and could be rendered obsolete.