Gattex is a novel recombinant analog of human glucagon-like peptide 2 (GLP-2), a protein involved in the rehabilitation of the intestinal lining. SBS results from surgical resection, congenital defect or disease-associated loss of

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absorption in the bowel in which patients are subsequently unable to maintain fluid, electrolyte, and nutrient balances on a conventional diet. Despite an adaptation that occurs generally in the two years after resection, many SBS patients require parenteral support to supplement and stabilize their nutritional and hydration needs.

We launched Gattex in the U.S. in February 2013 and in certain ex-U.S. countries in late 2014. In December 2012, the FDA approved Gattex for the treatment of adult patients with SBS who are dependent on parenteral support. In August 2012, the European Commission approved Revestive® for the treatment of adult patients with SBS; patients should be stable following a period of intestinal adaptation after surgery.

Significant reductions in mean parenteral support volume from baseline to end of treatment were seen in the Phase 3 studies of Gattex. In addition, some patients were able to achieve independence from parenteral support during these trials. The most common side effects of Gattex include stomach area (abdomen) pain or swelling, skin reaction where the injection was given, nausea, headache, cold or flu like symptoms, vomiting, and holding too much fluid in the body (swelling of face, ankles, hands or feet).

SBS is a very rare and highly disabling condition that can impair a patient's quality of life and lead to serious life-threatening complications. SBS typically arises after extensive resection of the bowel due to Crohn's disease, ischemia or other conditions. SBS patients often suffer from malnutrition, severe diarrhea, dehydration, fatigue, osteopenia, and weight loss due to the reduced intestinal capacity to absorb nutrients, water and electrolytes. Before the approval of Gattex/Revestive, the only long-term treatment available for SBS was parenteral support to supplement and stabilize hydration and nutritional needs.

Parenteral support does not improve the body's own ability to absorb nutrients and it is associated with shortened life span, life-threatening complications including sepsis, blood clots or liver damage, and reduced quality-of-life due to the time required for, and consequences of, frequent access to an intravenous pump. A National Institute of Health (NIH) publication reported that the annual mean costs of lifelong, complex home healthcare associated with PN/IV support ranged from $185,000 to $568,000, not including the indirect costs associated with disability and/or the dollar value that could be ascribed to the challenging daily living for these patients (Piamjariyakul 2010).

Gattex/Revestive is the first long-term therapy approved for adult SBS patients. Currently two products - somatropin (rDNA origin) for injection (human growth hormone) and L-glutamine powder for oral solution - are approved for the treatment of SBS for up to four and 16 weeks, respectively. The goal of treatment with Gattex/Revestive is to enhance absorption by increasing villus height and crypt depth of the intestinal mucosa and to reduce or eliminate dependence on parenteral support.

We believe the SBS market is attractive because of the lack of effective long-term drug therapies in this rare indication, the high cost of parenteral support, the serious complications and morbidities associated with parenteral support, and the clinical benefits and improvements that we believe patients will experience with Gattex/Revestive therapy.

Gattex/Revestive is the first and only analog of GLP-2 proven to increase intestinal absorption and decrease or eliminate the need for parenteral support.

Our clinical development program for Gattex/Revestive is the largest and most comprehensive conducted in adult SBS patients to date, consisting of 15 clinical studies. Across all clinical studies, 566 subjects were exposed to at least one dose of Gattex, of whom 134 had SBS and were treated with 0.05 mg/kg/day Gattex/Revestive. The U.S. and EU approvals of Gattex/Revestive were based on an international, 24-week, double-blind, placebo-controlled, pivotal Phase 3 trial, known as STEPS. The primary endpoint of STEPS was defined as a 20 percent or greater reduction in parenteral support volume demonstrated at week 20 and sustained at week 24. The study's other endpoints included reductions in parenteral support volume and additional days off therapy. Key findings from the STEPS trial include:

• In an intent-to-treat analysis at weeks 20 and 24, 63 percent of patients treated with Gattex/Revestive achieved at least a 20 percent reduction in weekly parenteral support volume when compared to baseline, versus 30 percent of patients on placebo (p=0.002).

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• After 24 weeks of treatment, parenteral support volume declined by 32 percent (4.4 L/week) in Gattex/Revestive-treated patients, versus 21 percent (2.3 L/week) in the placebo group (p<0.001).
• After 24 weeks of treatment, 54 percent of Gattex/Revestive-treated patients were able to reduce the number of infusion days per week by one or more days, compared to 23 percent of those treated with placebo (p=0.005).

Ninety-seven percent (76/78) of subjects who completed STEPS elected to enroll in STEPS 2 (37 received Gattex; 39 received Placebo). An additional 12 subjects entered STEPS 2, who had been optimized and stabilized but not randomized in STEPS because of closed enrollment.

Thirty Gattex subjects completed a total duration of 30 months (STEPS followed by STEPS 2 treatment). Of these, 28 subjects (93%) achieved a 20% or greater reduction of parenteral support. Of responders in STEPS who had completed 2 additional years of continuous treatment with Gattex, 96% (21/22) sustained their response to Gattex. The mean reduction in PN/I.V. (n=30) was 7.55 L/week (a 65.6% reduction from baseline). Ten subjects were weaned off their PN/I.V. support while on Gattex treatment for 30 months. Subjects were maintained on Gattex even if no longer requiring PN/I.V. support. These 10 subjects had required PN/I.V. support for 1.2 to 15.5 years, and prior to Gattex had required between 3.5 L/week and 13.4 L/week of PN/I.V. support. At the end of study, 21 (70%), 18 (60%) and 18 (60%) of the 30 completers achieved a reduction of 1, 2, or 3 days per week in PN/I.V. support, respectively.

Of the 39 placebo subjects from STEPS entering STEPS 2, 29 completed 24 months of treatment with Gattex. The mean reduction in PN/I.V. was 3.11 L/week (an additional 28.3% reduction) from the start of STEPS 2. Sixteen (55.2%) of the 29 completers achieved a 20% or greater reduction of parenteral support. At the end of study, 14 (48.3%), 7 (24.1%) and 5 (17.2%) achieved a reduction of 1, 2, or 3 days per week in PN/I.V. support, respectively. Two subjects were weaned off their PN/I.V. support while on Gattex. Of the 12 subjects entering STEPS 2 directly, 6 completed 24 months of treatment with Gattex. Similar effects were seen. One of the six subjects was weaned off their PN/I.V. support while on Gattex.

The most common adverse reactions (≥10 percent) across all studies with Gattex/Revestive include stomach area (abdomen) pain or swelling, skin reaction where the injection was given, nausea, headache, cold or flu like symptoms, vomiting, and holding too much fluid in the body (swelling of face, ankles, hands or feet). In addition, vomiting and fluid overload were reported in the Phase 3 SBS studies at rates ≥ 10 percent. Gattex may cause serious side effects, including: making abnormal cells grow faster, polyps in the colon (large intestine), blockage of the bowel (intestines), welling (inflammation) or blockage of the gallbladder or pancreas, and fluid overload.

The FDA and European Commission have granted orphan drug status for Gattex and Revestive, respectively for the treatment of SBS.

We are also evaluating the safety and efficacy of Gattex/Revestive in pediatric SBS. We recently completed an open-label 4-cohort study that enrolled 42 pediatric SBS patients between the ages of 1 and 17. Non-randomized patients received Gattex/Revestive in 3 active cohorts. We also enrolled additional patients into an observational fourth cohort who received standard of care. The three doses of Gattex/Revestive were investigated for 12 weeks. The patients were screened prior to the start of treatment to establish baseline characteristics including safety, eligibility and nutritional support. The primary outcome is safety, based on the number of reported adverse events after 12 weeks of teduglutide. In addition we will look at the pharmacodynamics based on the changes in parenteral and enteral support requirements after 12 weeks of treatment. We are currently analyzing the data from the study.

Pediatric SBS is a complex and highly morbid condition with significant mortality rates. Patients suffer from repeated episodes of sepsis, dehydration, and metabolic derangements. Pediatric SBS is also associated with diarrhea or stomal output that can be traumatizing and socially debilitating. Researchers from the University of Michigan reported in a publication that in the U.S., over a five-year period the mean cost of care for a child with SBS is $1.6 million and over that same period pediatric SBS patients spend an average of 146 days in the hospital (Spencer et al. 2008). In December 2013, we initiated a global registration study of Gattex/Revestive in pediatric patients with SBS who are dependent on parenteral support.

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Natpara® (parathyroid hormone) for Injection

Natpara is our bioengineered replica of human parathyroid hormone that is approved as an adjunct to calcium and vitamin D to control hypocalcemia in patients with hypoparathyroidism, a rare endocrine disorder in which the body produces insufficient levels of PTH, a principal regulator of the body's mineral homeostasis.

Natpara is recommended only for patients who cannot be well-controlled on calcium supplements and active forms of vitamin D alone. Natpara was not studied in patients with hypoparathyroidism caused by calcium-sensing receptor mutations or in patients with acute post-surgical hypoparathyroidism.

Hypoparathyroidism is a rare endocrine disorder in which the parathyroid glands fail to produce sufficient amounts of parathyroid hormone (PTH) or where the hormone lacks biologic activity. PTH plays a central role in a variety of critical physiological functions in the body. Insufficient levels of PTH lead to low levels of calcium and high levels of phosphate in the blood, and an inability to convert native vitamin D into its active state, which helps the body properly absorb oral calcium. Parathyroid hormone increases serum calcium by increasing renal tubular calcium reabsorption, increasing intestinal calcium absorption (i.e., by converting native vitamin D (25 OH) into its active form (1,25 OH2 vitamin D)) and by increasing bone turnover which releases calcium into the circulation.

Acute symptoms of hypoparathyroidism are largely due to hypocalcemia and include fatigue, muscle spasms and cramps, tingling, tetany, seizures, brain fog/mental lethargy, anxiety, and depression. Prior to an approved parathyroid replacement therapy, treatment options were limited to calcium supplements and active vitamin D to increase calcium levels in the blood and reduce the severity of hypocalcemic symptoms. However, balancing the administration of supplements is challenging due to calcium fluctuations. In clinical trials, Natpara has been shown to reduce the amount of oral calcium and active vitamin D required to maintain serum calcium levels.

Epidemiological data on hypoparathyroidism are limited given its rarity and the variability in the severity of the symptoms associated with this disorder. The most common cause of hypoparathyroidism is injury to or removal of the parathyroid glands during neck surgery. The definition of permanent post-surgical hypoparathyroidism is generally accepted to be insufficient parathyroid hormone to maintain normal calcium levels six months after surgery. Hypoparathyroidism can also be associated with autoimmune or other disorders or it can be idiopathic in nature.

Hypoparathyroidism is one of the few endocrine deficiency syndromes in which hormonal therapy is not clinically available. Treatment of hypoparathyroidism is further complicated by the lack of national or international consensus management guidelines.

As is the case for most rare diseases, the burden of illness for hypoparathyroidism has not been well described or studied. Considering the need to better understand the burden of illness associated with this condition, we conducted an extensive quantitative study known as PARADOX in conjunction with the Hypoparathyroidism Association and the Mayo Clinic. This study is the largest ever conducted in this condition and included 374 patients with hypoparathyroidism. Key findings from PARADOX suggest that patients with hypoparathyroidism have a high burden of illness, as 99% continue to experience multiple symptoms despite the use of calcium and vitamin D supplements and other medications. On average, patients reported experiencing a collection of 16 of the 38 symptoms reported in the analysis. The most common physical symptoms reported included fatigue (82%), muscle pain or cramping (78%), paresthesia (76%), tetany (70%), and joint or bone pain (67%), and pain/heaviness/weakness in extremities (53%). Cognitive and emotional symptoms were also prevalent. Brain fog/mental lethargy (72%), inability to focus or concentrate (65%), and memory loss or forgetfulness (61%), and sleep disturbances (57%) were common, while anxiety (59%) and depression (53%) were also reported. The findings also showed that symptoms persist for an average of 13 hours over the course of a day. While patients indicated that they were managing their symptoms with calcium and vitamin D, they continued to develop comorbidities of hypoparathyroidism and suffer from acute episodes requiring emergency care and/or hospitalization. Sixty-nine percent of patients experienced comorbidities since diagnosis. Common comorbid conditions that were most frequently reported by patients in PARADOX included heart arrhythmias (66%) and kidney stones (36%). Bone fractures (16%) were also reported. Seventy-nine percent of patients reported hospital stays or emergency department visits, with the annualized rate for patients who classified their condition as severe exceeding those of patients with mild or moderate condition. Patients exceeded the national average for the general population for emergency department visits and hospital stays.

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Calcium supplementation is associated with several challenges, including renal function deterioration, renal stones, and soft tissue calcifications. In the long-term follow-up study of 120 patients with hypoparathyroidism (Mitchell et al. 2012) adverse renal effects were observed. The risk of renal complications in patients with hypoparathyroidism was also evaluated in a case study using the Danish National Patient Registry and a prescription database. Six hundred and eight-eight (688) patients were identified who manifested symptoms of hypocalcemia and inappropriately low PTH levels following neck surgery that required oral calcium and/or active vitamin D. Compared with age- and sex-matched controls, patients with hypoparathyroidism had an increased risk of renal complications (hazard ratio: 3.67, 95% CI, 2.41 to 5.59) (Underbjerg et al. 2013). Experts recommend close monitoring of patients being treated for hypoparathyroidism with large amounts of calcium and vitamin D preparations (De Sanctis et al. 2012; Shoback 2008).

The direct and indirect health care costs for persons with hypoparathyroidism are substantial. In a study conducted by the Mayo Clinic, the mean and median costs for persons with hypoparathyroidism were approximately three-fold those for unaffected persons of similar age/sex.

The PARADOX study and other epidemiological research show that hypoparathyroidism has a significant impact on patients in many ways: physical, emotional, quality of life, social life, and productivity. Despite the currently available medical management, symptoms persist and occur frequently, even daily and, when experienced on a moderate or severe level, can negatively affect the patients' life. In addition to associated symptoms, patients report comorbidities that are directly related to their hypoparathyroidism. These concurrent conditions necessitate further medical treatment. Given the chronicity of hypoparathyroidism patients are faced with a lengthy affliction with chronic and debilitating symptoms and complications.

To help illustrate the fundamental aspects of hypoparathyroidism, we initiated enrollment in a global natural history registry for patients with hypoparathyroidism. The objective of the study, known as PARADIGHM, is to characterize the natural history of chronic hypoparathyroidism, including its treatment, clinical outcomes, comorbidities and mortality as observed in a typical clinical setting. The ultimate goal for compiling the PARADIGHM registry is to assist healthcare practitioners in optimizing clinical decision making for patients with hypoparathyroidism. The registry is designed to help healthcare practitioners better understand the variability, progression and natural history of the disorder. Patients will be enrolled and followed for at least 10 years to characterize this rare, complex endocrine disorder under conditions of normal clinical practice.

Natpara is a bioengineered replica of human parathyroid hormone. Natpara is identical in structure to the 84-amino acid single-chain polypeptide human parathyroid hormone and mimics the action of natural parathyroid hormone.

In January 2015, the FDA approved our BLA for Natpara and Natpara is expected to be available in the second quarter of 2015.

The company's clinical development program for Natpara includes 12 pharmacology studies, five efficacy and safety studies in hypoparathyroidism, and a supporting development program consisting of seven studies in osteoporosis. The pivotal Phase 3 study known as REPLACE, was a randomized, double-blind, placebo controlled study of 134 patients with hypoparathyroidism.

In REPLACE, patients with established hypoparathyroidism receiving calcium and active forms of vitamin D (vitamin D metabolite or analogs) were randomized (2:1) to NATPARA (n=84) or placebo (n=40). The mean age was 47 years (range, 19 to 74 years), 79.0% were females and 96.0% were Caucasian, 0.8% were Black, and 1.6% were Asian. Patients had hypoparathyroidism for on average 15 years and hypoparathyroidism was caused by post-surgical complications in 71% of cases, idiopathic hypoparathyroidism in 25%, DiGeorge Syndrome in 3%, and auto-immune hypoparathyroidism in 1%. Patients with hypoparathyroidism due to calcium-sensing receptor mutations were excluded from the trial. The mean eGFR at baseline was 97.4 mL/min/1.73 m2 and 45%, 10% and 0% had mild, moderate and severe renal impairment, respectively, at baseline.

Before randomization, participants entered a 2-16 weeks run-in phase. In this phase calcium supplement and active vitamin D doses were adjusted to target an albumin-corrected serum calcium concentration between 8.0 and 9.0 mg/dL and 25-hydroxyvitamin D was replaced in patients with insufficient stores. At randomization, baseline serum calcium was 8.6 mg and participants were receiving a median (interquartile range) daily oral calcium dose of 2000 (1250, 3000) mg and a median daily oral active vitamin D dose equivalent to 0.75 mcg (0.5, 1) of calcitriol.

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At randomization, active forms of vitamin D were reduced by 50% and patients were randomized to NATPARA 50 mcg daily or placebo. Randomization was followed by a 12-week NATPARA titration phase and a 12-week NATPARA dose maintenance phase. During the titration phase NATPARA was increased by 25 mcg increments every four weeks up to a maximum of 100 mcg. Titration was indicated for patients who could not achieve independence from active vitamin D and who could not reduce oral calcium to 500 mg or less per day. At end of treatment, 56% of subjects randomized to NATPARA were receiving 100 mcg of NATPARA per day, 26% were receiving 75 mcg of NATPARA per day, and 18% were receiving 50 mcg of NATPARA per day. Doses of co-administered active forms of vitamin D and calcium were adjusted (reduced or increased) to maintain albumin-corrected serum calcium within a desired target range throughout the trial in both arms.

For the efficacy analysis, subjects that fulfilled three components of a three-part response criterion were considered responders. A responder was defined as an individual who had: at least a 50% reduction from baseline in the dose of active vitamin D, at least a 50% reduction from baseline in the dose of oral calcium supplementation and an albumin-corrected total serum calcium concentration between 7.5 mg/dL and 10.6 mg/dL.

At the end of treatment, significantly (p-value <0.001) more subjects treated with NATPARA [46/84 (54.8%)] compared to placebo [1/40 (2.5%)] met the response criterion. Forty-two percent (35/84) of subjects randomized to NATPARA were independent of active forms of vitamin D and were on no more than 500 mg of oral calcium, compared with 2.5% (1/40) of subjects randomized to placebo (p<0.001). There were no differences in the proportion of patients with a calcium level between 7.5 mg and 10.6 mg at end of treatment between subjects randomized to NATPARA and placebo.

The most common adverse reactions associated with NATPARA and occurring in greater than 10% of individuals were: paresthesia, hypocalcemia, headache, hypercalcemia, nausea, hypoaesthesia, diarrhea, vomiting, arthralgia, hypercalciuria and pain in extremity. Because of the potential risk of osteosarcoma, Natpara is recommended only for patients who cannot be well-controlled on calcium supplements and active forms of vitamin D alone. Natpara was not studied in patients with hypoparathyroidism caused by calcium-sensing receptor mutations or in patients with acute post-surgical hypoparathyroidism. Natpara may cause serious side effects, including: possible bone cancer (osteosarcoma), high blood calcium (hypercalcemia), low blood calcium (hypocalcemia).

We have completed an eight-week randomized, dose-blinded study, known as RELAY, which investigated the safety and efficacy of Natpara at fixed doses of 25 mcg and 50 mcg for the treatment of hypoparathyroidism. The primary endpoint of RELAY is to demonstrate oral calcium supplementation of 500 mg or less per day, a reduction in active vitamin D metabolite/analog therapy of 0.25 mcg or less per day, and serum calcium concentrations of between 7.5 mg/dL and the upper limit of normal. The results from RELAY showed that Natpara was well-tolerated and that a 25 mcg dose may be appropriate for a small subset of hypoparathyroidism patients.

We are advancing a long-term, open-label study, known as RACE, which is investigating the long-term safety and tolerability of Natpara.

The FDA and European Commission have granted orphan drug status for Natpara for the treatment of hypoparathyroidism.

Autosomal dominant hypocalcemia, or ADH, is a life-long genetic disorder related to the calcium-sensing receptor. It affects children and adults. Regardless of serum calcium or PTH levels, patients with ADH continuously excrete calcium through the renal system because their receptors are always sensing that serum calcium levels are too high. This results in hypocalcemia and hypercalciuria.

Symptoms of ADH can be severe and life-threatening and include tetany, convulsions, and renal impairment. There is no approved therapy for ADH and supportive approaches usually involve carefully adjusting calcium and active vitamin D. These efforts are not always effective and can worsen the condition by increasing calcium excretion and renal complications. For these reasons, physicians sometimes choose not to treat patients with ADH in order to avoid these complications.

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NPSP795 is a calcilytic agent, which is a small molecule antagonist of the calcium-sensing receptors on the parathyroid glands. Calcilytics work by triggering a release of the body's stores of PTH. Initially developed to stimulate parathyroid hormone secretion and bone formation for the treatment of osteoporosis and other bone metabolism disorders, calcilytics have been shown to increase serum calcium and decrease urinary calcium excretion in a Phase 2 study of patients with osteoporosis.

We believe NPSP795 could be a novel treatment for disorders involving increased calcium receptor activity like ADH. We are conducting a Phase 2a proof-of-concept dose-ranging study and expect this study to conclude in the first half of 2015.

We have agreements with Amgen, Janssen, GlaxoSmithKline and Kyowa Hakko Kirin. Generally, these agreements provide for payments to us for the achievement of specified milestones, and royalties on sales of products developed under the terms of the particular agreement. In return for these financial benefits, we grant the particular company a license to the technology that is the subject of the collaboration or to intellectual property that we own or control. Additional information about these arrangements is set forth in Note 2, Collaborative and License Agreements, in "Notes to Consolidated Financial Statements" in Part II of this annual report on Form 10-K, which information is incorporated into this item by reference.

Cinacalcet HCl is a small molecule compound used in treating hyperparathyroidism in patients with chronic kidney disease on dialysis and hypercalcemia in patients with parathyroid cancer. Hyperparathyroidism is a medical condition in which excessive amounts of parathyroid hormone circulate in the blood. It is typically characterized as being either primary or secondary hyperparathyroidism. Cinacalcet HCl is a calcimimetic compound that interacts with the calcium receptor on parathyroid cells and thereby decreases the production of parathyroid hormone in such cells.

In 1995, we licensed cinacalcet HCl to Kyowa Hakko Kirin Pharma, a wholly-owned subsidiary of Kyowa Hakko Kirin Holdings, on an exclusive basis for the drug's development and commercial sale in China, Japan, North and South Korea, and Taiwan. In 1996, we licensed worldwide rights (with the exception of the previously licensed Asian territories) to Amgen, Inc. on an exclusive basis to develop and commercialize cinacalcet HCl for the treatment of hyperparathyroidism.

Cinacalcet HCl is approved in the U.S. under the brand name Sensipar® and is indicated for (i) secondary hyperparathyroidism in adult patients with chronic kidney disease (CKD) on dialysis, (ii) hypercalcemia in adult patients with parathyroid carcinoma, and (iii) hypercalcemia in adult patients with primary HPT for whom parathyroidectomy would be indicated on the basis of serum calcium levels, but who are unable to undergo parathyroidectomy.

The European Medicines Agency has approved Cinacalcet HCl under the brand name Mimpara® for the treatment of secondary hyperparathyroidism in patients with end-stage renal disease on maintenance dialysis therapy. Mimpara is also indicated for the reduction of hypercalcemia in patients with (i) parathyroid carcinoma or (ii) primary hyperparathyroidism for whom parathyroidectomy would be indicated on the basis of serum calcium levels (as defined by relevant treatment guidelines), but in whom parathyroidectomy is not clinically appropriate or is contraindicated.

Cinacalcet is approved and commercialized by Kyowa Hakko Kirin as REGPARA® for the treatment of secondary hyperparathyroidism in Japan, Hong Kong, Malaysia, Macau, Singapore, and Taiwan.

Cinacalcet HCl for Secondary Hyperparathyroidism 

Parathyroid hormone is produced by the four parathyroid glands located in the neck. Serum levels of parathyroid hormone directly influence serum levels of calcium. The parathyroid glands regulate the amount of parathyroid hormone in the body by releasing more parathyroid hormone as the body needs additional calcium and less when there is excess serum calcium.

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Secondary hyperparathyroidism most commonly results from chronic renal disease, which can develop in hemodialysis patients. Chronic hypocalcemia and secondary hyperparathyroidism can also be products of pseudohypoparathyroidism, vitamin D deficiency, and intestinal malabsorption syndromes that are characterized by inadequate vitamin D and calcium absorption. Parathyroid hormone acts in the kidneys and bones to elevate levels of calcium in the blood.  Normal functioning healthy kidneys convert the parent vitamin D into the active form of vitamin D. Vitamin D helps in intestinal absorption of dietary calcium. Chronic kidney disease generally results in (i) reduced intestinal absorption of calcium due to reduced vitamin D levels, and (ii) reduced removal of phosphorus from the blood, elevating serum phosphate, which then combines with serum calcium to further reduce serum calcium levels. This in turn leads to the chronic overproduction of parathyroid hormone as the body tries to raise serum calcium levels. Symptoms of secondary hyperparathyroidism include excessive bone loss, bone pain and chronic, severe itching. Current treatments for secondary hyperparathyroidism, in addition to cinacalcet HCl, include phosphate binders and vitamin D supplements.

In October 2003, the National Kidney Foundation released Clinical Practice Guidelines for Bone Metabolism and Disease in Chronic Kidney Disease. These guidelines set goals for the four key measures involved in managing secondary hyperparathyroidism: the serum level of parathyroid hormone; the serum level of calcium; the serum level of phosphorus; and the product of the serum level of calcium multiplied by the serum level of phosphorus ("Ca x P"). Traditional therapies such as phosphate binders and vitamin D supplements lower parathyroid hormone levels only by increasing one or more of the other measures, particularly calcium and/or Ca x P levels. Thus, under traditional therapies, patients and their physicians have typically had to choose between elevated parathyroid hormone or elevated calcium and/or Ca x P levels. Elevated parathyroid hormone levels cause excessive bone loss, bone pain and chronic, severe itching, while elevated calcium and/or Ca x P levels can lead to calcification of the heart and blood vessels and increases the risk of kidney stones.

Cinacalcet HCl is the only FDA-approved medication that simultaneously lowers all four of the key measures. By directly suppressing production of parathyroid hormone, cinacalcet HCl also causes serum levels of calcium, phosphorus and Ca x P to decline, providing patients and their physicians an effective treatment to avoid elevated parathyroid hormone, calcium and Ca x P.

Generally, primary hyperparathyroidism is an age-related disorder that results from one or more non-cancerous tumor(s) causing the affected parathyroid gland(s) to become enlarged and overactive, secreting excessive levels of parathyroid hormone. As a result, serum calcium levels become high, bones may lose calcium, and kidneys may excrete too much calcium. Symptoms may include loss of bone density, muscle weakness, depression and cognitive dysfunction. Surgical removal of the affected parathyroid gland(s) from the neck region is presently the only effective treatment.

Cumulatively through December 31, 2014, Amgen has paid us $40.5 million, which consists of license fees, research support payments, milestone payments (including the milestone payment for the filing of an NDA) and equity purchases of our common stock. Amgen will pay us up to an additional $5.0 million if it achieves other development and regulatory milestones. In addition to these milestones, we earn royalties on Amgen's sales of cinacalcet HCl in its licensed territories. This agreement was amended in June 2012, whereby we exchanged our rights to receive royalties under the license agreement that are earned after December 31, 2018 in all countries except for Japan, China, North Korea, South Korea and Taiwan in return for a one- time non-refundable $25.0 million payment that we received in July 2012.

We have partially monetized our royalty revenue and future milestone payments from Amgen through the issuance of non-recourse debt that is both serviced and secured by our Sensipar and Mimpara royalty revenue and future milestone payments. In December 2004, we completed a private placement of $175.0 million in Secured 8.0% Notes due March 30, 2017, or Class A Notes, and in August 2007, we completed a private placement of $100.0 million in Secured 15.5% Class B Notes due 2017, or Class B Notes. The Class A Notes and Class B Notes were non-recourse to us and were secured by our royalty and milestone payment rights under our agreement with Amgen. The Class A Notes and the Class B Notes were paid in full on March 30, 2011 and September 30, 2011, respectively.

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In August 2011, we amended our agreement with Amgen that became effective after the retirement of the Class B Notes. Under the Amgen agreement, Amgen advanced $145.0 million of Sensipar and Mimpara royalties to us (which we refer to as the Sensipar Notes). The repayment of the royalty advance and discount shall be satisfied solely by Amgen's withholding of royalties and except in the event of default, we will have no obligation to repay any unsettled amount. We further amended the agreement with Amgen in June 2012, limiting the royalty offset of the royalty advance up to $8.0 million per quarter with royalties in excess of $8.0 million paid to us for the respective quarter, thereby extending the royalty advance repayment period. After the payment of the royalty advance and a 9% per annum discount on the balance of the advance, Amgen will resume paying us all royalties earned through December 31, 2018. We received net proceeds from the issuance of the Sensipar Notes of approximately $144.9 million, after deducting costs associated with the transaction. The Sensipar Notes accrue interest at an annual rate of 9%, compounded quarterly and payable forty-five days after the close of each quarter, which is satisfied solely by the withholding of royalties by Amgen. The outstanding principal balances on the Sensipar Notes, were $26.2 million and $54.4 million as of December 31, 2014 and 2013, respectively. Under our agreements for the Sensipar Notes, we would potentially be liable for our breaches or defaults, if any.

Payments from Kyowa Hakko Kirin for Cinacalcet HC1

Cumulatively through December 31, 2014, Kyowa Hakko Kirin has paid us $25.0 million in license fees, research and development support payments and milestone payments, which include a $2.0 million milestone payment we received in October 2007 after the approval of cinacalcet HCl in Japan. Under the terms of our agreement, Kyowa Hakko Kirin is required to pay royalties on any sales of cinacalcet HCl in its territories.

On February 26, 2010, we sold our royalty rights from sales of REGPARA^® (brand name for cinacalcet HCl in Japan) to an affiliate of DRI Capital, Inc. or DRI for $38.4 million. Royalties will revert to us once DRI receives cumulative royalties of $96 million or 2.5 times the amount paid to us. Under the agreement, DRI is entitled to receive royalty payments related to net sales of REGPARA occurring on or after July 1, 2009. In connection with this agreement, we granted DRI a security interest in our license agreement with Kyowa Hakko Kirin and certain of our patents related to REGPARA and other intellectual property underlying that agreement. As of December 31, 2014 and 2013, the outstanding principal balances on REGPARA-secured debt were $31.0 million and $35.2 million, respectively. In the event of a default by us under the agreement with DRI, DRI would be entitled to enforce its security interest against us and the property described above.

Takeda GmbH (Preotact^® (parathyroid hormone 1-84 [rDNA origin] injection)) and Teduglutide, ex-North America Development

On March 18, 2013, we entered into a Termination and Transition Agreement (the "Transition Agreement"), with Takeda GmbH ("Takeda GmbH"), and Takeda Pharma A/S ("Takeda Pharma" and, together with Takeda GmbH, "Takeda"). The Transition Agreement provides for the termination of the license agreement, dated as of July 2, 2007, as amended, which granted Takeda Pharma the exclusive license to sell, market and commercialize recombinant parathyroid hormone 1-84 [rDNA origin] ("PTH") worldwide, except for the U.S., Israel, and Japan, and a non-exclusive license to manufacture and develop PTH (the "PTH License Agreement"), and the license agreement, dated as of September 24, 2007, as amended, which granted Takeda GmbH the exclusive license to develop and commercialize teduglutide worldwide, except for North America and Israel (the "Revestive License Agreement," and together with the PTH License Agreement, the "License Agreements").

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Preotact is the brand name that Takeda Pharma had used to market PTH for the treatment of osteoporosis in certain of its licensed territories. Takeda GmbH developed and obtained approval in the EU in August 2012 for teduglutide under the trade name Revestive for the treatment of short bowel syndrome ("SBS") in adults who are stable following a period of intestinal adaptation after surgery. We obtained FDA approval in the U.S. in December 2012 for teduglutide under the trade name Gattex for adult patients with SBS who are dependent on parenteral support. We obtained FDA approval for PTH under the trade name Natpara in January 2015. We are not marketing PTH for the treatment of osteoporosis in any territory.

As a result of the termination of the License Agreements, we have the exclusive rights worldwide, excluding Israel, to develop and commercialize teduglutide and PTH. In addition, under the Transition Agreement we acquired certain assets related to the products covered by the License Agreements, including, but not limited to, all of Takeda's inventory, patents, and regulatory approvals related to such products. We were also assigned Takeda's rights and assumed Takeda's obligations under certain contracts related to such assets.

Pursuant to the Transition Agreement, we issued 6,067,961 shares of our common stock to Takeda in a private placement transaction, which approximated $50 million based upon the 30-day volume weighted average share price of our common stock as calculated pursuant to the Transition Agreement. We will be obligated to make an additional $30 million milestone payment to Takeda in the event world-wide net sales of the products covered by the License Agreements exceed $750 million in a single calendar year; provided that such milestone payment will become due upon a change in control of the Company. Such milestone payment may be made at our discretion in the form of either cash, shares of our common stock or a combination of both, subject to certain restrictions, including a limit on the maximum number of shares that may be offered under the Transition Agreement.

On December 20, 2013, we entered into an amendment and restatement (the "Amendment and Restatement") to our Agreement for the Sale and Assignment of Rights (the "2007 Agreement"), dated as of July 16, 2007, between NPS Allelix Corp., Drug Royalty L.P. 3 ("DRLP3"), an investment fund managed by DRI Capital Inc. ("DRI"), and NPS.

Under the 2007 Agreement, we sold to DRLP3 our rights to receive future royalty payments arising from the sale of recombinant human parathyroid hormone 1-84 [rDNA origin] ("PTH") under the PTH License Agreement.

Pursuant to the Amendment and Restatement, (i) DRLP3 has consented to the commercialization of PTH by NPS, (ii) the terms of the 2007 Agreement are tolled, and (iii) the parties' rights and obligations regarding PTH and related technology are governed by the Amendment and Restatement. We will be required to pay royalties in the mid-single digits to DRLP3 based upon sales of PTH by us and our licensees (if any) worldwide, excluding Israel. We have agreed to undertake certain efforts to commercialize PTH.

Our obligation to pay royalties to DRLP3 under the Amendment and Restatement shall expire on a country-by-country basis upon the later of (i) the last to expire patent controlled by us with claims covering PTH in such country or (ii) the expiration of any period of regulatory exclusivity applicable to PTH in such country. Our obligation to pay royalties to DRLP3 under the Amendment and Restatement shall terminate in its entirety once cumulative royalty payments made to DRLP3 by Takeda and us total $125 million. As of December 31, 2014, $45.5 million in royalties had been paid to DRLP3.

DRLP3 continues to maintain a security interest in NPS patents that contain claims covering PTH and certain other NPS intellectual property related to PTH. In the event of a default by us under the Amendment and Restatement, DRLP3 would be entitled to enforce its security interest against us and such intellectual property.

Ronacaleret (751689) is a calcilytic compound developed under a November 1993 collaborative research and worldwide exclusive license agreement with GlaxoSmithKline or GSK for the research, development and commercialization of calcium receptor active compounds for the treatment of osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism. Calcilytic compounds are small molecule antagonists of the calcium receptor that temporarily increase the secretion of the body's own parathyroid hormone, which may result in the formation of new bone. In animal studies, we demonstrated that intermittent increases in circulating levels of parathyroid hormone could be obtained using calcilytics. In these studies, increased levels of parathyroid hormone were achieved by this mechanism and were equivalent to those achieved by an injection of parathyroid hormone sufficient to cause bone growth.

In August 2011, we formed a new agreement with GSK that replaced the 1993 agreement and expanded the licensed field of research for ronacaleret, which was discovered under the 1993 agreement and studied as a treatment for osteoporosis in post-menopausal women. The new agreement allows GSK to pursue stem cell mobilization, in addition to osteoporosis and other bone disorders. GSK will be responsible for all development, manufacturing and commercialization of ronacaleret. We are entitled to development milestones and royalties on any future sales of ronacaleret. GSK will no longer have rights to other calcilytic compounds discovered or developed under the 1993 agreement. GSK has the right to terminate the license upon 30 days notice, on a country-by-country basis for countries for which GSK has reasonably determined that continued development or commercialization in such country is not justified.

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Janssen Pharmaceuticals, Inc.

In December 2006, we entered into an agreement with Janssen Pharmaceuticals, Inc. formerly known as Ortho-McNeil Pharmaceutical (Janssen) pertaining to certain of our patents. Under this agreement, Janssen is required to pay us royalties on any product sales of tapentadol hydrochloride and other related compounds in all countries in which we have patents whose claims cover such sales of such products. We also received an up-front licensing fee. Janssen pays us its royalty on a quarterly basis. We are responsible for patent prosecution and maintenance of the related patents. In November 2008, the FDA approved tapentadol immediate-release tablets for the relief of moderate to severe acute pain in adults 18 years of age or older. In August 2011, the FDA approved Nucynta ER (tapentadol extended-release) tablets for the management of moderate-to-severe chronic pain in adults. In August 2012, the label for Nucynta ER was amended to provide for the use of the product for the management of neuropathic pain associated with diabetic peripheral neuropathy in adults. Tapentadol is a centrally acting oral analgesic.

Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd.

In December 2008, we entered into an agreement with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd. (Roche), under which we granted Roche a non-exclusive license (with the right to grant sublicenses) to develop, make, import, use for sale or sell products covered by patents relating to the modulation of NMDA receptor activity using glycine uptake antagonists. In return, Roche paid us an upfront licensing fee of $2.0 million in 2008 and agreed to pay us for the achievement of certain regulatory milestones. Further, Roche agreed to pay a royalty on any future sales of licensed products on a quarterly basis.

In February 1993, we entered into a patent license agreement with The Brigham and Women's Hospital, an affiliate of Harvard University Medical School. The patent license agreement grants us an exclusive license to certain calcium receptor and inorganic ion receptor technology covered by patents we jointly own with the hospital. Under the patent license agreement, we are responsible for all costs relating to obtaining regulatory approval from the FDA or any other federal, state or local government agency and carrying out any clinical studies, relating to the technology. The Brigham and Women's Hospital is also entitled to a royalty on any sales of certain products under the patent license agreement, and we have committed to promote sales of any licensed products for hyperparathyroidism for which we receive regulatory approval. We are required to pay royalties on the sales of cinacalcet HC1 up to a cumulative maximum of $15.0 million. To date, $15.0 million has been accrued for related royalties payable on sales of cinacalcet HC1, of which $10.4 million has been paid. Annual payments due are limited to a maximum of $1.0 million. Brigham and Women's Hospital may terminate the patent license agreement if we breach the terms of the agreement and do not cure the breach within 60 days of receiving notice of the breach. Certain violations of terms of the patent agreement, if pursued by Brigham and Women's Hospital, might result in the exclusive, royalty-free license of the technology to Brigham and Women's Hospital or other adverse consequences.

We have a license agreement with Daniel J. Drucker, MD, and his Canadian corporation 1149336 Ontario Inc. The license agreement grants to us an exclusive worldwide license under Dr. Drucker's patent portfolio for glucagon-like peptide-2, or GLP-2, and its therapeutic uses. Under the license agreement, we have agreed to ensure that reasonable commercial efforts are used to develop and commercialize any product covered by the licensed patents. The agreement requires us to pay annual non-refundable license maintenance fees, royalties on sales and licensing fees, and milestone payments. During the period commencing upon our acquisition of Allelix Biopharmaceuticals Inc., the original licensee under this agreement, on December 23, 1999 through December 31, 2014, we have paid license maintenance fees, milestone payments and sublicense fees totaling $16.7 million under this license agreement. We are obligated to pay a royalty that represents a percentage in the single digits of our sales of Gattex and Revestive. The license agreement is perpetual but we may terminate the agreement at any time upon 60 days written notice. In addition, if we default on any of the material obligations under the agreement Dr. Drucker may terminate the license agreement and all rights granted under the agreement will revert to Dr. Drucker. In addition, if Dr. Drucker terminates the license agreement for our default, or if we terminate the license agreement for our convenience, we will be obligated to assign to Dr. Drucker all intellectual property relating to GLP-2 that is owned by us, and we will be prohibited from developing, making or selling a GLP-2 product for a period of 15 years.

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Government Regulation

Regulation by governmental authorities in the U.S. and other countries is a significant factor in the manufacture and marketing of pharmaceuticals and in our ongoing research and development activities. All of our product candidates will require regulatory approval by governmental agencies prior to commercialization. In particular, all of our drug candidates are subject to rigorous preclinical testing, clinical trials, and other pre-marketing approval requirements by the FDA and regulatory authorities in other countries. In the U.S., various federal, and in some cases state statutes and regulations also govern or affect the manufacturing, safety, labeling, storage, record keeping and marketing of such products. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. Regulatory approval, when and if obtained, will dictate the approved uses of the product for marketing purposes. Further, approved drugs, as well as their manufacturers, are subject to ongoing review and discovery of previously unknown problems with such products may result in restrictions on their manufacture, sale or use or in their withdrawal from the market.

The steps required by the FDA before our drug candidates may be marketed in the U.S. include, among other things:

• The performance of preclinical laboratory and animal tests and formulation studies;
• The submission to the FDA of an Investigational New Drug application, or IND, which must become effective before human clinical trials may commence;
• The completion of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug; and
• The submission and FDA approval of an application for marketing approval.

In addition to the above, the Food and Drug Administration Amendment Act (FDAAA) of 2007 requires new chemical entities to be evaluated by an FDA Advisory Committee, unless the FDA justifies differently in writing. The testing and approval process requires substantial time, effort and financial resources and we cannot be certain that any approvals for any of our proposed products will be granted on a timely basis, if at all.

Prior to commencing a clinical trial, we must submit an IND to the FDA. The IND becomes effective 30 days after receipt by the FDA, unless within the 30-day period, the FDA raises concerns or questions with respect to the conduct of the trial. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the study can begin. As a result, the submission of an IND may not necessarily result in FDA authorization to commence a clinical trial. Further, an independent institutional review board at the medical center or centers proposing to conduct the trial must review and approve the plan for any clinical trial before it commences.

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

• Phase 1: the drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.
• Phase 2: involves studies in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted diseases and to determine optimal dosage.
• Phase 3: when Phase 2 evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase 3 trials are undertaken to further evaluate dosage and clinical efficacy and to further test for safety in an expanded patient population at geographically dispersed clinical study sites.

We cannot be certain that we, or any of our collaborative partners, will successfully complete Phase 1, Phase 2 or Phase 3 testing of any compound within any specific period, if at all. Furthermore, the FDA or the study sponsor 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.

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The results of product development, preclinical studies and clinical trials are submitted to the FDA as part of a marketing authorization application (an NDA for new drugs or a BLA for new biologics). FDA approval of the NDA or BLA is required before marketing of the product may begin in the U.S. If the NDA or BLA contains all pertinent information and data, the FDA will "file" the application and begin review. The FDA may "refuse to file" the NDA or BLA if it does not contain all pertinent information and data or if in the wrong format. In that case, the applicant may resubmit the NDA or BLA when it contains the missing information and data in the correct format. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Following a 60-day review period after the submission of an application, priority drug products are intended to be reviewed within 6 months and non-priority drug products are intended to be reviewed within 10 months or for a total of 8 and 12 months, respectively. The review process, however, may be substantially extended by FDA requests for additional information, preclinical or clinical studies and or clarification regarding information already provided in the submission, submission of a risk evaluation and mitigation strategy or proposed labeling. The submission of data after the initial submission may automatically trigger an additional 90-days to the assigned action date. The FDA may refer an application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved.

The FDA may withhold approval if the applicable regulatory criteria are not satisfied or may require additional testing or data. Even if such data are submitted, the FDA may ultimately decide that the application data do not satisfy the risk-to-benefit criteria for approval. The FDA may also limit the indications for use and/or require post-marketing testing and surveillance to monitor the safety and or efficacy of a product. If approved, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor approved products even after they have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Satisfaction of the above FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years and the actual time required may vary substantially, based upon the type, complexity and novelty of a product or indication.

Government regulation may delay or prevent marketing of potential products for a considerable period and impose costly procedures upon our or our partner's activities. The FDA or any other regulatory agency may not grant any approvals on a timely basis, if at all. Success in early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages. Further, even if regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals may have a material adverse effect on our business. In addition, we cannot predict what adverse governmental regulations may arise from future U.S. or foreign governmental action.

Any products manufactured or distributed by us or our partners pursuant to health authority approvals are subject to pervasive and continuing regulation by that Health Authority, including record-keeping requirements and reporting of adverse experiences with the drug. In the U.S., drug manufacturers are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA for compliance with current Good Manufacturing Practice, or cGMP, regulations, which impose certain procedural and documentation requirements. We cannot be certain that we, or our present or future suppliers, will be able to comply with the cGMP regulations and other FDA regulatory requirements.

Failure to comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an institutional review board of a clinical hold on trials, the FDA's refusal to approve pending applications or supplements, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

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Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting a marketing authorization application. After the FDA grants orphan drug designation, the non- proprietary identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan drug market exclusivity from the time of approval. For example, the FDA may not approve any other applications to market the same drug for the same disease, except in very limited circumstances, for seven years. We intend to file for orphan drug designation for those diseases that meet the criteria for orphan exclusivity. Although obtaining FDA approval to market a product with orphan drug exclusivity can be advantageous, there can be no assurance that it would provide us with a material commercial advantage.

Steps similar to those in the U.S. must be undertaken in virtually every other country comprising the market for our product candidates before any such product can be commercialized in those countries. The approval procedure and the time required for approval vary from country to country and may involve additional testing. There can be no assurance that approvals will be granted on a timely basis, or at all. In addition, regulated approval of prices is required in most countries other than the U.S. There can be no assurance that the resulting prices would be sufficient to generate an acceptable return to us.

In March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively PPACA, was enacted, which includes measures that have or will significantly change the way health care is financed by both governmental and private insurers. Among the provisions of PPACA of greatest importance to the pharmaceutical industry are the following:

• The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer's outpatient drugs furnished to Medicaid patients. Effective in 2010, PPACA made several changes to the Medicaid Drug Rebate Program, including (i) increasing pharmaceutical manufacturers' rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs and biologic agents from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP; (ii) expanding Medicaid drug rebates to cover drugs provided through managed Medicaid plans; and (iii) changing the rebate rates for line extensions (i.e., new formulations, such as extended release formulations) or new formulations of solid oral dosage form drugs.
• PPACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization as of 2010 and by expanding the population potentially eligible for Medicaid drug benefits. In early 2012, the Centers for Medicare and Medicaid Services, or CMS, proposed to expand Medicaid rebate liability to the territories of the United States (Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa) as well. Though not yet finalized, CMS' proposed rule would extend Medicaid drug rebates to the territories and include applicable sales in AMP and best price calculations. In addition, PPACA provides for the public availability of retail survey prices and certain weighted average AMPs under the Medicaid program. The implementation of this requirement by the CMS may also provide for the public availability of pharmacy acquisition cost data, which could negatively impact our sales.

• In order for a pharmaceutical product to receive federal reimbursement under the Medicare Part B and Medicaid programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer. Effective in 2010, PPACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children's hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs when used for the orphan indication. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.

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• PPACA made some important changes to the Medicare drug benefit, including phasing out the Medicare coverage gap by 2020. Prior to PPACA, beneficiaries who reached a certain level of spending on prescription medications (the Medicare Part D coverage gap or "doughnut hole") had to pay 100% of the cost of their drugs until personal out-of-pocket spending reached a level qualifying them for catastrophic coverage. The Medicare Part D Coverage Gap Discount Program uses public and private funding to relieve the financial burden facing beneficiaries who fall into this coverage gap. Beginning in 2011, branded pharmaceutical companies paid 50% of the cost of the branded drugs in the gap and the government paid 7% of the cost of the generic drugs in the gap. As a result, rather than paying 100% of the total cost of their drugs when they reached the coverage gap, enrollees paid 50% of the total cost of branded drugs and 93% of the total cost of generic drugs. In addition, starting in 2013, the 50% discount from branded pharmaceutical companies was supplemented by a contribution from the government, which will also grow steadily over time until reaching 25% in 2020. That means that by 2020, enrollees will pay only 25% of the cost of their branded drugs in the gap.

• Effective in 2011, PPACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications.

• Starting in August 2013, PPACA required pharmaceutical and medical device manufacturers to record any transfers of value made to licensed physicians and teaching hospitals and to disclose such data to HHS on an annual basis. In addition to civil penalties for failure to report transfers of value to physicians or teaching hospitals, there will be criminal penalties if a manufacturer intentionally makes false statements or excludes information in such reports. The payment data across pharmaceutical and medical device companies is posted by HHS on a publicly available website. Increased access to such data by fraud and abuse investigators, industry critics and media will draw attention to our collaborations with reported entities and will importantly provide opportunities to underscore the critical nature of our collaborations for developing new medicines and exchanging scientific information. This national payment transparency effort, coupled with industry commitment to uphold voluntary codes of conduct and rigorous internal training and compliance efforts, will complement existing laws and regulations to help ensure ethical collaboration and truthful product communications.

• PPACA established the Patient Centered Outcomes Research Institute (PCORI), a federally funded, private, non-profit corporation empowered to fund and disseminate comparative effectiveness research and build infrastructure for improved outcomes analysis. PCORI has no authority to impose formulary changes directly in government-funded health programs. In 2013, PCORI announced that it will issue a new type of funding for pragmatic, head-to-head comparison studies, as well as plans to develop a national clinical research data network. Both developments are expected to increase the availability of medical evidence related to health care interventions. Overseeing and managing the PCORI is an advisory board drawn from multiple and varied stakeholder organizations, including the pharmaceutical industry. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

PPACA also created the Independent Payment Advisory Board (IPAB), a 15-member panel to be appointed by the President. The IPAB is charged with developing proposals to "reduce the per capita rate of growth in Medicare spending" in the event that the actual Medicare per capita growth rate exceeds a specified target. Due to slow growth in health care spending that did not exceed the target per capita growth rate, the IPAB will not be required to act until 2016, at the earliest. To date, the IPAB's members have not been named or appointed. If asked to act in 2016 or beyond, the IPAB could potentially limit access to certain treatments or mandate price controls for our products.

• PPACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.

Many of the details regarding the implementation of PPACA are yet to be determined, and at this time, it remains unclear the full effect that PPACA would have on our business.

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PPACA included the Biologics Price Competition and Innovation Act of 2009, or BPCIA. The BPCIA amended the Public Health Service Act, the law pursuant to which the FDA regulates biologics, to create an abbreviated approval pathway for two types of "generic" biologics-biosimilars and interchangeable biologic products, and provides for a twelve-year exclusivity period for the first approved biological product, or reference product, against which a biosimilar or interchangeable application is evaluated; however if pediatric studies are performed and accepted by the FDA, the twelve-year exclusivity period will be extended for an additional six months. A biosimilar product is defined as one that is highly similar to a reference product notwithstanding minor differences in clinically inactive components and for which there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity and potency of the product. An interchangeable product is a biosimilar product that may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product.

The biosimilar applicant must demonstrate that the product is biosimilar based on data from (1) analytical studies showing that the biosimilar product is highly similar to the reference product; (2) animal studies (including toxicity); and (3) one or more clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition, the applicant must show that the biosimilar and reference products have the same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure product safety, purity and potency.

An application for a biosimilar product may not be submitted until four years after the date on which the reference product was first approved. The first approved interchangeable biologic product will be granted an exclusivity period of up to one year after it is first commercially marketed, but the exclusivity period may be shortened under certain circumstances.

In February 2012, the FDA issued three draft guidance documents on biosimilar product development. The draft guidance documents are: "Scientific Considerations in Demonstrating Biosimilarity to a Reference Product," "Quality Considerations in Demonstrating Biosimilarity to a Reference Protein Product," and "Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009." The guidance documents provide FDA's current thinking on approaches to demonstrating that a proposed biological product is biosimilar to a reference product. The FDA received public comments on the draft documents and intends to issue final guidance documents in the future. Nevertheless, the absence of a final guidance document does not prevent a sponsor for seeking licensure of a biosimilar under the BPCIA.

In February 2013, we launched and initiated commercial sales of Gattex, the first NPS product to be commercialized and sold directly by NPS. In the past, we entered into agreements with third parties who have been responsible for commercialization of our products. As an organization that sells and markets its products directly, we are now subject to additional sales and marketing regulation and will be subject to similar regulations as we expand internationally into new markets.

The FDA regulates all advertising and promotion activities for products under its jurisdiction, including Gattex and Natpara. Broadly speaking, a company may not commercially promote a product prior to its approval, and after approval can make only those claims relating to safety and efficacy that are consistent with the labeling approved by the FDA. Physicians may, on their own choice and responsibility, prescribe drugs for uses that are not described in the drug's labeling and that differ from those tested by the product's manufacturer and approved by the FDA. Such "off-label" uses are common across medical specialties and may reflect a physician's belief that the "off-label" use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers' promotion and communications regarding such "off-label" uses. Generally speaking, a manufacturer may not promote a drug for "off-label" use, but may engage in non-promotional, balanced communication regarding "off-label" use under certain conditions. If a company is found to have promoted "off-label" uses, it may become subject to adverse publicity and enforcement action by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. Such actions could subject a company to a range of penalties that could result in a significant commercial impact, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA and other government agencies, including those related to false claims, any one of which could materially restrict the manner in which a company promotes or distributes drug products.

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Several states have also enacted legislation requiring pharmaceutical companies operating within the state to establish marketing and promotional compliance programs or codes of conduct and/or file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities. Similar legislation is being considered by additional states and by Congress. We will also be required to publicly report certain payments and gifts, including those made to physicians and teaching hospitals. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are not always clear.

We also are subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations and very few court decisions addressing industry practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws.

Similar restrictions are imposed on the promotion and marketing of medicinal products in the EU and other countries. Laws (including those governing promotion, marketing and anti- kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. The specific regulations for sales and marketing vary from country to country, and compliance with such regulations may impose additional costs and time delays with respect to international commercialization of our products. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have implications for us.

Our intellectual property portfolio includes patents, patent applications, trade secrets, know-how and trademarks. Our success will depend in part on our ability to obtain additional patents, maintain trade secrets and operate without infringing the proprietary rights of others, both in the U.S. and in other countries. We periodically file patent applications to protect the technology, inventions and improvements that may be important to the development of our business. We rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

We file patent applications on our own behalf as assignee and, when appropriate, have filed and expect to continue to file, applications jointly with our collaborators. These patent applications cover compositions of matter, methods of treatment, methods of discovery, use of novel compounds and novel modes of action, as well as recombinantly expressed receptors and gene sequences that are important in our research and development activities. Some of our principal intellectual property rights related to processes, compounds, uses and techniques related to calcium receptor science are protected by issued U.S. patents. We intend to file additional patent applications relating to our technology and to specific products, as we think appropriate.

We hold patents directed to potential therapeutic products such as new chemical entities, pharmaceutical compositions and methods of treating diseases. We hold patents directed also to nucleic acid and amino acid sequences of novel cellular receptors and methods of screening for compounds active at such cellular receptors. We continue actively to seek patent protection for these and related technologies in the U.S. and in foreign countries. Our intellectual property portfolio also includes patents in countries outside the U.S., which also cover the technology referenced above.

The following is a description of patents we own or license from third parties which contain claims that cover our material products and product candidates.

Gattex/Revestive: Twenty issued U.S. patents include claims that cover technology related to Gattex and GLP-2, certain of which we license from 1149336 Ontario Inc. These patents have expiration dates (not including any patent term extensions) ranging from 2015 to 2026. We have been issued foreign counterparts of these patents. Our issued principal patents which contain claims that cover our product, Gattex, its formulation, and/or method of use, are summarized in the following table:

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