1.	Operations

pSivida Corp. (together with its subsidiaries, the “Company”), incorporated in Delaware, develops tiny, sustained release, drug delivery products that are administered by implantation, injection or insertion and designed to deliver drug at a controlled and steady rate for months or years. The Company is currently focused on the treatment of chronic eye diseases utilizing its core technology systems, Durasert™ and BioSilicon™. The Company’s most recently approved product, ILUVIEN^®, is an injectable, sustained-release micro-insert delivering the corticosteroid fluocinolone acetonide (“FAc”) for up to 3 years for the treatment of vision impairment associated with chronic diabetic macular edema (“DME”) considered insufficiently responsive to available therapies. The Company has two sustained-release drug delivery products approved by the U.S. Food and Drug Administration (“FDA”) to treat other back-of-the-eye diseases. The FDA recently cleared the Company’s Investigational New Drug (“IND”) application to study the same micro-insert used in ILUVIEN for the treatment of posterior uveitis and an investigator-sponsored trial is ongoing for an injectable bioerodible insert delivering latanoprost designed to treat glaucoma.

ILUVIEN, licensed to Alimera Sciences, Inc. (“Alimera”), has received marketing authorization in the United Kingdom (“U.K.”), Austria, France, Germany and Portugal, and has been recommended for marketing authorization in Italy and Spain following completion of the Decentralized Procedure (“DCP”) involving all seven of these countries in the European Union (“EU”). Subject to determination of pricing and reimbursement, Alimera has announced its intention to directly commercialize ILUVIEN in Germany, the U.K. and France in 2013. Following a meeting with the FDA in June 2012 in response to receipt of the FDA’s November 2011 Complete Response Letter (“2011 CRL”), Alimera reported that it intends to resubmit its New Drug Application (“NDA”) for ILUVIEN for DME to the FDA in early 2013. Alimera further reported that it intends to include additional analysis of the benefits and risks of ILUVIEN based upon the clinical data from its two previously completed pivotal Phase III clinical trials (the “FAME™ Study”) and to focus on the same indication for which regulatory approval has been granted in the various EU countries.

In June 2011, the Company amended and restated its 2007 collaborative research and license agreement with Pfizer, Inc.(“Pfizer”) to focus solely on the development of an injectable bioerodible sustained-release Durasert implant to deliver latanoprost for the treatment of patients with ocular hypertension and glaucoma (the “Latanoprost Product”). The Company granted Pfizer an exclusive option, under various circumstances, to license the development and commercialization of the Latanoprost Product worldwide. The Company is currently developing a prototype of this implant that contains BioSilicon to assist in the delivery of latanoprost.

The Company’s two FDA-approved products utilizing earlier generations of the 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, have been licensed to Bausch & Lomb Incorporated (“Bausch & Lomb”).

BioSilicon, the Company’s other principal technology system, is a fully-erodible, nanostructured, porous silicon designed to provide sustained delivery of various therapeutics, including small drug molecules, proteins and peptides. Based on results of its preliminary studies, the Company is currently targeting BioSilicon as a second key drug delivery technology.

The Company is subject to risks, including, but not limited to, the ability of Alimera to successfully complete pricing and reimbursement discussions and to successfully finance and execute the direct commercialization of ILUVIEN for DME in the applicable EU countries, from which the Company is entitled to a share of net profits, as defined; the ability of Alimera to achieve FDA approval of ILUVIEN for DME

following its planned NDA resubmission and if so, to successfully commercialize the product in the U.S.; the Company’s ability, and that of its collaboration partners, to obtain adequate financing to fund its and their respective operations through collaborations, sales of securities or otherwise, to successfully advance research, pre-clinical and clinical development of, and obtain regulatory approvals for, product candidates utilizing the Company’s technologies and to successfully commercialize them, to protect proprietary technologies, to comply with FDA and other governmental regulations and approval requirements and to execute on business strategies; competitive products and new disease treatments; and dependence on key personnel.

The Company has a history of operating losses and has financed its operations in recent years primarily from license fees, research and development funding and contingent cash payments from its collaboration partners, and from sales of equity securities. The Company’s future operating results are expected to depend, among other things, upon the success of, consideration received from, and revenue recognition associated with, and costs of, product research, development and commercialization by the Company and its current and any potential future collaborative partners. The Company believes that its cash, cash equivalents and marketable securities of $14.6 million at June 30, 2012, together with $4.7 million of net proceeds from a registered direct offering of common shares and warrants consummated in August 2012 and expected royalty income, should enable the Company to maintain its current and planned operations through calendar year 2013. The Company’s ability to fund its planned operations internally beyond then, including completion of planned Phase III trials of the posterior uveitis micro-insert, may be substantially dependent upon whether Alimera successfully commercializes ILUVIEN for DME in the EU and if and when ILUVIEN for DME is approved by the FDA and successfully commercialized in the U.S., although even so, the amount and timing of the Company’s receipt of any revenues from such activities is uncertain.