InSite Vision Completes $60 Million Non-Recourse Note Offering Secured by AzaSite(R) Royalties

InSite Vision Incorporated (AMEX:ISV) today announced that it has closed a private placement to institutional investors of $60 million in aggregate principal amount of non-convertible, non-recourse promissory notes. The notes are secured by royalties to be paid from sales in the United States and Canada of AzaSite® (azithromycin ophthalmic solution) 1%, a drug licensed to and sold by Inspire Pharmaceuticals for the topical treatment of bacterial conjunctivitis (pink eye). "This non-dilutive financing will help us to transform InSite into a multiple product and sustainable company. We believe this financing will accelerate our ability to advance our current product candidates and bring them to market resulting in an increased revenue stream within the next two to three years,” said Kumar Chandrasekaran, Chairman and Chief Executive Officer. "We are well-positioned to build a successful company with products that will help our patients live better lives.” "It is important to note that once we have repaid the notes, InSite will again receive all of the royalty payments under the existing agreement with Inspire,” said Louis Drapeau, Vice President and Chief Financial Officer. The company also announced that it will terminate a shelf registration statement filed in May 2007 in preparation for a potential public offering of equity securities. InSite Vision intends to use the proceeds of the placement to fund the advancement of its pipeline products, including AzaSite Plus™, AzaSite Otic™ and AzaSite Xtra™, for general corporate purposes, as well as to potentially acquire complementary businesses, products, technologies or other assets, although InSite has no current agreements or commitments with respect to any acquisitions. The notes are non-recourse to InSite Vision and are not convertible into InSite equity. The annual cash coupon rate on the notes is 16% with interest payable quarterly beginning May 15, 2008. Interest and principal will be paid back from revenue received from the royalties from AzaSite sales in the United States and Canada. AzaSite revenue resulting from sales in countries other than Canada and the United States is not included in this transaction. Net proceeds to InSite from the financing are approximately $50 million after transaction costs and interest reserves. When the AzaSite royalties received for any quarter exceed the interest payments and certain expenses due that quarter, the excess will be applied to the repayment of principal of the notes until the notes have been paid in full. The notes may be redeemed at InSite’s option, subject to the payment of a redemption premium for a certain period of time. The notes have not been and will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent an applicable exemption from the registration requirements of the Act. About InSite Vision and AzaSite InSite Vision develops novel topical anti-infective products, including AzaSite® (azithromycin ophthalmic solution) 1% which was launched in the United States in August 2007 by Inspire Pharmaceuticals for the topical treatment of bacterial conjunctivitis (pink eye). InSite Vision licensed AzaSite to Inspire Pharmaceuticals which has exclusive rights to commercialize AzaSite in the United States and Canada. As part of the agreement, Inspire paid InSite an upfront license fee of $13 million and an additional $19 million milestone payment when the product was approved by the Food and Drug Administration (FDA) in April 2007. Inspire also pays a royalty on net sales of AzaSite in the United States and Canada at a rate of 20% in the first two years of commercialization and 25% thereafter. Based on its proprietary azithromycin-DuraSite® technology platform used for AzaSite, InSite is pursuing the expansion of its portfolio of anti-infective ophthalmic products to include AzaSite Plus and AzaSite Xtra which have product features with the potential to provide significant advantages currently not available with conventional treatment options. In addition, InSite is evaluating the use of its azithromycin-DuraSite platform to develop topical anti-infective products outside of the ophthalmology market beginning with AzaSite Otic for ear infections. Forward Looking Statements This news release contains certain statements of a forward-looking nature relating to future events, such as the use of proceeds from the note financing; the benefits of the financing; InSite’s corporate goals; InSite’s ability to use the proceeds of the financing to accelerate the advancement of its current product candidates and bring them to market resulting in an increased revenue stream within the next two to three years; the expected date of repayment of the notes; the expectation that InSite will receive the royalties due under the Inspire agreement once the notes have been repaid; the potential value of the Inspire royalty stream; and InSite’s product pipeline and development initiatives. Such statements entail a number of risks and uncertainties, including but not limited to: InSite may apply the net proceeds from the financing to other corporate purposes which may not provide the optimal rate of return to InSite and its stockholders; InSite may not achieve its corporate goals; the Inspire royalty stream may not be sufficient to repay the notes or to repay the notes on the expected timeline; the Inspire license agreement may be terminated and InSite may not be able to find a new partner or be able to successfully market AzaSite itself, resulting in a default on the notes and foreclosure by the investors in the financing; if there is an event of default under the indenture pursuant to which the notes were issued, the investors will have the right to obtain rights to AzaSite under certain circumstances which would preclude InSite from receiving the royalties or other payments received on AzaSite even after the notes have been repaid; the royalty stream for AzaSite may not be as large as estimated in the report prepared by InSite’s royalty consultant. InSite Vision’s reliance on third parties, including Inspire, for the commercialization of AzaSite and its other products; the ability of InSite Vision to enter into corporate collaborations for AzaSite outside the United States and Canada and with respect to its other product candidates, including AzaSite Plus; Inspire’s ability to successfully market AzaSite in the United States and Canada; InSite Vision’s ability to expand its technology platform to include additional indications; InSite Vision’s ability to maintain and develop additional collaborations and commercial agreements with corporate partners, including those with respect to AzaSite, AzaSite Plus, AzaSite Xtra and AzaSite Otic; and its ability to adequately protect its intellectual property and to be free to operate with regard to the intellectual property of others; and determinations by the FDA, including those with respect to AzaSite Plus and AzaSite Otic. Reference is made to the discussion of these and other risk factors detailed in InSite Vision’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K and its quarterly reports on Form 10-Q, under the caption "Risk Factors” and elsewhere in such reports. Any forward looking statements or projections are based on the limited information currently available to InSite Vision, which is subject to change. Although any such forward looking statements or projections and the factors influencing them will likely change, InSite Vision undertakes no obligation to update the information. Such information speaks only as of the date of its release. Actual events or results could differ materially and one should not assume that the information provided in this release is still valid at any later date.