##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number: 000-51445
 ADAMS RESPIRATORY THERAPEUTICS, INC.
 (Exact Name of Registrant as Specified in Charter)
 Delaware
    
    75-2725552(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 425 Main Street
Chester, New Jersey 07930
(Address of principal executive offices including zip code)
 (908) 879-1400
(Registrants telephone number, including area code)
 þ  o
 o  þ
 o  þ




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ADAMS RESPIRATORY THERAPEUTICS, INC.
 INDEX
 PageSpecial Note Regarding Forward-looking Statements
    
    3Part I. Financial Information
    
    3Item 1. Financial Statements (Unaudited)
    
    5Consolidated Balance Sheets  September 30, 2005
and June 30, 2005
    
    5Consolidated Statements of Operations  Three
months ended September 30, 2005 and 2004
    
    6Consolidated Statement of Redeemable Convertible
Preferred Stock and Stockholders Equity (Deficit)
 September 30, 2005
    
    7Consolidated Statements of Cash Flows  Three
months ended September 30, 2005 and 2004
    
    8Notes to Consolidated Financial Statements
    
    9Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    19Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    
    38Item 4. Controls and Procedures
    
    38Part II. Other Information
    
    39Item 1. Legal Proceedings
    
    39Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    39Item 6. Exhibits
    
    39Signatures
    
    40EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    the increase in stock compensation expense and the reduction in the expected life of our
stock options;
    
    our involvement in litigation having a material adverse impact on our business,
financial condition, results of operations or cash flows;
    
    our obligations related to product returns;
    
    our ability to obtain sufficient quantities of raw materials, including guaifenesin and dextromethorphan;
    
    our reliance on third parties to manufacture our products and our intentions related to
repurchasing the Fort Worth, Texas manufacturing assets and operations;
    
    our expectations of the seasonality of Mucinex sales and related revenue fluctuations;
    
    our intentions to market additional products, grow our business and expand our product portfolio;
    
    our ability to meet our anticipated operating needs with our revenues;
    
    the FDAs removal of competing, unapproved products from the market and the timeline for
development and FDA approval of competitive long-acting guaifenesin products;
    
    the timing of the USPTOs reexamination of the patentability of our delivery system for
guaifenesin and our ability to prevail in the reexamination process;
    
    our reliance on and continued consolidation of our top customers;
    
    the adequacy of our insurance coverage;
    
    our expectations of increased pricing pressures;
    
    our ability to leverage our brand name; and
    
    our exposure to credit rate and interest rate risk.
  3




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4




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS.
 Adams Respiratory Therapeutics, Inc.
 
 Consolidated Balance Sheets
 (Amounts in thousands, except per share amounts)
 September 30,
    
    
    June 30,2005
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    149,942
    
    
    $
    24,655Accounts receivable, net of allowance for doubtful accounts of $179 at
September 30, 2005 and $166 at June 30, 2005
    
    
    19,089
    
    
    
    8,531Inventories, net of reserve for obsolescence of $29 at September 30,
2005 and June 30, 2005
    
    
    4,000
    
    
    
    3,107Prepaid expenses and other assets
    
    
    3,788
    
    
    
    4,727Income taxes receivable
    
    
    
    
    
    
    4,990Deferred tax assets
    
    
    5,123
    
    
    
    5,455Total current assets
    
    
    181,942
    
    
    
    51,465Property, plant and equipment, net of accumulated depreciation of $557 at
September 30, 2005 and $467 at June 30, 2005
    
    
    1,940
    
    
    
    1,925Deferred tax assets
    
    
    1,442
    
    
    
    2,789Intangibles and other assets, net of accumulated amortization of $1,008 at
September 30, 2005 and $799 at June 30, 2005
    
    
    5,755
    
    
    
    7,661Total assets
    
    $
    191,079
    
    
    $
    63,840LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    8,712
    
    
    $
    6,818Accrued compensation and related items
    
    
    1,835
    
    
    
    866Accrued returns, chargebacks, rebates and other sales allowances
    
    
    9,590
    
    
    
    9,947Income taxes payable
    
    
    3,159
    
    
    
    Other current liabilities
    
    
    1,661
    
    
    
    1,098Total current liabilities
    
    
    24,957
    
    
    
    18,729Long-term liabilities:Deferred gain on sale of plant assets
    
    
    1,436
    
    
    
    1,478Accrued royalties
    
    
    827
    
    
    
    803Total liabilities
    
    
    27,220
    
    
    
    21,010Redeemable convertible preferred stock:Series A, $0.01 par value:Issued and outstanding shares  none at
September 30, 2005 and 4,307 at June 30, 2005
    
    
    
    
    
    
    98,705Series B, $0.01 par value:Issued and outstanding shares  none at
September 30, 2005 and 6,328 at June 30, 2005
    
    
    
    
    
    
    98,251Series C, $0.01 par value:Issued and outstanding shares  none at
September 30, 2005 and 4,849 at June 30, 2005
    
    
    
    
    
    
    119,499Total redeemable convertible preferred stock
    
    
    
    
    
    
    316,455Stockholders equity/(deficit):Preferred Stock, $0.01 par value:Authorized
shares  50,000, Issued and outstanding  none
    
    
    
    
    
    
    Common stock, $0.01 par value:Authorized
shares  100,000,
Issued and outstanding shares  33,253 at September 30, 2005 and
8,737 at June 30, 2005
    
    
    333
    
    
    
    87Additional paid-in capital
    
    
    440,331
    
    
    
    15,481Accumulated deficit
    
    
    (276,805
    )
    
    
    (289,193
    )Total stockholders equity/(deficit)
    
    
    163,859
    
    
    
    (273,625
    )Total liabilities, redeemable convertible preferred stock and
stockholders equity
    
    $
    191,079
    
    
    $
    63,840
  5




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Adams Respiratory Therapeutics, Inc.
 
 Consolidated Statements of Operations
 (Amounts in thousands, except per share amounts)
 Three Months Ended September 30,2005
    
    
    2004(unaudited)Net sales
    
    $
    47,017
    
    
    $
    25,923Cost of goods sold
    
    
    8,521
    
    
    
    6,211Gross margin
    
    
    38,496
    
    
    
    19,712Selling, marketing & administrative
    
    
    15,869
    
    
    
    7,831Product development
    
    
    3,426
    
    
    
    1,475Interest income, net
    
    
    (926
    )
    
    
    (109
    )18,369
    
    
    
    9,197Income before income taxes
    
    
    20,127
    
    
    
    10,515Provision for income taxes
    
    
    7,739
    
    
    
    4,080Net income
    
    
    12,388
    
    
    
    6,435Accretion of preferred stock
    
    
    
    
    
    
    (62,789
    )Net income/(loss) applicable to common stockholders
    
    $
    12,388
    
    
    $
    (56,354
    )Income/(loss) per common shareBasic
    
    $
    0.44
    
    
    $
    (9.77
    )Diluted
    
    $
    0.36
    
    
    $
    (9.77
    )Weighted-average of common shares used in income/(loss) per share calculationBasic
    
    
    27,870
    
    
    
    5,766Diluted
    
    
    34,745
    
    
    
    5,766
  6




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Adams Respiratory Therapeutics, Inc.
 
 Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit)
 (Amounts in thousands)
 TotalRedeemable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    StockholdersSeries A
    
    
    Series B
    
    
    Series C
    
    
    Preferred
    
    
    
    Common Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Equity/Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Stock
    
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    (Deficit)Balance as of June 30, 2005
    
    
    4,307
    
    
    $
    98,705
    
    
    
    6,328
    
    
    $
    98,251
    
    
    
    4,849
    
    
    $
    119,499
    
    
    $
    316,455
    
    
    
    
    8,737
    
    
    $
    87
    
    
    $
    15,481
    
    
    $
    (289,193
    )
    
    $
    (273,625
    )Stock option compensation
expense (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001
    
    
    
    
    
    
    
    1,001Exercise of stock options
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    1
    
    
    
    101
    
    
    
    
    
    
    
    102Exercise of warrants
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Tax benefit of stock
option exercises (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    866
    
    
    
    
    
    
    
    866Issuance of common stock
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,890
    
    
    
    69
    
    
    
    106,603
    
    
    
    
    
    
    
    106,672Conversion of preferred
stock (unaudited)
    
    
    (4,307
    )
    
    
    (98,705
    )
    
    
    (6,328
    )
    
    
    (98,251
    )
    
    
    (4,849
    )
    
    
    (119,499
    )
    
    
    (316,455
    )
    
    
    
    17,534
    
    
    
    176
    
    
    
    316,279
    
    
    
    
    
    
    
    316,455Net income (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,388
    
    
    
    12,388Balance as of September
30, 2005 (unaudited)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    33,253
    
    
    $
    333
    
    
    $
    440,331
    
    
    $
    (276,805
    )
    
    $
    163,859
  7




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Adams Respiratory Therapeutics, Inc.
 
 Consolidated Statements of Cash Flows
 (Amounts in thousands)
 Three months Ended September 30,2005
    
    
    2004(unaudited)Operating ActivitiesNet income
    
    $
    12,388
    
    
    $
    6,435Adjustments to reconcile net income to net cash provided by/
(used in) operating activities:Depreciation and amortization
    
    
    299
    
    
    
    141Stock option compensation expense
    
    
    1,001
    
    
    
    90Deferred taxes
    
    
    1,679
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (10,558
    )
    
    
    (12,415
    )Inventories
    
    
    (893
    )
    
    
    (1,142
    )Prepaid expenses and other current assets
    
    
    939
    
    
    
    217Accounts payable
    
    
    1,894
    
    
    
    3,804Income taxes
    
    
    8,149
    
    
    
    3,920Accrued expenses and other liabilities
    
    
    1,680
    
    
    
    (1,722
    )Net cash provided by/(used in) operating activities
    
    
    16,578
    
    
    
    (672
    )Investing ActivitiesPurchases of property, plant and equipment
    
    
    (105
    )
    
    
    (1,330
    )Net cash (used in) investing activities
    
    
    (105
    )
    
    
    (1,330
    )Financing ActivitiesProceeds from exercise of stock options and warrants
    
    
    102
    
    
    
    19Net proceeds from issuance of common stock
    
    
    107,846
    
    
    
    Excess tax benefit from exercise of stock options
    
    
    866
    
    
    
    Net cash provided by financing activities
    
    
    108,814
    
    
    
    19Net increase/(decrease) in cash and cash equivalents
    
    
    125,287
    
    
    
    (1,983
    )Cash and cash equivalents at beginning of period
    
    
    24,655
    
    
    
    43,391Cash and cash equivalents at end of period
    
    $
    149,942
    
    
    $
    41,408
  8




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Adams Respiratory Therapeutics, Inc.
 
 Notes to Consolidated Financial Statements (unaudited)
 ($ in thousands, except per share amounts)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  Intangibles and Other Assets
   9




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
 ($ in thousands, except per share amounts)
    Income Taxes
  Revenue Recognition
  Sales Returns and Allowances
   10




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
     Cardinal Health Profit Share Arrangement
   11




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
  Concentration of Credit Risk
  September 302005
    
    
    2004Wholesaler  A
    
    
    11
    %
    
    
    19
    %Wholesaler  B
    
    
    3
    %
    
    
    10
    %Wholesaler  C
    
    
    5
    %
    
    
    8
    %Major retailer  A
    
    
    11
    %
    
    
    17
    %Major retailer  B
    
    
    21
    %
    
    
    11
    %Major retailer/mass merchandiser
    
    
    17
    %
    
    
    8
    %
 Accounting for Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for
Stock-Based Compensation  Transition and Disclosure
  12




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
 Income/(Loss) per Common Share
  September 302005
    
    
    2004Net income/(loss)
    
    $
    12,388
    
    
    $
    6,435Accretion of preferred stock
    
    
    
    
    
    
    (62,789
    )Net income/(loss) applicable to common stockholders
    
    $
    12,388
    
    
    $
    (56,354
    )Average shares outstanding  basic
    
    
    27,869,604
    
    
    
    5,766,186Preferred shares before conversion
    
    
    3,811,690
    
    
    
    Warrants
    
    
    331,843
    
    
    
    Stock options
    
    
    2,731,445
    
    
    
    Average shares outstanding  diluted
    
    
    34,744,582
    
    
    
    5,766,186Income/(loss) per common share:Basic
    
    $
    0.44
    
    
    ($
    9.77
    )Diluted
    
    $
    0.36
    
    
    ($
    9.77
    )
  2. Benefit Plan
  3. Stockholders Equity (Deficit)
 Initial Public Offering
  13




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
 Stock Compensation Plan
       14




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
  Three Months Ended September 30,2005
    
    2004Expected life of the option
    
    5 years
    
    6 yearsRisk-free interest rate
    
    
    4.0
    %
    
    
    3.4
    %Volatility
    
    
    67.1
    %
    
    
    0.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Weighted-average fair value per option granted
    
    $
    11.49
    
    
    $
    0.20Intrinsic value of options exercised
    
    $
    2,815
    
    
    $
    32
  Weighted-AverageExerciseShares
    
    
    Price per OptionOptions outstanding at June 30, 2004
    
    
    3,223,585
    
    
    $
    1.23Granted
    
    
    486,311
    
    
    
    6.56Canceled
    
    
    (78,496
    )
    
    
    2.26Exercised
    
    
    (384,097
    )
    
    
    3.16Options outstanding at June 30, 2005
    
    
    3,247,303
    
    
    
    1.68Granted
    
    
    842,826
    
    
    
    17.81Canceled
    
    
    (8,800
    )
    
    
    8.68Exercised
    
    
    (92,438
    )
    
    
    1.12Options outstanding at September 30, 2005
    
    
    3,988,981
    
    
    $
    5.09
  Options Outstanding
    
    Options ExercisableWeightedAverageYears
    
    Weighted
    
    
    
    
    
    
    
    
    
    WeightedRanges
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    
    
    
    
    Averageof
    
    
    
    
    
    On
    
    Exercise
    
    Aggregate
    
    
    
    
    
    Exercise
    
    AggregateExercise
    
    Number
    
    Contractual
    
    Price
    
    Intrinsic
    
    Number
    
    Price
    
    IntrinsicPrices
    
    Outstanding
    
    Life
    
    per Option
    
    Value
    
    Exercisable
    
    per Option
    
    Value$0.40
    
    
    1,930,429
    
    
    
    7.3
    
    
    $
    0.40
    
    
    $
    61,561
    
    
    
    1,240,597
    
    
    $
    0.40
    
    
    $
    39,563$1.42-$2.22
    
    
    536,621
    
    
    
    8.4
    
    
    
    1.55
    
    
    
    16,494
    
    
    
    116,599
    
    
    
    1.53
    
    
    
    3,586$3.02-$4.56
    
    
    347,829
    
    
    
    6.6
    
    
    
    3.69
    
    
    
    9,947
    
    
    
    211,649
    
    
    
    4.12
    
    
    
    5,962$5.01-$5.70
    
    
    216,346
    
    
    
    9.0
    
    
    
    5.03
    
    
    
    5,898
    
    
    
    17,608
    
    
    
    5.23
    
    
    
    477$11.40
    
    
    115,830
    
    
    
    9.3
    
    
    
    11.40
    
    
    
    2,420
    
    
    
    
    
    
    
    
    
    
    
    $17.00
    
    
    791,891
    
    
    
    9.8
    
    
    
    17.00
    
    
    
    12,108
    
    
    
    
    
    
    
    
    
    
    
    $28.50-$34.11
    
    
    50,035
    
    
    
    9.9
    
    
    
    30.66
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    3,988,981
    
    
    
    
    
    
    
    
    
    
    $
    108,530
    
    
    
    1,586,453
    
    
    
    
    
    
    $
    49,588
  15




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
  Weighted AverageNumber of
    
    Grant DateOptions
    
    Fair Value per OptionNonvested options at June 30, 2005
    
    
    1,631,078
    
    
    $
    0.42Nonvested options at September 30, 2005
    
    
    2,403,084
    
    
    
    3.96Vested at September 30, 2005
    
    
    1,586,453
    
    
    
    0.31Granted during the 3 months ended September 30, 2005
    
    
    842,826
    
    
    
    11.49Forfeited during the three months ended
September 30, 2005
    
    
    8,800
    
    
    
    2.57
 Warrants
  Outstanding
    
    
    ExerciseWarrants
    
    
    Price3,711
    
    
    $
    0.03133,986
    
    
    $
    4.13265,768
    
    
    $
    4.56Total
    
    
    403,465
  4. Commitments and Contingencies
      16




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
     17




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements  (continued)
($ in thousands, except per share amounts)
  5. Subsequent Events
  18




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##### Table of Contents



ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with the MD&A, financial statements and related notes included in our
Annual Form Report on Form 10-K for the year ended June 30, 2005, together with our financial statements
and related notes appearing elsewhere in this Form 10-Q. Some of the information contained in this
discussion and analysis or set forth elsewhere in this document, including information with respect
to our plans and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should review the sub-heading of this
quarterly report entitled Risk Factors That May Affect Results for a discussion of important
factors that could cause our actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion and analysis.
 Overview
  Mucinex SE.
 Mucinex DM.
 Mucinex D
 Future Products.
 Seasonality
 Critical Accounting Policies and Estimates
 Accounting for Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation  Transition and Disclosure
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Results of Operations
 Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Net Sales.
  Three Months EndedSeptember 30,
    
    
    Increase/Product
    
    2005
    
    
    2004
    
    
    (Decrease)(In thousands)Mucinex SE
    
    $
    36,618
    
    
    $
    21,027
    
    
    $
    15,591Mucinex DM
    
    
    10,399
    
    
    
    4,345
    
    
    
    6,054Other products
    
    
    
    
    
    
    551
    
    
    
    (551
    )Net Sales
    
    $
    47,017
    
    
    $
    25,923
    
    
    $
    21,094
 Cost of Goods Sold.
 Selling, Marketing and Administrative.
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Product Development.
 Interest Income, net.
 Income Taxes.
 Accretion of Preferred Stock.
 Liquidity and Capital Resources
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Mark-UpContract Year Ending
    
    
    PercentageMarch 31, 2005
    
    
    75
    %March 31, 2006
    
    
    50
    %March 31, 2007 through 2015
    
    
    30
    %
    Cash Flows
 Three months ended September 30, 2005 compared to three months ended September 30, 2004.
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Off-Balance Sheet Arrangements
  Recent Developments
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RISK FACTORS THAT MAY AFFECT RESULTS
 Risks Relating to Our Business
 We depend heavily on the success of our existing products, Mucinex SE and Mucinex DM, and the
strength of the Mucinex brand. If we are unable to continue to successfully commercialize our two
current products and build the Mucinex brand, our results of operations and future prospects will
suffer.
  We do not have our own manufacturing capability and rely on Cardinal Health to manufacture Mucinex
SE, Mucinex DM and Mucinex D. Pursuant to our agreement with Cardinal Health,
we have agreed to use Cardinal Health as the exclusive manufacturer of Mucinex SE, Mucinex DM and
Mucinex D, as well as additional products we develop. Currently, Cardinal Health is unable to
manufacture enough product to meet the demand for Mucinex SE and Mucinex DM. If Cardinal Health
continues to fail to meet our requirements, our results of operations may suffer.
    
    
    the possibility that third parties may not comply with the
FDAs current Good Manufacturing Practices, or cGMP, regulations,
other regulatory requirements and quality assurance;
    
    the possible breach of manufacturing agreements by third parties due to factors beyond
our control; and
    
    the possibility of termination or nonrenewal of an agreement by a third party, based on
their own business priorities, at a time that is costly or inconvenient for us.
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We and Cardinal Health have been advised by one of our suppliers of guaifenesin, the active
ingredient in our Mucinex product line, that it cannot deliver the amount of guaifenesin we have
requested in the near term, and our current supplier for dextromethorphan, the additional active
ingredient in Mucinex DM, will exit the business.
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We cannot ensure that the FDA will enforce removal from the market of the existing prescription
long-acting guaifenesin combination products similar to Mucinex DM and Mucinex D, and we cannot
ensure that products containing long-acting guaifenesin that are competitive with our products will
not be introduced into the OTC market.
   Our products and many of our product candidates rely on guaifenesin, which is an expectorant. If
our competitors develop a superior expectorant, our products and our patented technology may be
rendered obsolete.
  We depend on a limited number of customers for a large portion of our sales and demands made by, or
the loss of, one or more of these customers could significantly reduce our margins or sales and
adversely affect our business and financial results.
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We face substantial competition that may prevent us from maintaining or increasing market share for
our existing products and gaining market acceptance of our future products. Our competitors may
develop or commercialize products before or more successfully than us.
  
    
    Pfizer, Inc. (Sudafed® and Benadryl®);
    
    The Procter & Gamble Company (Dayquil® and Nyquil®);
    
    McNeil PPC, Inc., an operating company of Johnson & Johnson (Tylenol Cold and Flu® and
Motrin Cold and Sinus®);
    
    Wyeth (Robitussin®, Dimetapp® and Advil Cold and Sinus®);
    
    Novartis AG (Theraflu® and Triaminic®);
    
    Schering  Plough Corp. (Claritin®, Coricidin® and Drixoral®); and
    
    Bayer AG (Alka Seltzer Plus Cold® and Aleve Cold and Sinus®).
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We have generated net income for a short time and may not generate net income in the future.
  Adverse publicity associated with us or our products could have a material adverse effect on us.
  Product liability lawsuits could divert our resources, result in substantial liabilities and reduce
the commercial potential of our products.
  If we fail to obtain an adequate level of reimbursement for our products by Medicaid, our business
may be adversely affected. Additionally, many state Medicaid programs do not cover the costs of our
products and we cannot ensure that any Medicaid programs will continue to reimburse us for our
products.
   Seasonal fluctuations in demand for our current Mucinex products may cause our operating results to
vary significantly from quarter to quarter.
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Risks Related to Product Development
 We may not be successful in our efforts to expand our portfolio of products.
  
    
    developing and commercializing line extensions of Mucinex by combining long-acting
guaifenesin with other ingredients to address various respiratory conditions;
    
    developing and commercializing prescription products to address additional segments of
the respiratory market using our platform technology for extended-release guaifenesin; and
    
    acquiring or in-licensing additional technologies and additional pharmaceutical
products or product candidates in the respiratory therapeutics market.
  We intend to conduct clinical trials on product candidates we develop or acquire in the future,
which will be costly, take years to complete and may not ultimately be successful.
  
    
    our inability to obtain materials sufficient for use in preclinical studies and
clinical trials;
    
    delays in patient enrollment and variability in the number and types of patients
available for clinical trials;
    
    difficulty in maintaining contact with patients after treatment, resulting in
incomplete data;
    
    inability to demonstrate effectiveness of product candidates during clinical trials;
    
    unforeseen safety issues or side effects;
    
    governmental or regulatory delays and changes in regulatory requirements, policy and
guidelines; or
    
    varying interpretation of data by the FDA.
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Regulatory Risks
 Products approved for marketing remain subject to regulation. Complying with such regulation can be
costly, and failure to comply could result in a loss of approvals or suspension of product sales.
    
    
    suspend manufacturing operations;
    
    change product formulations;
    
    suspend the sale of products with non-complying specifications;
    
    initiate product recalls; or
    
    change product labeling, packaging or advertising or take other corrective action.
   We may not be able to obtain marketing approval for any of the products resulting from our
development efforts and failure to obtain these approvals could materially harm our business.
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The manufacture and packaging of pharmaceutical products such as our Mucinex product line are
subject to the requirements of the FDA. If we or our third party manufacturers fail to satisfy
these requirements, our product development and commercialization efforts may be materially harmed.
   Our current products may be associated with mild and transient side effects including upset
stomach, nausea, vomiting, diarrhea, headache, dizziness, confusion, skin rash (including hives),
constipation, and drowsiness. Mucinex D use may additionally be associated with unusual paleness,
increased sweating, weakness, trouble in sleeping, nervousness, restlessness, fast or pounding
heartbeat, trembling, and difficulty urinating. If we or others identify additional, more severe
side effects associated with our current or future products, we may be required to withdraw our
products from the market, perform lengthy additional clinical trials or change the labeling of our
products, any of which would hinder or preclude our ability to generate revenues.
  
    
    regulatory authorities may withdraw their approvals;
    
    we may be required to reformulate our products, conduct additional clinical trials,
change the labeling of our products, or implement changes to obtain new approvals of
manufacturers facilities;
    
    we may recall the affected products from the market;
    
    we may experience a significant drop in sales of the affected products;
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
    
    our reputation in the marketplace may suffer;
    
    we may become the target of lawsuits, including class action suits; and
    
    we may be required to withdraw our products from the market and not be able to
re-introduce them into the market.
  Our products are subject to recalls even after receiving FDA regulatory clearance or approval.
Recalls could harm our reputation and business.
  Mucinex D may be subject to additional governmental regulation.
  Risks Related to Managing Growth
 We depend on our key personnel and if we are not able to retain them or recruit additional
technical personnel, our business will suffer.
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We may undertake strategic acquisitions of technologies and products. Integration of such
technologies and products will involve a variety of costs and we may never realize the anticipated
benefits of such acquisitions.
   Risks Relating to Intellectual Property
 If our patent position does not adequately protect our products and future products, others will be
able to compete against us more directly, which may harm our business.
   If we are unable to protect the intellectual property rights related to our brands, our ability to
compete effectively in the markets for our products could be negatively impacted.
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If we are unable to protect the confidentiality of our trade secrets and proprietary information,
our technology and information may be used by others to compete against us.
  Legal proceedings or third party claims of intellectual property infringement may require us to
spend time and money and could prevent us from developing or commercializing products.
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Our U.S. patent #6,372,252 was recently subject to a request for reexamination, which the USPTO
granted upon appeal to the USPTO Director. If the USPTO invalidates our patent or substantially
narrows the claims of our patent such that it no longer protects our products from competition, our
business will be materially harmed.
   Risks Relating to Future Financing Needs
 We may need additional financing, which may be difficult to obtain. Our failure to obtain necessary
financing or doing so on unattractive terms could adversely affect our marketing and development
programs and other operations.
  
    
    the success of our commercialization of Mucinex SE, Mucinex DM and Mucinex D and the
costs associated with related marketing, promotional and sales efforts;
    
    the timing of new product launches, product development and advancement of other
product candidates into development;
    
    potential acquisition or in-licensing of other products or technologies;
    
    the timing of, and the costs involved in, obtaining regulatory approvals;
    
    the cost of manufacturing activities, including raw material sourcing and regulatory
compliance; and
    
    the costs involved in establishing and protecting our patent, trademark and other
intellectual property rights.
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Our stock price is volatile and purchasers of our common stock could incur substantial losses.
  
    
    the regulatory status of potentially competitive products;
    
    regulatory developments;
    
    developments or disputes concerning patents or other proprietary rights;
    
    our ability to manufacture products to commercial standards;
    
    public concern over our drugs;
    
    litigation;
    
    the departure of key personnel;
    
    future sales of our common stock;
    
    variations in our financial results or those of companies that are perceived to be
similar to us;
    
    investors perceptions of us; and
    
    general economic, industry and market conditions.
 If there are substantial sales of our common stock, our stock price could decline.
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Risks Relating to Our Common Stock
 Our executive officers, directors and major stockholders have the ability to control all matters
submitted to stockholders for approval.
  Provisions in our certificate of incorporation and under Delaware law may prevent or frustrate
attempts by our stockholders to change our management and hinder efforts to acquire a controlling
interest in us.
  
    
    a classified board of directors;
    
    limitations on the removal of directors;
    
    advance notice requirements for stockholder proposals and nominations;
    
    the inability of stockholders to act by written consent or to call special meetings;
and
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock without stockholder approval.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
   
 ITEM 6. EXHIBITS.
 ExhibitNumber
    
    
    
    Description10.1
    
    
    
    Agreement dated October 31, 2005 between WR&E  Chester, LLC and
Adams Respiratory Therapeutics, Inc. (previously filed as an
exhibit to the Companys Current Report on Form 8-K dated November
3, 2005).31.1*
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed with this Quarterly Report. 39




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SIGNATURES
  ADAMS RESPIRATORY THERAPEUTICS, INC.Date November 10, 2005
    /s/ DAVID BECKERBy: David BeckerIts: Executive Vice President and Chief Financial Officer 40