##### 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 December 31, 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
(State or Other Jurisdiction of
Incorporation or Organization)
    
    75-2725552
(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 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)Consolidated Balance Sheets  December 31, 2005 and June 30, 2005
    
    
    5Consolidated Statements of Operations  Three and six months ended December 31, 2005 and 2004
    
    
    6Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders Equity
(Deficit) December 31, 2005
    
    
    7Consolidated Statements of Cash Flows  Six months ended December 31, 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
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II. Other Information
    
    
    26Item 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    29EX-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 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 timing of the United States Patent and Trademark Offices, or 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;
    
    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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ITEM 1. FINANCIAL STATEMENTS.
 Adams Respiratory Therapeutics, Inc.
 
 Consolidated Balance Sheets
 (Amounts in thousands, except per share amounts)
 December 31,
    
    
    June 30,2005
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    143,479
    
    
    $
    24,655Short-term investments
    
    
    9,882
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $179 December
31, 2005 and $166 at June 30, 2005
    
    
    37,305
    
    
    
    8,531Inventories, net of reserve for obsolescence of $29 at December 31, 2005 and
June 30, 2005
    
    
    732
    
    
    
    3,107Prepaid expenses and other assets
    
    
    6,408
    
    
    
    4,727Income taxes receivable
    
    
    10,888
    
    
    
    4,990Deferred tax assets
    
    
    5,727
    
    
    
    5,455Total current assets
    
    
    214,421
    
    
    
    51,465Property, plant and equipment, net of accumulated depreciation of $647 at
December 31, 2005 and $467 at June 30, 2005
    
    
    2,645
    
    
    
    1,925Deferred tax assets
    
    
    1,468
    
    
    
    2,789Intangible assets, net of accumulated amortization of $1,217 at December 31, 2005
and $799 at June 30, 2005
    
    
    5,545
    
    
    
    5,964Other assets
    
    
    1,000
    
    
    
    1,697Total assets
    
    $
    225,079
    
    
    $
    63,840LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    16,808
    
    
    $
    6,818Accrued compensation and related items
    
    
    2,813
    
    
    
    866Accrued returns, chargebacks, rebates and other sales allowances
    
    
    9,293
    
    
    
    9,947Other current liabilities
    
    
    4,986
    
    
    
    1,098Total current liabilities
    
    
    33,900
    
    
    
    18,729Long-term liabilities:Deferred gain on sale of plant assets
    
    
    1,394
    
    
    
    1,478Accrued royalties
    
    
    852
    
    
    
    803Total liabilities
    
    
    36,146
    
    
    
    21,010Redeemable convertible preferred stock:Series A, $0.01 par value:Issued and outstanding shares  none at December 31, 2005 and 4,307 at
June 30, 2005
    
    
    
    
    
    
    98,705Series B, $0.01 par value:Issued and outstanding shares  none at December 31, 2005 and 6,328 at
June 30, 2005
    
    
    
    
    
    
    98,251Series C, $0.01 par value:Issued and outstanding shares  none at December 31, 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  34,168 at
December 31, 2005 and 8,737 at June 30, 2005
    
    
    342
    
    
    
    87Additional paid-in capital
    
    
    454,730
    
    
    
    15,481Accumulated deficit
    
    
    (266,139
    )
    
    
    (289,193
    )Total stockholders equity/(deficit)
    
    
    188,933
    
    
    
    (273,625
    )Total liabilities, redeemable convertible preferred stock and stockholders equity
    
    $
    225,079
    
    
    $
    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
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)Net sales
    
    $
    63,247
    
    
    $
    36,098
    
    
    $
    110,264
    
    
    $
    62,021Cost of goods sold
    
    
    13,920
    
    
    
    7,139
    
    
    
    22,441
    
    
    
    13,350Gross margin
    
    
    49,327
    
    
    
    28,959
    
    
    
    87,823
    
    
    
    48,671Selling, marketing & administrative
    
    
    29,693
    
    
    
    22,937
    
    
    
    45,562
    
    
    
    30,768Product development
    
    
    4,096
    
    
    
    1,584
    
    
    
    7,522
    
    
    
    3,059Other, net
    
    
    (1,862
    )
    
    
    (133
    )
    
    
    (2,788
    )
    
    
    (242
    )31,927
    
    
    
    24,388
    
    
    
    50,296
    
    
    
    33,585Income before income taxes
    
    
    17,400
    
    
    
    4,571
    
    
    
    37,527
    
    
    
    15,086Provision for income taxes
    
    
    6,734
    
    
    
    1,778
    
    
    
    14,473
    
    
    
    5,858Net income
    
    
    10,666
    
    
    
    2,793
    
    
    
    23,054
    
    
    
    9,228Accretion of preferred stock
    
    
    
    
    
    
    (62,789
    )
    
    
    
    
    
    
    (125,578
    )Net income/(loss) applicable to common stockholders
    
    $
    10,666
    
    
    $
    (59,996
    )
    
    $
    23,054
    
    
    $
    (116,350
    )Income/(loss) per common shareBasic
    
    $
    0.32
    
    
    $
    (10.00
    )
    
    $
    0.75
    
    
    $
    (19.78
    )Diluted
    
    $
    0.29
    
    
    $
    (10.00
    )
    
    $
    0.65
    
    
    $
    (19.78
    )Weighted-average of common shares used in
income/(loss) per share calculationBasic
    
    
    33,464
    
    
    
    6,001
    
    
    
    30,676
    
    
    
    5,883Diluted
    
    
    36,398
    
    
    
    6,001
    
    
    
    35,676
    
    
    
    5,883
  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 compensation expense (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,177
    
    
    
    
    
    
    
    2,177Exercise of stock options (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    8
    
    
    
    1,337
    
    
    
    
    
    
    
    1,345Exercise of warrants (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    2
    
    
    
    714
    
    
    
    
    
    
    
    716Tax benefit of stock option exercises
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,253
    
    
    
    
    
    
    
    12,253Issuance of common stock (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,890
    
    
    
    69
    
    
    
    106,489
    
    
    
    
    
    
    
    106,558Conversion 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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,054
    
    
    
    23,054Balance as of December 31, 2005 (unaudited)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    34,168
    
    
    $
    342
    
    
    $
    454,730
    
    
    $
    (266,139
    )
    
    $
    188,933
  7




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Adams Respiratory Therapeutics, Inc.
 
 Consolidated Statements of Cash Flows
 (Amounts in thousands)
 Six Months EndedDecember 31,2005
    
    
    2004(unaudited)Operating ActivitiesNet income
    
    $
    23,054
    
    
    $
    9,228Adjustments to reconcile net income to net cash provided by/(used in) operating activities:Depreciation and amortization
    
    
    598
    
    
    
    327Stock compensation expense
    
    
    2,177
    
    
    
    179Deferred taxes
    
    
    1,049
    
    
    
    4,942Changes in operating assets and liabilities:Accounts receivable
    
    
    (28,774
    )
    
    
    (15,046
    )Inventories
    
    
    2,375
    
    
    
    664Prepaid expenses and other current assets
    
    
    (1,681
    )
    
    
    (832
    )Prepayment of advertising expense
    
    
    
    
    
    
    (8,155
    )Other assets
    
    
    
    
    
    
    (2,000
    )Accounts payable
    
    
    9,990
    
    
    
    2,566Income taxes
    
    
    (5,898
    )
    
    
    (144
    )Accrued expenses and other liabilities
    
    
    5,670
    
    
    
    2,942Net cash provided by/(used in) operating activities
    
    
    8,560
    
    
    
    (5,329
    )Investing ActivitiesPurchases of property, plant and equipment
    
    
    (900
    )
    
    
    (1,513
    )Purchases of restricted cash/short-term investments
    
    
    (10,882
    )
    
    
    (9,948
    )Net cash (used in) investing activities
    
    
    (11,782
    )
    
    
    (11,461
    )Financing ActivitiesProceeds from exercise of stock options and warrants
    
    
    2,061
    
    
    
    171Net proceeds from issuance of common stock
    
    
    107,732
    
    
    
    Excess tax benefit from exercise of stock options
    
    
    12,253
    
    
    
    Net cash provided by financing activities
    
    
    122,046
    
    
    
    171Net increase/(decrease) in cash and cash equivalents
    
    
    118,824
    
    
    
    (16,619
    )Cash and cash equivalents at beginning of period
    
    
    24,655
    
    
    
    43,391Cash and cash equivalents at end of period
    
    $
    143,479
    
    
    $
    26,772
  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
  Intangible Assets
   9




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




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




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 Concentration of Credit Risk
  December 31,2005
    
    2004Wholesaler
    
    
    9
    %
    
    
    16
    %Major
retailer  A
    
    
    14
    %
    
    
    14
    %Major
retailer  B
    
    
    14
    %
    
    
    12
    %Major retailer/mass merchandiser
    
    
    18
    %
    
    
    12
    %
 Accounting for Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure
  Other, net
  12




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 Income/(Loss) per Common Share
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    10,666
    
    
    $
    2,793
    
    
    $
    23,054
    
    
    $
    9,228Accretion of preferred stock
    
    
    
    
    
    
    (62,789
    )
    
    
    
    
    
    
    (125,578
    )Net income/(loss) applicable to common stockholders
    
    $
    10,666
    
    
    $
    (59,996
    )
    
    $
    23,054
    
    
    $
    (116,350
    )Average
shares outstanding  basic
    
    
    33,464,379
    
    
    
    6,000,678
    
    
    
    30,675,844
    
    
    
    5,883,432Preferred shares before conversion
    
    
    
    
    
    
    
    
    
    
    1,905,845
    
    
    
    Warrants
    
    
    312,103
    
    
    
    
    
    
    
    330,899
    
    
    
    Stock options
    
    
    2,617,306
    
    
    
    
    
    
    
    2,760,546
    
    
    
    Restricted stock units
    
    
    4,037
    
    
    
    
    
    
    
    2,780
    
    
    
    Average
shares outstanding  diluted
    
    
    36,397,875
    
    
    
    6,000,678
    
    
    
    35,675,915
    
    
    
    5,883,432Income/(loss) per common share:Basic
    
    $
    0.32
    
    
    $
    (10.00
    )
    
    $
    0.75
    
    
    $
    (19.78
    )Diluted
    
    $
    0.29
    
    
    $
    (10.00
    )
    
    $
    0.65
    
    
    $
    (19.78
    )
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2005
    
    2004
    
    2005
    
    2004Warrants
    
    
    
    
    
    
    3,362,378
    
    
    
    
    
    
    
    3,362,378Stock options
    
    
    67,350
    
    
    
    3,531,071
    
    
    
    91,035
    
    
    
    3,531,07167,350
    
    
    
    6,893,449
    
    
    
    91,035
    
    
    
    6,893,449
 2. Benefit Plan
  13




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 3. Stockholders Equity (Deficit)
 Initial Public Offering
  Secondary Offering
  Stock Compensation Plan
      14




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    

December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Expected life of the option
    
    5.5 years
    
    6 years
    
    5 years
    
    6 yearsRisk-free interest rate
    
    
    4.3
    %
    
    
    3.4
    %
    
    
    4.0
    %
    
    
    3.4
    %Volatility
    
    
    52.8
    %
    
    
    0.0
    %
    
    
    66.4
    %
    
    
    0.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Weighted-average fair value per option granted
    
    $
    12.24
    
    
    $
    0.33
    
    
    $
    20.65
    
    
    $
    0.32Intrinsic value of options exercised
    
    $
    31,565
    
    
    $
    294
    
    
    $
    34,380
    
    
    $
    327
  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
    
    
    883,826
    
    
    
    18.82Canceled
    
    
    (11,132
    )
    
    
    9.57Exercised
    
    
    (848,228
    )
    
    
    1.59Options outstanding at December 31, 2005
    
    
    3,271,769
    
    
    $
    6.31
  Options Outstanding
    
    Options ExercisableWeighted-AverageYears
    
    Weighted-
    
    
    
    
    
    
    
    
    
    Weighted-Ranges
    
    
    
    
    
    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
    
    
    1,509,414
    
    
    
    7.1
    
    
    $
    0.40
    
    
    $
    60,769
    
    
    
    926,511
    
    
    $
    0.40
    
    
    $
    37,301$1.42-$2.22
    
    
    418,430
    
    
    
    8.2
    
    
    
    1.57
    
    
    
    16,357
    
    
    
    33,536
    
    
    
    1.55
    
    
    
    1,311$3.02-$4.56
    
    
    169,643
    
    
    
    7.4
    
    
    
    3.40
    
    
    
    6,321
    
    
    
    58,569
    
    
    
    4.11
    
    
    
    2,141$5.01-$5.70
    
    
    178,233
    
    
    
    8.8
    
    
    
    5.03
    
    
    
    6,351
    
    
    
    9,612
    
    
    
    5.31
    
    
    
    340$11.40
    
    
    113,724
    
    
    
    9.1
    
    
    
    11.40
    
    
    
    3,327
    
    
    
    21,762
    
    
    
    11.40
    
    
    
    637$17.00
    
    
    791,291
    
    
    
    9.6
    
    
    
    17.00
    
    
    
    18,722
    
    
    
    
    
    
    
    
    
    

    $28.50-$45.37
    
    
    91,034
    
    
    
    9.8
    
    
    
    34.39
    
    
    
    596
    
    
    
    
    
    
    
    
    
    

    3,271,769
    
    
    
    
    
    
    
    
    
    
    $
    112,443
    
    
    
    1,049,990
    
    
    
    
    
    
    $
    41,730
 15




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (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 December 31, 2005
    
    
    2,221,773
    
    
    
    4.46Vested and exercisable at December 31, 2005
    
    
    1,049,990
    
    
    
    0.17Granted during the six months ended December 31, 2005
    
    
    883,826
    
    
    
    20.65Forfeited during the six months ended December 31, 2005
    
    
    11,132
    
    
    
    2.70
  Warrants
  Outstanding
    
    
    ExerciseWarrants
    
    
    Price1,989
    
    
    $
    0.03127,590
    
    
    $
    4.13114,649
    
    
    $
    4.56Total
    
    
    244,228
  4. Commitments and Contingencies
    16




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




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




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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 Report on Form 10-K for the fiscal 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 Part II, Item 1A. Risk Factors of this quarterly report
and the heading Risk Factors in our final prospectus
filed with the SEC pursuant to Rule 424(b) on December 9, 2005 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
 19




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Results of Operations
 Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004
 Net Sales.
  Three Months EndedDecember 31,
    
    
    Increase/Product
    
    2005
    
    
    2004
    
    
    (Decrease)(In thousands)Mucinex SE
    
    $
    40,837
    
    
    $
    26,249
    
    
    $
    14,588Mucinex DM
    
    
    12,706
    
    
    
    7,254
    
    
    
    5,452Mucinex D
    
    
    9,704
    
    
    
    
    
    
    
    9,704Other products
    
    
    
    
    
    
    2,595
    
    
    
    (2,595
    )Net Sales
    
    $
    63,247
    
    
    $
    36,098
    
    
    $
    27,149
 Cost of Goods Sold.
 Selling, Marketing and Administrative.
 20




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Product Development.
 Other, net.
 Income Taxes.
 Accretion of Preferred Stock.
 Six Months Ended December 31, 2005 Compared to Six Months Ended December 31, 2004
 Net Sales.
  Six Months EndedDecember 31,
    
    
    Increase/Product
    
    2005
    
    
    2004
    
    
    (Decrease)(In thousands)Mucinex SE
    
    $
    77,455
    
    
    $
    47,276
    
    
    $
    30,179Mucinex DM
    
    
    23,105
    
    
    
    11,599
    
    
    
    11,506Mucinex D
    
    
    9,704
    
    
    
    
    
    
    
    9,704Other products
    
    
    
    
    
    
    3,146
    
    
    
    (3,146
    )Net Sales
    
    $
    110,264
    
    
    $
    62,021
    
    
    $
    48,243
 Cost of Goods Sold.
 Selling, Marketing and Administrative.
 21




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Product Development.
 Other, net.
 Income Taxes.
 Accretion of Preferred Stock.
 Liquidity and Capital Resources
     22




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Mark-UpContract Year Ending
    
    PercentageMarch 31, 2005
    
    
    75
    %March 31, 2006
    
    
    50
    %March 31, 2007 through 2015
    
    
    30
    %
    Cash Flows
 Six
months ended December 31, 2005 compared to six months ended December 31, 2004.
  23




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Commitments
  Off-Balance Sheet Arrangements
  24




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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.
 25




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  Risks Relating to Our Business
 We depend heavily on the success of two 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 Mucinex SE and Mucinex DM and build the
Mucinex brand, with the introduction of products like Mucinex D, our results of
operations and future prospects will suffer.
  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.
  26




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##### Table of Contents



Risks Relating to Intellectual Property
 Our U.S. patent no. 6,372,252 was recently subject to a request for
reexamination, which the USPTO granted upon petition to the USPTO Director. If
the USPTO cancels 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.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  27




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Number of SharesFor
    
    
    WithheldDonald J. Liebentritt
    
    
    29,238,322
    
    
    
    3,160John N. Lilly
    
    
    29,238,122
    
    
    
    3,360Andrew N. Schiff, M.D.
    
    
    29,228,622
    
    
    
    12,860
   For
    
    Against
    
    Abstain29,237,565
    
    
    1,703
    
    
    
    2,214
 
 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. 28




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SIGNATURES
  ADAMS RESPIRATORY THERAPEUTICS, INC.Date February 10, 2006
    
    /s/ DAVID BECKERBy: David BeckerIts: Executive Vice President and Chief Financial Officer
 29