##### 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 March 31, 2006
 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
    
    75-2725552Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 4 Mill Ridge Lane
Chester, New Jersey 07930
(Address of principal executive offices including zip code)
 (908) 879-1400
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer 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  March 31, 2006 and June 30, 2005
    
    
    5Consolidated Statements of Operations  Three and nine months ended March 31, 2006 and 2005
    
    
    6Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit)  March 31, 2006
    
    
    7Consolidated Statements of Cash Flows  Nine months ended March 31, 2006 and 2005
    
    
    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 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)
 March 31,
    
    
    June 30,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    133,593
    
    
    $
    24,655Short-term investments
    
    
    19,665
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $179 March 31, 2006 and
$166 at June 30, 2005
    
    
    36,638
    
    
    
    8,531Inventories, net of reserve for obsolescence of $29 at March 31, 2006 and June 30, 2005
    
    
    2,086
    
    
    
    3,107Prepaid expenses and other assets
    
    
    9,864
    
    
    
    4,727Income taxes receivable
    
    
    4,857
    
    
    
    4,990Deferred tax assets
    
    
    5,367
    
    
    
    5,455Total current assets
    
    
    212,070
    
    
    
    51,465Property, plant and equipment, net of accumulated depreciation of $563 at March 31, 2006
and $467 at June 30, 2005
    
    
    4,242
    
    
    
    1,925Deferred tax assets
    
    
    1,774
    
    
    
    2,789Intangible assets, net of accumulated amortization of $1,426 at March 31, 2006 and $799
at June 30, 2005
    
    
    5,337
    
    
    
    5,964Other assets
    
    
    15,934
    
    
    
    1,697Total assets
    
    $
    239,357
    
    
    $
    63,840LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    11,345
    
    
    $
    6,818Accrued compensation and related items
    
    
    4,462
    
    
    
    866Accrued returns, chargebacks, rebates and other sales allowances
    
    
    7,298
    
    
    
    9,947Other current liabilities
    
    
    2,001
    
    
    
    1,098Total current liabilities
    
    
    25,106
    
    
    
    18,729Long-term liabilities:Deferred gain on sale of plant assets
    
    
    1,352
    
    
    
    1,478Accrued royalties
    
    
    676
    
    
    
    803Total liabilities
    
    
    27,134
    
    
    
    21,010Redeemable convertible preferred stock:Series A, $0.01 par value:Issued and outstanding shares  none at March 31, 2006 and 4,307 at June 30, 2005
    
    
    
    
    
    
    98,705Series B, $0.01 par value:Issued and outstanding shares  none at March 31, 2006 and 6,328 at June 30, 2005
    
    
    
    
    
    
    98,251Series C, $0.01 par value:Issued and outstanding shares  none at March 31, 2006 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  34,719 at March 31,
2006 and 8,737 at June 30, 2005
    
    
    347
    
    
    
    87Additional paid-in capital
    
    
    461,072
    
    
    
    15,481Accumulated deficit
    
    
    (249,196
    )
    
    
    (289,193
    )Total stockholders equity/(deficit)
    
    
    212,223
    
    
    
    (273,625
    )Total liabilities, redeemable convertible preferred stock and stockholders equity
    
    $
    239,357
    
    
    $
    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
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)Net sales
    
    $
    76,002
    
    
    $
    59,038
    
    
    $
    186,266
    
    
    $
    121,059Cost of goods sold
    
    
    16,166
    
    
    
    11,326
    
    
    
    38,607
    
    
    
    24,676Gross margin
    
    
    59,836
    
    
    
    47,712
    
    
    
    147,659
    
    
    
    96,383Selling, marketing & administrative
    
    
    28,440
    
    
    
    21,903
    
    
    
    74,002
    
    
    
    52,671Product development
    
    
    3,837
    
    
    
    1,459
    
    
    
    11,359
    
    
    
    4,518Other, net
    
    
    (80
    )
    
    
    (200
    )
    
    
    (2,868
    )
    
    
    (442
    )32,197
    
    
    
    23,162
    
    
    
    82,493
    
    
    
    56,747Income before income taxes
    
    
    27,639
    
    
    
    24,550
    
    
    
    65,166
    
    
    
    39,636Provision for income taxes
    
    
    10,696
    
    
    
    9,756
    
    
    
    25,169
    
    
    
    15,614Net income
    
    
    16,943
    
    
    
    14,794
    
    
    
    39,997
    
    
    
    24,022Accretion of preferred stock
    
    
    
    
    
    
    (24,999
    )
    
    
    
    
    
    
    (150,577
    )Net income/(loss) applicable to
common stockholders
    
    $
    16,943
    
    
    $
    (10,205
    )
    
    $
    39,997
    
    
    $
    (126,555
    )Income/(loss) per common shareBasic
    
    $
    0.49
    
    
    $
    (1.67
    )
    
    $
    1.25
    
    
    $
    (21.23
    )Diluted
    
    $
    0.46
    
    
    $
    (1.67
    )
    
    $
    1.12
    
    
    $
    (21.23
    )Weighted-average of common shares
used in income/(loss) per share
calculationBasic
    
    
    34,355
    
    
    
    6,120
    
    
    
    31,884
    
    
    
    5,962Diluted
    
    
    36,759
    
    
    
    6,120
    
    
    
    35,653
    
    
    
    5,962
  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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,501
    
    
    
    
    
    
    
    3,501Exercise of stock options
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,185
    
    
    
    12
    
    
    
    1,802
    
    
    
    
    
    
    
    1,814Exercise of warrants
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    3
    
    
    
    714
    
    
    
    
    
    
    
    717Tax benefit of stock option
exercises (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,766
    
    
    
    
    
    
    
    16,766Issuance of common
stock (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,890
    
    
    
    69
    
    
    
    106,529
    
    
    
    
    
    
    
    106,598Conversion 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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,997
    
    
    
    39,997Balance as of March 31,
2006 (unaudited)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    34,719
    
    
    $
    347
    
    
    $
    461,072
    
    
    $
    (249,196
    )
    
    $
    212,223
  7




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Adams Respiratory Therapeutics, Inc.
 
 Consolidated Statements of Cash Flows
(Amounts in thousands)
 Nine Months EndedMarch 31,2006
    
    
    2005(unaudited)Operating ActivitiesNet income
    
    $
    39,997
    
    
    $
    24,022Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:Depreciation and amortization
    
    
    902
    
    
    
    560Stock compensation expense
    
    
    3,501
    
    
    
    283Loss on sale of property, plant and equipment
    
    
    896
    
    
    
    Loss on lease, net of sublease income
    
    
    631
    
    
    
    Deferred taxes
    
    
    1,102
    
    
    
    6,700Changes in operating assets and liabilities:Accounts receivable
    
    
    (28,107
    )
    
    
    (28,514
    )Inventories
    
    
    1,021
    
    
    
    1,157Prepaid expenses and other current assets
    
    
    (5,137
    )
    
    
    (4,254
    )Prepayment of advertising expense
    
    
    
    
    
    
    (4,778
    )Other assets
    
    
    
    
    
    
    (903
    )Accounts payable
    
    
    4,527
    
    
    
    4,408Income taxes
    
    
    133
    
    
    
    3,529Accrued expenses and other liabilities
    
    
    1,489
    
    
    
    3,714Net cash provided by operating activities
    
    
    20,955
    
    
    
    5,924Investing ActivitiesPurchases of property, plant and equipment
    
    
    (3,488
    )
    
    
    (1,596
    )Purchases of investments and increase in restricted cash
    
    
    (35,599
    )
    
    
    Purchases of intangibles
    
    
    
    
    
    
    (2,000
    )Net cash (used in) investing activities
    
    
    (39,087
    )
    
    
    (3,596
    )Financing ActivitiesProceeds from exercise of stock options and warrants
    
    
    2,532
    
    
    
    538Net proceeds from issuance of common stock
    
    
    107,772
    
    
    
    Excess tax benefit from exercise of stock options
    
    
    16,766
    
    
    
    Net cash provided by financing activities
    
    
    127,070
    
    
    
    538Net increase/(decrease) in cash and cash equivalents
    
    
    108,938
    
    
    
    2,866Cash and cash equivalents at beginning of period
    
    
    24,655
    
    
    
    43,391Cash and cash equivalents at end of period
    
    $
    133,593
    
    
    $
    46,257
  8




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##### Table of Contents



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
  Investments
  Accounting for Certain Investments in Debt and
Equity Securities
  9




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 March 31, 2006Short-term investments
    
    $
    19,665Long-term investments
    
    
    14,934Total short-term and long-term investments
    
    $
    34,599
 Intangible Assets
     Other Assets
   10




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 Income Taxes
  Revenue Recognition
  Sales Returns and Allowances
        11




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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
    Concentration of Credit Risk
  March 31,2006
    
    2005Wholesaler
    
    
    11
    %
    
    
    14
    %Major retailer  A
    
    
    12
    %
    
    
    14
    %Major retailer  B
    
    
    11
    %
    
    
    11
    %Major retailer/mass merchandiser
    
    
    19
    %
    
    
    14
    %
 Accounting for Stock-Based Compensation
 Share-Based Payment
 12




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
   Other, net
  Income/(Loss) per Common Share
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    16,943
    
    
    $
    14,794
    
    
    $
    39,997
    
    
    $
    24,220Accretion of preferred stock
    
    
    
    
    
    
    (24,999
    )
    
    
    
    
    
    
    (150,577
    )Net income/(loss) applicable to
common stockholders
    
    $
    16,943
    
    
    $
    (10,205
    )
    
    $
    39,997
    
    
    $
    (126,555
    )Average shares outstanding  basic
    
    
    34,355,380
    
    
    
    6,119,698
    
    
    
    31,883,767
    
    
    
    5,962,187Preferred shares before conversion
    
    
    
    
    
    
    
    
    
    
    1,279,838
    
    
    
    Warrants
    
    
    143,488
    
    
    
    
    
    
    
    260,253
    
    
    
    Stock options
    
    
    2,254,227
    
    
    
    
    
    
    
    2,224,899
    
    
    
    Restricted stock units
    
    
    5,994
    
    
    
    
    
    
    
    3,833
    
    
    
    Average shares outstanding  diluted
    
    
    36,759,089
    
    
    
    6,119,698
    
    
    
    35,652,590
    
    
    
    5,962,187Income/(loss) per common share:Basic
    
    $
    0.49
    
    
    $
    (1.67
    )
    
    $
    1.25
    
    
    $
    (21.23
    )Diluted
    
    $
    0.46
    
    
    $
    (1.67
    )
    
    $
    1.12
    
    
    $
    (21.23
    )
 13




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Warrants
    
    
    
    
    
    
    2,787,929
    
    
    
    
    
    
    
    2,706,284Stock options
    
    
    104,384
    
    
    
    2,517,594
    
    
    
    123,430
    
    
    
    2,621,232104,384
    
    
    
    5,305,523
    
    
    
    123,430
    
    
    
    5,327,516
 2. Benefit Plan
  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
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Expected life of the option
    
    5 years
    
    6 years
    
    5 years
    
    6 yearsRisk-free interest rate
    
    
    4.5
    %
    
    
    3.4
    %
    
    
    4.0
    %
    
    
    3.4
    %Volatility
    
    
    51.4
    %
    
    
    0.0
    %
    
    
    65.9
    %
    
    
    0.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Weighted-average fair value per option granted
    
    $
    20.94
    
    
    $
    2.11
    
    
    $
    11.37
    
    
    $
    1.25Intrinsic value of options exercised
    
    $
    12,772
    
    
    $
    371
    
    
    $
    47,152
    
    
    $
    689
  Weighted-AverageExerciseShares
    
    Price per OptionOptions outstanding at June 30, 2005
    
    
    3,247,303
    
    
    $
    1.68Granted
    
    
    917,976
    
    
    
    19.68Canceled
    
    
    (18,090
    )
    
    
    10.64Exercised
    
    
    (1,185,530
    )
    
    
    1.53Options outstanding at March 31, 2006
    
    
    2,961,659
    
    
    $
    7.26
 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)
 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
    
    
    1,284,716
    
    
    
    7.2
    
    
    $
    0.40
    
    
    $
    50,579
    
    
    
    777,463
    
    
    $
    0.40
    
    
    $
    30,609$1.42-$2.22
    
    
    356,029
    
    
    
    7.9
    
    
    
    1.59
    
    
    
    13,592
    
    
    
    31,188
    
    
    
    1.61
    
    
    
    1,190$3.02-$4.56
    
    
    127,399
    
    
    
    8.0
    
    
    
    3.15
    
    
    
    4,665
    
    
    
    16,325
    
    
    
    4.05
    
    
    
    583$5.01-$5.70
    
    
    176,373
    
    
    
    8.5
    
    
    
    5.03
    
    
    
    6,128
    
    
    
    8,174
    
    
    
    5.36
    
    
    
    281$11.40
    
    
    104,380
    
    
    
    8.8
    
    
    
    11.40
    
    
    
    2,961
    
    
    
    14,524
    
    
    
    11.40
    
    
    
    412$17.00
    
    
    789,333
    
    
    
    9.3
    
    
    
    17.00
    
    
    
    17,973
    
    
    
    4,037
    
    
    
    17.00
    
    
    
    92$28.50-$45.37
    
    
    123,429
    
    
    
    9.7
    
    
    
    36.76
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    2,961,659
    
    
    
    
    
    
    
    
    
    
    $
    96,420
    
    
    
    851,711
    
    
    
    
    
    
    $
    33,167
   Weighted AverageNumber of
    
    Grant DateOptions
    
    Fair Value per OptionNonvested options at June 30, 2005
    
    
    1,631,078
    
    
    $
    0.42Nonvested options at March 31, 2006
    
    
    2,109,948
    
    
    
    4.98Vested and exercisable at March 31, 2006
    
    
    851,711
    
    
    
    0.18Granted during the nine months ended March 31, 2006
    
    
    917,976
    
    
    
    11.37Forfeited during the nine months ended March 31, 2006
    
    
    18,090
    
    
    
    1.86
  Warrants
  Outstanding
    
    ExerciseWarrants
    
    Price1,989
    
    
    $
    0.03324
    
    
    $
    4.56Total
    
    
    2,313
 16




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
  4. Commitments and Contingencies
    Fiscal 2006
    
    $
    204Fiscal 2007
    
    
    816Fiscal 2008
    
    
    816Fiscal 2009
    
    
    830Fiscal 2010
    
    
    872Thereafter
    
    
    7,286$
    10,824
   Fiscal 2006
    
    $
    85Fiscal 2007
    
    
    193Fiscal 2008
    
    
    109Fiscal 2009
    
    
    128Fiscal 2010
    
    
    108Thereafter
    
    
    295$
    918
    17




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##### Table of Contents



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




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Adams Respiratory Therapeutics, Inc.
 Notes to Consolidated Financial Statements (unaudited)  (continued)
($ in thousands, except per share amounts)
  19




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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 Managements Discussion and Analysis of Financial Condition and
Results of Operations, and the 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
 Humibid SE.
 Future Products.
 Seasonality
 Critical Accounting Policies and Estimates
 Accounting for Stock-Based Compensation.  Share-Based Payment
 20




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Accounting for Certain Investments in Debt and Equity Securities. Accounting for Certain
Investments in Debt and Equity Securities
   Results of Operations
 Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Net Sales.
  Three Months EndedMarch 31,
    
    
    Increase/Product
    
    2006
    
    
    2005
    
    
    (Decrease)(In thousands)Mucinex SE
    
    $
    51,882
    
    
    $
    43,408
    
    
    $
    8,474Mucinex DM
    
    
    18,272
    
    
    
    14,229
    
    
    
    4,043Mucinex D
    
    
    4,689
    
    
    
    
    
    
    
    4,689Humibid SE
    
    
    1,159
    
    
    
    
    
    
    
    1,159Other
    
    
    
    
    
    
    1,401
    
    
    
    (1,401
    )Net Sales
    
    $
    76,002
    
    
    $
    59,038
    
    
    $
    16,964
 Cost of Goods Sold.
 21




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##### Table of Contents



Selling, Marketing and Administrative.
 Product Development.
 Other, net.
 Income Taxes.
 Accretion of Preferred Stock.
 Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005
 Net Sales.
  Nine Months EndedMarch 31,
    
    
    Increase/Product
    
    2006
    
    
    2005
    
    
    (Decrease)(In thousands)Mucinex SE
    
    $
    129,370
    
    
    $
    90,684
    
    
    $
    38,686Mucinex DM
    
    
    41,372
    
    
    
    25,828
    
    
    
    15,544Mucinex D
    
    
    14,365
    
    
    
    
    
    
    
    14,365Humibid SE
    
    
    1,159
    
    
    
    
    
    
    
    1,159Other
    
    
    
    
    
    
    4,547
    
    
    
    (4,547
    )Net Sales
    
    $
    186,266
    
    
    $
    121,059
    
    
    $
    65,207
 Cost of Goods Sold.
 22




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##### Table of Contents



Selling, Marketing and Administrative.
 Product Development.
 Other, net.
 Income Taxes.
 Accretion of Preferred Stock.
 Liquidity and Capital Resources
   23




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##### Table of Contents



Mark-UpContract Year Ending
    
    PercentageMarch 31, 2005
    
    
    75
    %March 31, 2006
    
    
    50
    %March 31, 2007 through 2015
    
    
    30
    %
    24




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##### Table of Contents



Cash Flows
 Nine months ended March 31, 2006 compared to nine months ended March 31, 2005.
   Commitments
  Off-Balance Sheet Arrangements
  25




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##### Table of Contents



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.
 26




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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.
  Our principal supplier of guaifenesin, the active ingredient in our Mucinex
product line, has historically had difficulty delivering the amount of
guaifenesin we have requested. We also rely on a single supplier for
dextromethorphan, the additional active ingredient in Mucinex DM.
  27




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##### Table of Contents



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.
  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.
  28




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##### Table of Contents



Regulatory Risks
 The sale of products containing pseudoephedrine is restricted by additional
federal and state government regulations, which may negatively impact our sales
of Mucinex D.
  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.
 .
 29




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
   
 ITEM 6. EXHIBITS.
 ExhibitNumber
    
    
    
    Description31.1*
    
    
    
    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. 30




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SIGNATURES
  ADAMS RESPIRATORY THERAPEUTICS, INC.Date May 11, 2006
    /s/ DAVID BECKERBy:           David BeckerIts:          Executive Vice President and
Chief Financial Officer 31