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                                UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended March 31, 2005
                        Commission file number 1-9601

                         K-V PHARMACEUTICAL COMPANY
           (Exact name of registrant as specified in its charter)
                           2503 South Hanley Road
                          St. Louis, Missouri 63144
                               (314) 645-6600

         DELAWARE                                        43-0618919
(State of Incorporation)                     (IRS Employer Identification No.)

         Securities Registered Pursuant to Section 12(b) of the Act:
 Class A Common Stock, par value $.01 per share     New York Stock Exchange
 Class B Common Stock, par value $.01 per share     New York Stock Exchange

         Securities Registered Pursuant to Section 12(g) of the Act:
        7% Cumulative Convertible Preferred, par value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

                                Yes X  No
                                   ---   ---

The aggregate market value of the shares of Class A and Class B Common Stock
held by nonaffiliates of the registrant as of September 30, 2004, the last
business day of the registrant's most recently completed second fiscal
quarter, was $502,350,165 and $144,631,685, respectively. As of June 9,
2005, the registrant had outstanding 35,962,654 and 13,322,699 shares of
Class A and Class B Common Stock, respectively, exclusive of treasury
shares.

                     DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of the definitive proxy statement of the registrant (to
be filed pursuant to Regulation 14A for registrant's 2005 Annual Meeting of
Shareholders, which involves the election of directors), are incorporated by
reference into Items 10, 11, 12, 13 and 14 to the extent stated in such items.


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         CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-K, including the documents that we incorporate herein by
reference, contains various forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995
("PSLRA"), which may be based on or include assumptions, concerning our
operations, future results and prospects. Such statements may be identified
by the use of words like "plans," "expect," "aim," "believe," "projects,"
"anticipate," "commit," "intend," "estimate," "will," "should," "could," and
other expressions that indicate future events and trends.

All statements that address expectations or projections about the future,
including without limitation, statements about our strategy for growth,
product development, regulatory approvals, market position, expenditures and
financial results, are forward-looking statements.

All forward-looking statements are based on current expectations and are
subject to risk and uncertainties. In connection with the "safe harbor"
provisions, we provide the following cautionary statements identifying
important economic, political and technology factors which, among others,
could cause the actual results or events to differ materially from those set
forth or implied by the forward-looking statements and related assumptions.

Such factors include (but are not limited to) the following: (1) changes in
the current and future business environment, including interest rates and
capital and consumer spending; (2) the difficulty of predicting FDA
approvals, including the timing, and that any period of exclusivity may not
be realized; (3) acceptance and demand for new pharmaceutical products; (4)
the impact of competitive products and pricing; (5) new product development
and launch, including but limited to the possibility that any product launch
may be delayed or that product acceptance may be less than anticipated; (6)
reliance on key strategic alliances; (7) the availability of raw materials;
(8) the regulatory environment; (9) fluctuations in operating results; (10)
the difficulty of predicting international regulatory approval, including
the timing; (11) the difficulty of predicting the pattern of inventory
movements by our customers; (12) the impact of competitive response to our
sales, marketing and strategic efforts; (13) risks that we may not
ultimately prevail in our litigation; and (14) the risks detailed from time
to time in our filings with the Securities and Exchange Commission.

This discussion is by no means exhaustive, but is designed to highlight
important factors that may impact the Company's outlook.

Because the factors referred to above, as well as the statements included
under the captions "Narrative Description of Business," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and elsewhere in this Form 10-K, could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance
on any forward-looking statements. Further, any forward-looking statement
speaks only as of the date on which it is made and, unless applicable law
requires to the contrary, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which the statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for us
to predict which factors will arise, when they will arise and/or their
effects. In addition, we cannot assess the impact of each factor on our
business or financial condition or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.


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ITEM 1.  BUSINESS
         --------

(a)      GENERAL DEVELOPMENT OF BUSINESS
         -------------------------------

         Unless the context otherwise indicates, when we use the words "we,"
         "our," "us," "our company" or "KV" we are referring to K-V
         Pharmaceutical Company and its wholly-owned subsidiaries, including
         Ther-Rx Corporation, ETHEX Corporation and Particle Dynamics, Inc.

         We were incorporated under the laws of Delaware in 1971 as a
         successor to a business originally founded in 1942. Victor M.
         Hermelin, our Chairman and founder, invented and obtained initial
         patents for early controlled release and enteric coating which
         became part of our core business and a platform for future drug
         delivery emphasis.

         We develop advanced drug delivery technologies which enhance the
         effectiveness of new therapeutic agents, existing pharmaceutical
         products and prescription nutritional products. We have developed
         and patented a wide variety of drug delivery and formulation
         technologies which are primarily focused in four principal areas:
         SITE RELEASE(R) bioadhesives; tastemasking; oral controlled
         release; and oral quick dissolving tablets. We incorporate these
         technologies in the products we market to control and improve the
         absorption and utilization of active pharmaceutical compounds. In
         1990, we established a generic marketing capability through a
         wholly-owned subsidiary, ETHEX Corporation ("ETHEX"), which we
         believe makes us one of the only drug delivery research and
         development companies that also markets "technologically
         distinguished" generic products. In 1999, we established a
         wholly-owned subsidiary, Ther-Rx Corporation ("Ther-Rx"), to market
         branded pharmaceuticals directly to physician specialists.

         Our wholly-owned subsidiary, Particle Dynamics, Inc. ("PDI"), was
         acquired in 1972. Through PDI, we develop and market specialty
         value-added raw materials, including drugs, directly compressible
         and microencapsulated products, and other products used in the
         pharmaceutical, nutritional, food, personal care and other markets.

(b)      SIGNIFICANT BUSINESS DEVELOPMENTS
         ---------------------------------

         In September 2004, we made a settlement payment in the amount of
         $16.5 million to resolve all previously pending claims between us
         and Healthpoint, Ltd. without the admission of any liability. The
         settlement was fully reserved by us in September 2002 and therefore
         had no impact on our earnings in fiscal 2005.

         In December 2004, we increased our available credit facilities to
         $140.0 million. The revised credit facilities provide for an
         increase from $40.0 million to $80.0 million in our revolving line
         of credit along with an increase from $25.0 million to $60.0
         million in the supplemental credit line that is available for
         financing acquisitions. These credit facilities expire in October
         2006 and December 2005, respectively.

         In January 2005, Ther-Rx introduced its second New Drug
         Application, or NDA, approved product, Clindesse(TM), the first
         approved single-dose therapy for bacterial vaginosis. Similar to
         Gynazole-1(R), our vaginal antifungal cream product, Clindesse(TM)
         incorporates our proprietary VagiSite(R) bioadhesive drug delivery
         technology.

         During fiscal 2005, we entered into two separate licensing
         agreements for the right to market both Gynazole-1(R) and
         Clindesse(TM) in Spain, Portugal, Andorra, and Mexico. These
         arrangements expanded Gynazole-1's future international presence
         beyond the over 50 markets in Europe, Latin America, the Middle
         East, Asia, Indonesia, the People's Republic of China, Australia
         and New Zealand covered in other previously signed licensing
         agreements. Also, during fiscal 2005, we received our second
         regulatory approval to market Gynazole-1(R) into an international
         market.

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         In April 2005, the Company completed the purchase of a 260,000
         square foot building in the St. Louis metropolitan area for $11.8
         million. The property had been leased by the Company since April
         2000 and will continue to function as the Company's main
         distribution facility. The purchase price was paid with cash on
         hand.

         In May 2005, we entered into a long-term product development and
         marketing license agreement with Strides Arcolab, Ltd, (Strides) an
         Indian generic pharmaceutical developer and manufacturer, for
         exclusive marketing rights in the United States and Canada for 10
         new generic drugs. Under the agreement, Strides will be responsible
         for developing, submitting for regulatory approval and
         manufacturing the 10 products and we will be responsible for
         exclusively marketing the products in the territories covered by
         the agreement. Under a separate agreement, we invested $11.3
         million in Strides' redeemable preferred stock.

         In May 2005, the Company and FemmePharma, Inc. (FemmePharma)
         mutually agreed to terminate the license agreement we entered into
         with them in April 2002. As part of this transaction, we acquired
         all of the common stock of FemmePharma for $25.0 million after
         certain assets of the entity had been distributed to FemmePharma's
         other shareholders. Included in our acquisition of FemmePharma are
         the worldwide marketing rights to an endometriosis product that has
         successfully completed Phase II clinical trials. This product was
         originally part of the licensing arrangement with FemmePharma that
         provided us, among other things, marketing rights for the product
         principally in the United States. In accordance with the new
         agreement, we are assuming responsibility for conducting the Phase
         III clinical study, have acquired worldwide licensing rights of the
         endometriosis product, are no longer responsible for milestone
         payments and royalties specified in the original licensing
         agreement, and have secured exclusive worldwide rights for use of
         the FemmePharma technology for vaginal anti-infective products. We
         believe the Phase III clinical study for the endometriosis product
         will begin during fiscal 2006. In connection with this transaction,
         we expect to incur a charge of approximately $30.0 million in the
         first quarter of fiscal 2006, which includes the write-off of the
         $25.0 million payment plus preferred stock investments previously
         made, and which principally relates to in-process research and
         development.

(c)      INDUSTRY SEGMENTS
         -----------------

         We operate principally in three industry segments, consisting of
         branded products marketing, specialty generics marketing and
         specialty raw materials marketing. Revenues are derived primarily
         from directly marketing our own technologically distinguished
         generic/non-branded and brand-name products. Revenues may also be
         received in the form of licensing revenues and/or royalty payments
         based upon a percentage of the licensee's sales of the product, in
         addition to manufacturing revenues, when marketing rights to
         products using our advanced drug delivery technologies are
         licensed. See Note 20 to our consolidated financial statements.

(d)      NARRATIVE DESCRIPTION OF BUSINESS
         ---------------------------------

         OVERVIEW

         We are a fully integrated specialty pharmaceutical company that
         develops, acquires, manufactures and markets technologically
         distinguished branded and generic/non-branded prescription
         pharmaceutical products. We have a broad range of dosage form
         capabilities including tablets, capsules, creams, liquids and
         ointments. We conduct our branded pharmaceutical operations through
         Ther-Rx and our generic/non-branded pharmaceutical operations
         through ETHEX. Through PDI, we also develop, manufacture and market
         technologically advanced, value-added raw material products for the
         pharmaceutical, nutritional, personal care, food and other markets.

         We have a broad portfolio of drug delivery technologies which we
         leverage to create technologically distinguished brand name and
         specialty generic/non-branded products. We have developed and
         patented 15 drug delivery and formulation technologies primarily in
         four principal areas: SITE RELEASE(R) bioadhesives, oral controlled
         release, tastemasking, and oral quick dissolving tablets. We
         incorporate these technologies in the products we market to control
         and improve the absorption and utilization of active pharmaceutical
         compounds.


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         These technologies provide a number of benefits, including reduced
         frequency of administration, reduced side effects, improved drug
         efficacy, enhanced patient compliance and improved taste.

         We have a long history of developing drug delivery technologies. In
         the 1950's, we received what we believe to be the first patents for
         sustained release delivery systems which enhance the convenience
         and effectiveness of pharmaceutical products. In our early years,
         we used our technologies to develop products for other drug
         marketers. Our technologies have been used in several well known
         products including Actifed(R) 12-hour, Sudafed(R) SA, Centrum
         Jr.(R) and Kaopectate(R) Chewable. Since the 1990's, we have chosen
         to focus our drug development expertise on internally developed
         products for our branded and generic/non-branded pharmaceutical
         businesses.

         For example, since its inception in March 1999, our Ther-Rx
         business has successfully launched seven internally developed
         branded pharmaceutical products, all of which incorporate our drug
         delivery technologies. We have also introduced technology-improved
         versions for three of the branded products acquired by us.
         Furthermore, most of the internally developed generic/non-branded
         products marketed by our ETHEX business incorporate one or more of
         our drug delivery technologies.

         Our drug delivery technology allows us to differentiate our
         products in the marketplace, both in the branded and
         generic/non-branded pharmaceutical areas. We believe that this
         differentiation provides substantial competitive advantages for our
         products, allowing us to establish a strong record of growth and
         profitability and a leadership position in certain segments of our
         industry. From 1998 to 2005, we have grown net revenues and net
         income at compounded annual growth rates of 17.6% and 17.1%,
         respectively. Ther-Rx has grown substantially since its inception
         in March 1999 and continues to gain market share in its women's
         healthcare family of products. Also, by focusing on the development
         and marketing of technology-distinguished, multisource drugs, over
         half of the more than 140 specialty generic/non-branded products
         sold by our ETHEX subsidiary are market leaders in the
         multisource-brand market.

         THER-RX -- OUR BRAND NAME PHARMACEUTICAL BUSINESS

         We established Ther-Rx in 1999 to market brand name pharmaceutical
         products which incorporate our proprietary technologies. Since its
         inception, Ther-Rx has introduced over 10 products into two
         principal therapeutic categories - women's health and oral
         hematinics - where physician specialists can be reached using a
         highly focused sales force. By targeting physician specialists, we
         believe Ther-Rx can compete successfully without the need for a
         sales force as large as pharmaceutical companies with less
         specialized product lines. Ther-Rx's net revenues grew from $82.9
         million in fiscal 2004 to $90.1 million in fiscal 2005 and
         represented 29.7% of our fiscal 2005 total net revenues.

         We established our women's healthcare franchise through the August
         1999 acquisition of PreCare(R), a prescription prenatal vitamin,
         from UCB Pharma, Inc. Since the acquisition, Ther-Rx has
         reformulated the original product using proprietary technologies,
         and subsequently has launched five internally developed products as
         extensions to the PreCare(R) product line. Building upon the
         PreCare(R) acquisition, we have developed a line of proprietary
         products which makes Ther-Rx the leading provider of branded
         prescription prenatal vitamins in the United States.

         The first of our internally developed, patented line extensions to
         PreCare(R) was PreCare(R) Chewables, the world's first prescription
         chewable prenatal vitamin. PreCare(R) Chewables addressed a
         longstanding challenge to improve pregnant women's compliance with
         prenatal vitamin regimens by alleviating the difficulty that
         patients experience in swallowing large prenatal pills. Ther-Rx's
         second internally developed product, PremesisRx(TM), is an
         innovative prenatal prescription product that incorporates our
         controlled release Vitamin B(6). This product is designed for use in
         conjunction with a physician-supervised program to reduce
         pregnancy-related nausea and vomiting, which is experienced by 50%
         to 90% of women who become pregnant. The third product, PreCare(R)
         Conceive(TM), is the first product designed as a prescription
         nutrional pre-conception supplement. The fourth


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         product, PrimaCare(R), is the first prescription prenatal/postnatal
         nutritional supplement with essential fatty acids specially
         designed to help provide nutritional support for women during
         pregnancy, postpartum recovery and throughout the childbearing
         years. The fifth product, PrimaCare(R) ONE, was launched in fiscal
         2005 as a proprietary line extension to PrimaCare(R) and is the
         first prenatal product to contain essential fatty acids in a
         one-dose-per-day dosage form. All of the products in the PreCare(R)
         product line have been formulated to contain 1 mg. of folic acid,
         which has been shown to reduce the incidence of fetal neural tube
         defects by at least 50%.

         In June 2000, Ther-Rx launched its first NDA approved product,
         Gynazole-1(R), the only one-dose prescription cream treatment for
         vaginal yeast infections. Gynazole-1(R) incorporates our patented
         drug delivery technology, VagiSite(R), the only clinically proven
         and Federal Food and Drug Administration, or FDA, approved
         controlled release bioadhesive system. Since its launch, the
         product has gained a 31.5% market share in the U.S. prescription
         vaginal antifungal cream market.

         In addition, we have entered into licensing agreements for the
         right to market Gynazole-1(R) in over 50 markets in Europe, Latin
         America, the Middle East, Asia, Indonesia, the People's Republic of
         China, Australia, New Zealand and Mexico. We also received, during
         fiscal 2005, our second regulatory approval to market Gynazole-1(R)
         into an international market.

         In January 2005, Ther-Rx introduced its second NDA approved
         product, Clindesse(TM), the first approved single-dose therapy for
         bacterial vaginosis. Similar to Gynazole-1(R), Clindesse(TM)
         incorporates our proprietary VagiSite(R) bioadhesive drug delivery
         technology. Since its launch, Clindesse(TM) has garnered 13.1% of
         the intravaginal bacterial vaginosis market in the United States.
         We have also entered into licensing agreements for the right to
         market Clindesse(TM) in Spain, Portugal, Andorra, Brazil and
         Mexico.

         We established our hematinic product line by acquiring two leading
         hematinic brands, Chromagen(R) and Niferex(R), in March 2003. We
         re-launched technology-improved versions of these products mid-way
         through fiscal 2004. In fiscal 2005, the reformulated hematinic
         brands have generated 64.8% growth in new prescription volume
         compared to new prescription volume in the prior year.

         Ther-Rx's cardiovascular product line consists of Micro-K(R), an
         extended-release potassium supplement used to replenish
         electrolytes, primarily in patients who are on medication which
         depletes the levels of potassium in the body. We acquired
         Micro-K(R) in March 1999 from the pharmaceutical division of Wyeth.

         Based on the addition of new products and our expectation of
         continued growth in our branded business, Ther-Rx expanded its
         branded sales force by 80 specialty sales representatives and sales
         management personnel in fiscal 2004 and Ther-Rx added an additional
         30 specialty sales representatives late in fiscal 2005. Ther-Rx's
         sales force focuses on physician specialists who are identified
         through available market research as frequent prescribers of our
         prescription products. Ther-Rx also has a corporate sales and
         marketing management team dedicated to planning and managing
         Ther-Rx's sales and marketing efforts.

         ETHEX -- OUR TECHNOLOGICALLY DISTINGUISHED GENERIC/NON-BRANDED DRUG
         BUSINESS

         We established ETHEX, currently our largest business segment, in
         1990 to utilize our portfolio of drug delivery systems to develop
         and market hard-to-copy generic/non-branded pharmaceuticals. We
         believe many of our ETHEX products enjoy higher gross margins than
         other generic pharmaceutical companies due to our approach of
         selecting products that benefit from our proprietary drug delivery
         systems and our specialty manufacturing capabilities. These
         advantages can act as barriers to entry which may limit competition
         and reduce the rate of price erosion typically experienced in the
         generic market. ETHEX's net revenues were $191.9 million for fiscal
         2005, which represented 63.2% of our total net revenues.

         We have incorporated our proprietary drug delivery technology in
         many of our generic/non-branded pharmaceutical products. For
         example, we have included METER RELEASE(R), one of our proprietary
         controlled


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         release technologies, into the only generic equivalent to
         Norpace(R) CR, an antiarrhythmic that is taken twice daily.
         Further, we have used our KV/24(R) once daily technology in the
         generic equivalent to IMDUR(R), a cardiovascular drug that is taken
         once per day. In addition, utilizing our specialty manufacturing
         expertise and a sublingual delivery system, we produced and
         marketed the first non-branded alternative to Nitrostat(R)
         sublingual, an anti-angina product which historically has been
         difficult to manufacture.

         To capitalize on ETHEX's unique product capabilities, we continue
         to expand our ETHEX product portfolio. Over the past two years, we
         have introduced more than 20 new generic/non-branded products and
         have a number of products currently in development to be marketed
         by ETHEX. Since January 1, 2004, we have received six new
         Abbreviated New Drug Application, or ANDA, approvals. We also
         anticipate receipt of ANDA approvals for Diltiazem and
         Levothyroxine, among other products, in fiscal 2006.

         In addition to our internal marketing efforts, we have licensed the
         exclusive rights to co-develop and market more than 15 products
         with other drug delivery companies. These products are generic
         equivalents to brand name products with aggregate annual sales
         totaling over $4 billion and, subject to completion of development
         and regulatory approvals, are expected to be launched at various
         times beginning in fiscal 2006 and continuing through fiscal 2008.
         In fiscal 2005, we began marketing the 50mg/200mg strength of
         Carbidopa-Levodopa, the generic equivalent to Sinemet(R), under a
         co-development licensing agreement with another drug delivery
         company.

         By focusing our efforts on the development and marketing of
         technology-distinguished, multisource drugs, over half of the more
         than 140 specialty generic/non-branded products sold by our ETHEX
         subsidiary are leaders in their respective multisource-brand
         markets.

         ETHEX primarily focuses on the therapeutic categories of
         cardiovascular, women's health, pain management and respiratory,
         leveraging our expertise in developing and manufacturing products
         in these areas. In addition, we pursue opportunities outside of
         these categories where we also may differentiate our products based
         upon our proprietary drug delivery systems and our specialty
         manufacturing expertise.

         CARDIOVASCULAR. ETHEX currently markets over 40 products in its
         cardiovascular line, including products to treat angina, arrhythmia
         and hypertension, as well as for potassium supplementation. The
         cardiovascular line accounted for 44.6% of ETHEX's net revenues in
         fiscal 2005.

         PAIN MANAGEMENT. ETHEX currently markets over 20 products in its
         pain management line. Included in this line are several controlled
         substance drugs, such as morphine, hydromorphone and oxycodone. The
         pain management line accounted for 18.6% of ETHEX's net revenues in
         fiscal 2005.

         RESPIRATORY. ETHEX currently markets over 30 products in its
         respiratory line, which consists primarily of cough/cold products.
         ETHEX is the leading provider on a unit basis of prescription
         cough/cold products in the United States today. The cough/cold line
         accounted for 15.2% of ETHEX's net revenues in fiscal 2005.

         WOMEN'S HEALTH CARE. ETHEX currently markets over 20 products in
         its women's healthcare line, all of which are prescription prenatal
         vitamins. Based on the number of units sold, ETHEX is the leading
         provider of prescription prenatal vitamins in the United States.
         The women's healthcare line accounted for 10.5% of ETHEX's net
         revenues in fiscal 2005.

         OTHER THERAPEUTICS. In addition to our core therapeutic lines,
         ETHEX markets over 30 products in the gastrointestinal,
         dermatological, anti-anxiety, digestive enzyme and dental
         categories.

         ETHEX has a dedicated sales and marketing team, which includes an
         outside sales team of regional managers and national account
         managers and an inside sales team. The outside sales force calls on
         wholesalers and distributors


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         and national drugstore chains, as well as hospitals, nursing homes,
         independent pharmacies and mail order firms. The inside sales force
         calls on independent pharmacies to create pull-through at the
         wholesale level.

         PDI - OUR VALUE-ADDED RAW MATERIAL BUSINESS

         PDI develops and markets specialty raw material products for the
         pharmaceutical, nutritional, food and personal care industries. Its
         products include value-added active drug molecules, vitamins,
         minerals and other raw material ingredients that provide benefits
         such as improved taste, altered or controlled release profiles,
         enhanced product stability or more efficient and other
         manufacturing process advantages. PDI is also a significant
         supplier of value-added raw material for our Ther-Rx and ETHEX
         businesses. Net revenues for PDI were $18.3 million in fiscal 2005,
         which represented 6.0% of our total net revenues. PDI currently
         offers three distinct lines of specialty raw material products:

         o  DESCOTE(R) is a family of microencapsulated tastemasked
            vitamins and minerals for use in chewable nutritional
            products, quick dissolve dosage forms, foods, children's
            vitamins and other products.

         o  DESTAB(TM) is a family of direct compression products that
            enables pharmaceutical manufacturers to produce tablets and
            caplets more efficiently and economically.

         o  MicroMask(TM) is a family of products designed to alleviate
            problems associated with swallowing tablets. This is
            accomplished by offering superior tasting, chewable or quick
            dissolving dosage forms of medication.

         BUSINESS STRATEGY

         Our goal is to enhance our position as a leading fully integrated
         specialty pharmaceutical company that utilizes its expanding drug
         delivery expertise to bring technologically distinguished brand
         name and generic/non-branded products to market. Our strategies
         incorporate the following key elements:

         INTERNALLY DEVELOP BRAND NAME PRODUCTS. We apply our existing drug
         delivery technologies, research and development and manufacturing
         expertise to introduce new products which can expand our existing
         franchises. In January 2005, Ther-Rx introduced its second NDA
         approved product, Clindesse(TM), the first approved single-dose
         therapy for bacterial vaginosis. Similar to Gynazole-1(R),
         Clindesse(TM) incorporates our proprietary VagiSite(R) bioadhesive
         drug delivery technology. We plan to continue to use our research
         and development, manufacturing and marketing expertise to create
         unique brand name products within our core therapeutic areas and we
         currently have a number of new products in clinical development.

         CAPITALIZE ON ACQUISITION OPPORTUNITIES. We actively seek
         acquisition opportunities for both Ther-Rx and ETHEX. Ther-Rx
         continually looks for platform acquisition opportunities similar to
         PreCare(R) around which we can build franchises. We believe that
         consolidation among large pharmaceutical companies, coupled with
         cost-containment pressures, has increased the level of sales
         necessary for an individual product to justify active marketing and
         promotion. This has led large pharmaceutical companies to focus
         their marketing efforts on drugs with higher volume sales, newer or
         novel drugs which have the potential for high volume sales and
         products which fit within core therapeutic or marketing priorities.
         As a result, major pharmaceutical companies increasingly have
         sought to divest small or non-strategic product lines, which can be
         profitable for specialty pharmaceutical companies like us.

         In making acquisitions, we apply several important criteria in our
         decision-making process. We pursue products with the following
         attributes:

         o  products which we believe have relevance for treatment of
            significant clinical needs;

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         o  promotionally sensitive maintenance drugs which require
            continual use over a long period of time, as opposed to more
            limited use products for acute indications;

         o  products which are predominantly prescribed by physician
            specialists, which can be cost-effectively marketed by our
            focused sales force; and

         o  products which we believe have potential for technological
            enhancements and line extensions based upon our drug delivery
            technologies.

         FOCUS SALES EFFORTS ON HIGH VALUE NICHE MARKETS. We focus our
         Ther-Rx sales efforts on niche markets where we believe we can
         target a relatively narrow physician audience. Because our products
         are sold to specialty physician groups that tend to be relatively
         concentrated, we believe that we can address these markets cost
         effectively with a focused sales force. Based on the addition of
         new products and our expectation of continued growth in our branded
         business, Ther-Rx expanded its branded sales force by 80 specialty
         sales representatives and sales management personnel in fiscal 2004
         and Ther-Rx added an additional 30 specialty sales representatives
         late in fiscal 2005. We plan to continue to build our sales force
         as necessary to accommodate current and future expansions of our
         product lines.

         PURSUE ATTRACTIVE GROWTH OPPORTUNITIES WITHIN THE GENERIC INDUSTRY.
         We plan to continue introducing generic and non-branded
         alternatives to select drugs whose patents have expired,
         particularly when we can add value through our drug delivery
         technologies. Such generic or off-patent pharmaceutical products
         are generally sold at significantly lower prices than the branded
         product. Accordingly, generic pharmaceuticals provide a
         cost-efficient alternative to users of branded products. We believe
         the health care industry will continue to support growth in the
         generic pharmaceutical market and that industry trends favor
         generic product expansion into the managed care, long-term care and
         government contract markets. We further believe that we are
         uniquely positioned to capitalize on this growing market given our
         large base of proprietary drug delivery technologies and our proven
         ability to lead the therapeutic categories we enter.

         ADVANCE EXISTING AND DEVELOP NEW DRUG DELIVERY TECHNOLOGIES. We
         believe our drug delivery platform of 15 distinguished technologies
         has unique breadth and depth. These technologies have enabled us to
         create innovative products, including Gynazole-1(R) and
         Clindesse(TM), which incorporate VagiSite(TM), our proprietary
         bioadhesive controlled release system. In addition, our
         tastemasking and controlled release systems are incorporated into
         our prenatal vitamins, providing them with differentiated benefits
         over other products on the market.

         We plan to continue to develop our drug delivery technologies and
         have various technologies currently under development, such as:
         TransCell(R) for oral esophageal delivery of bioactive peptides and
         proteins that are normally degraded by stomach enzymes or
         first-pass liver effects; PulmoSite(TM) which applies bioadhesive
         and controlled release characteristics to drug agents that are
         inhaled for either local action in the lung or for systemic
         absorption; and Ocusite(TM) for the delivery of active agents by a
         bioadhesive topical application to the eye.

         OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES

         We believe we are a leader in the development of proprietary drug
         delivery systems and formulation technologies which enhance the
         effectiveness of new therapeutic agents, existing pharmaceutical
         products and nutritional supplements. We have used many of these
         technologies to successfully commercialize technologically
         distinguished branded and generic/non-branded products.
         Additionally, we continue to invest our resources in the
         development of new technologies. The following describes our
         principal drug delivery technologies.

         SITE RELEASE(R) TECHNOLOGIES. SITE RELEASE(R) is our largest family
         of technologies and includes eight systems designed specifically
         for oral, topical or interorificial use. These systems rely on
         controlled bioadhesive properties to optimize the delivery of drugs
         to either wet mucosal tissue or the skin and are the subject of
         issued


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         patents and pending patent applications. Of the technologies
         developed, products using the VagiSite(TM) and DermaSite(TM)
         technologies have been successfully commercialized. Our fully
         developed technologies include the following:

         o  VagiSite(TM) is a controlled release bioadhesive delivery
            system that incorporates advanced polyphasic principles to
            create a bioemulsion system delivering therapeutic agents to
            the vagina. We have outlicensed VagiSite(TM) for sale in
            international markets for the treatment of vaginal infections.
            VagiSite(TM) technology is used in Gynazole-1(R), a one-dose
            prescription cream treatment for vaginal yeast infections and
            Clindesse(TM), a one-dose prescription cream treatment for
            bacterial vaginosis.

         o  DermaSite(TM) is a semi-solid SITE RELEASE(R) configuration
            for topical applications to the skin. The bioadhesive and
            controlled release properties of the delivery platform have
            made possible the development of products requiring a
            significantly reduced frequency of application. DermaSite(TM)
            technology is used in Dermarin-L(TM), a topical antifungal
            product being marketed by the leading over-the-counter
            pharmaceutical company in Japan, Taisho Pharmaceutical, Ltd.

         o  OraSite(R) is a controlled release mucoadhesive delivery
            system administered orally in a solid or liquid form. A drug
            formulated with the OraSite(R) technology may be formulated as
            a liquid or as a lozenge in which the dosage form liquefies
            upon insertion and adheres to the mucosal surface of the
            mouth, throat and esophagus. OraSite(R) possesses
            characteristics particularly advantageous to therapeutic
            categories such as oral hygiene, sore throat and periodontal
            and upper gastrointestinal tract disorders.

         o  OraSert(TM) is a solid dosage-form application system
            specifically designed for localized delivery of active agents
            to the oral tissues. The product is formulated as a "cough
            drop" type tablet, which immediately liquefies upon placement
            in the mouth and bioadheres to mucosal tissue in the mouth,
            throat and esophagus. OraSert(TM) possesses characteristics
            particularly advantageous to therapeutic applications such as
            periodontal disease, respiratory conditions, pharyngeal
            conditions and upper gastrointestinal tract disorders.

         o  BioSert(TM) is a bioadhesive delivery system in a solid insert
            formulation for vaginal or rectal administration, similar in
            appearance to a vaginal or rectal suppository, which can be
            used for both local and systemic delivery of drugs. The
            BioSert(TM) dosage form liquefies and bioadheres to vaginal or
            rectal tissues, which is of particular benefit when a patient
            can no longer tolerate orally administered medications. We are
            currently developing several drug products that utilize the
            BioSert(TM) technology, including non-steroidal
            anti-inflammatory drugs, or NSAIDs, and antifungals for a
            local effect and opioids for a systemic effect.

         In addition, the following SITE RELEASE(R) technologies are
         currently under development:

         o  Trans-Cell(R) is a novel bioadhesive, controlled release
            delivery system that may permit oral delivery of bioactive
            peptides and proteins that are normally degraded by stomach
            enzymes or first-pass liver effects. This technology was
            specifically designed to provide an oral delivery alternative to
            biotechnology and other compounds that currently are delivered
            as injections or infused.

         o  OcuSite(TM) is a liquid, microemulsion delivery system
            intended for topical applications in the eye. The
            microemulsion formulation lends optical clarity to the
            application and is particularly well suited for ophthalmic
            use. The bioadhesive and controlled release properties of this
            delivery system allow for reduced dosing regimentation.

         o  PulmoSite(TM) applies bioadhesive and controlled release
            characteristics to drug agents that are to be inhaled for
            either local action to the lung or for systemic absorption.

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         ORAL CONTROLLED RELEASE TECHNOLOGIES. The technological preeminence
         of our advanced drug delivery systems was established in the
         development of our three oral controlled release technologies, all
         of which have been commercialized. Our systems can be individually
         designed to achieve the desired release profile for a given drug.
         The release profile is dependent on many parameters, such as drug
         solubility, protein binding and site of absorption. Some of the
         products utilizing our oral controlled release systems in the
         market include Isosorbide-5-Mononitrate (an AB rated generic
         equivalent to IMDUR(R)) and Disopyramide Phosphate (an AB rated
         generic equivalent of Norpace(R) CR). Our patented technologies
         include the following:

         o  KV/24(R) is a multi-particulate drug delivery system that
            encapsulates one or more drug compounds into spherical
            particles which release the active drug or drugs systemically
            over an 18- to 24-hour period, permitting the development of
            once-a-day drug formulations. We believe that our KV/24(R)
            oral dosing system is the only commercialized 24-hour oral
            controlled release system that is successfully able to
            incorporate more than one active compound.

         o  METER RELEASE(R) is a polymer-based drug delivery system that
            offers different release characteristics than KV/24(R) and is
            used for products that require drug release rates of between
            eight and 12 hours. We have developed METER RELEASE(R) systems
            in tablet, capsule and caplet form that have been
            commercialized in ETHEX products in the cardiovascular,
            gastrointestinal and upper respiratory product categories.

         o  MICRO RELEASE(R) is a microparticulate formulation that
            encapsulates therapeutic agents, employing smaller particles
            than KV/24(R) and METER RELEASE(R). This system is used to
            extend the release of drugs in the body where precise release
            profiles are less important. MICRO RELEASE(R) has been
            commercialized in prescription products marketed by ETHEX and
            Ther-Rx as well as over-the-counter nutritional products.

         TASTEMASKING TECHNOLOGIES. Our tastemasking technologies improve
         the taste of unpleasant drugs. Our three patented tastemasking
         systems can be applied to liquids, chewables or dry powders. We
         first introduced tastemasking technologies in 1991 and have
         utilized them in a number of Ther-Rx and ETHEX products, including
         PreCare(R) Chewables and most of the liquid products that are sold
         in ETHEX's cough/cold line. Our patented technologies include the
         following:

         o  LIQUETTE(R) is a tastemasking system that incorporates
            unpleasant tasting drugs into a hydrophilic and lipophilic
            polymer matrix to suppress the taste of a drug. This
            technology is used for mildly to moderately distasteful drugs
            where low manufacturing costs are particularly important.

         o  FlavorTech(R) is a liquid formulation technology designed to
            reduce the objectionable taste of a wide variety of
            therapeutic products. FlavorTech(R) technology has been used
            in cough/cold syrup products sold by ETHEX and has special
            application to other products, such as antibiotic, geriatric
            and pediatric pharmaceuticals.

         o  MicroMask(TM) is a tastemasking technology that incorporates a
            dry powder, microparticulate approach to reducing
            objectionable tastes by sequestering the unpleasant drug agent
            in a specialized matrix. This formulation technique has the
            effect of "shielding" the drug from the taste receptors
            without interfering with the dissolution and ultimate
            absorption of the agent within the gastrointestinal tract.
            MicroMask(TM) is a more potent tastemasking technology than
            LIQUETTE(R) and has been used in connection with two Ther-Rx
            products.

         QUICK DISSOLVING TECHNOLOGY. Our quick dissolving oral tablet
         technology provides the ability to tastemask, yet dissolves in the
         mouth in a matter of seconds. Most other quick-dissolving
         technologies offer either quickness at the expense of poor
         tastemasking or excellent tastemasking at the expense of quickness.
         While still under development, this system allows for a drug to be
         quickly dissolved in the mouth, and can be combined with
         tastemasking capabilities that offer a unique dosage form for the
         most bitter tasting drug compounds. We have been issued patents and
         have patents pending for this system with the U.S. Patent and
         Trademark Office, or PTO.

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         SALES AND MARKETING

         Ther-Rx has a national sales and marketing infrastructure which
         includes approximately 240 sales representatives dedicated to
         promoting and marketing our branded pharmaceutical products to
         targeted physician specialists. Based on the addition of new
         products and our expectation of continued growth in our branded
         business, Ther-Rx expanded its branded sales force by 80 specialty
         sales representatives and sales management personnel in fiscal 2004
         and added an additional 30 specialty sales representatives late in
         fiscal 2005. Ther-Rx's sales force focuses on physician specialists
         who are identified through available market research as frequent
         prescribers of our prescription products. Ther-Rx also has a
         corporate sales and marketing management team dedicated to planning
         and managing Ther-Rx's sales and marketing efforts.

         We attempt to increase sales of our branded pharmaceutical products
         through physician sales calls and promotional efforts, including
         sampling, advertising and direct mail. For acquired branded
         products, we generally increase the level of physician sales calls
         and promotion relative to the previous owner. For example, with the
         PreCare(R) prenatal sales efforts, we increased the level of
         physician sales calls and sampling to the highest prescribers of
         prenatal vitamins. We also have enhanced our PreCare(R) brand
         franchise by launching five more line extensions to address unmet
         needs, including the launch of PreCare(R) Chewables, Premesis
         Rx(TM), PreCare(R) Conceive(TM), PrimaCare(R) and PrimaCare(R) ONE.
         The PreCare(R) product line enables us to deliver a full range of
         nutritional products for physicians to prescribe to women in their
         childbearing years. In addition, we added to our women's health
         care family of products in June 2000 with the introduction of our
         first NDA approved product, Gynazole-1(R), the only one-dose
         prescription cream treatment for vaginal yeast infections. In
         fiscal 2004, we further expanded our branded product offerings when
         we launched technology improved versions of the Chromagen(R) and
         Niferex(R) oral hematinic product lines that were acquired at the
         end of fiscal 2003. In January 2005, we introduced our second NDA
         approved product, Clindesse(TM), the first approved single-dose
         therapy for bacterial vaginosis. By offering multiple products to
         the same group of physician specialists, we are able to maximize
         the effectiveness of our experienced sales force.

         ETHEX has an experienced sales and marketing team, which includes
         an outside sales team, regional account managers, national account
         managers and an inside sales team. The outside sales force calls on
         wholesalers, distributors and national drugstore chains, as well as
         hospitals, nursing homes, mail order firms and independent
         pharmacies. The inside sales team calls on independent pharmacies
         to create pull-through at the wholesale level.

         We believe that industry trends favor generic product expansion
         into the managed care, long-term care and government contract
         markets. Further, we believe that our competitively priced,
         technology-distinguished generic/non-branded products can fulfill
         the increasing need of these markets to contain costs and improve
         patient compliance. Accordingly, we intend to continue to devote
         significant marketing resources to the penetration of those
         markets.

         Particle Dynamics has a specialized technical sales group that
         calls on the leading companies in the pharmaceutical, nutritional,
         personal care, food and other markets in the United States.

         During fiscal 2005, our three largest customers accounted for 27%,
         16% and 12% of gross revenues. These customers were McKesson Drug
         Company, Cardinal Health and Amerisource Corporation, respectively.
         In fiscal 2004 and 2003, these customers accounted for gross
         revenues of 25%, 16% and 13% and 23%, 14% and 18%, respectively.

         Although we sell internationally, we do not have material
         operations or sales in foreign countries and our sales are not
         subject to significant geographic concentration.

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         RESEARCH AND DEVELOPMENT

         We have long recognized that development of successful new products
         is critical to achieving our goal of sustainable growth over the
         long term. As such, our investment in research and development,
         which increased at a compounded annual growth rate of 26.2% over
         the past four fiscal years, reflects our continued commitment to
         develop new products and/or technologies through our internal
         development programs, and with our external strategic partners.

         Our research and development activities include the development of
         new and next generation drug delivery technologies, the formulation
         of brand name proprietary products and the development of
         technologically distinguished generic/non-branded versions of
         previously approved brand name pharmaceutical products. In fiscal
         2005, 2004 and 2003, total research and development expenses were
         $23.5 million, $20.7 million and $19.1 million, respectively.

         In January 2005, Ther-Rx introduced its second NDA approved
         product, Clindesse(TM), the first approved single-dose therapy for
         bacterial vaginosis. Similar to Gynazole-1(R), Clindesse(TM)
         incorporates our proprietary VagiSite(R) bioadhesive drug delivery
         technology. Ther-Rx currently has a number of products in its
         research and development pipeline at various stages of development.
         We believe we have the technological expertise required to develop
         unique products to meet currently unmet needs in the area of
         women's health, as well as other therapeutic areas.

         To capitalize on ETHEX's unique product capabilities, we continue
         to expand our ETHEX product portfolio. Over the past two fiscal
         years, we have introduced more than 20 new generic/non-branded
         products and have a number of products currently in development to
         be marketed by ETHEX. Our development process typically consists of
         formulation, development and laboratory testing, and where required
         (1) preliminary bioequivalency studies of pilot batches of the
         manufactured product, (2) full scale bioequivalency studies using
         commercial quantities of the manufactured product and (3)
         submission of an ANDA to the FDA. We believe that, unlike many
         generic drug companies, we have the technical expertise required to
         develop generic substitutes for hard-to-copy branded pharmaceutical
         products. Since January 1, 2004, we have received six new ANDA
         approvals. We also anticipate receipt of ANDA approvals for
         Diltiazem and Levathyroxine, among other products, in fiscal 2006.

         In addition to our internal marketing efforts, we have licensed the
         exclusive rights to co-develop and market more than 15 products
         with other drug delivery companies. These products are generic
         equivalents to brand name products with aggregate annual sales
         totaling over $4 billion and, subject to completion of development
         and regulatory approvals, are expected to be launched at various
         times beginning in fiscal 2006 and continuing through fiscal 2008.
         In fiscal 2005, we began marketing the 50mg/200mg strength of
         Carbidopa-Levodopa, the generic equivalent to Sinemet(R), under a
         co-development licensing agreement with another drug delivery
         company.

         PDI currently has a number of products in its research and
         development pipeline at various stages of development. PDI applies
         its technologies to a diverse number of active and inactive
         chemicals for more efficient processing of materials to achieve
         benefits such as prolonged action of release, tastemasking, making
         materials more site specific and other benefits. Typically, the
         finished products into which the specialty raw materials are
         incorporated do not require FDA approval.

         We continually apply our scientific and development expertise to
         refine and enhance our existing drug delivery systems and
         formulation technologies and to create new technologies that may be
         used in our drug development programs. Certain of these
         technologies currently under development include advanced oral
         controlled release systems, quick dissolving oral delivery systems
         (with and without tastemasking characteristics) and transesophageal
         and intrapulmonary delivery technologies.

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         PATENTS AND OTHER PROPRIETARY RIGHTS

         We actively seek, when appropriate and available, protection for
         our products and proprietary information by means of U.S. and
         foreign patents, trademarks, trade secrets, copyrights, and
         contractual arrangements. Patent protection in the pharmaceutical
         field, however, can involve complex legal and factual issues.
         Moreover, broad patent protection for new formulations or new
         methods of use of existing chemical entities is sometimes difficult
         to obtain, primarily because the active ingredient and many of the
         formulation techniques have been known for some time. Consequently,
         some patents claiming new formulations or new methods of use for
         old drugs may not provide meaningful protection against
         competition. Nevertheless, we intend to seek patent protection when
         appropriate and available and otherwise to rely on
         regulatory-related exclusivity and trade secrets to protect certain
         of our products, technologies and other scientific information.
         There can be no assurance, however, that any steps taken to protect
         such proprietary information will be effective.

         Our policy is to file patent applications in appropriate situations
         to protect and preserve, for our own use, technology, inventions
         and improvements that we consider important to the development of
         our business. We currently hold domestic and foreign issued patents
         the last of which expires in fiscal 2022 relating to our controlled
         release, site-specific, quick dissolve and tastemasking
         technologies. We have been granted 33 U.S. patents and have 22 U.S.
         patent applications pending. In addition, we have 11 foreign issued
         patents and a total of 100 patent applications pending primarily in
         Canada, Europe, Australia, Japan, South America, Mexico and South
         Korea (see "We depend on our patents and other proprietary rights"
         under "Risk Factors" for additional information).

         We currently own more than 100 U.S. and foreign trademark
         registrations and have also applied for trademark protection for
         the names of our proprietary controlled-release, tastemasking,
         site-specific and quick dissolve technologies. We intend to
         continue to trademark new technology and product names as they are
         developed.

         To protect our trademark, domain name, and related rights, we
         generally rely on trademark and unfair competition laws, which are
         subject to change. Some, but not all, of our trademarks are
         registered in the jurisdictions where they are used. Some of our
         other trademarks are the subject of pending applications in the
         jurisdictions where they are used or intended to be used and others
         are not.

         MANUFACTURING AND FACILITIES

         We believe that our administrative, research, manufacturing and
         distribution facilities are an important factor in achieving our
         long-term growth objectives. All facilities at March 31, 2005,
         aggregating approximately 1.1 million square feet, are located in
         the St. Louis, Missouri area. We own approximately 600,000 square
         feet, with the balance under various leases at pre-determined
         annual rates under agreements expiring from fiscal 2006 through
         fiscal 2012, subject in most cases to renewal at our option.

         We manufacture drug products in liquid, semi-solid, tablet, capsule
         and caplet forms for distribution by Ther-Rx, ETHEX and our
         corporate licensees and value-added specialty raw materials for
         distribution by Particle Dynamics. We believe that all of our
         facilities are in material compliance with applicable regulatory
         requirements.

         We seek to maintain inventories at sufficient levels to support
         current production and sales levels. During fiscal 2005, we
         encountered no serious shortage of any particular raw materials,
         except that in the fourth quarter of fiscal 2005, we experienced a
         supply disruption of a key ingredient for our PrimaCare(R) ONE
         product. This interruption in production was temporary and has
         since been resolved. Although there can be no assurance that


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         raw material supply will not adversely affect our future
         operations, we do not believe that additional shortages will occur
         in the foreseeable future.

         COMPETITION

         Competition in the development and marketing of pharmaceutical
         products is intense and characterized by extensive research efforts
         and rapid technological progress. Many companies, including those
         with financial and marketing resources and development capabilities
         substantially greater than our own, are engaged in developing,
         marketing and selling products that compete with those that we
         offer. Our branded pharmaceutical products may also be subject to
         competition from alternate therapies during the period of patent
         protection and thereafter from generic equivalents. In addition,
         our generic/non-branded pharmaceutical products may be subject to
         competition from pharmaceutical companies engaged in the
         development of alternatives to the generic/non-branded products we
         offer or of which we undertake development. Our competitors may
         develop generic products before we do or may have pricing
         advantages over our products. In our specialty pharmaceutical
         businesses, we compete primarily on the basis of product efficacy,
         breadth of product line and price. We believe that our patents,
         proprietary trade secrets, technological expertise, product
         development and manufacturing capabilities will enable us to
         maintain a leadership position in the field of advanced drug
         delivery technologies and to continue to develop products to
         compete effectively in the marketplace.

         In addition, we compete with pharmaceutical companies that acquire
         branded product lines from other pharmaceutical companies. These
         competitors may have substantially greater financial and marketing
         resources than we do. Accordingly, our competitors may succeed in
         product line acquisitions that we seek to acquire.

         We also compete with drug delivery companies engaged in the
         development of alternative drug delivery systems. We are aware of a
         number of companies currently seeking to develop new non-invasive
         drug delivery systems, including oral delivery and transmucosal
         systems. Many of these companies may have greater research and
         development capabilities, experience, manufacturing, marketing,
         financial and managerial resources than we do. Accordingly, our
         competitors may succeed in developing competing technologies,
         obtaining FDA approval for products or gaining market acceptance
         more rapidly than we do.

         GOVERNMENT REGULATION

         All pharmaceutical manufacturers are subject to extensive
         regulation by the federal government, principally the FDA, and, to
         a lesser extent, by state, local and foreign governments. The
         Federal Food, Drug and Cosmetic Act, or FDCA, and other federal
         statutes and regulations govern or influence, among other things,
         the development, testing, manufacture, safety, labeling, storage,
         recordkeeping, approval, advertising, promotion, sale and
         distribution of pharmaceutical products. Pharmaceutical
         manufacturers are also subject to certain record keeping and
         reporting requirements, establishment registration and product
         listing, and FDA inspections.

         With respect to any non-biological "new drug" product with active
         ingredients not previously approved by the FDA, a prospective
         manufacturer must submit a full NDA, including complete reports of
         preclinical, clinical and other studies to prove the product's
         safety and efficacy. A full NDA may also need to be submitted for a
         drug product with a previously approved active ingredient if, among
         other things, the drug will be used to treat an indication for
         which the drug was not previously approved, or if the abbreviated
         procedure discussed below is otherwise not available. A
         manufacturer intending to conduct clinical trials in humans for a
         new drug may be required first to submit a Notice of Claimed
         Investigational Exception for a New Drug, or IND, to the FDA
         containing information relating to preclinical and clinical
         studies. INDs and full NDAs may be required to be filed to obtain
         approval of certain of our products, including those that do not
         qualify for abbreviated application procedures. The full NDA
         process, including clinical development and testing, is expensive
         and time consuming.

         The Drug Price Competition and Patent Restoration Act of 1984,
         known as the Hatch-Waxman Act, established ANDA procedures for
         obtaining FDA approval for generic versions of many non-biological
         drugs for which


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         patent or marketing exclusivity rights have expired and which are
         bioequivalent to previously approved drugs. "Bioequivalence" for
         this purpose, with certain exceptions, generally means that the
         proposed generic formulation is absorbed by the body at the same
         rate and extent as a previously approved "reference drug." Approval
         to manufacture these drugs is obtained by filing abbreviated
         applications, such as ANDAs. As a substitute for clinical studies,
         the FDA requires data indicating the ANDA drug formulation is
         bio-equivalent to a previously approved reference drug among other
         requirements. The same abbreviated application procedures apply to
         antibiotic drug products that are bio-equivalent to previously
         approved antibiotics, except that products containing certain older
         antibiotic ingredients are not subject to the special patent or
         marketing exclusivity protections afforded by the Hatch-Waxman Act
         to other drug products. The advantage of the ANDA approval
         mechanism, compared to an NDA, is that an ANDA applicant is not
         required to conduct preclinical and clinical studies to demonstrate
         that the product is safe and effective for its intended use and may
         rely, instead, on studies demonstrating bio-equivalence to a
         previously approved reference drug.

         In addition to establishing ANDA approval mechanisms, the
         Hatch-Waxman Act fosters pharmaceutical innovation through such
         incentives as non-patent exclusivity and patent restoration. The
         Act provides two distinct exclusivity provisions that either
         preclude the submission or delay the approval of an ANDA. A
         five-year exclusivity period is provided for new chemical
         compounds, and a three-year marketing exclusivity period is
         provided for changes to previously approved drugs which are based
         on new clinical investigations essential to the approval. The
         three-year marketing exclusivity period may be applicable to the
         approval of a novel drug delivery system. The marketing exclusivity
         provisions apply equally to patented and non-patented drug
         products, but do not apply to products containing antibiotic
         ingredients first submitted for approval on or before November 20,
         1997. These provisions do not delay or otherwise affect the
         approvability of full NDAs even when effective ANDA approvals are
         not available. For drugs covered by patents, patent extension may
         be provided for up to five years as compensation for reduction of
         the effective life of the patent resulting from time spent in
         conducting clinical trials and in FDA review of a drug application.

         There has been substantial litigation in the biomedical,
         biotechnology and pharmaceutical industries with respect to the
         manufacture, use and sale of new products that are alleged to
         infringe outstanding patent rights. One or more patents cover most
         of the proprietary products for which we are developing generic
         versions. When we file an ANDA for such drug products, we will, in
         most cases, be required to certify to the FDA that any patent which
         has been listed with the FDA as covering the product is invalid or
         will not be infringed by our sale of our product. Alternatively, we
         could certify that we would not market our proposed product until
         the applicable patent expires. A patent holder may challenge a
         notice of noninfringement or invalidity by filing suit for patent
         infringement, which would, in most cases, prevent FDA approval
         until the suit is resolved or until at least 30 months has elapsed
         (or until the patent expires, whichever is earlier). Should any
         entity commence a lawsuit with respect to any alleged patent
         infringement by us, the uncertainties inherent in patent litigation
         would make the outcome of such litigation difficult to predict.

         In addition to marketing drugs which are subject to FDA review and
         approval, we market certain drug products in the United States
         without FDA approval under certain "grandfather" clauses and
         statutory and regulatory exceptions to the pre-market approval
         requirement for "new drugs" under the FDCA. A determination as to
         whether a particular product does or does not require FDA
         pre-market review and approval can involve consideration of
         numerous complex and imprecise factors. If a determination is made
         by the FDA that any product marketed without approval requires such
         approval, the FDA may institute enforcement actions, including
         product seizure, or an action seeking an injunction against further
         marketing and may or may not allow sufficient time to obtain the
         necessary approvals before it seeks to curtail further marketing.
         For example, in October 2002, the FDA sent warning letters to us
         and other manufacturers and distributors of unapproved prescription
         drug products containing the expectorant guaifenesin as a single
         entity in a solid oral extended-release dosage form. Citing the
         recent approval of one such product, the FDA warning letters
         asserted that the marketing of all such products without NDA or
         ANDA approval should stop. The FDA subsequently agreed to allow
         continued manufacture through May 2003 and sale through November
         2003 of the products, and we complied with those deadlines. We are
         not in a position to predict whether or when the FDA might choose
         to raise similar objections


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         to the marketing without NDA or ANDA approval of another category
         or categories of drug products represented in our product lines. In
         the event such objections are raised, we could be required or could
         decide to cease distribution of additional products until
         pre-market approval is obtained. In addition, we may not be able to
         obtain any particular approval that may be required or such
         approval may not be obtained on a timely basis.

         In addition to obtaining pre-market approval for certain of our
         products, we are required to maintain all facilities in compliance
         with the FDA's current Good Manufacturing Practice, or cGMP,
         requirements. In addition to compliance with cGMP each
         pharmaceutical manufacturer's facilities must be registered with
         the FDA. Manufacturers must also be registered with the U.S. Drug
         Enforcement Administration or DEA, and similar state and local
         regulatory authorities if they handle controlled substances, and
         with the EPA and similar state and local regulatory authorities if
         they generate toxic or dangerous wastes, and must comply with other
         applicable DEA and EPA requirements. Noncompliance with applicable
         requirements can result in fines, recall or seizure of products,
         total or partial suspension of production and distribution, refusal
         of the government to enter into supply contracts or to approve
         NDA's, ANDA's or other applications and criminal prosecution. The
         FDA also has the authority to revoke for-cause drug approvals
         previously granted.

         The Prescription Drug Marketing Act, or PDMA, which amended various
         sections of the FDCA, requires, among other things, state licensing
         of wholesale distributors of prescription drugs under federal
         guidelines that include minimum standards for storage, handling and
         record keeping. All of our facilities are registered with the State
         of Missouri, where they are located, as required by Federal and
         Missouri law. The PDMA also imposes detailed requirements on the
         distribution of prescription drug samples such as those distributed
         by the Ther-Rx sales force. The PDMA sets forth substantial civil
         and criminal penalties for violations of these and other
         provisions. Many states also require registration of out-of-state
         drug manufacturers and distributors who sell products in their
         states, and may also impose additional requirements or restrictions
         on out-of-state firms. These requirements vary widely from
         state-to-state and are subject to change with little or no direct
         notice to potentially affected firms. We believe that we are
         currently in compliance in all material respects with applicable
         state requirements. However, in the event that we are found to have
         failed to comply with applicable state requirements, we may be
         subject to sanctions, including monetary penalties, and potential
         restrictions on our sales or other activities within particular
         states.

         For international markets, a pharmaceutical company is subject to
         regulatory requirements, inspections and product approvals
         substantially the same as those in the United States. In connection
         with any future marketing, distribution and license agreements that
         we may enter into, our licensees may accept or assume
         responsibility for such foreign regulatory approvals. The time and
         cost required to obtain these international market approvals may be
         greater or lesser than those required for FDA approval.

         Product development and approval within this regulatory framework
         take a number of years, involve the expenditure of substantial
         resources and is uncertain. Many drug products ultimately do not
         reach the market because they are not found to be safe or effective
         or cannot meet the FDA's other regulatory requirements. In
         addition, the current regulatory framework may change and
         additional regulatory or approval requirements may arise at any
         stage of our product development that may affect approval, delay
         the submission or review of an application or require additional
         expenditures by us. We may not be able to obtain necessary
         regulatory clearances or approvals on a timely basis, if at all,
         for any of our products under development, and delays in receipt or
         failure to receive such clearances or approvals, the loss of
         previously received clearances or approvals, or failure to comply
         with existing or future regulatory requirements could have a
         material adverse effect on our business.

         EMPLOYEES

         As of March 31, 2005, we employed a total of 1,072 employees. We
         are party to a collective bargaining agreement covering 119
         employees that will expire December 31, 2009. We believe that our
         relations with our employees are good.

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         ENVIRONMENT

         We do not expect that compliance with Federal, state or local
         provisions regulating the discharge of materials into the
         environment or otherwise relating to the protection of the
         environment will have a material effect on our capital
         expenditures, earnings or competitive position.

         AVAILABLE INFORMATION

         We make available, free of charge through our Internet website
         (http://www.kvpharmaceutical.com), our Annual Report on Form 10-K,
         Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and
         amendments to these reports filed or furnished pursuant to Section
         13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
         reasonably practicable after we electronically file these reports
         with, or furnish them to, the Securities and Exchange Commission,
         or SEC. Also, copies of our Corporate Governance Guidelines, Audit
         Committee Charter, Compensation Committee Charter, Nominating and
         Corporate Governance Committee Charter, Code of Ethics for Senior
         Executives and Standard of Business Ethics for all Directors and
         employees are available on our Internet website, and available in
         print to any stockholder who requests it.

         In addition, the SEC maintains an Internet website
         (http://www.sec.gov) that contains reports, proxy and information
         statements, and other information regarding issuers that file
         electronically with the SEC.

                                RISK FACTORS

         We operate in a rapidly changing environment that involves a number
         of risks, some of which are beyond our control. The following
         discussion highlights some of these risks and others are discussed
         elsewhere in this report. Additional risks presently unknown to us
         or that we currently consider immaterial or unlikely to occur could
         also impair our operations. These and other risks could materially
         and adversely affect our business, financial condition, operating
         results or cash flows.

                        RISKS RELATED TO OUR BUSINESS

         OUR FUTURE GROWTH IS LARGELY DEPENDENT UPON OUR ABILITY TO DEVELOP
         NEW PRODUCTS.

         We need to continue to develop and commercialize new brand name
         products and generic products utilizing our proprietary drug
         delivery systems to maintain the growth of Ther-Rx, ETHEX and
         Particle Dynamics. To do this we will need to identify, develop and
         commercialize technologically enhanced branded products and
         identify, develop and commercialize drugs that are off-patent and
         that can be produced and sold by us as generic products using our
         drug delivery technologies. If we are unable to identify, develop
         and commercialize new products, we may need to obtain licenses to
         additional rights to branded or generic products, assuming they
         would be available for licensing, which could decrease our
         profitability. We cannot assure you that we will be successful in
         pursuing this strategy.

         IF WE ARE UNABLE TO COMMERCIALIZE PRODUCTS UNDER DEVELOPMENT, OUR
         FUTURE OPERATING RESULTS MAY SUFFER.

         Certain products we are developing will require significant
         additional development and investment, including preclinical and
         clinical testing, where required, prior to their commercialization.
         We expect that many of these products will not be commercially
         available for several years, if at all. We cannot assure you that
         such products or future products will be successfully developed,
         prove to be safe and effective in clinical trials (if required),
         meet applicable regulatory standards, or be capable of being
         manufactured in commercial quantities at reasonable cost.

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         OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL.

         We intend to continue to acquire pharmaceutical products, novel
         drug delivery technologies and/or companies that fit into our
         research, manufacturing, distribution or sales and marketing
         operations or that could provide us with additional products,
         technologies or sales and marketing capabilities. We may not be
         able to successfully identify, evaluate and acquire any such
         products, technologies or companies or, if acquired, we may not be
         able to successfully integrate such acquisitions into our business.
         We compete with many specialty pharmaceutical companies for
         products and product line acquisitions. These competitors may have
         substantially greater financial and managerial resources than we
         have.

         WE DEPEND ON OUR PATENTS AND OTHER PROPRIETARY RIGHTS AND CANNOT BE
         CERTAIN OF THEIR CONFIDENTIALITY AND PROTECTION.

         Our success depends, in large part, on our ability to protect our
         current and future technologies and products, to defend our
         intellectual property rights and to avoid infringing on the
         proprietary rights of others. We have been issued numerous patents
         in the United States and in certain foreign countries, which cover
         certain of our technologies, and have filed, and expect to continue
         to file, patent applications seeking to protect newly developed
         technologies and products. The pharmaceutical field is crowded and
         a substantial number of patents have been issued. In addition, the
         patent position of pharmaceutical companies can be highly uncertain
         and frequently involves complex legal and factual questions. As a
         result, the breadth of claims allowed in patents relating to
         pharmaceutical applications or their validity and enforceability
         cannot be predicted. Patents are examined for patentability at
         patent offices against bodies of prior art which by their nature
         may be incomplete and imperfectly categorized. Therefore, even
         presuming that the examiner has been able to identify and cite the
         best prior art available to him during the examination process, any
         patent issued to us could later be found by a court or a patent
         office during post issuance proceedings to be invalid in view of
         newly-discovered prior art or already considered prior art or other
         legal reasons. Furthermore, there are categories of "secret" prior
         art unavailable to any examiner, such as the prior inventive
         activities of others, which could form the basis for invalidating
         any patent. In addition, there are other reasons why a patent may
         be found to be invalid, such as an offer for sale or public use of
         the patented invention in the United States more than one year
         before the filing date of the patent application. Moreover, a
         patent may be deemed unenforceable if, for example, the inventor or
         the inventor's agents failed to disclose prior art to the PTO that
         they knew was material to patentability.

         The coverage claimed in a patent application can be significantly
         reduced before a patent is issued, either in the United States or
         abroad. Consequently, there can be no assurance that any of our
         pending or future patent applications will result in the issuance
         of patents. Patents issued to us may be subjected to further
         proceedings limiting their scope and may not provide significant
         proprietary protection or competitive advantage. Our patents also
         may be challenged, circumvented, invalidated or deemed
         unenforceable. Patent applications in the United States filed prior
         to November 29, 2000 are currently maintained in secrecy until and
         unless patents issue, and patent applications in certain other
         countries generally are not published until more than 18 months
         after they are first filed (which generally is the case in the
         United States for applications filed on or after November 29,
         2000). In addition, publication of discoveries in scientific or
         patent literature often lags behind actual discoveries. As a
         result, we cannot be certain that we or our licensors will be
         entitled to any rights in purported inventions claimed in pending
         or future patent applications or that we or our licensors were the
         first to file patent applications on such inventions. Furthermore,
         patents already issued to us or our pending applications may become
         subject to dispute, and any dispute could be resolved against us.
         For example, we may become involved in re-examination, reissue or
         interference proceedings in the PTO, or opposition proceedings in a
         foreign country. The result of these proceedings can be the
         invalidation or substantial narrowing of our patent claims. We also
         could be subject to court proceedings that could find our patents
         invalid or unenforceable or could substantially narrow the scope of
         our patent claims. In addition, statutory differences in patentable
         subject matter may limit the protection we can obtain on some of
         our inventions outside of the United States. For example, methods
         of treating humans are not patentable in many countries outside of
         the United States.

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         These and other issues may prevent us from obtaining patent
         protection outside of the United States. Furthermore, once patented
         in foreign countries, the inventions may be subjected to mandatory
         working requirements and/or subject to compulsory licensing
         regulations.

         We also rely on trade secrets, unpatented proprietary know-how and
         continuing technological innovation that we seek to protect, in
         part by confidentiality agreements with licensees, suppliers,
         employees and consultants. These agreements may be breached by the
         other parties to these agreements. We may not have adequate
         remedies for any breach. Disputes may arise concerning the
         ownership of intellectual property or the applicability or
         enforceability of our confidentiality agreements and there can be
         no assurance that any such disputes would be resolved in our favor.

         Furthermore, our trade secrets and proprietary technology may
         become known or be independently developed by our competitors, or
         patents may not be issued with respect to products or methods
         arising from our research, and we may not be able to maintain the
         confidentiality of information relating to those products or
         methods. Furthermore, certain unpatented technology may be subject
         to intervening rights.

         WE DEPEND ON OUR TRADEMARKS AND RELATED RIGHTS.

         To protect our trademarks and goodwill associated therewith, domain
         name, and related rights, we generally rely on federal and state
         trademark and unfair competition laws, which are subject to change.
         Some, but not all, of our trademarks are registered in the
         jurisdictions where they are used. Some of our other trademarks are
         the subject of pending applications in the jurisdictions where they
         are used or intended to be used, and others are not.

         It is possible that third parties may own or could acquire rights
         in trademarks or domain names in the United States or abroad that
         are confusingly similar to or otherwise compete unfairly with our
         marks and domain names, or that our use of trademarks or domain
         names may infringe or otherwise violate the intellectual property
         rights of third parties. The use of similar marks or domain names
         by third parties could decrease the value of our trademarks or
         domain names and hurt our business, for which there may be no
         adequate remedy.

         THIRD PARTIES MAY CLAIM THAT WE INFRINGE ON THEIR PROPRIETARY
         RIGHTS, OR SEEK TO CIRCUMVENT OURS.

         We may be required to defend against charges of infringement of
         patents, trademarks or other proprietary rights of third parties.
         This defense could require us to incur substantial expense and to
         divert significant effort of our technical and management
         personnel, and could result in our loss of rights to develop or
         make certain products or require us to pay monetary damages or
         royalties to license proprietary rights from third parties. If a
         dispute is settled through licensing or similar arrangements, costs
         associated with such arrangements may be substantial and could
         include ongoing royalties. Furthermore, we cannot be certain that
         the necessary licenses would be available to us on acceptable
         terms, if at all. Accordingly, an adverse determination in a
         judicial or administrative proceeding or failure to obtain
         necessary licenses could prevent us from manufacturing, using,
         selling and/or importing in to the United States certain of our
         products. Litigation also may be necessary to enforce our patents
         against others or to protect our know-how or trade secrets. That
         litigation could result in substantial expense or put our
         proprietary rights at risk of loss, and we cannot assure you that
         any litigation will be resolved in our favor. There currently are
         two patent infringement lawsuits pending against us. Although we
         do not believe they will have a material adverse effect on our
         future financial condition or results of operations, we cannot
         assure you of that.

         WE MAY BE UNABLE TO MANAGE OUR GROWTH.

         Over the past ten years, our businesses and product offerings have
         grown substantially. This growth and expansion has placed, and is
         expected to continue to place, a significant strain on our
         management, operational and financial resources. To manage our
         growth, we must continue to (1) expand our operational, customer
         support and financial control systems and (2) hire, train and
         retain qualified personnel. We cannot assure you that


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         we will be able to adequately manage our growth. If we are unable
         to manage our growth effectively, our business, results of
         operations and financial condition could be materially adversely
         affected.

         WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR NEW PRODUCTS ON A
         TIMELY BASIS, OR AT ALL.

         Many of our new products will require FDA approval. FDA approval
         typically involves lengthy, detailed and costly laboratory and
         clinical testing procedures, as well as the FDA's review and
         approval of the information submitted. We cannot assure you that
         the products we develop will be determined to be safe and effective
         in these testing procedures, or that they will be approved by the
         FDA. The FDA also has the authority to revoke for-cause drug
         approvals previously granted.

         WE MAY BE ADVERSELY AFFECTED BY THE CONTINUING CONSOLIDATION OF OUR
         DISTRIBUTION NETWORK AND THE CONCENTRATION OF OUR CUSTOMER BASE.

         Our principal customers are wholesale drug distributors, major
         retail drug store chains, independent pharmacies and mail order
         firms. These customers comprise a significant part of the
         distribution network for pharmaceutical products in the United
         States. This distribution network is continuing to undergo
         significant consolidation marked by mergers and acquisitions among
         wholesale distributors and the growth of large retail drug store
         chains. As a result, a small number of large wholesale distributors
         control a significant share of the market, and the number of
         independent drug stores and small drug store chains has decreased.
         We expect that consolidation of drug wholesalers and retailers will
         increase pricing and other competitive pressures on drug
         manufacturers. For the fiscal year ended March 31, 2005, our three
         largest customers accounted for 27%, 16% and 12% of our gross
         sales. The loss of any of these customers could materially and
         adversely affect our results of operations or financial condition.

         THE REGULATORY STATUS OF CERTAIN OF OUR GENERIC PRODUCTS MAY MAKE
         THEM SUBJECT TO INCREASED COMPETITION.

         Many of our products are manufactured and marketed without FDA
         approval. For example, our prenatal products, which contain folic
         acid, are sold as prescription multiple vitamin supplements. These
         types of prenatal vitamins are typically regulated by the FDA as
         prescription drugs, but are not covered by an NDA or ANDA. As a
         result, competitors may more easily and rapidly introduce products
         competitive with our prenatal and other products that have a
         similar regulatory status.

         One of the key motivations for challenging patents is the reward of
         a 180-day period of market exclusivity. Under the Hatch-Waxman Act,
         the developer of a generic version of a product which is the first
         to have its ANDA accepted for filing by the FDA, and whose filing
         includes a certification that the patent is invalid, unenforceable
         and/or not infringed (a so-called "Paragraph IV certification"),
         may be eligible to receive a 180-day period of generic market
         exclusivity. This period of market exclusivity provides the patent
         challenger with the opportunity to earn a risk-adjusted return on
         legal and development costs associated with bringing a product to
         market. In cases such as these where suit is filed by the
         manufacturer of the branded product, final FDA approval of an ANDA
         generally requires a favorable disposition of the suit, either by
         judgment that the patents at issue are invalid and/or not infringed
         or by settlement. There can be no assurance that we will ultimately
         prevail in these litigations, that we will receive final FDA
         approval of our ANDAs, or that any expectation of a period of
         generic exclusivity for certain of these products will actually be
         realized when and if resolution of the litigations and receipt of
         final approvals from the FDA occur.

         Since enactment of the Hatch-Waxman Act in 1984, the interpretation
         and implementation of the statutory provisions relating to the
         180-day period of generic market exclusively have been the subject
         of controversy, court decisions, formal changes to FDA regulations
         and guidelines, and other changes in FDA interpretation. In
         addition, on December 8, 2003, significant changes were enacted in
         the statutory provisions themselves, some of which were retroactive
         and others of which apply only prospectively or to situations where
         the first ANDA filing with a Paragraph IV certification occurs
         after the date of enactment. These interpretations and changes,
         over time,


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         have had significant affects on the ability of sponsors of
         particular generic drug products to qualify for or utilize fully
         the 180-day generic marketing exclusivity period. These
         interpretations and changes have, in turn, affected the ability of
         sponsors of corresponding innovator drugs to market their branded
         products without any generic competition and the ability of
         sponsors of other generic versions of the same products to market
         their products in competition with the first generic applicant.
         Because application of these provisions, and any changes in them or
         in the applicable interpretations of them, depends almost entirely
         on the specific facts of the particular NDA and ANDA filings at
         issue, many of which are not in our control, we cannot predict
         whether any changes would, on balance, have a positive or negative
         effect on our business as a whole, although particular changes may
         have predictable, and potentially significant positive or negative
         affects on particular pipeline products. In addition, continuing
         uncertainty over the interpretation and implementation of the
         original Hatch-Waxman provisions, as well as the December 8, 2003
         statutory revisions, is likely to continue to impair our ability to
         predict the likely exclusivity that we may be granted, or blocked
         by, based on the outcome of particular patent challenges in which
         we are involved.

         WE FACE THE RISK OF PRODUCT LIABILITY CLAIMS, FOR WHICH WE MAY BE
         INADEQUATELY INSURED.

         Manufacturing, selling and testing pharmaceutical products involve
         a risk of product liability. Even unsuccessful product liability
         claims could require us to spend money on litigation, divert
         management's time, damage our reputation and impair the
         marketability of our products. A successful product liability claim
         outside of or in excess of our insurance coverage could require us
         to pay substantial sums and adversely affect our results of
         operations and financial condition.

         We previously distributed several pharmaceutical products that
         contained phenylpropanolamine, or PPA, and that were discontinued
         in 2000 and 2001. We are presently named a defendant in a product
         liability lawsuit in federal court in Mississippi involving PPA.
         The suit originated out of a case, Virginia Madison, et al. v.
         Bayer Corporation, et al. The original suit was filed in December
         2002, but was not served on us until February 2003. The case was
         originally filed in the Circuit Court of Hinds County, Mississippi,
         and was removed to the Federal District Court for the Southern
         District of Mississippi by then co-defendant Bayer Corporation. The
         case has been transferred to a Judicial Panel on Multi-District
         Litigation for PPA claims sitting in the Western District of
         Washington. The claims against us have been segregated into a
         lawsuit brought by Johnny Fulcher individually and on behalf of the
         wrongful death beneficiaries of Linda Fulcher, deceased, against
         the Company. It alleges bodily injury, wrongful death, economic
         injury, punitive damages, loss of consortium and/or loss of
         services from the use of our distributed pharmaceuticals containing
         PPA that have since been discontinued and/or reformulated to
         exclude PPA. In May 2004, the case was dismissed with prejudice by
         the Federal District Court for the Western District of Washington
         for a failure to timely file an individual complaint as required by
         certain court orders. The plaintiff filed a request for
         reconsideration which was opposed and subsequently denied by the
         Court in June 2004. In July 2004, the plaintiff filed a notice of
         appeal of the dismissal. We have opposed this appeal. We intend to
         vigorously defend our interests; however, we cannot give any
         assurance we will prevail.

         We have also been advised that one of our former distributor
         customers is being sued in Florida state court in a case captioned
         Darrian Kelly v. K-Mart et. al. for personal injury allegedly
         caused by ingestion of K-Mart diet caplets that are alleged to have
         been manufactured by us and to contain PPA. The distributor has
         tendered defense of the case to us and has asserted a right to
         indemnification for any financial judgment it must pay. We
         previously notified our product liability insurer of this claim in
         1999, and we have demanded that the insurer assume our defense. The
         insurer has stated that it has retained counsel to secure
         additional factual information and will defer its coverage decision
         until that information is received. We intend to vigorously defend
         our interests; however, we cannot give any assurance that we will
         not be impleaded into the action, or that, if we are impleaded,
         that we would prevail.

         Our product liability coverage for PPA claims expired for claims
         made after June 15, 2002. Although we renewed our product liability
         coverage for coverage after June 15, 2002, that policy excludes
         future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, we will provide for
         legal


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         defense costs and indemnity payments involving PPA claims on a
         going forward basis as incurred, including the Mississippi lawsuit
         that was filed after June 15, 2002. Moreover, we may not be able to
         obtain product liability insurance in the future for PPA claims
         with adequate coverage limits at commercially reasonable prices for
         subsequent periods. From time to time in the future, we may be
         subject to further litigation resulting from products containing
         PPA that we formerly distributed. We intend to vigorously defend
         our interests; however, we cannot give any assurances we will
         prevail.

         WE DEPEND ON LICENSES FROM OTHERS, AND ANY LOSS OF THESE LICENSES
         COULD HARM OUR BUSINESS, MARKET SHARE AND PROFITABILITY.

         We have acquired the rights to manufacture, use and/or market
         certain products. We also expect to continue to obtain licenses for
         other products and technologies in the future. Our license
         agreements generally require us to develop the markets for the
         licensed products. If we do not develop these markets, the
         licensors may be entitled to terminate these license agreements.

         We cannot be certain that we will fulfill all of our obligations
         under any particular license agreement for any variety of reasons,
         including insufficient resources to adequately develop and market a
         product, lack of market development despite our efforts and lack of
         product acceptance. Our failure to fulfill our obligations could
         result in the loss of our rights under a license agreement.

         Certain products we have the right to license are at certain stages
         of clinical tests and FDA approval. Failure of any licensed product
         to receive regulatory approval could result in the loss of our
         rights under its license agreement.

         OUR POLICIES REGARDING RETURNS, ALLOWANCES AND CHARGEBACKS, AND
         MARKETING PROGRAMS ADOPTED BY WHOLESALERS, MAY REDUCE OUR REVENUES
         IN FUTURE FISCAL PERIODS.

         Based on industry practice, generic product manufacturers,
         including us, have liberal return policies and have been willing to
         give customers post-sale inventory allowances. Under these
         arrangements, from time to time, we give our customers credits on
         our generic products that our customers hold in inventory after we
         have decreased the market prices of the same generic products.
         Therefore, if additional competitors enter the marketplace and
         significantly lower the prices of any of their competing products,
         we would likely reduce the price of our comparable products. As a
         result, we would be obligated to provide significant credits to our
         customers who are then holding inventories of such products, which
         could reduce sales revenue and gross margin for the period the
         credit is provided. Like our competitors, we also give credits for
         chargebacks to wholesale customers that have contracts with us for
         their sales to hospitals, group purchasing organizations,
         pharmacies or other retail customers. A chargeback is the
         difference between the price the wholesale customer pays and the
         price that the wholesale customer's end-customer pays for a
         product. Although we establish reserves based on our prior
         experience and our best estimates of the impact that these policies
         may have in subsequent periods, we cannot ensure that our reserves
         are adequate or that actual product returns, allowances and
         chargebacks will not exceed our estimates.

         INVESTIGATIONS OF THE CALCULATION OF AVERAGE WHOLESALE PRICES MAY
         ADVERSELY AFFECT OUR BUSINESS.

         Many government and third-party payors, including Medicare,
         Medicaid, health maintenance organizations, or HMOs, and managed
         care organizations, or MCOs, reimburse doctors and others for the
         purchase of certain prescription drugs based on a drug's average
         wholesale price, or AWP. In the past several years, state and
         federal government agencies have conducted ongoing investigations
         of manufacturers' reporting practices with respect to AWP, in which
         they have suggested that reporting of inflated AWP's have led to
         excessive payments for prescription drugs. Determination of AWP is
         complex and third party payors may disagree with our calculations.

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         KV and/or ETHEX have been named as defendants in certain
         multi-defendant cases alleging that the defendants reported
         improper or fraudulent pharmaceutical pricing information, i.e.,
         AWP and/or Wholesale Acquisition Cost, or WAC, information, which
         caused the governmental plaintiffs to incur excessive costs for
         pharmaceutical products under the Medicaid program. Cases of this
         type have been filed against KV and/or ETHEX and other
         pharmaceutical manufacturer defendants by the State of
         Massachusetts, the State of Alabama, New York City, and
         approximately 25 counties in New York State (less than ten of which
         have been formally served on KV or ETHEX). The New York City case
         and all but one of the New York County cases have been transferred
         (or will be the subject of a notice of related action in order to
         effectuate transfer) to the Federal District Court for the District
         of Massachusetts for coordinated or consolidated pretrial
         proceedings under the Average Wholesale Price Multidistrict
         Litigation (MDL No. 1456). Each of these actions is in the early
         stages, and fact discovery has not yet begun in any of the cases
         other than the Alabama case, where the State's first discovery
         request has been filed. We intend to vigorously defend our
         interests in the actions described above; however, we cannot give
         any assurance we will prevail.

         We believe that various other governmental entities have commenced
         investigations into the generic and branded pharmaceutical industry
         at large regarding pricing and price reporting practices. Although
         we believe our pricing and reporting practices have complied in all
         material respects with our legal obligations, we cannot give any
         assurance that we would prevail if legal actions are instituted by
         these governmental entities.

         RISING INSURANCE COSTS COULD NEGATIVELY IMPACT PROFITABILITY.

         The cost of insurance, including workers' compensation, product
         liability and general liability insurance, has risen significantly
         in the past few years and is expected to continue to increase. In
         response, we may increase deductibles and/or decrease certain
         coverages to mitigate these costs. These increases, and our
         increased risk due to increased deductibles and reduced coverages,
         could have a negative impact on our results of operations,
         financial condition and cash flows.

         INCREASED INDEBTEDNESS MAY IMPACT OUR FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

         As a result of our issuance of 2.5% Contingent Convertible
         Subordinated Notes, or the Notes, in May 2003, our indebtedness
         increased by $200.0 million. In addition, we increased our
         available credit facilities in December 2004 to $140.0 million. The
         revised credit facilities provide for an increase from $40.0
         million to $80.0 million in our revolving line of credit along with
         an increase from $25.0 million to $60.0 million in the supplemental
         credit line that is available for financing acquisitions. These
         credit facilities expire in October 2006 and December 2005,
         respectively. At March 31, 2005, we had no cash borrowings under
         either credit facility. Our level of indebtedness may have several
         important effects on our future operations, including:

             o  we will be required to use a portion of our cash flow from
                operations for the payment of any principal or interest due on
                our outstanding indebtedness;

             o  our outstanding indebtedness and leverage will increase the
                impact of negative changes in general economic and industry
                conditions, as well as competitive pressures; and

             o  the level of our outstanding debt and the impact it has on
                our ability to meet debt covenants associated with our
                revolving line of credit arrangement may affect our
                ability to obtain additional financing for working
                capital, capital expenditures, acquisitions or general
                corporate purposes.

         General economic conditions, industry cycles and financial,
         business and other factors affecting our operations, many of which
         are beyond our control, may affect our future performance. As a
         result, our business might not continue to generate cash flow at or
         above current levels. If we cannot generate sufficient cash flow
         from operations in the future to service our debt, we may, among
         other things:

             o  seek additional financing in the debt or equity markets;

                                     24

<PAGE>
<PAGE>

             o  refinance or restructure all or a portion of our indebtedness;

             o  sell selected assets;

             o  reduce or delay planned capital expenditures; or

             o  reduce or delay planned research and development expenditures.

         These measures might not be sufficient to enable us to service our
         debt. In addition, any financing, refinancing or sale of assets
         might not be available on economically favorable terms.

         Holders of the Notes may require us to offer to repurchase their
         Notes for cash upon the occurrence of a change in control or on May
         16, 2008, 2013, 2018, 2023 and 2028. The source of funds for any
         repurchase required as a result of any such events will be our
         available cash or cash generated from operating activities or other
         sources, including borrowings, sales of assets, sales of equity or
         funds provided by a new controlling entity. The use of available
         cash to fund the repurchase of the Notes may impair our ability to
         obtain additional financing in the future.

         WE MAY HAVE FUTURE CAPITAL NEEDS AND FUTURE ISSUANCES OF EQUITY
         SECURITIES WILL RESULT IN DILUTION.

         We anticipate that funds generated internally, together with funds
         available under our credit facility, and the proceeds received from
         our Notes offering completed in May 2003, will be sufficient to
         implement our business plan for the foreseeable future, subject to
         additional needs as may arise if acquisition opportunities become
         available. We also may need additional capital if unexpected events
         occur or opportunities arise. Additional capital might be raised
         through the public or private sale of debt or equity securities. If
         we sell equity securities, holders of our common stock could
         experience dilution. Furthermore, those securities could have
         rights, preferences and privileges more favorable than those of the
         Class A or Class B common stock. We cannot assure you that
         additional funding will be available, or available on terms
         favorable to us. If the funding is not available, we may not be
         able to fund our expansion, take advantage of acquisition
         opportunities or respond to competitive pressures.

         WE MAY INCUR CHARGES FOR INTANGIBLE ASSET IMPAIRMENT.

         When we acquire the rights to manufacture and sell a product, we
         record the aggregate purchase price, along with the value of the
         product related liabilities we assume, as intangible assets. We use
         the assistance of valuation experts to help us allocate the
         purchase price to the fair value of the various intangible assets
         we have acquired. Then, we must estimate the economic useful life
         of each of these intangible assets in order to amortize their cost
         as an expense in our consolidated statement of income over the
         estimated economic useful life of the related asset. The factors
         that drive the actual economic useful life of a pharmaceutical
         product are inherently uncertain, and include patent protection,
         physician loyalty and prescribing patterns, competition by products
         prescribed for similar indications, future introductions of
         competing products not yet FDA approved, the impact of promotional
         efforts and many other issues. We use all of these factors in
         initially estimating the economic useful lives of our products, and
         we also continuously monitor these factors for indications of
         appropriate revisions.

         In assessing the recoverability of our intangible assets, we must
         make assumptions regarding estimated undiscounted future cash flows
         and other factors. If the estimated undiscounted future cash flows
         do not exceed the carrying value of the intangible assets we must
         determine the fair value of the intangible assets. If the fair
         value of the intangible assets is less than its carrying value, an
         impairment loss will be recognized in an amount equal to the
         difference. If these estimates or their related assumptions change
         in the future, we may be required to record impairment charges for
         these assets. We review intangible assets for impairment at least
         annually and whenever events or changes in circumstances indicate
         that the carrying amount of an asset may not be recoverable. If we
         determine that an intangible asset is impaired, a non-cash
         impairment charge would be recognized.

                                     25

<PAGE>
<PAGE>

         As circumstances after an acquisition can change, the value of
         intangible assets may not be realized by us. If we determine that
         an impairment has occurred, we would be required to write-off the
         impaired portion of the unamortized intangible assets, which could
         have a material adverse effect on our results of operations in the
         period in which the write-off occurs. For example, we expect to
         report a non-cash charge of approximately $30.0 million in the
         first quarter of fiscal 2006 reflecting primarily a write-off of
         in-process research and development costs in connection with our
         acquisition of FemmePharma and all of the worldwide marketing
         rights to an endometriosis product that has successfully completed
         Phase II clinical trials and was originally part of a licensing
         arrangement with FemmePharma. In addition, in the event of a sale
         of any of our assets, we cannot be certain that our recorded value
         of such intangible assets would be recovered.

                        RISKS RELATED TO OUR INDUSTRY

         LEGISLATIVE PROPOSALS, REIMBURSEMENT POLICIES OF THIRD PARTIES,
         COST CONTAINMENT MEASURES AND HEALTH CARE REFORM COULD AFFECT THE
         MARKETING, PRICING AND DEMAND FOR OUR PRODUCTS.


         Various legislative proposals, including proposals relating to
         prescription drug benefits, could materially impact the pricing and
         sale of our products. Further, reimbursement policies of third
         parties may affect the marketing of our products. Our ability to
         market our products will depend in part on reimbursement levels for
         the cost of the products and related treatment established by
         health care providers, including government authorities, private
         health insurers and other organizations, such as HMOs and MCOs.
         Insurance companies, HMOs, MCOs, Medicaid and Medicare
         administrators and others are increasingly challenging the pricing
         of pharmaceutical products and reviewing their reimbursement
         practices. In addition, the following factors could significantly
         influence the purchase of pharmaceutical products, which could
         result in lower prices and a reduced demand for our products:

             o  the trend toward managed health care in the United States;

             o  the growth of organizations such as HMOs and MCOs;

             o  legislative proposals to reform health care and government
                insurance programs; and

             o  price controls and non-reimbursement of new and highly priced
                medicines for which the economic therapeutic rationales are
                not established.

         These cost-containment measures and health care reform proposals
         could affect our ability to sell our products.

         The reimbursement status of a newly approved pharmaceutical product
         may be uncertain. Reimbursement policies may not include some of
         our products. Even if reimbursement policies of third parties grant
         reimbursement status for a product, we cannot be sure that these
         reimbursement policies will remain in effect. Limits on
         reimbursement could reduce the demand for our products. The
         unavailability or inadequacy of third party reimbursement for our
         products could reduce or possibly eliminate demand for our
         products. We are unable to predict whether governmental authorities
         will enact additional legislation or regulation which will affect
         third party coverage and reimbursement that reduces demand for our
         products.

         Our ability to market generic pharmaceutical products successfully
         depends, in part, on the acceptance of the products by independent
         third parties, including pharmacies, government formularies and
         other retailers, as well as patients. We manufacture a number of
         prescription drugs which are used by patients who have severe
         health conditions. Although the brand-name products generally have
         been marketed safely for many years prior to our introduction of a
         generic/non-branded alternative, there is a possibility that one of
         these products could produce a side effect which could result in an
         adverse effect on our ability to achieve acceptance by managed care
         providers,


                                     26

<PAGE>
<PAGE>

         pharmacies and other retailers, customers and patients. If these
         independent third parties do not accept our products, it could have
         a material adverse effect on our financial condition and results of
         operations.

         EXTENSIVE INDUSTRY REGULATION HAS HAD, AND WILL CONTINUE TO HAVE, A
         SIGNIFICANT IMPACT ON OUR BUSINESS, ESPECIALLY OUR PRODUCT
         DEVELOPMENT, MANUFACTURING AND DISTRIBUTION CAPABILITIES.

         All pharmaceutical companies, including us, are subject to
         extensive, complex, costly and evolving regulation by the federal
         government, principally the FDA and, to a lesser extent, the DEA
         and state government agencies. The Federal Food, Drug and Cosmetic
         Act, the Controlled Substances Act and other federal statutes and
         regulations govern or influence the testing, manufacturing,
         packing, labeling, storing, record keeping, safety, approval,
         advertising, promotion, sale and distribution of our products.
         Failure to comply with applicable FDA or other regulatory
         requirements may result in criminal prosecution, civil penalties,
         injunctions, recall or seizure of products and total or partial
         suspension of production, as well as other regulatory actions
         against our products and us.

         We market certain drug products in the United States without FDA
         approval under certain "grandfather" clauses and statutory and
         regulatory exceptions to the pre-market approval requirement for
         "new drugs" under the Federal Food, Drug and Cosmetic Act, or the
         FDCA. A determination as to whether a particular product does or
         does not require FDA pre-market review and approval can involve
         consideration of numerous complex and imprecise factors. If a
         determination is made by the FDA that any product marketed without
         approval requires such approval, the FDA may institute enforcement
         actions, including product seizure, or an action seeking an
         injunction against further marketing and may or may not allow
         sufficient time to obtain the necessary approvals before it seeks
         to curtail further marketing. For example, in October 2002, FDA
         sent warning letters to us and other manufacturers and distributors
         of unapproved prescription drug products containing the expectorant
         guaifenesin as a single entity in a solid oral extended-release
         dosage form. Citing the recent approval of one such product, the
         FDA warning letters asserted that the marketing of all such
         products without NDA or ANDA approval should stop. The FDA
         subsequently agreed to allow continued manufacture through May 2003
         and sale through November 2003 of the products, and we complied
         with those deadlines. We are not in a position to predict whether
         or when the FDA might choose to raise similar objections to the
         marketing without NDA or ANDA approval of another category or
         categories of drug products represented in our product lines. In
         the event such objections are raised, we could be required or could
         decide to cease distribution of additional products until
         pre-market approval is obtained. In addition, we may not be able to
         obtain any particular approval that may be required or such
         approvals may not be obtained on a timely basis.

         In addition to compliance with current Good Manufacturing Practice,
         or cGMP, requirements, drug manufacturers must register each
         manufacturing facility with the FDA. Manufacturers and distributors
         of prescription drug products are also required to be registered in
         the states where they are located and in certain states that
         require registration by out-of-state manufacturers and
         distributors. Manufacturers also must be registered with the Drug
         Enforcement Administration, or DEA, and similar applicable state
         and local regulatory authorities if they handle controlled
         substances, and with the Environmental Protection Agency, or EPA,
         and similar state and local regulatory authorities if they generate
         toxic or dangerous wastes, and must also comply with other
         applicable DEA and EPA requirements. We believe that we are
         currently in material compliance with cGMP and are registered with
         the appropriate state and federal agencies. Non-compliance with
         applicable cGMP requirements or other rules and regulations of
         these agencies can result in fines, recall or seizure of products,
         total or partial suspension of production and/or distribution,
         refusal of government agencies to grant pre-market approval or
         other product applications and criminal prosecution. Despite our
         ongoing efforts, cGMP requirements and other regulatory
         requirements, and related enforcement priorities and policies may
         evolve over time and we may not be able to remain continuously in
         material compliance with all of these requirements.

         From time to time, governmental agencies have conducted
         investigations of pharmaceutical companies relating to the
         distribution and sale of drug products to government purchasers or
         subject to government or third party reimbursement. We believe that
         we have marketed our products in compliance with applicable laws
         and


                                     27

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<PAGE>

         regulations. However, standards sought to be applied in the course
         of governmental investigations can be complex and may not be
         consistent with standards previously applied to our industry
         generally or previously understood by us to be applicable to our
         activities.

         The process for obtaining governmental approval to manufacture and
         market pharmaceutical products is rigorous, time-consuming and
         costly, and we cannot predict the extent to which we may be
         affected by legislative and regulatory developments. We are
         dependent on receiving FDA and other governmental or third-party
         approvals prior to manufacturing, marketing and shipping many of
         our products. Consequently, there is always the chance that we will
         not obtain FDA or other necessary approvals, or that the rate,
         timing and cost of such approvals, will adversely affect our
         product introduction plans or results of operations. In many
         instances we carry inventories of products in anticipation of
         launch, and if such products are not subsequently launched, we may
         be required to write-off the related inventory.

         OUR INDUSTRY IS HIGHLY COMPETITIVE.

         Numerous pharmaceutical companies are involved or are becoming
         involved in the development and commercialization of products
         incorporating advanced drug delivery systems. Our business is
         highly competitive, and we believe that competition will continue
         to increase in the future. Many pharmaceutical companies have
         invested, and are continuing to invest, significant resources in
         the development of proprietary drug delivery systems. In addition,
         several companies have been formed to develop specific advanced
         drug delivery systems. Many of these pharmaceutical and other
         companies who may develop drug delivery systems have greater
         financial, research and development and other resources than we do,
         as well as more experience in commercializing pharmaceutical and
         drug delivery products. Those companies may develop products using
         their drug delivery systems more rapidly than we do or develop drug
         delivery systems that are more effective than ours and thus may
         represent significant potential competitors.

         Our branded pharmaceutical business is subject to competition from
         larger companies with greater financial resources that can support
         larger sales forces. The ability of a sales force to compete is
         affected by the number of physician calls it can make, which is
         directly related to its size, the brand name recognition it has in
         the marketplace and its advertising and promotional efforts. We are
         not as well established in our branded product sales initiative as
         larger pharmaceutical companies and could be adversely affected by
         competition from companies with larger, more established sales
         forces and higher advertising and promotional expenditures.

         Our generic pharmaceutical business is also subject to competitive
         pressures from a number of companies, some of which have greater
         financial resources and broader product lines. To the extent that
         we succeed in being first to market with a generic/non-branded
         version of a significant product, our sales and profitability can
         be substantially increased in the period following the introduction
         of such product and prior to additional competitors' introduction
         of an equivalent product. Competition is generally on price, which
         can have an adverse effect on profitability as falling prices erode
         margins. In addition, the continuing consolidation of the customer
         base (wholesale distributors and retail drug chains) and the impact
         of managed care organizations will increase competition as
         suppliers compete for fewer customers. Consolidation of competitors
         will increase competitive pressures as larger suppliers are able to
         offer a broader product line. Further, companies continually seek
         new ways to defeat generic competition, such as filing applications
         for new patents to cover drugs whose original patent protection is
         about to expire, developing and marketing other dosage forms
         including patented controlled-release products or developing and
         marketing as over-the-counter products those branded products which
         are about to lose exclusivity and face generic competition.

         In addition to litigation over patent rights, pharmaceutical
         companies are often the subject of objections by competing
         manufacturers over the qualities of their branded or generic
         products and/or their promotional activities. For example,
         marketers of branded products have challenged the marketing of
         certain of our non-branded products that do not require FDA
         approval and are not rated for therapeutic equivalence.

                                     28

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         Currently, the Company and ETHEX are named as defendants in ongoing
         litigation with Solvay Pharmaceuticals, Inc. regarding Solvay's
         allegations that ETHEX's comparative promotion of its
         Pangestyme(TM) CN 10 and Pangestyme(TM) CN 20 products to Solvay's
         Creon(R) 10 and Creon(R) 20 products resulted in false advertising
         and misleading statements under various Federal and state laws, and
         constituted unfair and deceptive trade practices. Discovery is
         active and the case is required to be ready for trial by February
         1, 2006. The Company intends to vigorously defend its interests;
         however, it cannot give any assurance it will prevail.

         Competitors' objections also may be pursued in complaints before
         governmental agencies or courts. These objections can be very
         expensive to pursue or to defend, and the outcome of agency or
         court review of the issues raised is impossible to predict. In
         these proceedings, companies can be subjected to restrictions on
         their activities or to liability for alleged damages despite their
         belief that their products and procedures are in full compliance
         with appropriate standards. In addition, companies that pursue what
         they believe are legitimate complaints about competing
         manufacturers and/or their products may nevertheless be unable to
         obtain any relief.

         OUR INDUSTRY EXPERIENCES RAPID TECHNOLOGICAL CHANGE.

         The drug delivery industry is a rapidly evolving field. A number of
         companies, including major pharmaceutical companies, are developing
         and marketing advanced delivery systems for the controlled delivery
         of drugs. Products currently on the market or under development by
         competitors may deliver the same drugs, or other drugs to treat the
         same indications, as many of the products we market or are
         developing. The first pharmaceutical branded or generic/non-branded
         product to reach the market in a therapeutic area often obtains and
         maintains significant market share relative to later entrants to
         the market. Our products also compete with drugs marketed not only
         in similar delivery systems but also in traditional dosage forms.
         New drugs, new therapeutic approaches or future developments in
         alternative drug delivery technologies may provide advantages over
         the drug delivery systems and products that we are marketing, have
         developed or are developing.

         Changes in drug delivery technology may require substantial
         investments by companies to maintain their competitive position and
         may provide opportunities for new competitors to enter the
         industry. Developments by others could render our drug delivery
         products or other technologies uncompetitive or obsolete. If others
         develop drugs which are cheaper or more effective or which are
         first to market, sales or prices of our products could decline.

                      RISKS RELATED TO OUR COMMON STOCK

         MANAGEMENT STOCKHOLDERS CONTROL OUR COMPANY.

         At March 31, 2005, our directors and executive officers
         beneficially own approximately 13% of our Class A Common Stock and
         approximately 60% of our Class B Common Stock. As a result, these
         persons control approximately 53% of the combined voting power
         represented by our outstanding securities. These persons will
         retain effective voting control of our company and are expected to
         continue to have the ability to effectively determine the outcome
         of any matter being voted on by our stockholders, including the
         election of directors and any merger, sale of assets or other
         change in control of our company.

         THE MARKET PRICE OF OUR STOCK HAS BEEN AND MAY CONTINUE TO BE
         VOLATILE.

         The market prices of securities of companies engaged in
         pharmaceutical development and marketing activities historically
         have been highly volatile. In addition, any or all of the following
         may have a significant impact on the market price of our common
         stock: announcements by us or our competitors of technological
         innovations or new commercial products; delays in the development
         or approval of products; developments or disputes concerning patent
         or other proprietary rights; publicity regarding actual or
         potential medical results relating to products marketed by us or
         products under development; regulatory developments in both the
         United States and foreign countries; publicity regarding actual or
         potential acquisitions; public concern as to the safety of drug

                                     29

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<PAGE>

         technologies or products; financial results which are different
         from securities analysts' forecasts; and economic and other
         external factors, as well as period-to-period fluctuations in our
         financial results.

         FUTURE SALES OF COMMON STOCK COULD ADVERSELY AFFECT THE MARKET
         PRICE OF OUR CLASS A OR CLASS B COMMON STOCK.

         As of March 31, 2005, an aggregate of 2,707,207 shares of our Class
         A common stock and 395,591 shares of our Class B common stock were
         issuable upon exercise of outstanding stock options under our stock
         option plans, and an additional 988,473 shares of our Class A
         common stock and 1,214,399 shares of Class B common stock were
         reserved for the issuance of additional options and shares under
         these plans. In addition, as of March 31, 2005, 8.7 million shares
         of Class A common stock were reserved for issuance upon conversion
         of $200.0 million principal amount of convertible notes, and
         337,500 shares of our Class A common stock were reserved for
         issuance upon conversion of our outstanding 7% cumulative
         convertible preferred stock.

         Future sales of our common stock and instruments convertible or
         exchangeable into our common stock and transactions involving
         equity derivatives relating to our common stock, or the perception
         that such sales or transactions could occur, could adversely affect
         the market price of our common stock. This could, in turn, have an
         adverse effect on the trading price of the Notes resulting from,
         among other things, a delay in the ability of holders to convert
         their Notes into our Class A common stock.

         OUR CHARTER PROVISIONS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
         EFFECTS.

         Our Amended Certificate of Incorporation authorizes the issuance of
         common stock in two classes, Class A common stock and Class B
         common stock. Each share of Class A common stock entitles the
         holder to one-twentieth of one vote on all matters to be voted upon
         by stockholders, while each share of Class B common stock entitles
         the holder to one full vote on each matter considered by the
         stockholders. In addition, our directors have the authority to
         issue additional shares of preferred stock and to determine the
         price, rights, preferences, privileges and restrictions of those
         shares without any further vote or action by the stockholders. The
         rights of the holders of common stock will be subject to, and may
         be adversely affected by, the rights of the holders of any
         preferred stock that may be issued in the future. The existence of
         two classes of common stock with different voting rights and the
         ability of our directors to issue additional shares of preferred
         stock could make it more difficult for a third party to acquire a
         majority of our voting stock. Other provisions of our Amended
         Certificate of Incorporation and Bylaws, such as a classified board
         of directors, also may have the effect of discouraging, delaying or
         preventing a merger, tender offer or proxy contest, which could
         have an adverse effect on the market price of our Class A common
         stock.

         In addition, certain provisions of Delaware law applicable to our
         company could also delay or make more difficult a merger, tender
         offer or proxy contest involving our company, including Section 203
         of the Delaware General Corporation Law, which prohibits a Delaware
         corporation from engaging in any business combination with any
         interested stockholder for a period of three years unless certain
         conditions are met. Our senior management is entitled to certain
         payments upon a change in control. All of our stock option plans
         provide for the acceleration of vesting in the event of a change in
         control of our company.

                                     30

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ITEM 2.  PROPERTIES
         ----------

         Our corporate headquarters is located at 2503 South Hanley Road in
         St. Louis County, Missouri, and contains approximately 40,000
         square feet of floor space. We have a lease on the building for a
         period of ten years expiring December 31, 2006, with one five-year
         option to renew and a successive three-year renewal option. The
         building is leased from an affiliated partnership of an officer and
         director of the Company.

         In addition, we lease or own the facilities shown in the following
         table. All of these facilities are located in the St. Louis
         metropolitan area.

<TABLE>
<CAPTION>
                    SQUARE                                                      LEASE            RENEWAL
                    FOOTAGE    USAGE                                            EXPIRES          OPTIONS
                   -----------------------------------------------------------------------------------------
                   <S>         <C>                                              <C>              <C>
                     31,630    PDI Office/Mfg./Whse.                            11/30/07         5 Years(1)
                     10,000    PDI/KV Lab/Whse.                                 11/30/05         None
                     15,000    KV/Ther-Rx Office                                02/28/08         2 Years(3)
                     23,000    KV Office/R&D/Mfg.                               12/31/06         5 Years(2)
                    122,350    KV Office/Whse./Lab                              Owned            N/A
                     90,000    KV Mfg. Oper.                                    Owned            N/A
                     87,020    Under renovation(5)                              Owned            N/A
                    302,940    Under renovation(6)                              Owned            N/A
                    260,160    ETHEX/Ther-Rx/PDI Distribution(7)                04/30/12         5 Years(2)
                     40,000    KV Warehouse                                     11/30/05         1 Year(4)
                    128,960    ETHEX/PDI Office/Whse.                           06/14/11         5 Years(2)

<FN>
         -------
         (1) One five-year option.
         (2) Two five-year options.
         (3) Two two-year options.
         (4) Two one-year options.
         (5) This facility is currently being renovated to provide an
             additional research lab facility.
         (6) This facility is currently being renovated into office space
             for ETHEX, Ther-Rx and certain KV administrative functions and
             production space for additional operations. We financed the
             purchase of this facility with a term loan secured by the
             facility.
         (7) On April 14, 2005, the Company completed the purchase of this
             building for $11.8 million. The property had been leased by
             the Company since April 2000 and will continue to function as
             the Company's main distribution facility. The purchase price
             of the building was paid with cash on hand.
</TABLE>

         Properties used in our operations are considered suitable for the
         purposes for which they are used and are believed to be adequate to
         meet our Company's needs for the reasonably foreseeable future.
         However, we will consider leasing or purchasing additional
         facilities from time to time, when attractive facilities become
         available, to accommodate the consolidation of certain operations
         and to meet future expansion plans.

ITEM 3.  LEGAL PROCEEDINGS
         -----------------

         The Company and ETHEX are named as defendants in a case brought by
         CIMA LABS, Inc. and Schwarz Pharma, Inc. and styled CIMA LABS, Inc.
         et. al. v. KV Pharmaceutical Company et. al. filed in Federal
         District Court in Minnesota. It is alleged that the Company and
         ETHEX infringed on a CIMA patent in connection with the manufacture
         and sale of Hyoscyamine Sulfate Orally Dissolvable Tablets, 0.125
         mg. The court has denied the plaintiffs' motion for a preliminary
         injunction, which allows ETHEX to continue marketing the product
         during the pendancy of the subject lawsuit. The Company has filed
         several motions for summary judgment requesting that the Court rule
         that the relevant patent is unenforceable, invalid or not
         infringed. These motions have been denied and the issues will be
         considered at trial. CIMA and Schwarz filed a summary judgment
         motion seeking the Court to rule that the patent is valid in the
         face of some prior art references cited by the Company as providing
         support for its invalidity defense. The Court granted the motion;
         however, the issue of invalidity based on prior art


                                     31

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<PAGE>

         that was not the subject of the motion will be tried. The Company
         intends to vigorously defend its interests; however, it cannot give
         any assurance it will prevail.

         The Company and ETHEX are named as defendants in a case brought by
         Solvay Pharmaceuticals, Inc. and styled Solvay Pharmaceuticals,
         Inc. v. ETHEX Corporation, filed in Federal District Court in
         Minnesota. In general, Solvay alleges that ETHEX's comparative
         promotion of its Pangestyme(TM) CN 10 and Pangestyme(TM) CN 20
         products to Solvay's Creon(R) 10 and Creon(R) 20 products resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair and deceptive trade
         practices. Discovery is active and the case is required to be trial
         ready by February 1, 2006. The Company intends to vigorously defend
         its interests; however, it cannot give any assurance it will
         prevail.

         KV previously distributed several pharmaceutical products that
         contained phenylpropanolamine, or PPA, and that were discontinued
         in 2000 and 2001. The Company is presently named a defendant in a
         product liability lawsuit in federal court in Mississippi involving
         PPA. The suit originated out of a case, Virginia Madison, et al. v.
         Bayer Corporation, et al. The original suit was filed in December
         2002, but was not served on KV until February 2003. The case was
         originally filed in the Circuit Court of Hinds County, Mississippi,
         and was removed to the Federal District Court for the Southern
         District of Mississippi by then co-defendant Bayer Corporation. The
         case has been transferred to a Judicial Panel on Multi-District
         Litigation for PPA claims sitting in the Western District of
         Washington. The claims against the Company have been segregated
         into a lawsuit brought by Johnny Fulcher individually and on behalf
         of the wrongful death beneficiaries of Linda Fulcher, deceased,
         against the Company. It alleges bodily injury, wrongful death,
         economic injury, punitive damages, loss of consortium and/or loss
         of services from the use of the Company's distributed
         pharmaceuticals containing PPA that have since been discontinued
         and/or reformulated to exclude PPA. In May 2004, the case was
         dismissed with prejudice by the Federal District Court for the
         Western District of Washington for a failure to timely file an
         individual complaint as required by certain court orders. The
         plaintiff filed a request for reconsideration which was opposed and
         subsequently denied by the Court in June 2004. In July 2004, the
         plaintiff filed a notice of appeal of the dismissal. The Company
         has opposed this appeal. The Company intends to vigorously defend
         its interests; however, it cannot give any assurance it will
         prevail.

         The Company has also been advised that one of its former
         distributor customers is being sued in Florida state court in a
         case captioned Darrian Kelly v. K-Mart et. al. for personal injury
         allegedly caused by ingestion of K-Mart diet caplets that are
         alleged to have been manufactured by the Company and to contain
         PPA. The distributor has tendered defense of the case to the
         Company and has asserted a right to indemnification for any
         financial judgment it must pay. The Company previously notified its
         product liability insurer of this claim in 1999, and the Company
         has demanded that the insurer assume the Company's defense. The
         insurer has stated that it has retained counsel to secure
         additional factual information and will defer its coverage decision
         until that information is received. The Company intends to
         vigorously defend its interests; however, it cannot give any
         assurance that it will not be impleaded into the action, or that,
         if it is impleaded, that it would prevail.

         KV's product liability coverage for PPA claims expired for claims
         made after June 15, 2002. Although the Company renewed its product
         liability coverage for coverage after June 15, 2002, that policy
         excludes future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, the Company will
         provide for legal defense costs and indemnity payments involving
         PPA claims on a going forward basis as incurred, including the
         Mississippi lawsuit that was filed after June 15, 2002. Moreover,
         the Company may not be able to obtain product liability insurance
         in the future for PPA claims with adequate coverage limits at
         commercially reasonable prices for subsequent periods. From time to
         time in the future, KV may be subject to further litigation
         resulting from products containing PPA that it formerly
         distributed. The Company intends to vigorously defend its
         interests; however, it cannot give any assurance it will prevail.

         After the Company filed ANDAs with the FDA seeking permission to
         market a generic version of the 50 mg, 100 mg, and 200 mg strengths
         of Toprol(R) XL in extended release capsule form, AstraZeneca filed
         lawsuits against KV for patent infringement under the provisions of
         the Hatch-Waxman Act. In the Company's Paragraph IV certification,
         KV contended that its proposed generic versions do not infringe
         AstraZeneca's patents. Pursuant to


                                     32

<PAGE>
<PAGE>

         the Hatch-Waxman Act, the filing date of the suit against the
         Company instituted an automatic stay of FDA approval of the
         Company's ANDA until the earlier of a judgment of non-infringement
         or invalidity, or 30 months from the date the application was
         filed. The Company has filed a motion for summary judgment with the
         Federal District Court in Missouri alleging, among other things,
         that AstraZeneca's patent is invalid. There is no trial setting.
         The Company intends to vigorously defend its interests; however, it
         cannot give any assurances it will prevail.

         The Company and/or ETHEX have been named as defendants in certain
         multi-defendant cases alleging that the defendants reported
         improper or fraudulent pharmaceutical pricing information, i.e.,
         AWP and/or Wholesale Acquisition Cost, or WAC, information, which
         caused the governmental plaintiffs to incur excessive costs for
         pharmaceutical products under the Medicaid program. Cases of this
         type have been filed against the Company and/or ETHEX and other
         pharmaceutical manufacturer defendants by the State of
         Massachusetts, the State of Alabama, New York City, and
         approximately 25 counties in New York State (less than ten of which
         have been formally served on the Company or ETHEX). The New York
         City case and all but one of the New York County cases have been
         transferred (or will be the subject of a notice of related action
         in order to effectuate transfer) to the Federal District Court for
         the District of Massachusetts for coordinated or consolidated
         pretrial proceedings under the Average Wholesale Price
         Multidistrict Litigation (MDL No. 1456). Each of these actions is
         in the early stages, and fact discovery has not yet begun in any of
         the cases other than the Alabama case, where the State's first
         discovery request has been filed. The Company intends to vigorously
         defend its interests in the actions described above; however, it
         cannot give any assurance it will prevail.

         The Company believes that various other governmental entities have
         commenced investigations into the generic and branded
         pharmaceutical industry at large regarding pricing and price
         reporting practices. Although the Company believes its pricing and
         reporting practices have complied in all material respects with its
         legal obligations, it cannot give any assurances that it would
         prevail if legal actions are instituted by these governmental
         entities.

         On May 20, 2005 the Company was notified by the SEC that a
         non-public formal investigation was initiated that appears to
         relate to the Form 8-K disclosures the Company made on July 13,
         2004. The Company is cooperating fully and believes the matter will
         be satisfactorily resolved.

         From time to time, the Company is involved in various other legal
         proceedings in the ordinary course of its business. These legal
         proceedings include various patent infringement actions brought by
         potential competitors with respect to products the Company proposes
         to market and for which it has submitted ANDA filings and provided
         notice of certification required under the provisions of the Act.
         While it is not feasible to predict the ultimate outcome of such
         other proceedings, the Company believes that the ultimate outcome
         of such other proceedings will not have a material adverse effect
         on its results of operations or financial position.

         There are uncertainties and risks associated with all litigation
         and there can be no assurance that the Company will prevail in any
         particular litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

         No matters were submitted to a vote of security holders during the
         fourth quarter of the Company's fiscal year ended March 31, 2005.

                                     33

<PAGE>
<PAGE>

ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
           ------------------------------------

         The following is a list of current executive officers of our
         Company, their ages, their positions with our Company and their
         principal occupations for at least the past five years.

<TABLE>
<CAPTION>
NAME                    AGE      POSITION HELD AND PAST EXPERIENCE
----------------------------------------------------------------------------------------------------------------------------------

<S>                      <C>     <C>
Marc S. Hermelin         63      Vice Chairman of the Board of the Company since 1974; Chief Executive Officer from 1975 to
                                 February 1994 and since December 1994; Director and Vice President of Particle Dynamics, Inc.
                                 since 1974.(1)

Alan G. Johnson          70      Director, Senior Vice President-Strategic Planning and Corporate Growth since September 1999 and
                                 Secretary of the Company; Chairman of Johnson Research & Capital, Inc., an investment banking and
                                 institutional research firm from January to September 1999; Member of the law firm Gallop,
                                 Johnson & Neuman, L.C. 1976 to 1998; Director of Siboney Corporation.

Gerald R. Mitchell       65      Vice President and Chief Financial Officer since 1981.

Richard H. Chibnall      49      Vice President, Finance since February 2000.

Michael S. Anderson      56      Chief Executive Officer, Ther-Rx Corporation since February 2000.

Jerald J. Wenker         43      President, Ther-Rx Corporation since June 2004; Vice President, Licensing and New Business
                                 Development, Abbot Corporation from January 2002 to April 2004; Vice President and General
                                 Manager, Anti-Infective Franchise Abbot Corporation from April 2000 to January 2002.

Philip J. Vogt           48      President, ETHEX Corporation since February 2000.

Ray F. Chiostri          71      Chairman and Chief Executive Officer, Particle Dynamics, Inc. since 1999.

Paul T. Brady            42      President, Particle Dynamics, Inc. since 2003; Senior Vice President and General Manager,
                                 International Specialty Products Corporation from June 2002 to January 2003; Senior Vice
                                 President, Commercial Director, North and South America International Specialty Products
                                 from 2000 to 2002.

Eric D. Moyermann        47      President, Pharmaceutical Manufacturing since February 2000.

<CAPTION>
         Executive officers of the Company serve at the pleasure of the
         Board of Directors.

<FN>
----------
(1) Marc S. Hermelin is the son of Victor M. Hermelin, Chairman of the
    Board of Directors of the Company since 1971 and father of David S.
    Hermelin, a member of the Board of Directors since 2004.
</TABLE>

                                     34

<PAGE>
<PAGE>

                                   PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

    a)   PRINCIPAL MARKET
         ----------------

         Our Class A common stock and Class B common stock are traded on the
         New York Stock Exchange under the symbols KV.A and KV.B,
         respectively.

    b)   APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
         ---------------------------------------------

         The number of holders of record of Class A and Class B Common Stock
         as of June 9, 2005 was 786 and 389, respectively (not separately
         counting shareholders whose shares are held in "nominee" or
         "street" names, which are estimated to represent approximately
         5,000 additional Class A common stock and Class B common stock
         shareholders combined).

    c)   STOCK PRICE AND DIVIDEND INFORMATION
         ------------------------------------

         The high and low closing sales prices of our Class A and Class B
         common stock during each quarter of fiscal 2005 and 2004, as
         reported on the New York Stock Exchange and as adjusted for the 3
         for 2 stock split effective on September 8, 2003 were as follows:

<TABLE>
<CAPTION>
                                                           CLASS A COMMON STOCK
                                                           --------------------
                                          FISCAL 2005                                 FISCAL 2004
                                          -----------                                 -----------
         QUARTER                      HIGH           LOW                          HIGH            LOW
         -------                     --------------------                        ---------------------
<S>                                  <C>           <C>                           <C>            <C>
         First...................... $26.24        $22.25                        $20.29         $12.61
         Second.....................  23.11         15.31                         23.49          17.91
         Third......................  22.14         18.18                         27.67          22.22
         Fourth.....................  23.20         19.78                         27.51          22.10

<CAPTION>
                                                           CLASS B COMMON STOCK
                                                           --------------------

                                          FISCAL 2005                                 FISCAL 2004
                                          -----------                                 -----------
         QUARTER                      HIGH           LOW                          HIGH            LOW
         -------                     --------------------                        ---------------------
<S>                                  <C>           <C>                           <C>            <C>
         First...................... $29.60        $25.00                        $20.39         $12.63
         Second.....................  25.05         16.35                         23.53          18.09
         Third......................  22.77         18.65                         27.77          22.31
         Fourth.....................  23.49         20.42                         29.40          22.60
</TABLE>

         Since 1980, we have not declared or paid any cash dividends on our
         common stock and we do not plan to do so in the foreseeable future.
         No dividends may be paid on Class A common stock or Class B common
         stock unless all dividends on the Cumulative Convertible Preferred
         Stock have been declared and paid. Dividends must be paid on Class
         A common stock when, and if, we declare and distribute dividends on
         the Class B common stock. Dividends of $70,000 were paid in fiscal
         2005 and 2004 on 40,000 shares of outstanding Cumulative
         Convertible Preferred Stock. Also, $366,000, or $9.14 per share, of
         undeclared and unaccrued cumulative preferred dividends were paid
         on May 12, 2003. There were no undeclared and unaccrued cumulative
         preferred dividends at March 31, 2005.

                                     35

<PAGE>
<PAGE>

         Also, under the terms of our credit agreement, we may not pay cash
         dividends in excess of 25% of the prior fiscal year's consolidated
         net income. For the foreseeable future, we plan to use cash
         generated from operations for general corporate purposes, including
         funding potential acquisitions, research and development and
         working capital. Our board of directors reviews our dividend policy
         periodically. Any payment of dividends in the future will depend
         upon our earnings, capital requirements, financial condition and
         other factors considered relevant by our board of directors. See
         also Item 12 for information relating to the Company's equity
         compensation plans.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                        Issuer Purchases of Equity Securities

----------------------------------------------------------------------------------------------------------------------
     Period                  Total number of       Average price paid     Total number of         Maximum number (or
                            shares purchased           per share         shares purchased          approximate dollar
                                  (a)                                    as part of publicly     value) of shares (or
                                                                         announced plans or       units) that may yet
                                                                             programs             be purchased under
                                                                                                 the plans or programs
----------------------------------------------------------------------------------------------------------------------
<S>                         <C>                   <C>                   <C>                      <C>
1/1/05 - 1/31/05                  188                  $21.75                   --                        --

----------------------------------------------------------------------------------------------------------------------
2/1/05 - 2/28/05                  104                  $20.22                   --                        --

----------------------------------------------------------------------------------------------------------------------
3/1/05 - 3/31/05                   64                  $21.85                   --                        --

----------------------------------------------------------------------------------------------------------------------
Total                             356                  $21.32                   --                        --

----------------------------------------------------------------------------------------------------------------------

<FN>
(a) Shares were purchased from employees upon their termination pursuant to the
    terms of the Company's stock option plan.
</TABLE>



                                     36

<PAGE>
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------
         (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                          --------------------------------------------------------------------
                                            2005          2004            2003            2002          2001
                                            ----          ----            ----            ----          ----
<S>                                       <C>            <C>            <C>             <C>           <C>
BALANCE SHEET DATA:

Total assets                              $558,317       $528,438       $352,668        $195,192      $151,417
Long-term debt                             209,767        210,741         10,106           4,387         5,080
Shareholders' equity                       292,702        257,749        260,616         158,792       125,942


<CAPTION>
INCOME STATEMENT DATA:

                                                                  YEARS ENDED MARCH 31,
                                          --------------------------------------------------------------------
                                            2005          2004            2003            2002          2001
                                            ----          ----            ----            ----          ----
<S>                                       <C>            <C>            <C>             <C>           <C>
Net revenues                              $303,493       $283,941       $244,996        $204,105      $177,767
 % Increase from prior period                  6.9%          15.9%          20.0%           14.8%         24.5%
Operating income(a)(b)(c)                 $ 52,412       $ 73,771       $ 42,929        $ 49,294      $ 37,972
Net income(a)(b)(c)                         33,269         45,848         28,110          31,464        23,625
Net income
 per common
 share-diluted(d) (e)                     $   0.63       $   0.84       $   0.55        $   0.65      $   0.49
Preferred stock dividends                 $     70       $    436       $     70        $     70      $    420

<FN>
---------------------------

(a)      Operating income in fiscal 2005 included a $0.6 million net payment
         received by us in accordance with a legal settlement and additional
         income of $0.8 million for the reversal of a portion of the
         Healthpoint litigation reserve that remained after payment of the
         $16.5 million settlement amount and related litigation costs (see
         Note 11 in the accompanying Notes to Consolidated Financial
         Statements). The impact of these items, net of applicable income
         taxes, was to increase net income by $1.0 million and diluted
         earnings per share by $.02 in fiscal 2005.

(b)      Operating income in fiscal 2004 included a $3.5 million net payment
         received by us in accordance with a legal settlement (see Note 13
         in the accompanying Notes to Consolidated Financial Statements) and
         an additional reserve of $1.8 million for attorney's fees
         associated with a lawsuit. The impact of these items, net of
         applicable income taxes, was to increase net income by $1.1 million
         and diluted earnings per share by $.02 in fiscal 2004.

(c)      Operating income in fiscal 2003 included a reserve of $16.5 million
         for potential damages associated with the Healthpoint litigation.
         The impact of the litigation reserve, net of applicable income
         taxes, was to reduce net income by $10.4 million and diluted
         earnings per share by $.20 in fiscal 2003.

(d)      Previously reported amounts give effect to the three-for-two stock
         splits effected in the form of a 50% stock dividend that occurred
         on September 29, 2003 and September 7, 2000.

(e)      Amounts for fiscal year 2004 have been restated to report shares
         issuable upon conversion of contingent convertible notes, which
         were issued in May 2003, pursuant to Emerging Issues Task Force
         (EITF) Issue No. 04-08, the Effect of Contingently Convertible Debt
         on Diluted Earnings per Share.
</TABLE>


                                     37

<PAGE>
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
         --------------------------------------------------------------
         AND LIQUIDITY AND CAPITAL RESOURCES
         -----------------------------------

         Except for the historical information contained herein, the
         following discussion contains forward-looking statements that are
         subject to known and unknown risks, uncertainties, and other
         factors that may cause our actual results to differ materially from
         those expressed or implied by such forward-looking statements.
         These risks, uncertainties and other factors are discussed
         throughout this report and specifically under the captions
         "Cautionary Statement Regarding Forward-Looking Information" and
         "Risk Factors." In addition, the following discussion and analysis
         of the financial condition and results of operations should be read
         in conjunction with "Selected Financial Data" and our consolidated
         financial statements and notes thereto appearing elsewhere in this
         Form 10-K.

         BACKGROUND

         We are a fully integrated specialty pharmaceutical company that
         develops, acquires, manufactures and markets technologically-
         distinguished branded and generic/non-branded prescription
         pharmaceutical products. We have a broad range of dosage form
         capabilities, including tablets, capsules, creams, liquids and
         ointments. We conduct our branded pharmaceutical operations through
         Ther-Rx Corporation and our generic/non-branded pharmaceutical
         operations through ETHEX Corporation, which focuses principally on
         technologically-distinguished generic products. Through Particle
         Dynamics, Inc., we develop, manufacture and market technologically
         advanced, value-added raw material products for the pharmaceutical,
         nutritional, personal care, food and other markets.

         We have a broad portfolio of drug delivery technologies which we
         leverage to create technologically-distinguished brand name and
         specialty generic products. We have developed and patented 15 drug
         delivery and formulation technologies primarily in four principal
         areas: SITE RELEASE(R) bioadhesives, oral controlled release,
         tastemasking and oral quick dissolving tablets. We incorporate
         these technologies in the products we market to control and improve
         the absorption and utilization of active pharmaceutical compounds.
         These technologies provide a number of benefits, including reduced
         frequency of administration, reduced side effects, improved drug
         efficacy, enhanced patient compliance and improved taste.

         Our drug delivery technologies allow us to differentiate our
         products in the marketplace, both in the branded and generic
         pharmaceutical areas. We believe that this differentiation provides
         substantial competitive advantages for our products, allowing us to
         establish a strong record of growth and profitability and a
         leadership position in certain segments of our industry.

         RESULTS OF OPERATIONS

         In fiscal 2005, net revenues increased 6.9% as we experienced sales
         growth compared to fiscal 2004 in all three of our operating
         segments: branded products, specialty generics and specialty
         materials. Our sales growth in fiscal 2005 was constrained by
         slower than anticipated ANDA approvals by the FDA on two brand
         equivalent products that we expected to introduce in the fourth
         quarter of fiscal 2005 and delays in the timing of other certain
         approvals during the year. We expect these approvals will be
         received in the second half of fiscal 2006. Sales of our branded
         segment also were negatively impacted in the fourth quarter by a
         shortage of raw material for one of our products. The $10.3 million
         increase in gross profit was more than offset by an increase in
         operating expenses of $31.7 million. The increase in operating
         expenses was primarily due to: greater personnel expenses
         associated with an increase in management personnel and expansion
         of the branded sales force, an increase in branded marketing
         expense primarily related to the approval and introduction of the
         Company's second NDA product - Clindesse(TM), increases in
         professional fees and legal expenses, and an increase in research
         and development expense. As a result, net income decreased $12.6
         million, or 27.4%, to $33.3 million compared to fiscal 2004.

                                     38

<PAGE>
<PAGE>

         FISCAL 2005 COMPARED TO FISCAL 2004

         NET REVENUES BY SEGMENT
         -----------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005        2004         $        %
                                      --------    --------    -------   -----
         Branded products             $ 90,085    $ 82,868    $ 7,217    8.7%
          as % of net revenues            29.7%       29.2%
         Specialty generics            191,870     181,455     10,415    5.7%
          as % of net revenues            63.2%       63.9%
         Specialty materials            18,345      16,550      1,795   10.8%
          as % of net revenues             6.0%        5.8%
         Other                           3,193       3,068        125    4.1%
                                      ========    ========    =======
           Total net revenues         $303,493    $283,941    $19,552    6.9%

         The increase in branded product sales was due primarily to the
         introduction of Clindesse(TM) in the fourth quarter of fiscal 2005,
         continued growth of Gynazole-1(R) and increased sales of our two
         hematinic brands. The introduction of Clindesse(TM), a single-dose
         prescription cream therapy indicated to treat bacterial vaginosis,
         contributed $4.2 million of incremental sales during the fourth
         quarter of fiscal 2005. Since its launch in January 2005,
         Clindesse(TM) has garnered 13.1% of the intravaginal bacterial
         vaginosis market in the United States. Sales of Gynazole-1, our
         vaginal antifungal cream product, increased $2.7 million, or 14.4%,
         to $21.3 million during fiscal 2005 as our share of the
         prescription vaginal antifungal cream market increased to 31.5% at
         the end of fiscal 2005, from 26.9% at the end of the prior year.
         Sales from our two hematinic product lines, Chromagen(R) and
         Niferex(R), increased 22.6% to $25.4 million during fiscal 2005 as
         both product lines experienced significant growth in new
         prescriptions filled. During the year, new prescription growth for
         Chromagen(R) and Niferex(R) was 74.7% and 52.7%, respectively,
         compared to the prior year. Also included in branded product sales
         is the PreCare(R) product line which contributed $31.7 million of
         sales during fiscal 2005. Although sales of our PreCare(R) product
         line declined 2.7% during the year, the PreCare(R) family of
         products continued to be the leading branded line of prescription
         prenatal nutritional supplements in the United States. The $0.9
         million decrease in sales of our PreCare(R) product line was
         partially the result of a temporary fourth quarter supply
         disruption of PrimaCare(R) ONE, our proprietary line extension to
         PrimaCare(R), that was launched in the second quarter. Prior to the
         occurrence of this supply issue, which has since been resolved,
         PrimaCare(R) ONE generated $4.1 million of incremental sales in
         fiscal 2005. The increase in branded product sales for fiscal 2005
         was partially offset by a $2.2 million decline in sales of our
         Micro-K(R) product line.

         The growth in specialty generic sales resulted from $15.9 million
         of incremental sales volume from new product introductions,
         principally in our lower margin cough/cold product line, coupled
         with $8.8 million of increased sales volume from existing products
         in our cardiovascular and pain management product lines. These
         increases were offset in part by product price erosion of $14.3
         million principally in the second half of the fiscal year, that
         resulted from pricing pressures on certain products in the
         cardiovascular, pain management and cough/cold product lines.
         Although specialty generic sales increased in fiscal 2005, we
         experienced a $9.0 million, or 18.2%, decline in sales for the
         three months ended March 31, 2005. This decrease resulted from a
         significant decline in cardiovascular products sales due in part to
         the absence of trade shows that occurred in the fourth quarter of
         the prior year and resulted in an unfavorable mix in product
         categories in the fourth quarter of fiscal 2005. The anticipated
         approval of Diltiazem and another product in the fourth quarter of
         fiscal 2005, would have more than offset the above decrease, had
         the approvals been received. We now expect them to be launched in
         the second half of fiscal 2006.

                                     39

<PAGE>
<PAGE>

         The increase in specialty material product sales was primarily due
         to renewed focus on expanding the specialty materials business, the
         addition of a new major customer in fiscal 2005 that resulted in
         $1.3 million of incremental sales and an increased emphasis on
         international markets that provided additional sales of $1.0
         million in fiscal 2005.

         GROSS PROFIT BY SEGMENT
         -----------------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                    CHANGE
                                                              -----------------
              ($ IN THOUSANDS):         2005        2004         $         %
                                      --------    --------    -------   -------
         Branded products             $ 78,844    $ 72,008    $ 6,836     9.5%
          as % of net revenues            87.5%       86.9%
         Specialty generics            113,084     110,180      2,904     2.6%
          as % of net revenues            58.9%       60.7%
         Specialty materials             6,394       4,789      1,605    33.5%
          as % of net revenues            34.9%       28.9%
         Other                          (2,511)     (1,463)    (1,048)  (71.6)%
                                      ========    ========    =======
           Total gross profit         $195,811    $185,514    $10,297     5.6%
            as % of total net
            revenues                      64.5%       65.3%

         The increase in gross profit was primarily attributable to the
         sales growth experienced by all three of our segments: branded
         products, specialty generics and specialty materials. The lower
         gross profit percentage on a consolidated basis primarily reflected
         the impact of price erosion on certain specialty generic products
         beginning in the second quarter and extending through the balance
         of fiscal 2005, offset in part by certain selective price increases
         taken near the end of the third quarter. The gross profit
         percentage decline experienced by the specialty generics segment
         was offset in part by a shift in the mix of branded product sales
         toward higher margin products with the introduction of
         Clindesse(TM) in the fourth quarter coupled with improved pricing
         and lower raw material costs at our specialty materials business.

         RESEARCH AND DEVELOPMENT
         ------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005        2004         $        %
                                      -------     -------     ------    -----
         Research and development     $23,538     $20,651     $2,887    14.0%
          as % of net revenues            7.8%        7.3%

         The increase in research and development expense primarily resulted
         from increased spending on bioequivalency studies for products in
         our internal development pipeline and higher personnel expenses
         related to the growth of our research and development staff. In May
         2005, we announced an agreement with FemmePharma to terminate the
         license agreement we entered into with them in April 2002. As part
         of this transaction, we acquired FemmePharma for $25.0 million
         after the assets of the entity had been distributed to
         FemmePharma's other shareholders. Included in our acquisition of
         FemmePharma are all of the worldwide marketing rights to an
         endometriosis product that has successfully completed Phase II
         clinical trials and was originally part of the licensing
         arrangement with FemmePharma. In connection with this transaction,
         we expect to incur an in-process


                                     40

<PAGE>
<PAGE>

         research and development charge of approximately $30.0 million in
         the first quarter of fiscal 2006, which includes the write-off of
         the $25.0 million payment plus preferred stock investments
         previously made.

         SELLING AND ADMINISTRATIVE
         --------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005        2004         $        %
                                      --------     -------    -------   -----
         Selling and administrative   $116,638     $88,333    $28,305   32.0%
          as % of net revenues            38.4%       31.1%

         The increase in selling and administrative expense was due
         primarily to: greater personnel expenses resulting from an increase
         in management personnel ($4.3 million) and expansion of the branded
         sales force ($5.1 million including approximately $1.1 million for
         sales representatives added during the fourth quarter of fiscal
         2005); a $2.2 million increase in branded marketing and promotions
         expense commensurate with the growth of the segment; a $2.9 million
         increase in rent, depreciation, insurance and utilities expense
         associated with expansion of our office facilities over the past
         two years; a $1.7 million increase in professional fees associated
         primarily with implementation of the internal control provisions of
         the Sarbanes-Oxley Act of 2002; a $1.2 million increase in legal
         expense; and $3.0 million of costs incurred in the fourth quarter
         to support the launch of Clindesse(TM). The increase in legal
         expense was due to an increase in litigation activity, which
         included various patent infringement actions brought by potential
         competitors with respect to products we propose to market and for
         which we have submitted ANDA filings and provided notice of
         certification required under the provisions of the Hatch-Waxman
         Act.

         AMORTIZATION OF INTANGIBLE ASSETS
         ---------------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005     2004          $          %
                                      ------    ------        ----       ----
         Amortization of intangible
          assets                      $4,653    $4,459        $194       4.4%
          as % of net revenues           1.5%      1.6%

         The increase in amortization of intangible assets was due primarily
         to the amortization of license costs incurred under a
         co-development arrangement in fiscal 2005.

                                     41

<PAGE>
<PAGE>

         LITIGATION
         ----------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005        2004        $        %
                                      --------    --------    -----   -------
         Litigation                   $(1,430)    $(1,700)    $270    (15.9)%

         The $1.4 million of income reflected in "Litigation" consists of a
         $0.6 million net payment received by us in accordance with a
         favorable legal settlement of vitamin antitrust litigation and $0.8
         million related to the reversal of excess reserves related to the
         Healthpoint litigation (see Note 11 in the accompanying Notes to
         Consolidated Financial Statements).

         In the second quarter of the prior year, we received $3.5 million
         for settlement with a branded company of our claim that the branded
         company interfered with our right to a timely introduction of a
         generic product in a previous fiscal year. The impact of this
         payment was offset in part by an additional litigation reserve of
         $1.8 million related to attorneys' fees awarded in the Healthpoint
         matter, which subsequently was settled.

         OPERATING INCOME
         ----------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                   CHANGE
                                                              -----------------
              ($ IN THOUSANDS):         2005       2004           $        %
                                      -------    -------      --------  -------
         Operating income             $52,412    $73,771      $(21,359) (29.0)%

         The decrease in operating income resulted primarily from a
         $28.3 million, or 32.0%, increase in selling and administrative
         expense coupled with a $2.9 million increase in research and
         development expense, offset in part by a $10.3 million increase in
         gross profit.

         INTEREST EXPENSE
         ----------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):        2005       2004          $         %
                                      ------     ------       ------   ------
         Interest expense             $5,432     $5,865       $(433)   (7.4)%

         The decrease in interest expense was primarily due to an increase
         in the level of capitalized interest recorded on capital projects
         that we have in process.

                                     42

<PAGE>
<PAGE>

         INTEREST AND OTHER INCOME
         -------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2005        2004       $          %
                                       ------      ------     ----      -----
         Interest and other income     $3,048      $2,092     $956      45.7%

         The increase in interest and other income was primarily due to an
         increase in the weighted average interest rate earned on short-term
         investments, offset in part by a decline in the average balance of
         short-term investments.

         PROVISION FOR INCOME TAXES
         --------------------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                   CHANGE
                                                              -----------------
              ($ IN THOUSANDS):         2005       2004           $        %
                                      -------    -------      --------   ------
         Provision for income taxes   $16,759    $24,150      $(7,391)  (30.6)%
          effective tax rate             33.5%      34.5%

         The decrease in the provision for income taxes resulted from a
         corresponding decrease in income before taxes coupled with a
         decline in the effective tax rate. The decline in the effective tax
         rate primarily resulted from the implementation of various tax
         planning initiatives, as well as the generation of income tax
         credits at both the Federal and state levels.

         NET INCOME AND DILUTED EARNINGS PER SHARE
         -----------------------------------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                    CHANGE
                                                              -----------------
              ($ IN THOUSANDS):          2005        2004         $        %
                                       -------     -------    --------- -------
         Net income                    $33,269     $45,848    $(12,579) (27.4)%
           Diluted earnings per share     0.63        0.84       (0.21) (25.0)%

         The decrease in net income resulted primarily from a $28.3 million,
         or 32.0%, increase in selling and administrative expense coupled
         with a $2.9 million increase in research and development expense,
         offset in part by a $10.3 million increase in gross profit.

                                     43

<PAGE>
<PAGE>

         FISCAL 2004 COMPARED TO FISCAL 2003

         NET REVENUES BY SEGMENT
         -----------------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                    CHANGE
                                                              -----------------
              ($ IN THOUSANDS):         2004        2003         $        %
                                      --------    --------    -------   -------
         Branded products             $ 82,868    $ 43,677    $ 39,191   89.7%
          as % of net revenues            29.2%       17.8%
         Specialty generics            181,455     179,724       1,731    1.0%
          as % of net revenues            63.9%       73.4%
         Specialty materials            16,550      17,395        (845)  (4.9)%
          as % of net revenues             5.8%        7.1%
         Other                           3,068       4,200      (1,132) (27.0)%
                                      ========    ========    ========
           Total net revenues         $283,941    $244,996    $ 38,945   15.9%

         The increase in branded product sales was due primarily to
         continued growth of our women's healthcare family of products and
         the sales impact of products acquired by us on March 31, 2003. The
         increase was also impacted by a March 1, 2004 price increase
         instituted by Ther-Rx on all of its products. In anticipation of
         the scheduled price increase, customers made larger than normal
         purchases, which the Company limits to a 30-day supply and is
         consistent with prior price increase policies. This forward
         purchasing approximated $7.4 million during the fourth quarter.
         Sales from the women's healthcare product group increased $17.9
         million, or 53.6%, in fiscal 2004. Included in the women's
         healthcare family of products is the PreCare(R) product line which
         contributed $11.8 million of incremental sales in fiscal 2004. This
         increase was attributable to increased sales volume associated with
         higher market shares for PrimaCare(R), our prescription
         prenatal/postnatal multivitamin and mineral supplement with
         essential fatty acids, and the PreCare(R) prenatal vitamin. The
         PreCare(R) family of products continues to be the leading branded
         line of prescription prenatal nutritional supplements in the United
         States as market share for the product line grew to 37.6% at the
         end of fiscal 2004 compared to 31.0% at the end of fiscal 2003.
         Sales of Gynazole-1(R), our vaginal antifungal cream product,
         increased $6.1 million, or 48.8%, during fiscal 2004 as our share
         of the prescription vaginal antifungal cream market increased to
         26.9% at the end of fiscal 2004, from 18.1% at the end of the prior
         year. The increase in sales from our women's healthcare family of
         products was supplemented by $22.6 million of sales during fiscal
         2004 from our two hematinic product lines, Chromagen(R) and
         Niferex(R), and the StrongStart(R) prenatal vitamin product line
         that we acquired at the end of fiscal 2003. Introduction of
         technology-improved versions of the hematinic products in the
         second quarter of fiscal 2004, generated 69% growth in new
         prescription volume. The increase in branded product sales for
         fiscal 2004 was partially offset by a $1.2 million decline in sales
         of the Micro-K(R) product line.

         The minimal growth in specialty generic sales resulted from $8.8
         million of incremental sales volume from new product introductions,
         primarily in the cough/cold, cardiovascular and prenatal vitamin
         product lines, offset by a $7.3 million decline in sales volume
         from existing products primarily in our cough/cold product line.
         During fiscal 2004, we introduced 16 new products, including the
         February 2004 ANDA approval for four strengths of Benazepril
         Hydrochloride tablets (generic equivalent to Lotensin(R)). The
         decline in sales of existing cough/cold products was due primarily
         to an FDA order which required us and all manufacturers of
         unapproved single-ingredient, extended-release guaifenesin products
         to discontinue distribution of these products after November 2003.
         The FDA ruling affected five of our guaifenesin products that were
         first introduced when ANDA approval was not required. Also, we
         experienced slower than anticipated ANDA approvals by the FDA on a
         number of brand equivalent products that we expected to introduce
         in fiscal 2004.

         The decrease in specialty material product sales was primarily due
         to a slowdown in a major customer's business in the vitamin
         supplement market.

         The decrease in other revenue resulted from a smaller contract
         manufacturing customer base due to continued de-emphasis of this
         lower margin operation in our business strategy.

                                     44

<PAGE>
<PAGE>

         GROSS PROFIT BY SEGMENT
         -----------------------

                                                YEARS ENDED MARCH 31,
                                      ------------------------------------------
                                                                     CHANGE
                                                              ------------------
              ($ IN THOUSANDS):         2004        2003         $          %
                                      --------    --------    -------   --------
         Branded products             $ 72,008    $ 38,460    $33,548     87.2%
          as % of net revenues            86.9%       88.1%
         Specialty generics            110,180     106,854      3,326      3.1%
          as % of net revenues            60.7%       59.5%
         Specialty materials             4,789       5,720       (931)   (16.3)%
          as % of net revenues            28.9%       32.9%
         Other                          (1,463)       (565)      (898)  (158.9)%
                                      ========    ========    =======
           Total gross profit         $185,514    $150,469    $35,045     23.3%
            as % of total net
            revenues                      65.3%       61.4%

         The increase in consolidated gross profit was primarily
         attributable to the sales growth experienced by the branded
         products and specialty generics segments, offset in part by a sales
         decline in the specialty materials segment. The increased gross
         profit percentage on a consolidated basis reflected a favorable
         shift in the mix of product sales toward higher margin branded
         products, which comprised a larger percentage of net revenues. The
         gross profit percentage decrease experienced by the branded
         products segment was due to the acquired hematinic products, which
         have a slightly lower gross margin than other products in the
         branded line. While the gross profit percentage in specialty
         generics increased for the fiscal year, the segment experienced a
         decline in gross profit as a percent of net revenues during the
         fourth quarter due to more competitive pricing and higher costs
         associated with a new product launch. Gross profit as a percent of
         net revenues also declined in the specialty raw materials segment
         during the fourth quarter as a result of unfavorable costs
         variances associated with lower production volume.

         RESEARCH AND DEVELOPMENT
         ------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004        2003         $        %
                                      -------     -------     ------     ----
         Research and development     $20,651     $19,135     $1,516     7.9%
          as % of net revenues            7.3%        7.8%

         The increase in research and development expense resulted from
         higher costs associated with the continued expansion of clinical
         testing for our product development efforts and increased personnel
         expenses related to the growth of our research and development
         staff. The increase in research and development expense was below
         management's expectation of greater spending due to rescheduling
         the timing of certain clinical studies.

         SELLING AND ADMINISTRATIVE
         --------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004        2003         $        %
                                      -------     -------     -------   -----
         Selling and administrative   $88,333     $69,584     $18,749   26.9%
          as % of net revenues           31.1%       28.4%

                                     45

<PAGE>
<PAGE>

         The increase in selling and administrative expense was due
         primarily to greater personnel expenses resulting from an increase
         in management personnel ($1.7 million) and expansion of the branded
         sales force ($4.9 million), an increase in rent, depreciation and
         utilities associated with recently added facilities ($2.5 million),
         and an increase in branded marketing expense ($3.7 million)
         commensurate with the growth of the segment and to support the
         launch and on-going promotion of technology-improved versions of
         the Chromagen(R) and Niferex(R) products we acquired at the end of
         fiscal 2003. We also experienced a $4.3 million increase in legal
         expense due to an increase in litigation activity coupled with the
         appeal of the Healthpoint litigation, Paragraph IV litigation and
         other matters.

         AMORTIZATION OF INTANGIBLE ASSETS
         ---------------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004         2003        $        %
                                       ------       ------    -------   -----
         Amortization of intangible
          assets                       $4,459       $2,321    $2,138    92.1%
          as % of net revenues            1.6%         0.9%

         The increase in amortization of intangible assets was due primarily
         to the amortization of trademarks acquired in the two product
         acquisitions completed on March 31, 2003.

         LITIGATION
         ----------

                                                 YEARS ENDED MARCH 31,
                                      ------------------------------------------
                                                                    CHANGE
                                                              ------------------
              ($ IN THOUSANDS):         2004        2003          $         %
                                      --------    -------     --------- --------
         Litigation                   $(1,700)    $16,500     $(18,200) (110.3)%

         In September 2002, we recorded a litigation reserve of $16.5
         million for potential damages associated with the adverse decision
         made by a federal court in Texas to uphold a jury verdict in a
         lawsuit against ETHEX. During fiscal 2004, we recorded an
         additional litigation reserve of $1.8 million related to this
         matter for attorney's fees awarded to the plaintiffs by the court.
         The impact of this reserve was more than offset by a $3.5 million
         net payment, received by us during fiscal 2004, for a settlement
         with a branded company of our claim that the branded company
         interfered with our right to a timely introduction of a generic
         product in a previous fiscal year.

         OPERATING INCOME
         ----------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004        2003         $        %
                                      -------     -------     -------   -----
         Operating income             $73,771     $42,929     $30,842   71.8%

         The increase in operating income resulted primarily from a $35.0
         million, or 23.3%, increase in gross profit in fiscal 2004, offset
         in part by a $4.2 million increase in fiscal 2004 operating
         expenses. The $18.7 million increase in our fiscal 2004 selling and
         administrative expenses was primarily offset by the impact on
         fiscal 2003 operating


                                     46

<PAGE>
<PAGE>

         expenses of a $16.5 million litigation reserve established by us
         for potential damages associated with a lawsuit that was settled in
         fiscal 2005.

         INTEREST EXPENSE
         ----------------

                                                YEARS ENDED MARCH 31,
                                      -----------------------------------------
                                                                    CHANGE
                                                              -----------------
              ($ IN THOUSANDS):        2004      2003           $         %
                                      ------     ----         ------   --------
         Interest expense             $5,865     $325         $5,540   1,704.6%

         The increase in interest expense resulted primarily from the
         interest expense accrued on the $200.0 million of Convertible
         Subordinated Notes issued May 16, 2003.

         INTEREST AND OTHER INCOME
         -------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):        2004        2003         $        %
                                      ------       ----       ------   ------
         Interest and other income    $2,092       $977       $1,115   114.1%

         The increase in interest and other income was due to the investment
         of $144.2 million of net proceeds from the May 2003 Convertible
         Subordinated Notes offering in short-term, highly liquid
         investments combined with the impact of an $82.3 million increase
         in short-term investments during fiscal 2003 from the proceeds of a
         secondary offering during that year.

         PROVISION FOR INCOME TAXES
         --------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004       2003          $        %
                                      -------    -------      ------    -----
         Provision for income taxes   $24,150    $15,471      $8,679    56.1%
          effective tax rate             34.5%     35.5%

         The increase in the provision for income taxes resulted from a
         corresponding increase in income before taxes. The decline in the
         effective tax rate primarily resulted from the implementation of
         various tax planning initiatives, as well as the generation of
         income tax credits at both the Federal and state levels.

                                     47

<PAGE>
<PAGE>

         NET INCOME AND DILUTED EARNINGS PER SHARE
         -----------------------------------------

                                                YEARS ENDED MARCH 31,
                                      ---------------------------------------
                                                                   CHANGE
                                                              ---------------
              ($ IN THOUSANDS):         2004       2003          $        %
                                      -------    -------      -------   -----
         Net income                   $45,848    $28,110      $17,738   63.1%
           Diluted earnings per share    0.84       0.55         0.29   52.7%

         The increase in net income resulted primarily from a $38.9 million,
         or $15.9%, increase in our fiscal 2004 net revenues coupled with
         the impact on fiscal 2003 net income of a $16.5 million litigation
         reserve established by us in September 2002 for potential damages
         associated with a lawsuit that was settled in fiscal 2005.

         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         Cash and cash equivalents and working capital were $159.8 million
         and $302.5 million, respectively, at March 31, 2005, compared to
         $191.6 million and $306.6 million, respectively, at March 31, 2004.
         Internally generated funds from product sales was the primary
         source of operating capital used in the funding of our businesses
         in fiscal 2005. Net cash flow from operating activities was $49.0
         million in fiscal 2005 compared to $34.0 in fiscal 2004. Cash flow
         from operations was favorably impacted by net income adjusted for
         non-cash items and an increase in accounts payable related to the
         timing of payments, offset in part by the $18.3 million payment
         attributable to settlement of the Healthpoint litigation.

         In September 2004, we made a settlement payment in the amount of
         $16.5 million to resolve all previously pending claims between us
         and Healthpoint, Ltd. without the admission of any liability. The
         settlement was fully reserved by us in September 2002 and therefore
         had no impact on our earnings in fiscal 2005. The $0.8 million of
         income reflected in "Litigation" for the year ended March 31, 2005
         represents a reversal of the portion of the Healthpoint litigation
         reserve that remained after payment of the settlement amount and
         related litigation costs.

         Net cash flow used in investing activities primarily consisted of
         capital expenditures of $63.6 million in fiscal 2005 compared to
         $21.8 million for the prior year. Capital expenditures in fiscal
         2005 were primarily for building renovation projects and for
         purchasing machinery and equipment to upgrade and expand our
         pharmaceutical manufacturing and distribution capabilities. Other
         investing activities in fiscal 2005 included $10.6 million in
         purchases of marketable securities that are classified as available
         for sale. In the prior year, we made cash payments of $14.3 million
         in April 2003 to complete the acquisition of the Niferex(R) product
         line and $4.0 million in January 2004 to FemmePharma, Inc. to
         complete the licensing of certain trademark rights and to increase
         our equity investment in the company.

         Our debt balance was $210.7 million at March 31, 2005 compared to
         $218.7 million at March 31, 2004. In May 2003, we issued $200.0
         million principal amount of Convertible Subordinated Notes that are
         convertible, under certain circumstances, into shares of our Class
         A common stock at an initial conversion price of $23.01 per share.
         The Convertible Subordinated Notes bear interest at a rate of 2.50%
         and mature on May 16, 2033. We are also obligated to pay contingent
         interest at a rate equal to 0.5% per annum during any six-month
         period commencing May 16, 2006, if the average trading price of the
         Notes per $1,000 principal amount for the five-trading day period
         ending on the third trading day immediately preceding the first day
         of the applicable six-month period equals $1,200 or more. We may
         redeem some or all of the Convertible Subordinated Notes at any
         time on or after May 21, 2006, at a redemption price, payable in
         cash, of 100% of the principal amount of the Convertible
         Subordinated Notes, plus accrued and unpaid interest (including
         contingent interest, if any) to the date of redemption. Holders may
         require us to repurchase all or a portion of their Convertible
         Subordinated Notes on May 16, 2008, 2013, 2018, 2023 and 2028, or
         upon a change in control, as defined in the indenture governing the
         Convertible Subordinated Notes, at 100% of the principal amount of
         the Convertible Subordinated Notes, plus accrued and unpaid
         interest (including contingent interest, if any) to the date of
         repurchase, payable in cash. The Convertible Subordinated Notes are
         subordinate to all of our existing and future senior obligations.
         On March 31,


                                     48

<PAGE>
<PAGE>

         2005, we repaid the second of two $7.0 million promissory notes
         entered into in conjunction with the Altana acquisition agreement
         (see Note 3 in the accompanying Notes to Consolidated Financial
         Statements).

         In December 2004, we increased our available credit facilities to
         $140.0 million. The revised agreement provided for an increase from
         $40.0 million to $80.0 million in our revolving line of credit
         along with an increase from $25.0 million to $60.0 million in the
         supplemental credit line that is available for financing
         acquisitions. These credit facilities expire in October 2006 and
         December 2005, respectively. The revolving and supplemental credit
         lines are unsecured and interest is charged at the lower of the
         prime rate or the one-month LIBOR rate plus 175 basis points. At
         March 31, 2005, we had $3.9 million in open letters of credit
         issued under the revolving credit line and no cash borrowings under
         either credit facility. The revised agreement contains
         substantially identical financial and other covenants,
         representations, warranties, conditions and default provisions as
         the replaced facility. The financial covenants impose minimum
         levels of earnings before interest, taxes, depreciation and
         amortization, a maximum funded debt ratio, a limit on capital
         expenditures and dividend payments, a minimum fixed charge coverage
         ratio and a maximum senior leverage ratio. As of March 31, 2005, we
         were in compliance with all of our covenants.

         The following table summarizes our contractual obligations (in
         thousands):

<TABLE>
<CAPTION>
                                                                   LESS THAN                               MORE THAN
                                                       TOTAL        1 YEAR       1-3 YEARS    3-5 YEARS     5 YEARS
                                                       -----        ------       ---------    ---------     -------
<S>                                                   <C>           <C>           <C>          <C>         <C>
   OBLIGATIONS AT MARCH 31, 2005
   -----------------------------
   Long-term debt obligations                         $210,740      $  973        $3,853       $5,914      $200,000
   Operating lease obligations                           5,257       1,598         1,949        1,086           624
   Other long-term obligations                           4,477           -             -            -         4,477
                                                    ---------------------------------------------------------------
    Total contractual cash obligations(a)             $220,474      $2,571        $5,802       $7,000      $205,101
                                                    ---------------------------------------------------------------

<FN>
         (a)  The Company has licensed the exclusive rights to co-develop
              and market various generic equivalent products with other drug
              delivery companies. These collaboration agreements require the
              Company to make up-front and ongoing payments as development
              milestones are attained. If all milestones remaining under
              these agreements were reached, payments by the Company could
              total up to $15,455.
</TABLE>

         We believe our cash and cash equivalents balance, cash flows from
         operations and funds available under our credit facilities, will be
         adequate to fund operating activities for the presently foreseeable
         future, including the payment of short-term and long-term debt
         obligations, capital improvements, research and development
         expenditures, product development activities and expansion of
         marketing capabilities for the branded pharmaceutical business. In
         addition, we continue to examine opportunities to expand our
         business through the acquisition of or investment in companies,
         technologies, product rights, research and development and other
         investments that are compatible with our existing businesses. We
         intend to use our available cash to help in funding any
         acquisitions or investments. As such, cash has been invested in
         short-term, highly liquid instruments. We also may use funds
         available under our credit facility, or financing sources that
         subsequently become available, including the future issuances of
         additional debt or equity securities, to fund these acquisitions or
         investments. If we were to fund one or more such acquisitions or
         investments, our capital resources, financial condition and results
         of operations could be materially impacted in future periods.

         INFLATION

         Inflation may apply upward pressure on the cost of goods and
         services used by us in the future. However, we believe that the net
         effect of inflation on our operations during the past three years
         has been minimal. In addition, changes in the mix of products sold
         and the effect of competition has made a comparison of changes in
         selling prices less meaningful relative to changes in the overall
         rate of inflation over the past three fiscal years.

                                     49

<PAGE>
<PAGE>

         CRITICAL ACCOUNTING ESTIMATES

         Our consolidated financial statements are presented on the basis of
         U.S. generally accepted accounting principles. Our significant
         accounting policies are described in Note 2 in the accompanying
         notes to consolidated financial statements. Certain of our
         accounting policies are particularly important to the portrayal of
         our financial position and results of operations and require the
         application of significant judgment by our management. As a result,
         these policies are subject to an inherent degree of uncertainty. In
         applying these policies, we make estimates and judgments that
         affect the reported amounts of assets, liabilities, revenues and
         expenses and related disclosures. We base our estimates and
         judgments on historical experience, the terms of existing
         contracts, observance of trends in the industry, information that
         is obtained from customers and outside sources, and on various
         other assumptions that are believed to be reasonable and
         appropriate under the circumstances, the results of which form the
         basis for making judgments about the carrying values of assets and
         liabilities that are not readily apparent from other sources.
         Although we believe that our estimates and assumptions are
         reasonable, actual results may differ significantly from our
         estimates. Changes in estimates and assumptions based upon actual
         results may have a material impact on our results of operations
         and/or financial condition. Our critical accounting estimates are
         described below.

         REVENUE AND PROVISION FOR SALES RETURNS AND ALLOWANCES. Revenue is
         ------------------------------------------------------
         generally realized or realizable and earned when persuasive
         evidence of an arrangement exists, delivery has occurred or
         services have been rendered, the seller's price to the buyer is
         fixed or determinable, and collectibility is reasonably assured.
         Accordingly, we record revenue from product sales when title and
         risk of ownership have been transferred to the customer, which is
         typically upon shipment to the customer. We also enter into
         long-term agreements under which we assign marketing rights for the
         products we have developed to pharmaceutical marketers. Royalties
         under these arrangements are earned based on the sale of products.

         When we sell our products, we reduce the amount of revenue we
         recognize from such sales by an estimate of future product returns
         and sales allowances. Sales allowances include cash discounts,
         rebates, chargebacks, and other similar expected future payments
         relating to products sold in the current period. Factors that are
         considered in our estimates of future product returns and sales
         allowances include historical payment experience in relationship to
         revenues, estimated customer inventory levels, and current contract
         prices and terms with both direct and indirect customers. If actual
         future payments for product returns and sales allowances exceed the
         estimates we made at the time of sale, our financial position,
         results of operations and cash flows would be negatively impacted.

         The provision for chargebacks is the most significant and complex
         estimate used in the recognition of revenue. We establish contract
         prices for indirect customers who are supplied by our wholesale
         customers. A chargeback represents the difference between our
         invoice price to the wholesaler and the indirect customer's
         contract price, which is lower. We credit the wholesaler for
         purchases by indirect customers at the lower price. Accordingly, we
         record these chargebacks at the time we recognize revenue in
         connection with our sales to wholesalers. Provisions for estimating
         chargebacks are calculated primarily using historical chargeback
         experience, actual contract pricing and estimated wholesaler
         inventory levels. We continually monitor our assumptions, giving
         consideration to estimated wholesaler inventory levels and current
         pricing trends, and make adjustments to these estimates when we
         believe that the actual chargeback amounts payable in the future
         will differ from our original estimates.

         INVENTORY VALUATION. Inventories consist of finished goods held for
         -------------------
         distribution, raw materials and work in process. Our inventories
         are stated at the lower of cost or market, with cost determined on
         the first-in, first-out basis. In evaluating whether inventory is
         to be stated at the lower of cost or market, we consider such
         factors as the amount of inventory on hand and in the distribution
         channel, estimated time required to sell existing inventory,
         remaining shelf life and current and expected market conditions,
         including levels of competition. We establish reserves, when
         necessary, for slow-moving and obsolete inventories based upon our
         historical experience and management's assessment of current
         product demand.

         INTANGIBLE ASSETS AND GOODWILL. Our intangible assets consist of
         ------------------------------
         product rights, license agreements and trademarks resulting from
         product acquisitions and legal fees and similar costs relating to
         the development of


                                     50

<PAGE>
<PAGE>

         patents and trademarks. Intangible assets that are acquired are
         stated at cost, less accumulated amortization, and are amortized on
         a straight-line basis over their estimated useful lives. Upon
         approval, costs associated with the development of patents and
         trademarks are amortized on a straight-line basis over estimated
         useful lives ranging from five to 17 years. We determine
         amortization periods for intangible assets that are acquired based
         on our assessment of various factors impacting estimated useful
         lives and cash flows of the acquired products. Such factors include
         the product's position in its life cycle, the existence or absence
         of like products in the market, various other competitive and
         regulatory issues, and contractual terms. Significant changes to
         any of these factors may result in a reduction in the intangible
         asset's useful life and an acceleration of related amortization
         expense.

         We assess the impairment of intangible assets whenever events or
         changes in circumstances indicate that the carrying value may not
         be recoverable. Some factors we consider important which could
         trigger an impairment review include the following: (1) significant
         underperformance relative to expected historical or projected
         future operating results; (2) significant changes in the manner of
         our use of the acquired assets or the strategy for our overall
         business; and (3) significant negative industry or economic trends.

         When we determine that the carrying value of an intangible asset
         may not be recoverable based upon the existence of one or more of
         the above indicators of impairment, we first perform an assessment
         of the asset's recoverability. Recoverability is determined by
         comparing the carrying amount of an intangible asset against an
         estimate of the undiscounted future cash flows expected to result
         from its use and eventual disposition. If the sum of the expected
         future undiscounted cash flows is less than the carrying amount of
         the intangible asset, an impairment loss is recognized based on the
         excess of the carrying amount over the estimated fair value of the
         intangible asset.

         CONTINGENCIES. The Company is involved in various legal
         -------------
         proceedings, some of which involve claims for substantial amounts.
         An estimate is made to accrue for a loss contingency relating to
         any of these legal proceedings if it is probable that a liability
         was incurred as of the date of the financial statements and the
         amount of loss can be reasonably estimated. Because of the
         subjective nature inherent in assessing the outcome of litigation
         and because of the potential that an adverse outcome in legal
         proceedings could have a material impact on our financial position
         or results of operations, such estimates are considered to be
         critical accounting estimates. After review, it was determined at
         March 31, 2005 that for each of the various legal proceedings in
         which we are involved, the conditions mentioned above were not met.
         We will continue to evaluate all legal matters as additional
         information becomes available.

         RECENTLY ISSUED ACCOUNTING STANDARDS

         In March 2004, the EITF completed its discussion of and provided
         consensus guidance on Issue No. 03-06, Participating Securities and
         the Two-Class Method under FASB Statement No. 128, Earnings per
         Share. The consensus interpreted the definition of a "participating
         security," required the use of the two-class method in the
         calculation and disclosure of basic earnings per share for
         companies with participating securities or more than one class of
         common stock, and provided guidance on the allocation of earnings
         and losses for purposes of calculating basic earnings per share.
         Since the Company has two classes of common stock, this consensus
         has been applied in the calculation of basic earnings per share for
         all periods presented. There was no impact on diluted earnings per
         share as reported.

         In April 2004, the Financial Accounting Standards Board (FASB)
         issued FASB Staff Position No. 129-1 (FSP 129-1), Disclosure
         Requirements under FASB Statement No. 129, Disclosure of
         Information about Capital Structure, Relating to Contingently
         Convertible Securities. This FSP requires the disclosure provisions
         of Statement 129 to apply to all existing and newly created
         contingently convertible securities and to their potentially
         dilutive effects on earnings per share. The adoption of the
         disclosure provisions of FSP 129-1 did not have a material impact
         on the Company's financial condition or results of operations.

         In September 2004, the EITF reached a consensus that contingently
         convertible debt instruments should be included in diluted earnings
         per share computations (if dilutive) regardless of whether the
         market price trigger (or


                                     51

<PAGE>
<PAGE>

         other contingent feature) has been met. Additionally, the EITF
         stated that prior period earnings per share amounts presented for
         comparative purposes should be restated to conform to this
         consensus, which is effective for reporting periods ending after
         December 15, 2004. The consensus adopted by the EITF required the
         addition of approximately 8.7 million shares associated with the
         conversion of the Company's $200.0 million principal amount
         Convertible Subordinated Notes to the number of shares outstanding
         for the calculation of diluted earnings per share for all reported
         periods since the issuance of the Notes.

         In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
         Amendment to ARB No. 43, Chapter 4 which requires that abnormal
         amounts of idle facility expense, freight, handling costs, and
         wasted material (spoilage) costs be recognized as current period
         charges. In addition, this statement requires that allocation of
         fixed production overheads to the costs of conversion be based on
         the normal capacity of the production facilities. This statement is
         effective for inventory costs incurred during fiscal years
         beginning after June 15, 2005. The Company is currently determining
         the impact, if any, the adoption of this statement will have on its
         financial condition and results of operations.

         In December 2004, the FASB issued SFAS No. 123 (revised 2004),
         "Share-Based Payment" (SFAS 123R), which replaces SFAS No. 123,
         "Accounting for Stock-Based Compensation," (SFAS 123) and
         supercedes APB Opinion No. 25, "Accounting for Stock Issued to
         Employees". SFAS 123R requires all share-based payments to
         employees, including grants of employee stock options, to be
         recognized in the financial statements based on their fair values.
         The pro forma disclosures previously permitted under SFAS 123 no
         longer will be an alternative to financial statement recognition.
         Under SFAS 123R, we must determine the appropriate fair value model
         to be used for valuing share-based payments, the amortization
         method for compensation cost and the transition method to be used
         at date of adoption. The transition methods include modified
         prospective and modified retrospective adoption options. Under the
         modified retrospective option, prior periods may be restated either
         as of the beginning of the year of adoption or for all periods
         presented. The modified prospective method requires that
         compensation expense be recorded for all unvested stock options and
         restricted stock at the beginning of the first quarter of adoption
         of SFAS 123R, while the modified retrospective method would record
         compensation expense for all unvested stock options and restricted
         stock beginning with the first period restated. We are evaluating
         the requirements of SFAS 123R. We have not yet determined the
         method of adoption or the effect of adopting SFAS 123R, and we have
         not determined whether the adoption will result in amounts that are
         similar to the current pro forma disclosures under SFAS 123.


         In April 2005, the Securities and Exchange Commission announced an
         amendment to Regulation S-X to amend the date for compliance with
         SFAS 123R. The amendment requires each registrant that is not a
         small business issuer to adopt SFAS 123R in the first fiscal year
         commencing after June 15, 2005. As a result, we are required to
         adopt SFAS 123R beginning April 1, 2006. Adoption of SFAS 123R will
         have an impact on our consolidated financial statements, as we will
         be required to expense the fair value of our employee stock option
         grants rather than disclose the pro forma impact on our
         consolidated net income within the footnotes to our consolidated
         financial statements, as is our current practice.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

         Our exposure to market risk is limited to fluctuating interest
         rates associated with variable rate indebtedness that is subject to
         interest rate changes.

         Advances to us under our credit facilities bear interest at a rate
         that varies consistent with increases or decreases in the publicly
         announced prime rate and/or the LIBOR rate with respect to
         LIBOR-related loans, if any. A material increase in such rates
         could significantly increase borrowing expenses. We did not have
         any cash borrowings under our credit facilities at March 31, 2005.

         In May 2003, we issued $200.0 million principal amount of
         Convertible Subordinated Notes. The interest rate on the
         Convertible Subordinated Notes is fixed at 2.50% per annum and not
         subject to market interest rate changes. Beginning May 16, 2006, we
         will become obligated to pay contingent interest at a rate equal to
         0.5% per annum during any six-month period, if the average trading
         price of the Convertible Subordinated Notes per $1,000 principal
         amount for the five-trading day period ending on the third trading
         day immediately preceding the first day of the applicable six-month
         period equals $1,200 or more.

                                     52

<PAGE>
<PAGE>

         In April 2003, we entered into an $8.8 million term loan secured by
         a building under a floating rate loan with a bank. We also entered
         into an interest rate swap agreement with the same bank, which
         fixed the interest rate of the building mortgage at 5.31% for the
         term of the loan.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------


                                     53

<PAGE>
<PAGE>

           Report of Independent Registered Public Accounting Firm
           -------------------------------------------------------

The Board of Directors and Shareholders
K-V Pharmaceutical Company:

We have audited the accompanying consolidated balance sheet of K-V
Pharmaceutical Company and subsidiaries as of March 31, 2005, and the
related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows for the year ended March 31, 2005. In
connection with our audit of the consolidated financial statements, we have
also audited the accompanying financial statement schedule. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial
statement schedule based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of K-V
Pharmaceutical Company and subsidiaries as of March 31, 2005, and the
results of their operations and their cash flows for the year ended March
31, 2005, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the related financial statement schedule for the year
ended March 31, 2005, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, during
fiscal 2005, the Company adopted the provisions of Emerging Issues Task
Force (EITF) Issue No. 03-6 Participating Securities and the Two-Class
Method under FASB Statement No. 128 and EITF Issue No. 04-8 The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of internal
control over financial reporting of K-V Pharmaceutical Company as of March
31, 2005, based on the criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated June 14, 2005 expressed an
unqualified opinion on management's assessment of, and the effective
operation of, internal control over financial reporting.

/s/ KPMG LLP

St. Louis, Missouri
June 14, 2005

                                     54

<PAGE>
<PAGE>

           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
of K-V Pharmaceutical Company

We have audited the accompanying consolidated balance sheets of K-V
Pharmaceutical Company and Subsidiaries as of March 31, 2004 and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the two years in the period ended March 31, 2004. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of K-V
Pharmaceutical Company and Subsidiaries at March 31, 2004, and the results
of its operations and its cash flows for each of the two years in the period
ended March 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.

                                                        /s/ BDO Seidman, LLP


Chicago, Illinois
June 4, 2004

                                     55

<PAGE>
<PAGE>

<TABLE>
                                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                          CONSOLIDATED BALANCE SHEETS
                                            (Dollars in thousands)

<CAPTION>
                                                                                                MARCH 31,
                                                                                         ---------------------
                                                                                           2005         2004
                                                                                           ----         ----

<S>                                                                                      <C>          <C>
                                            ASSETS
                                            ------

CURRENT ASSETS:
Cash and cash equivalents............................................................    $159,825     $191,581
Marketable securities................................................................      45,694       35,330
Receivables, less allowance for doubtful accounts of $461 and $402
   in 2005 and 2004, respectively....................................................      62,361       65,872
Inventories, net.....................................................................      53,945       50,697
Prepaid and other assets.............................................................       9,530        6,591
Deferred tax asset...................................................................       5,827        8,037
                                                                                         --------     --------
   Total Current Assets..............................................................     337,182      358,108
Property and equipment, less accumulated depreciation................................     131,624       75,777
Intangible assets and goodwill, net..................................................      76,430       80,809
Other assets.........................................................................      13,081       13,744
                                                                                         --------     --------
TOTAL ASSETS.........................................................................    $558,317     $528,438
                                                                                         ========     ========

                                         LIABILITIES
                                         -----------

CURRENT LIABILITIES:
Accounts payable.....................................................................    $ 18,011     $ 12,650
Accrued liabilities..................................................................      15,733       30,917
Current maturities of long-term debt.................................................         973        7,909
                                                                                         --------     --------
   Total Current Liabilities.........................................................      34,717       51,476
Long-term debt.......................................................................     209,767      210,741
Other long-term liabilities..........................................................       4,477        3,122
Deferred tax liability...............................................................      16,654        5,350
                                                                                         --------     --------
TOTAL LIABILITIES....................................................................     265,615      270,689
                                                                                         --------     --------

COMMITMENTS AND CONTINGENCIES

                                     SHAREHOLDERS' EQUITY
                                     --------------------

7% cumulative convertible Preferred Stock, $.01 par value; $25.00 stated and
   liquidation value; 840,000 shares authorized; issued and outstanding --
   40,000 shares at both 2005 and 2004 (convertible into Class A shares
   at a ratio of 8.4375 to one)......................................................          --           --
Class A and Class B Common Stock, $.01 par value;150,000,000 and
   75,000,000 shares authorized, respectively;
     Class A - issued 39,059,428 and 36,080,583 at March 31, 2005
       and 2004, respectively........................................................         391          362
     Class B - issued 13,422,101 and 16,148,739 at March 31, 2005 and
       2004, respectively (convertible into Class A shares on a one-for-one basis)...         134          162
Additional paid-in capital...........................................................     128,182      123,828
Retained earnings....................................................................     217,779      184,580
Accumulated other comprehensive loss.................................................        (133)          --
Less: Treasury stock, 3,111,003 shares of Class A and 92,902 shares of Class B Common
   Stock in 2005, and 3,035,948 shares of Class A and 80,142 shares of Class B
   Common Stock in 2004, at cost.....................................................     (53,651)     (51,183)
                                                                                         --------     --------
TOTAL SHAREHOLDERS' EQUITY...........................................................     292,702      257,749
                                                                                         --------     --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...........................................    $558,317     $528,438
                                                                                         ========     ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     56

<PAGE>
<PAGE>

<TABLE>
                                     K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF INCOME
                                    (Dollars in thousands, except per share data)

<CAPTION>
                                                                                         YEARS ENDED MARCH 31,
                                                                                 -----------------------------------
                                                                                   2005          2004         2003
                                                                                 --------      --------      -------

<S>                                                                              <C>           <C>          <C>
Net revenues...........................................................          $303,493      $283,941     $244,996
Cost of sales..........................................................           107,682        98,427       94,527
                                                                                 --------      --------     --------
Gross profit...........................................................           195,811       185,514      150,469
                                                                                 --------      --------     --------

Operating expenses:
   Research and development............................................            23,538        20,651       19,135
   Selling and administrative..........................................           116,638        88,333       69,584
   Amortization of intangible assets...................................             4,653         4,459        2,321
   Litigation..........................................................            (1,430)       (1,700)      16,500
                                                                                 --------      --------     --------
Total operating expenses...............................................           143,399       111,743      107,540
                                                                                 --------      --------     --------

Operating income.......................................................            52,412        73,771       42,929
                                                                                 --------      --------     --------

Other expense (income):
   Interest expense....................................................             5,432         5,865          325
   Interest and other income...........................................            (3,048)       (2,092)        (977)
                                                                                 --------      --------     --------
Total other expense (income), net......................................             2,384         3,773         (652)
                                                                                 --------      --------     ---------

Income before income taxes.............................................            50,028        69,998       43,581
Provision for income taxes.............................................            16,759        24,150       15,471
                                                                                 --------      --------     --------
Net income.............................................................          $ 33,269      $ 45,848     $ 28,110
                                                                                 ========      ========     ========

Earnings per common share:
   Basic - Class A common..............................................          $   0.71      $   0.98      $  0.59
   Basic - Class B common..............................................              0.59          0.82         0.50

   Diluted.............................................................          $   0.63      $   0.84      $  0.55
                                                                                 ========      ========      =======

Weighted Average Shares Outstanding:
   Basic - Class A common..............................................            34,228        33,046       33,997
   Basic - Class B common..............................................            15,005        15,941       15,803

   Diluted.............................................................            59,468        58,708       51,561

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     57

<PAGE>
<PAGE>

<TABLE>
                                   K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                               (Dollars in thousands)

<CAPTION>
                                                                                      YEARS ENDED MARCH 31,
                                                                                ---------------------------------
                                                                                  2005        2004         2003
                                                                                -------      -------      -------

<S>                                                                             <C>          <C>          <C>
Net income.............................................................         $33,269      $45,848      $28,110
Other comprehensive income (loss):
   Unrealized loss on available for sale securities....................            (201)          --           --
   Less related taxes..................................................              68           --           --
                                                                                -------      -------      -------
      Total unrealized loss on available for sale securities, net......            (133)          --           --
                                                                                -------      -------      -------

Total comprehensive income.............................................         $33,136      $45,848      $28,110
                                                                                =======      =======      =======


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     58

<PAGE>
<PAGE>

<TABLE>
                                             K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                                        YEARS ENDED MARCH 31, 2005, 2004 AND 2003
                                                      ----------------------------------------------------------------------------
                                                                    CLASS A      CLASS B    ADDITIONAL
                                                      PREFERRED     COMMON       COMMON       PAID IN     TREASURY   RETAINED
                                                        STOCK        STOCK        STOCK       CAPITAL      STOCK     EARNINGS
                                                        -----        -----        -----       -------      -----     --------
                                                                                       (Dollars in thousands)

<S>                                                     <C>          <C>          <C>        <C>          <C>        <C>
BALANCE AT MARCH 31, 2002........................       $ --         $201         $108       $ 47,231     $    (49)  $111,301
Net income.......................................         --           --           --             --           --     28,110
Dividends paid on preferred stock................         --           --           --             --           --        (70)
Conversion of 175,000 Class B
   shares to Class A shares......................         --            2           (2)            --           --         --
Issuance of 3,285,000 Class A shares.............         --           33           --         72,347           --         --
Sale of 40,461 Class A shares to employee
   profit sharing plan...........................         --           --           --            884           21         --
Stock Options exercised - 49,563 shares of
   Class A less 9,502 shares repurchased and
   40,717 shares of Class B less 112 shares
   repurchased...................................         --           --           --            499           --         --
                                                      ----------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003........................         --          236          106        120,961          (28)   139,341
Net income.......................................         --           --           --             --           --     45,848
Dividends paid on preferred stock................         --           --           --             --           --       (436)
Conversion of 117,187 Class B shares to
   Class A shares................................         --            1           (1)            --           --         --
Issuance of 27,992 Class A shares
   under product development agreement...........         --           --           --            505           --         --
Purchase of common stock for treasury............         --           --           --             --      (51,155)        --
Three-for-two stock dividend.....................         --          120           53             --           --       (173)
Stock Options exercised - 552,617 shares of
   Class A less 91,538 shares repurchased and
   413,419 shares of Class B less 15,625 shares
   repurchased...................................         --            5            4          2,362           --         --
                                                      ----------------------------------------------------------------------------
BALANCE AT MARCH 31, 2004........................         --          362          162        123,828      (51,183)   184,580
Net income.......................................         --           --           --             --           --     33,269
Dividends paid on preferred stock................         --           --           --             --           --        (70)
Conversion of 2,783,537 Class B shares to
   Class A shares................................         --           28          (28)            --           --         --
Issuance of 14,679 Class A shares under product
   development agreement.........................         --           --           --            237           --         --
Purchase of common stock for treasury............         --           --           --             --       (2,468)        --
Stock Options exercised - 180,629 shares of
   Class A and 56,899 shares of Class B..........         --            1           --          4,117           --         --
Unrealized loss on marketable securities
   available for sale, net of related taxes
   of $68........................................         --           --           --             --           --         --
                                                      ----------------------------------------------------------------------------
BALANCE AT MARCH 31, 2005........................       $            $391         $134       $128,182     $(53,651)  $217,779
                                                      ============================================================================

<CAPTION>

                                                      -------------------------------
                                                      ACCUMULATED OTHER     TOTAL
                                                       COMPREHENSIVE    SHAREHOLDERS'
                                                          LOSS, NET        EQUITY
                                                          ---------        ------


<S>                                                       <C>           <C>
BALANCE AT MARCH 31, 2002........................         $  --         $158,792
Net income.......................................            --           28,110
Dividends paid on preferred stock................            --              (70)
Conversion of 175,000 Class B
   shares to Class A shares......................            --               --
Issuance of 3,285,000 Class A shares.............            --           72,380
Sale of 40,461 Class A shares to employee
   profit sharing plan...........................            --              905
Stock Options exercised - 49,563 shares of
   Class A less 9,502 shares repurchased and
   40,717 shares of Class B less 112 shares
   repurchased...................................            --              499
                                                      -------------------------------
BALANCE AT MARCH 31, 2003........................            --          260,616
Net income.......................................            --           45,848
Dividends paid on preferred stock................            --             (436)
Conversion of 117,187 Class B shares to
   Class A shares................................            --               --
Issuance of 27,992 Class A shares
   under product development agreement...........            --              505
Purchase of common stock for treasury............            --          (51,155)
Three-for-two stock dividend.....................            --               --
Stock Options exercised - 552,617 shares of
   Class A less 91,538 shares repurchased and
   413,419 shares of Class B less 15,625 shares
   repurchased...................................            --            2,371
                                                      -------------------------------
BALANCE AT MARCH 31, 2004........................            --          257,749
Net income.......................................            --           33,269
Dividends paid on preferred stock................            --              (70)
Conversion of 2,783,537 Class B shares to
   Class A shares................................            --               --
Issuance of 14,679 Class A shares under product
   development agreement.........................            --              237
Purchase of common stock for treasury............            --           (2,468)
Stock Options exercised - 180,629 shares of
   Class A and 56,899 shares of Class B..........            --            4,118
Unrealized loss on marketable securities
   available for sale, net of related taxes
   of $68........................................          (133)            (133)
                                                      -------------------------------
BALANCE AT MARCH 31, 2005........................         $(133)        $292,702
                                                      ===============================

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     59

<PAGE>
<PAGE>
<TABLE>
                                      K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (Dollars in thousands)

<CAPTION>
                                                                                         YEARS ENDED MARCH 31,
                                                                                ---------------------------------------
                                                                                  2005           2004            2003
                                                                                --------       --------        --------
<S>                                                                             <C>            <C>             <C>
Operating Activities:
Net income.............................................................         $ 33,269       $ 45,848        $ 28,110
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation, amortization and other non-cash charges...............           13,904         12,663           7,773
   Deferred income tax provision (benefit).............................           13,582          8,691          (8,091)
   Deferred compensation...............................................            1,355            209             196
   Litigation..........................................................             (843)         1,825          16,500
Changes in operating assets and liabilities:
   Decrease (increase) in receivables, net.............................            3,511         (8,487)         (3,167)
   Increase in inventories.............................................           (3,248)        (9,977)         (5,623)
   (Increase) decrease in prepaid and other assets.....................           (3,520)        (6,294)            496
   (Decrease) increase in accounts payable and accrued.................
      liabilities......................................................           (8,980)       (10,471)          7,127
                                                                                --------       --------        --------
Net cash provided by operating activities..............................           49,030         34,007          43,321
                                                                                --------       --------        --------
Investing Activities:
   Purchase of property and equipment..................................          (63,622)       (21,792)        (16,113)
   Purchase of marketable securities...................................          (10,565)          (278)        (35,052)
   Purchase of stock and intangible assets.............................                -         (4,000)         (3,000)
   Product acquisition.................................................                -        (14,300)        (13,000)
                                                                                --------       --------        --------
Net cash used in investing activities..................................          (74,187)       (40,370)        (67,165)
                                                                                --------       --------        --------
Financing Activities:
   Principal payments on long-term debt................................           (8,179)        (8,237)           (743)
   Dividends paid on preferred stock...................................              (70)          (436)            (70)
   Proceeds from issuance of convertible notes.........................                -        194,165               -
   Purchase of common stock for treasury...............................           (2,468)       (51,155)              -
   Proceeds from issuance of common stock..............................                -              -          72,380
   Sale of common stock to employee profit sharing plan................                -              -             905
   Exercise of common stock options....................................            4,118          2,371             499
                                                                                --------       --------        --------
Net cash (used in) provided by financing activities....................           (6,599)       136,708          72,971
                                                                                --------       --------        --------
(Decrease) increase in cash and cash equivalents.......................          (31,756)       130,345          49,127
Cash and cash equivalents:
   Beginning of year...................................................          191,581         61,236          12,109
                                                                                --------       --------        --------
   End of year.........................................................         $159,825       $191,581        $ 61,236
                                                                                ========       ========        ========

Non-cash investing and financing activities:
   Term loan to finance building purchase..............................         $      -       $  8,800        $      -
   Term loans refinanced...............................................                -              -           1,738
   Issuance of common stock under product development
      agreement........................................................              237            505               -
   Payments due on product acquisitions................................                -              -          15,983
   Portion of product acquisition financed by promissory notes.........                -              -          13,234

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     60

<PAGE>
<PAGE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           (Dollars in thousands, except share and per share data)

1.       DESCRIPTION OF BUSINESS
         -----------------------

         K-V Pharmaceutical Company and its subsidiaries ("KV" or the
         "Company") are primarily engaged in the development, acquisition,
         manufacture, marketing and sale of technologically distinguished
         branded and generic/non-branded prescription pharmaceutical
         products. The Company was incorporated in 1971 and has become a
         leader in the development of advanced drug delivery and formulation
         technologies that are designed to enhance therapeutic benefits of
         existing drug forms. Through internal product development and
         synergistic acquisitions of products, KV has grown into a fully
         integrated specialty pharmaceutical company. The Company also
         develops, manufactures and markets technologically advanced,
         value-added raw material products for the pharmaceutical,
         nutritional, food and personal care industries.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

              BASIS OF PRESENTATION
              ---------------------

              The Company's consolidated financial statements are prepared
              in accordance with U.S. generally accepted accounting
              principles. The consolidated financial statements include the
              accounts of KV and its wholly-owned subsidiaries. All material
              inter-company accounts and transactions have been eliminated
              in consolidation. Certain reclassifications, none of which
              affected net income or retained earnings, have been made to
              prior year amounts to conform to the current year
              presentation.

              USE OF ESTIMATES
              ----------------

              The preparation of financial statements in conformity with
              U.S. generally accepted accounting principles requires
              management to make estimates and assumptions that affect the
              reported amounts of assets and liabilities, the disclosure of
              contingent liabilities at the date of the financial
              statements, and the reported amounts of revenues and expenses
              during the reporting period. Actual results in subsequent
              periods may differ from the estimates and assumptions used in
              the preparation of the accompanying consolidated financial
              statements.

              The most significant estimates made by management include the
              determination of sales allowances, valuation of inventory
              balances, the determination of useful lives for intangible
              assets, and the evaluation of intangible assets and goodwill
              for impairment. Management periodically evaluates estimates
              used in the preparation of the consolidated financial
              statements and makes changes on a prospective basis when
              adjustments are necessary.

              CASH EQUIVALENTS
              ----------------

              Cash equivalents consist of interest-bearing deposits that can
              be redeemed on demand and investments that have original
              maturities of three months or less.

              MARKETABLE SECURITIES
              ---------------------

              The Company's marketable securities consist of mutual funds
              comprised of U.S. government investments and auction rate
              securities. The Company classifies its marketable securities
              as available-for-sale securities with net unrealized gains or
              losses recorded as a separate component of stockholders'
              equity, net of any related tax effect. Auction rate securities
              generally have long-term stated maturities of 20 to 30 years.
              However, these


                                     61

<PAGE>
<PAGE>

              securities have certain economic characteristics of short-term
              investments due to a rate-setting mechanism and the ability to
              liquidate them through a Dutch auction process that occurs on
              pre-determined intervals of less than 90 days. The Company had
              previously classified its auction rate securities as cash and
              cash equivalents. In fiscal 2005, the Company reclassified
              $10,000 of auction rate securities from cash and cash
              equivalents to marketable securities because the underlying
              instrument has a maturity date in August 2030. Prior periods
              have been reclassified to provide consistent presentation.

              INVENTORIES
              -----------

              Inventories consist of finished goods held for distribution,
              raw materials and work in process. Inventories are stated at
              the lower of cost or market, with the cost determined on the
              first-in, first-out (FIFO) basis. Reserves for obsolete,
              excess or slow moving inventory are established by management
              based on evaluation of inventory levels, forecasted demand,
              and market conditions.

              PROPERTY AND EQUIPMENT
              ----------------------

              Property and equipment are stated at cost, less accumulated
              depreciation. Major renewals and improvements are capitalized,
              while routine maintenance and repairs are expensed as
              incurred. At the time properties are retired from service, the
              cost and accumulated depreciation are removed from the
              respective accounts and the related gains or losses are
              reflected in earnings. The Company capitalizes interest on
              qualified construction projects.

              Depreciation expense is computed over the estimated useful
              lives of the related assets using the straight-line method.
              The estimated useful lives are principally 10 years for land
              improvements, 10 to 40 years for buildings and improvements, 3
              to 15 years for machinery and equipment, and 3 to 10 years for
              office furniture and equipment. Leasehold improvements are
              amortized on a straight-line basis over the shorter of the
              respective lease terms or the estimated useful life of the
              assets.

              The Company assesses property and equipment for impairment
              whenever events or changes in circumstances indicate that an
              asset's carrying amount may not be recoverable.

              INTANGIBLE ASSETS AND GOODWILL
              ------------------------------

              Intangible assets consist of product rights, license
              agreements and trademarks resulting from product acquisitions
              and legal fees and similar costs relating to the development
              of patents and trademarks. Intangible assets that are acquired
              are stated at cost, less accumulated amortization, and are
              amortized on a straight-line basis over estimated useful lives
              of 20 years. Costs associated with the development of patents
              and trademarks are amortized on a straight-line basis over
              estimated useful lives ranging from 5 to 17 years. The Company
              evaluates its intangible assets for impairment whenever events
              or changes in circumstances indicate that an intangible
              asset's carrying amount may not be recoverable. Recoverability
              is determined by comparing the carrying amount of an
              intangible asset against an estimate of the undiscounted
              future cash flows expected to result from its use and eventual
              disposition. If the sum of the expected future undiscounted
              cash flows is less than the carrying amount of the intangible
              asset, an impairment loss is recognized based on the excess of
              the carrying amount over the estimated fair value of the
              intangible asset.

              Goodwill relates to the 1972 acquisition of the Company's
              specialty materials segment and is recorded net of accumulated
              amortization through March 31, 2002. In accordance with the
              Company's adoption of Statement of Financial Accounting
              Standards (SFAS) No. 142, Goodwill and Other Intangible
              Assets, on April 1, 2002, amortization of goodwill was
              discontinued. Instead, goodwill is subject to at least an
              annual assessment of impairment on a fair value basis. If the
              Company determines through the assessment process that
              goodwill


                                     62

<PAGE>
<PAGE>

              has been impaired, the Company will record the impairment
              charge in its results of operations. The Company's test for
              goodwill impairment in fiscal 2005 determined there was no
              goodwill impairment.

              OTHER ASSETS
              ------------

              Non-marketable equity investments for which the Company does
              not have the ability to exercise significant influence over
              operating and financial policies (generally less than 20%
              ownership) are accounted for using the cost method. Such
              investments are included in "Other assets" in the accompanying
              consolidated balance sheets and relate to the Company's $5,000
              investment in the preferred stock of FemmePharma, Inc. (see
              Note 3).

              This investment is periodically reviewed for
              other-than-temporary declines in fair value. Other than
              temporary declines in fair value are identified by evaluating
              market conditions, the entity's ability to achieve forecast
              and regulatory submission guidelines, as well as the entity's
              overall financial condition.

              REVENUE RECOGNITION
              -------------------

              Revenue is generally realized or realizable and earned when
              persuasive evidence of an arrangement exists, delivery has
              occurred or services have been rendered, the seller's price to
              the buyer is fixed or determinable, and the customer's payment
              ability has been reasonably assured. Accordingly, the Company
              records revenue from product sales when title and risk of
              ownership have been transferred to the customer, which is
              typically upon shipment to the customer. The Company also
              enters into long-term agreements under which it assigns
              marketing rights for the products it has developed to
              pharmaceutical marketers. Royalties under these arrangements
              are earned based on the sale of products.

              Concurrently with the recognition of revenue, the Company
              records estimated sales provisions for product returns, sales
              rebates, payment discounts, chargebacks, and other sales
              allowances. Sales provisions are established based upon
              consideration of a variety of factors, including but not
              limited to, historical relationship to revenues, historical
              payment and return experience, estimated customer inventory
              levels, customer rebate arrangements, and current contract
              sales terms with wholesale and indirect customers. The
              following briefly describes the nature of each provision and
              how such provisions are estimated.

                 o  Payment discounts are reductions to invoiced amounts
                    offered to customers for payment within a specified
                    period and are estimated utilizing historical
                    customer payment experience.

                 o  Sales rebates are offered to certain customers to
                    promote customer loyalty and encourage greater
                    product sales. These rebate programs provide that,
                    upon the attainment of pre-established volumes or
                    the attainment of revenue milestones for a specified
                    period, the customer receives credit against
                    purchases. Other promotional programs are incentive
                    programs periodically offered to customers. Due to
                    the nature of these programs, the Company is able to
                    estimate provisions for rebates and other
                    promotional programs based on the specific terms in
                    each agreement.

                 o  Consistent with common industry practices, the
                    Company has agreed to terms with its customers to
                    allow them to return product that is within a
                    certain period of the expiration date. Upon
                    recognition of revenue from product sales to
                    customers, the Company provides for an estimate of
                    product to be returned. This estimate is determined
                    by applying a historical relationship of customer
                    returns to amounts invoiced.

                 o  Generally, the Company provides credits to customers
                    for decreases that are made to selling prices for
                    the value of inventory that is owned by customers at
                    the date of the price reduction. The Company has not
                    contractually agreed to provide price adjustment
                    credits to its customers; instead, the Company
                    issues price adjustment credits at its discretion.
                    Price


                                     63

<PAGE>
<PAGE>

                    adjustment credits are estimated at the time
                    the price reduction occurs. The amount is calculated
                    based on an estimate of customer inventory levels.

                 o  KV has arrangements with certain parties
                    establishing prices for the Company's products for
                    which the parties independently select a wholesaler
                    from which to purchase. Such parties are referred to
                    as indirect customers. A chargeback represents the
                    difference between the Company's invoice price to
                    the wholesaler and the indirect customer's contract
                    price, which is lower. Provisions for estimated
                    chargebacks are calculated primarily using
                    historical chargeback experience, actual contract
                    pricing and estimated wholesaler inventory levels.

              Actual product returns, chargebacks and other sales allowances
              incurred are, however, dependent upon future events and may be
              different than the Company's estimates. The Company
              continually monitors the factors that influence sales
              allowance estimates and makes adjustments to these provisions
              when management believes that actual product returns,
              chargebacks and other sales allowances may differ from
              established allowances.

              Accruals for sales provisions are presented in the
              consolidated financial statements as reductions to net
              revenues and accounts receivable. Sales provisions totaled
              $133,475, $103,262 and $98,929 for the years ended March 31,
              2005, 2004 and 2003, respectively. The reserve balances
              related to the sales provisions totaled $21,056 and $20,648 at
              March 31, 2005 and 2004, respectively, and are included in
              "Receivables, less allowance for doubtful accounts" in the
              accompanying consolidated balance sheets.

              CONCENTRATION OF CREDIT RISK
              ----------------------------

              The Company extends credit on an uncollateralized basis
              primarily to wholesale drug distributors and retail pharmacy
              chains throughout the United States. As a result, the Company
              is required to estimate the level of receivables which
              ultimately will not be paid. The Company calculates this
              estimate based on prior experience supplemented by a customer
              specific review when it is deemed necessary. On a periodic
              basis, the Company performs evaluations of the financial
              condition of all customers to further limit its credit risk
              exposure. Actual losses from uncollectible accounts have
              historically been insignificant.

              The Company's three largest customers accounted for
              approximately 23%, 18% and 16%, and 31%, 16% and 11% of gross
              receivables at March 31, 2005 and 2004, respectively.

              For the year ended March 31, 2005, KV's three largest
              customers accounted for 27%, 16% and 12% of gross revenues.
              During the years ended March 31, 2004 and 2003, the Company's
              three largest customers accounted for gross revenues of 25%,
              16% and 13% and 23%, 18% and 14%, respectively.

              The Company maintains cash balances at certain financial
              institutions that are greater than the FDIC insurable limit.

              SHIPPING AND HANDLING COSTS
              ---------------------------

              The Company classifies shipping and handling costs in cost of
              sales. The Company does not derive revenue from shipping.

                                     64

<PAGE>
<PAGE>

              RESEARCH AND DEVELOPMENT
              ------------------------

              Research and development costs, including licensing fees for
              early stage development products, are expensed in the period
              incurred.

              The Company has licensed the exclusive rights to co-develop
              and market various products with other drug delivery
              companies. These collaborative agreements usually require the
              Company to pay up-front fees and ongoing milestone payments.
              When the Company makes an up-front or milestone payment,
              management evaluates the stage of the related product to
              determine the appropriate accounting treatment. If the product
              is considered to be beyond the early development stage but has
              not yet been approved by regulatory authorities, the Company
              will evaluate the facts and circumstances of each case to
              determine if a portion or all of the payment has future
              economic benefit and should be capitalized. Payments made to
              third parties subsequent to regulatory approval are
              capitalized with that cost generally amortized over the
              shorter of the patented life of the product or the term of the
              licensing agreement.

              The Company accrues estimated costs associated with clinical
              studies performed by contract research organizations based on
              the total of costs incurred through the balance sheet date.
              The Company monitors the progress of the trials and their
              related activities to the extent possible, and adjusts the
              accruals accordingly. These accrued costs are recorded as a
              component of research and development expense.

              ADVERTISING
              -----------

              Costs associated with advertising are expensed in the period
              in which the advertising is used and these costs are included
              in selling and administrative expense. Advertising expenses
              totaled $10,885, $7,264 and $5,662 for the years ended March
              31, 2005, 2004 and 2003, respectively. Advertising expense
              includes the cost of product samples given to physicians for
              marketing to their patients.

              LITIGATION
              ----------

              The Company is subject to litigation in the ordinary course of
              business and to certain other contingencies (see Note 11).
              Legal fees and other expenses related to litigation and
              contingencies are recorded as incurred. The Company, in
              consultation with its legal counsel, also assesses the need to
              record a liability for litigation and contingencies on a
              case-by-case basis. Accruals are recorded when the Company
              determines that a loss related to a matter is both probable
              and reasonably estimable.

              DEFERRED FINANCING COSTS
              ------------------------

              Deferred financing costs of $5,835 were incurred in connection
              with the issuance of the 2.5% Contingent Convertible Notes due
              2033. These costs are being amortized into interest expense on
              a straight-line basis over the five-year period that ends on
              the first date the debt can be put by the holders to the
              Company. Accumulated amortization totaled $2,143 and $979 at
              March 31, 2005 and 2004, respectively. Deferred financing
              costs, net of accumulated amortization, are included in "Other
              Assets" in the accompanying consolidated balance sheet.

              EARNINGS PER SHARE
              ------------------

              Basic earnings per share is calculated by dividing net income
              available to common shareholders for the period by the
              weighted average number of common shares outstanding during
              the period. Diluted earnings per share is computed by dividing
              net income by the weighted average common shares and common
              share equivalents outstanding during the periods presented
              assuming the conversion of preferred shares and the exercise
              of all in-the-money stock options based on the treasury stock
              method. Common share equivalents


                                     65

<PAGE>
<PAGE>

              have been excluded from the computation of diluted earnings
              per share where their inclusion would be anti-dilutive.

              In June 2004, the Company adopted the guidance in Emerging
              Issues Task Force (EITF) Issue No. 03-6, Participating
              Securities and the Two-Class Method under FASB Statement No.
              128. The pronouncement required the use of the two-class
              method in the calculation and disclosure of basic earnings per
              share and provided guidance on the allocation of earnings and
              losses for purposes of calculating basic earnings per share.
              Accordingly, all periods presented have been retroactively
              adjusted to give effect to such guidance. For purposes of
              calculating basic earnings per share, undistributed earnings
              are allocated to each class of common stock based on the
              contractual participation rights of each class of security.
              Holders of Class A common stock are entitled to receive
              dividends per share equal to 120% of the dividends per share
              paid on the Class B common stock.

              In December 2004, the Company adopted the guidance in EITF
              04-8, The Effect of Contingently Convertible Instruments on
              Diluted Earnings per Share. The EITF consensus required that
              the impact of contingently convertible debt instruments be
              included in diluted earnings per share computations (if
              dilutive) regardless of whether the market price trigger (or
              other contingent feature) had been met. Additionally, the EITF
              stated that prior period earnings per share amounts presented
              for comparative purposes should be restated to conform to this
              consensus.

              INCOME TAXES
              ------------

              Income taxes are accounted for under the asset and liability
              method where deferred tax assets and liabilities are
              recognized for the future tax consequences attributable to
              differences between the financial statement carrying amounts
              of existing assets and liabilities and their respective tax
              bases. Deferred tax assets and liabilities are measured using
              enacted tax rates expected to apply to taxable income in the
              years in which those temporary differences are expected to be
              recovered or settled. The effect on deferred tax assets and
              liabilities of a change in tax rates is recognized in income
              in the period that includes the enactment date. A valuation
              allowance is established when it is more likely than not that
              some portion or all of the deferred tax assets will not be
              realized.

                                     66

<PAGE>
<PAGE>

              STOCK-BASED COMPENSATION
              ------------------------

              The Company grants stock options for a fixed number of shares
              to employees with an exercise price greater than or equal to
              the fair value of the shares at the date of grant. As
              permissible under Statement of Financial Accounting Standards
              (SFAS) No. 123, Accounting for Stock-Based Compensation, the
              Company elected to continue to account for stock option grants
              to employees in accordance with Accounting Principles Board
              (APB) Opinion No. 25, Accounting for Stock Issued to Employees
              and related interpretations. APB 25 requires that compensation
              cost related to fixed stock option plans be recognized only to
              the extent that the fair value of the shares at the grant date
              exceeds the exercise price. Accordingly, no compensation
              expense is recognized for stock option awards granted to
              employees with exercise prices at or above fair value. Had the
              Company determined compensation expense using the fair value
              method prescribed by SFAS 123, the Company's net income and
              earnings per share would have been as follows:

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED MARCH 31,
                                                                           ---------------------------------
                                                                            2005         2004         2003
                                                                            ----         ----         ----

<S>                                                                        <C>          <C>          <C>
                  Net income, as reported........................          $33,269      $45,848      $28,110
                  Stock based employee
                    compensation expense,
                    net of related tax effects...................             (640)        (695)        (815)
                                                                           -------      -------      -------
                  Pro forma net income...........................          $32,629      $45,153      $27,295
                                                                           =======      =======      =======

                  Earnings per share:
                     Basic Class A common - as reported..........          $  0.71      $  0.98      $  0.59
                     Basic Class A common - pro forma............             0.70         0.97         0.58
                     Basic Class B common - as reported..........             0.59         0.82         0.50
                     Basic Class B common - pro forma............             0.58         0.80         0.48
                     Diluted - as reported.......................             0.63         0.84         0.55
                     Diluted - pro forma.........................             0.62         0.83         0.53
</TABLE>

              The weighted average fair value of the options has been
              estimated on the date of grant using the following weighted
              average assumptions for grants issued during the years ended
              March 31, 2005, 2004 and 2003, respectively: no dividend
              yield; expected volatility of 36%, 43% and 45% for Class A
              common stock; expected volatility of 33%, 39% and 45% for
              Class B common stock; risk-free interest rate of 3.65%, 3.00%
              and 2.40% per annum; and expected option terms ranging from 3
              to 10 years for all three periods. Weighted averages are used
              because of varying assumed exercise dates.

              COMPREHENSIVE INCOME
              --------------------

              Comprehensive income includes all changes in equity during a
              period except those that resulted from investments by or
              distributions to the Company's shareholders. Other
              comprehensive income refers to revenues, expenses, gains and
              losses that, under generally accepted accounting principles,
              are included in comprehensive income, but excluded from net
              income as these amounts are recorded directly as an adjustment
              to shareholders' equity. For the Company, other comprehensive
              income (loss) is comprised of the net changes in unrealized
              gains and losses on available-for-sale securities, net of
              applicable income taxes.

              FAIR VALUE OF FINANCIAL INSTRUMENTS
              -----------------------------------

              The fair values of the Company's cash and cash equivalents,
              receivables, accounts payable and accrued liabilities
              approximate their carrying values due to the relatively short
              maturity of these items. The carrying


                                     67

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<PAGE>

              amount of all long-term financial obligations approximates
              their fair value because their terms are similar to those
              which can be obtained for similar financial instruments in the
              current marketplace.

              The Company's $5,000 investment in the preferred stock of
              FemmePharma, Inc. had a fair value of $19,200 and $11,840 at
              March 31, 2005 and 2004, respectively, based on an annual
              independent valuation analysis. Based on quoted market rates,
              the Company's $200,000 principal amount of Convertible
              Subordinated Notes had a fair value of $217,620 and $247,940
              at March 31, 2005 and 2004, respectively.

              DERIVATIVE FINANCIAL INSTRUMENTS
              --------------------------------

              In April 2003, the Company entered into an interest rate swap
              agreement with a major financial institution to hedge variable
              interest rate exposure related to a term loan with the same
              financial institution. Under the agreement, the Company fixed
              the interest rate of the debt at 5.31% per annum for the term
              of the loan. The swap is settled monthly and is recorded at
              each reporting date on the Company's consolidated balance
              sheet at fair value. Since the swap has not been designated as
              a hedge, any unrealized gains and losses are recognized in
              earnings.

              The Company's derivative financial instruments also consist of
              embedded derivatives related to the 2.5% Convertible
              Subordinated Notes due 2033. These embedded derivatives
              include certain conversion features and a contingent interest
              feature. Although the conversion features represent embedded
              derivative financial instruments, based on the de minimis
              value of these features at the time of issuance and at March
              31, 2005, no value has been assigned to these embedded
              derivatives. The contingent interest feature provides unique
              tax treatment under the Internal Revenue Service's contingent
              debt regulations. In essence, interest accrues, for tax
              purposes, on the basis of the instrument's comparable yield
              (the yield at which the issuer would issue a fixed rate
              instrument with similar terms).

              NEW ACCOUNTING PRONOUNCEMENTS
              -----------------------------

              In March 2004, the EITF completed its discussion of and
              provided consensus guidance on Issue No. 03-06, Participating
              Securities and the Two-Class Method under FASB Statement No.
              128, Earnings per Share. The consensus interpreted the
              definition of a "participating security," required the use of
              the two-class method in the calculation and disclosure of
              basic earnings per share for companies with participating
              securities or more than one class of common stock, and
              provided guidance on the allocation of earnings and losses for
              purposes of calculating basic earnings per share. Since the
              Company has two classes of common stock, this consensus has
              been applied in the calculation of basic earnings per share
              for all periods presented. There was no impact on diluted
              earnings per share as reported.

              In April 2004, the FASB issued FASB Staff Position No. 129-1
              (FSP 129-1), Disclosure Requirements under FASB Statement No.
              129, Disclosure of Information about Capital Structure,
              Relating to Contingently Convertible Securities. This FSP
              requires the disclosure provisions of Statement 129 to apply
              to all existing and newly created contingently convertible
              securities and to their potentially dilutive effects on
              earnings per share. The adoption of the disclosure provisions
              of FSP 129-1 did not have a material impact on the Company's
              financial condition or results of operations.

              In September 2004, the EITF reached a consensus that
              contingently convertible debt instruments should be included
              in diluted earnings per share computations (if dilutive)
              regardless of whether the market price trigger (or other
              contingent feature) has been met. Additionally, the EITF
              stated that prior period earnings per share amounts presented
              for comparative purposes should be restated to conform to this
              consensus, which is effective for reporting periods ending
              after December 15, 2004. The consensus adopted by the EITF
              required


                                     68

<PAGE>
<PAGE>

              the addition of approximately 8.7 million shares associated
              with the conversion of the Company's $200,000 principal amount
              Convertible Subordinated Notes to the number of shares
              outstanding for the calculation of diluted earnings per share
              for all reported periods since the issuance of the Notes.

              In November 2004, the FASB issued SFAS No. 151, Inventory
              Costs, an Amendment to ARB No. 43, Chapter 4 which requires
              that abnormal amounts of idle facility expense, freight,
              handling costs, and wasted material (spoilage) costs be
              recognized as current period charges. In addition, this
              statement requires that allocation of fixed production
              overheads to the costs of conversion be based on the normal
              capacity of the production facilities. This statement is
              effective for inventory costs incurred during fiscal years
              beginning after June 15, 2005. The Company is currently
              determining the impact, if any, the adoption of this statement
              will have on its financial condition and results of
              operations.

              In December 2004, the FASB issued SFAS No. 123 (revised 2004),
              "Share-Based Payment" (SFAS 123R), which replaces SFAS No.
              123, "Accounting for Stock-Based Compensation" (SFAS 123), and
              supercedes APB Opinion No. 25, "Accounting for Stock Issued to
              Employees." SFAS 123R requires all share-based payments to
              employees, including grants of employee stock options, to be
              recognized in the financial statements based on their fair
              values. The pro forma disclosures previously permitted under
              SFAS 123 no longer will be an alternative to financial
              statement recognition. Under SFAS 123R, the Company must
              determine the appropriate fair value model to be used for
              valuing share-based payments, the amortization method for
              compensation cost and the transition method to be used at date
              of adoption. The transition methods include modified
              prospective and modified retrospective adoption options. Under
              the modified retrospective option, prior periods may be
              restated either as of the beginning of the year of adoption or
              for all periods presented. The modified prospective method
              requires that compensation expense be recorded for all
              unvested stock options and restricted stock at the beginning
              of the first quarter of adoption of SFAS 123R, while the
              modified retrospective method would record compensation
              expense for all unvested stock options and restricted stock
              beginning with the first period restated. The Company is
              evaluating the requirements of SFAS 123R. The Company has not
              yet determined the method of adoption or the effect of
              adopting SFAS 123R, and it has not determined whether the
              adoption will result in amounts that are similar to the
              current pro forma disclosures under SFAS 123.

              In April 2005, the Securities and Exchange Commission
              announced an amendment to Regulation S-X to amend the date for
              compliance with SFAS 123R. The amendment requires each
              registrant that is not a small business issuer to adopt SFAS
              123R in the first fiscal year commencing after June 15, 2005.
              As a result, the Company is required to adopt SFAS 123R
              beginning April 1, 2006. Adoption of SFAS 123R will have an
              impact on the Company's consolidated financial statements, as
              it will be required to expense the fair value of its employee
              stock option grants rather than disclose the pro forma impact
              on its consolidated net income within the footnotes to the
              Company's consolidated financial statements, as is its current
              practice.

                                     69

<PAGE>
<PAGE>

3.       ACQUISITIONS AND LICENSE AGREEMENT
         ----------------------------------

         On March 31, 2003, the Company acquired from Schwarz Pharma
         (Schwarz) the product rights and trademarks to the Niferex(R) line
         of hematinic products for $14,300, plus expenses. The acquisition
         was financed with cash on hand. The purchase price was allocated to
         the trademark rights acquired and is being amortized over an
         estimated life of 20 years.

         On March 31, 2003, the Company acquired from a subsidiary of Altana
         Pharma AG (Altana) the world-wide product rights and trademarks to
         the Chromagen(R) line of hematinic products and the StrongStart(R)
         line of prenatal vitamin products for $27,000, plus expenses. The
         purchase price was allocated to the trademark rights acquired and
         is being amortized over an estimated life of 20 years.

         On April 18, 2002, the Company entered into an agreement with
         FemmePharma, Inc. (FemmePharma) whereby the Company was granted an
         exclusive license to manufacture and sell in North America and
         certain foreign markets intravaginal products and certain vaginal
         anti-infective products under development (the "License
         Agreement"). The initial product covered by the License Agreement
         was intended for use in the treatment of endometriosis using
         FemmePharma's patented PARDEL(TM) technology. In consideration for
         the rights and licenses received, the Company paid $2,000 for use
         of the PARDEL(TM) trademark (see Note 21).

         Under a separate agreement, the Company invested $2,000 in
         FemmePharma's convertible preferred stock in fiscal 2003 and made
         an additional $3,000 convertible preferred stock investment in
         January 2004 upon the completion of Phase II studies on the initial
         product covered by the License Agreement. The $5,000 investment has
         been accounted for using the cost method and is included in "Other
         assets" in the accompanying consolidated balance sheets (see Note
         21).

4.       MARKETABLE SECURITIES
         ---------------------

         The carrying amount of available-for-sale securities and their
         approximate fair values at March 31, 2005 and 2004 were as follows.

<TABLE>
<CAPTION>
                                                                            MARCH 31, 2005
                                                    --------------------------------------------------------------
                                                                       GROSS              GROSS
                                                                    UNREALIZED          UNREALIZED           FAIR
                                                      COST             GAINS              LOSSES            VALUE
                                                      ----             -----              ------            -----

<S>                                                 <C>                <C>                <C>              <C>
              Auction rate securities.........      $10,000            $   -              $   -            $10,000
              Equity securities...............       35,895                -               (201)            35,694
                                                    -------            -----              -----            -------
                  Total.......................      $45,895            $   -              $(201)           $45,694
                                                    =======            =====              =====            =======


<CAPTION>
                                                                            MARCH 31, 2004
                                                    --------------------------------------------------------------
                                                                       GROSS              GROSS
                                                                     UNREALIZED         UNREALIZED           FAIR
                                                      COST             GAINS              LOSSES            VALUE
                                                      ----             -----              ------            -----

<S>                                                 <C>                <C>                <C>              <C>
              Auction rate securities.........      $10,000            $   -              $   -            $10,000
              Equity securities...............       25,330                -                  -             25,330
                                                    -------            -----              -----            -------
                  Total.......................      $35,330            $   -              $   -            $35,330
                                                    =======            =====              =====            =======
</TABLE>

                                     70

<PAGE>
<PAGE>

         The Company's marketable securities are classified as
         available-for-sale and are recorded at fair value based on quoted
         market prices using the specific identification method. These
         investments are classified as current as the Company has the
         ability to use them for current operating and investing purposes.
         There were no realized gains or losses for the years ended March
         31, 2005, 2004 and 2003. At March 31, 2005, the Company has
         determined that its unrealized losses are temporary based on the de
         minimis amount of losses compared to cost and the duration of the
         losses being less than 12 months. The Company expects that all
         losses will be recovered, and intends to hold these marketable
         securities to recovery. If market conditions deteriorate, we may
         incur future impairments.

         Included in the Company's marketable securities at March 31, 2005
         and 2004 are $10,000 of auction rate securities. Auction rate
         securities are investments with an underlying component of
         long-term debt or an equity instrument. These auction rate
         securities trade or mature on a shorter term than the underlying
         instrument based on an auction bid that resets the interest rate of
         the security. The auction or reset dates occur at intervals that
         are typically less than three months providing high liquidity to
         otherwise longer term investments. The Company had previously
         classified its auction rate securities as cash and cash
         equivalents. In fiscal 2005, the Company reclassified auction rate
         securities from cash and cash equivalents to marketable securities
         because the underlying instrument has a maturity date of August
         2030. Prior periods have been reclassified to provide consistent
         presentation.

5.       INVENTORIES
         -----------

         Inventories as of March 31, consist of:
<TABLE>
<CAPTION>
                                                               2005              2004
                                                               ----              ----

<S>                                                          <C>               <C>
                  Finished goods.....................        $30,521           $30,432
                  Work-in-process....................          5,773             4,736
                  Raw materials......................         17,651            15,529
                                                             -------           -------
                                                             $53,945           $50,697
                                                             =======           =======
</TABLE>

6.       PROPERTY AND EQUIPMENT
         ----------------------

         Property and equipment as of March 31, consist of:
<TABLE>
<CAPTION>
                                                              2005               2004
                                                              ----               ----

<S>                                                         <C>                <C>
                  Land and improvements...............      $  2,030           $  2,083
                  Building and building improvements..        19,984             17,767
                  Machinery and equipment.............        41,399             43,442
                  Office furniture and equipment......        14,871             15,051
                  Leasehold improvements..............         9,985             11,338
                  Construction-in-progress............        74,394             24,529
                                                            --------           --------
                                                             162,663            114,210
                  Less accumulated depreciation.......       (31,039)           (38,433)
                                                            --------           ---------
                     Net property and equipment.......      $131,624           $ 75,777
                                                            ========           ========
</TABLE>

         Capital additions to property and equipment were $63,622, $30,592
         and $16,113 for the years ended March 31, 2005, 2004 and 2003,
         respectively. Depreciation of property and equipment was $7,775,
         $6,718 and $5,434 for the years ended March 31, 2005, 2004 and
         2003, respectively.

         Property and equipment projects classified as construction-in-
         progress at March 31, 2005 are projected to be completed during the
         next 12 months at an estimated cost of $14,775.

                                     71

<PAGE>
<PAGE>

         During the years ended March 31, 2005 and 2004, the Company
         recorded capitalized interest on qualifying construction projects
         of $1,511 and $577, respectively. In fiscal 2003, the Company did
         not record any capitalized interest.

7.       INTANGIBLE ASSETS AND GOODWILL
         ------------------------------

         Intangible assets and goodwill as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                 2005                                    2004
                                                    ------------------------------           -----------------------------
                                                     GROSS                                    GROSS
                                                    CARRYING           ACCUMULATED           CARRYING          ACCUMULATED
                                                     AMOUNT           AMORTIZATION            AMOUNT          AMORTIZATION
                                                     ------           ------------            ------          ------------

<S>                                                 <C>                 <C>                  <C>                <C>
              Product rights - Micro-K(R).....      $36,140             $(10,904)            $36,140            $ (9,099)
              Product rights - PreCare(R).....        8,433               (2,389)              8,433              (1,968)
              Trademarks acquired:
                 Niferex(R)...................       14,834               (1,484)             14,834                (742)
                 Chromagen(R)/StrongStart(R)..       27,642               (2,764)             27,642              (1,382)
              License agreements..............        4,168                 (120)              3,825                   -
              Trademarks and patents..........        2,814                 (497)              2,980                (411)
                                                    -------             --------             -------            --------
                  Total intangible assets.....       94,031              (18,158)             93,854             (13,602)
              Goodwill........................          557                    -                 557                   -
                                                    -------             --------             -------            --------
                                                    $94,588             $(18,158)            $94,411            $(13,602)
                                                    =======             ========             =======            ========
</TABLE>

         As of March 31, 2005, the Company's intangible assets have a
         weighted average useful life of approximately 19 years.
         Amortization of intangible assets was $4,653, $4,459 and $2,321 for
         the years ended March 31, 2005, 2004 and 2003, respectively.

         Assuming no additions, disposals or adjustments are made to the
         carrying values and/or useful lives of the intangible assets,
         annual amortization expense on product rights, trademarks acquired
         and other intangible assets is estimated to be approximately $4,730
         in each of the five succeeding fiscal years.

8.       OTHER ASSETS
         ------------

         Other assets as of March 31, consist of:
<TABLE>
<CAPTION>
                                                                        2005              2004
                                                                        ----              ----

<S>                                                                    <C>               <C>
                  Cash surrender value of life insurance.........      $ 2,822           $ 2,531
                  Preferred stock in FemmePharma.................        5,000             5,000
                  Deferred financing costs, net..................        3,852             4,993
                  Deposits.......................................        1,407             1,220
                                                                       -------           -------

                                                                       $13,081           $13,744
                                                                       =======           =======
</TABLE>

                                     72

<PAGE>
<PAGE>


9.       ACCRUED LIABILITIES
         -------------------

         Accrued liabilities as of March 31, consist of:

<TABLE>
<CAPTION>
                                                                         2005              2004
                                                                         ----              ----

<S>                                                                    <C>               <C>
                  Salaries, wages, incentives and benefits.......      $10,383           $ 6,160
                  Income taxes - current.........................            -             2,409
                  Promotion expenses.............................          131               635
                  Litigation reserve.............................            -            18,325
                  Other..........................................        5,219             3,388
                                                                       -------           -------
                                                                       $15,733           $30,917
                                                                       =======           =======
</TABLE>

10.      LONG-TERM DEBT
         --------------

         Long-term debt as of March 31, consists of:

<TABLE>
<CAPTION>
                                                                         2005              2004
                                                                         ----              ----

<S>                                                                    <C>               <C>
                  Industrial revenue bonds.......................      $      -          $    205
                  Notes payable..................................             -             6,731
                  Building mortgages.............................        10,740            11,714
                  Convertible notes..............................       200,000           200,000
                                                                       --------          --------
                                                                        210,740           218,650
                  Less current portion...........................          (973)           (7,909)
                                                                       --------          --------
                                                                       $209,767          $210,741
                                                                       ========          ========
</TABLE>

         In December 2004, the Company increased its available credit
         facilities to $140,000. The revised agreement provides for an
         increase from $40,000 to $80,000 in the Company's revolving line of
         credit along with an increase from $25,000 to $60,000 in the
         supplemental credit line that is available for financing
         acquisitions. These credit facilities expire in October 2006 and
         December 2005, respectively. The revolving and supplemental credit
         lines are unsecured and interest is charged at the lower of the
         prime rate or the one-month LIBOR rate plus 175 basis points (4.61%
         at March 31, 2005). At March 31, 2005, the Company had no cash
         borrowings outstanding under either credit facility and $3,856 in
         open letters of credit issued under the credit facilities. The
         revised agreement contains substantially identical financial and
         other covenants, representations, warranties, conditions and
         default provisions as the replaced facility. The financial
         covenants impose minimum levels of earnings before interest, taxes,
         depreciation and amortization, a maximum funded debt ratio, a limit
         on capital expenditures and dividend payments, a minimum fixed
         charge coverage ratio and a maximum senior leverage ratio. As of
         March 31, 2005, the Company was in compliance with the covenants.

         The industrial revenue bonds, which paid interest at 7.35% per
         annum, matured serially through 2005 and were collateralized by
         certain property and equipment, as well as through a letter of
         credit, which was only accessible in case of default on the bonds.
         The bonds were paid in full in fiscal 2005.

         In April 2003, the Company financed the purchase of an $8.8 million
         building with a term loan secured by the property under a floating
         rate loan with a bank. The remaining principal balance plus any
         unpaid interest is due in April 2008. The Company also entered into
         an interest rate swap agreement with the same bank, which fixed the
         interest rate of the building mortgage at 5.31% for the term of the
         loan. At March 31, 2005, the Company's other two outstanding
         building mortgages bear interest at 7.57% and 6.27% and the
         remaining principal balances plus any unpaid interest are due in
         December 2006 and December 2007, respectively.

                                     73

<PAGE>
<PAGE>

         Notes payable related to a $7,000 unsecured promissory note that
         was entered into in conjunction with the Altana acquisition
         agreement (see Note 3) and was repaid on March 31, 2005. This note,
         which was non-interest bearing, was discounted using an imputed
         interest rate of 4.08%, which approximated the Company's borrowing
         rate for similar debt instruments at the time of the borrowing. The
         original discount on this note of $538 was amortized to interest
         expense over the two year term of the note. A second $7,000
         unsecured promissory note entered into with Altana was repaid on
         March 31, 2004.

         On May 16, 2003, the Company issued $200,000 principal amount of
         Convertible Subordinated Notes (the "Notes") that are convertible,
         under certain circumstances, into shares of Class A common stock at
         an initial conversion price of $23.01 per share. The Notes, which
         are due May 16, 2033, bear interest that is payable on May 16 and
         November 16 of each year at a rate of 2.50% per annum. The Company
         also is obligated to pay contingent interest at a rate equal to
         0.5% per annum during any six-month period from May 16 to November
         15 and from November 16 to May 15, with the initial six-month
         period commencing May 16, 2006, if the average trading price of the
         Notes per $1,000 principal amount for the five trading day period
         ending on the third trading day immediately preceding the first day
         of the applicable six-month period equals $1,200 or more. As this
         contingent interest feature is based on the underlying trading
         price of the Notes, the contingent interest meets the criteria of
         and qualifies as an embedded derivative. At the time of issuance
         and at March 31, 2005, management determined that the fair value of
         this contingent interest embedded derivative was de minimis and,
         accordingly, no value has been assigned to this embedded
         derivative.

         The Company may redeem some or all of the Notes at any time on or
         after May 21, 2006, at a redemption price, payable in cash, of 100%
         of the principal amount of the Notes, plus accrued and unpaid
         interest, including contingent interest, if any. Holders may
         require the Company to repurchase all or a portion of their Notes
         on May 16, 2008, 2013, 2018, 2023 and 2028 or upon a change in
         control, as defined in the indenture governing the Notes, at a
         purchase price, payable in cash, of 100% of the principal amount of
         the Notes, plus accrued and unpaid interest, including contingent
         interest, if any. The Notes are subordinate to all of our existing
         and future senior obligations. The net proceeds to the Company were
         approximately $194.2 million, after deducting underwriting
         discounts, commissions and offering expenses.

         The Notes are convertible, at the holders' option, into shares of
         the Company's Class A common stock prior to the maturity date under
         the following circumstances:

              o  during any quarter commencing after June 30,
                 2003, if the closing sale price of the Company's
                 Class A common stock over a specified number of
                 trading days during the previous quarter is more
                 than 120% of the conversion price of the Notes
                 on the last trading day of the previous quarter.
                 The Notes are initially convertible at a
                 conversion price of $23.01 per share, which is
                 equal to a conversion rate of approximately 43.4594
                 shares per $1,000 principal amount of Notes;

              o  if the Company has called the Notes for redemption;

              o  during the five trading day period immediately
                 following any nine consecutive day trading
                 period in which the trading price of the Notes
                 per $1,000 principal amount for each day of such
                 period was less than 95% of the product of the
                 closing sale price of our Class A common stock
                 on that day multiplied by the number of shares
                 of our Class A common stock issuable upon
                 conversion of $1,000 principal amount of the Notes; or

              o  upon the occurrence of specified corporate transactions.

         The Company has reserved 8,691,880 shares of Class A common stock
         for issuance in the event the Notes are converted into the
         Company's common shares.

                                     74

<PAGE>
<PAGE>

         The Notes, which are unsecured, do not contain any restrictions on
         the payment of dividends, the incurrence of additional indebtedness
         or the repurchase of the Company's securities, and do not contain
         any financial covenants.

         The aggregate maturities of long-term debt as of March 31, 2005 are
         as follows:

                  Due in one year...............        $    973
                  Due in two years..............           2,179
                  Due in three years............           1,674
                  Due in four years.............           5,914
                  Due in five years.............               -
                  Thereafter....................         200,000
                                                        --------
                                                        $210,740
                                                        ========

         The Company paid interest, net of capitalized interest, of $4,156
         during the year ended March 31, 2005. For the years ended March 31,
         2004 and 2003, the Company paid interest of $3,215 and $389,
         respectively.

11.      COMMITMENTS AND CONTINGENCIES
         -----------------------------

         LEASES

         The Company leases manufacturing, office and warehouse facilities,
         equipment and automobiles under operating leases expiring through
         fiscal 2013. Total rent expense for the years ended March 31, 2005,
         2004 and 2003 was $5,734, $5,246 and $4,785, respectively.

         Future minimum lease commitments under non-cancelable leases are as
         follows:

                  2006..........................          $1,598
                  2007..........................           1,167
                  2008..........................             782
                  2009..........................             551
                  2010..........................             535
                  Later years...................             624

         A building leased by the Company on March 31, 2005 was purchased on
         April 14, 2005 (see Note 21). The future minimum lease payments
         under this lease were only included above through the date of the
         purchase. Payments that would have been due under this lease were
         $1,324 per year through April 2008 and $1,454 per year through
         April 2012.

         CONTINGENCIES

         The Company is currently subject to legal proceedings and claims
         that have arisen in the ordinary course of business. While the
         Company is not presently able to determine the potential liability,
         if any, related to such matters, the Company believes none of the
         matters it currently faces, individually or in the aggregate, will
         have a material adverse effect on its financial position or
         operations except for the specific cases described in "Litigation"
         below.

         The Company has licensed the exclusive rights to co-develop and
         market various generic equivalent products with other drug delivery
         companies. These collaboration agreements require the Company to
         make up-front and ongoing payments as development milestones are
         attained. If all milestones remaining under these agreements were
         reached, payments by the Company could total up to $15,455.

                                     75

<PAGE>
<PAGE>

         LITIGATION

         ETHEX Corporation (ETHEX), a subsidiary of the Company, was a
         defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, filed in federal court in San Antonio, Texas. The
         Company and ETHEX were also named as defendants in a second lawsuit
         brought by Healthpoint and others styled Healthpoint Ltd. v. ETHEX
         Corporation, filed in federal court in San Antonio, Texas. In
         September 2004, the Company made a settlement payment in the amount
         of $16,500 to resolve all previously pending claims between KV and
         Healthpoint without the admission of any liability. The settlement
         was fully reserved by the Company in September 2002 and therefore
         had no impact on KV's earnings for the year ended March 31, 2005.
         The $1,430 of income reflected in "Litigation" on the Company's
         consolidated income statement for the year ended March 31, 2005
         represents a $587 net payment received by us in accordance with a
         settlement of vitamin antitrust litigation and $843 related to the
         reversal of the portion of the Healthpoint litigation reserve that
         remained after payment of the settlement amount and related
         litigation costs.

         The Company and ETHEX are named as defendants in a case brought by
         CIMA LABS, Inc. and Schwarz Pharma, Inc. and styled CIMA LABS, Inc.
         et. al. v. KV Pharmaceutical Company et. al. filed in Federal
         District Court in Minnesota. It is alleged that the Company and
         ETHEX infringed on a CIMA patent in connection with the manufacture
         and sale of Hyoscyamine Sulfate Orally Dissolvable Tablets, 0.125
         mg. The court has denied the plaintiffs' motion for a preliminary
         injunction, which allows ETHEX to continue marketing the product
         during the pendancy of the subject lawsuit. The Company has filed
         several motions for summary judgment requesting that the Court rule
         that the relevant patent is unenforceable, invalid or not
         infringed. These motions have been denied and the issues will be
         considered at trial. CIMA and Schwarz filed a summary judgment
         motion seeking the court to rule that the patent is valid in the
         face of some prior art references cited by the Company as providing
         support for its invalidity defense. The Court granted the motion;
         however, the issue of invalidity based on prior art that was not
         the subject of the motion will be tried. The Company intends to
         vigorously defend its interests; however, it cannot give any
         assurance it will prevail.

         The Company and ETHEX are named as defendants in a case brought by
         Solvay Pharmaceuticals, Inc. and styled Solvay Pharmaceuticals,
         Inc. v. ETHEX Corporation, filed in Federal District Court in
         Minnesota. In general, Solvay alleges that ETHEX's comparative
         promotion of its Pangestyme(TM) CN 10 and Pangestyme(TM) CN 20
         products to Solvay's Creon(R) 10 and Creon(R) 20 products resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair and deceptive trade
         practices. Discovery is active and the case is required to be trial
         ready by February 1, 2006. The Company intends to vigorously defend
         its interests; however, it cannot give any assurance it will
         prevail.

         KV previously distributed several pharmaceutical products that
         contained phenylpropanolamine, or PPA, and that were discontinued
         in 2000 and 2001. The Company is presently named a defendant in a
         product liability lawsuit in federal court in Mississippi involving
         PPA. The suit originated out of a case, Virginia Madison, et al. v.
         Bayer Corporation, et al. The original suit was filed in December
         2002, but was not served on KV until February 2003. The case was
         originally filed in the Circuit Court of Hinds County, Mississippi,
         and was removed to the Federal District Court for the Southern
         District of Mississippi by then co-defendant Bayer Corporation. The
         case has been transferred to a Judicial Panel on Multi-District
         Litigation for PPA claims sitting in the Western District of
         Washington. The claims against the Company have been segregated
         into a lawsuit brought by Johnny Fulcher individually and on behalf
         of the wrongful death beneficiaries of Linda Fulcher, deceased,
         against the Company. It alleges bodily injury, wrongful death,
         economic injury, punitive damages, loss of consortium and/or loss
         of services from the use of the Company's distributed
         pharmaceuticals containing PPA that have since been discontinued
         and/or reformulated to exclude PPA. In May 2004, the case was
         dismissed with prejudice by the Federal District Court for the
         Western District of Washington for a failure to timely file an
         individual complaint


                                     76

<PAGE>
<PAGE>

         as required by certain court orders. The plaintiff filed a request
         for reconsideration which was opposed and subsequently denied by
         the Court in June 2004. In July 2004, the plaintiff filed a notice
         of appeal of the dismissal. The Company has opposed this appeal.
         The Company intends to vigorously defend its interests; however, it
         cannot give any assurance it will prevail.

         The Company has also been advised that one of its former
         distributor customers is being sued in Florida state court in a
         case captioned Darrian Kelly v. K-Mart et. al. for personal injury
         allegedly caused by ingestion of K-Mart diet caplets that are
         alleged to have been manufactured by the Company and to contain
         PPA. The distributor has tendered defense of the case to the
         Company and has asserted a right to indemnification for any
         financial judgment it must pay. The Company previously notified its
         product liability insurer of this claim in 1999, and the Company
         has demanded that the insurer assume the Company's defense. The
         insurer has stated that it has retained counsel to secure
         additional factual information and will defer its coverage decision
         until that information is received. The Company intends to
         vigorously defend its interests; however, it cannot give any
         assurance that is will not be impleaded into the action, or that,
         if it is impleaded, that it would prevail.

         KV's product liability coverage for PPA claims expired for claims
         made after June 15, 2002. Although the Company renewed its product
         liability coverage for coverage after June 15, 2002, that policy
         excludes future PPA claims in accordance with the standard industry
         exclusion. Consequently, as of June 15, 2002, the Company will
         provide for legal defense costs and indemnity payments involving
         PPA claims on a going forward basis as incurred, including the
         Mississippi lawsuit that was filed after June 15, 2002. Moreover,
         the Company may not be able to obtain product liability insurance
         in the future for PPA claims with adequate coverage limits at
         commercially reasonable prices for subsequent periods. From time to
         time in the future, KV may be subject to further litigation
         resulting from products containing PPA that it formerly
         distributed. The Company intends to vigorously defend its
         interests; however, it cannot give any assurance it will prevail.

         After the Company filed ANDAs with the FDA seeking permission to
         market a generic version of the 50 mg, 100 mg, and 200 mg strengths
         of Toprol(R) XL in extended release capsule form, AstraZeneca filed
         lawsuits against KV for patent infringement under the provisions of
         the Hatch-Waxman Act. In the Company's Paragraph IV certification,
         KV contended that its proposed generic versions do not infringe
         AstraZeneca's patents. Pursuant to the Hatch-Waxman Act, the filing
         date of the suit against the Company instituted an automatic stay
         of FDA approval of the Company's ANDA until the earlier of a
         judgment, or 30 months from the date of the suit. The Company has
         filed a motion for summary judgment with the Federal District Court
         in Missouri alleging, among other things, that AstraZeneca's patent
         is invalid. There is no trial setting. The Company intends to
         vigorously defend its interests; however, it cannot give any
         assurance it will prevail.

         The Company and/or ETHEX have been named as defendants in certain
         multi-defendant cases alleging that the defendants reported
         improper or fraudulent pharmaceutical pricing information, i.e.,
         Average Wholesale Price, or AWP, and/or Wholesale Acquisition Cost,
         or WAC, information, which caused the governmental plaintiffs to
         incur excessive costs for pharmaceutical products under the
         Medicaid program. Cases of this type have been filed against the
         Company and/or ETHEX and other pharmaceutical manufacturer
         defendants by the State of Massachusetts, the State of Alabama, New
         York City, and approximately 25 counties in New York State (less
         than ten of which have been formally served on the Company or
         ETHEX). The New York City case and all but one of the New York
         County cases have been transferred (or will be the subject of a
         notice of related action in order to effectuate transfer) to the
         Federal District Court for the District of Massachusetts for
         coordinated or consolidated pretrial proceedings under the Average
         Wholesale Price Multidistrict Litigation (MDL No. 1456). Each of
         these actions is in the early stages, and fact discovery has not
         yet begun in any of the cases other than the Alabama case, where
         the State's first discovery request has been filed. The Company
         intends to vigorously defend its interests in the actions described
         above; however, it cannot give any assurance it will prevail.

         The Company believes that various other governmental entities have
         commenced investigations into the generic and branded
         pharmaceutical industry at large regarding pricing and price
         reporting practices. Although the


                                     77

<PAGE>
<PAGE>

         Company believes its pricing and reporting practices have complied
         in all material respects with its legal obligations, it cannot give
         any assurance that it would prevail if legal actions are instituted
         by these governmental entities.

         On May 20, 2005, the Company was notified by the SEC that a
         non-public formal investigation was initiated that appears to
         relate to the Form 8-K disclosures the Company made on July 13,
         2004. The Company is cooperating fully and believes the matter will
         be satisfactorily resolved.

         From time to time, the Company is involved in various other legal
         proceedings in the ordinary course of its business. These legal
         proceedings include various patent infringement actions brought by
         potential competitors with respect to products the Company proposes
         to market and for which it has submitted ANDA filings and provided
         notice of certification required under the provisions of the Act.
         While it is not feasible to predict the ultimate outcome of such
         other proceedings, the Company believes that the ultimate outcome
         of such other proceedings will not have a material adverse effect
         on its results of operations or financial position.

         There are uncertainties and risks associated with all litigation
         and there can be no assurance that the Company will prevail in any
         particular litigation.

12.      EMPLOYMENT AGREEMENTS
         ---------------------

         The Company has employment agreements with certain officers and key
         employees which extend for one to five years. These agreements
         provide for base levels of compensation and, in certain instances,
         also provide for incentive bonuses and separation benefits. Also,
         the agreement with the Chief Executive Officer (CEO) contains
         provisions for partial salary continuation under certain
         conditions, contingent upon noncompete restrictions and providing
         consulting services to the Company as specified in the agreement.
         In addition, the CEO is entitled to receive retirement compensation
         paid in the form of a single annuity equal to 30% of the CEO's
         final average compensation payable each year beginning at
         retirement and continuing for the longer of 10 years or the life of
         the CEO. In accordance with this agreement, the Company recognized
         retirement expense of $1,355, $209 and $196 for the years ended
         March 31, 2005, 2004 and 2003, respectively. In fiscal 2005, the
         Company actuarily updated the appropriateness of the liability.

13.      GAIN FROM LEGAL SETTLEMENT
         --------------------------

         In September 2003, the Company received a payment from a branded
         pharmaceutical company in the amount of $4,000. The payment
         received by the Company was made in response to the Company's claim
         that the branded company violated federal antitrust laws and
         interfered with the Company's right to a timely introduction of a
         generic pharmaceutical product in a previous fiscal year. The
         payment was reflected by the Company in the "Litigation" line item
         of operating income and was recorded net of approximately $500 of
         attorney-related fees.

14.      INCOME TAXES
         ------------

         The income tax provisions for the years ended March 31, 2005, 2004
         and 2003 were based on estimated Federal and state taxable income
         using the applicable statutory rates. The current and deferred
         Federal and state income tax provisions for the years ended March
         31, 2005, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                            2005            2004            2003
                                                                            ----            ----            ----
<S>                                                                        <C>             <C>             <C>
                  PROVISION
                     Current
                        Federal...............................             $ 2,982         $14,184         $21,524
                        State.................................                 195           1,275           2,038
                                                                           -------         -------         -------
                                                                             3,177          15,459          23,562
                                                                           -------         -------         -------
                     Deferred
                        Federal...............................              12,473           7,792          (7,207)
                        State.................................               1,109             899            (884)
                                                                           -------         -------         -------
                                                                            13,582           8,691          (8,091)
                                                                           -------         -------         -------
                                                                           $16,759         $24,150         $15,471
                                                                           =======         =======         =======
</TABLE>

                                     78

<PAGE>
<PAGE>

         The reasons for the differences between the provision for income
         taxes and the expected Federal income taxes at the statutory rate
         are as follows:


<TABLE>
<CAPTION>
                                                                            2005            2004            2003
                                                                            ----            ----            ----

<S>                                                                        <C>             <C>             <C>
                  Expected income tax expense.................             $17,510         $24,499         $15,253
                  State income taxes, less
                     Federal income tax benefit...............                 847           1,413             750
                  Business credits............................              (1,080)         (1,240)           (370)
                  Other ......................................                (518)           (522)           (162)
                                                                           -------         -------         -------
                                                                           $16,759         $24,150         $15,471
                                                                           =======         =======         =======
</TABLE>

         As of March 31, 2005 and 2004, the tax effect of temporary
         differences between the tax basis of assets and liabilities and
         their financial reporting amounts are as follows:

<TABLE>
<CAPTION>
                                                             2005                            2004
                                                   -------------------------        ------------------------
                                                   CURRENT       NON-CURRENT        CURRENT      NON-CURRENT
                                                   -------       -----------        -------      -----------

<S>                                                 <C>           <C>               <C>            <C>
         Fixed asset basis differences........      $    -        $ (6,658)         $     -        $(4,870)
         Reserves for inventory and
            receivables.......................       5,510               -            5,313              -
         Vacation pay reserve.................         249               -              460              -
         Deferred compensation................           -           1,620                -          1,164
         Amortization.........................           -          (2,121)               -         (1,644)
         Litigation reserve...................           -               -            6,704              -
         Convertible notes interest...........           -          (9,495)          (4,566)             -
         Other................................          68               -              126              -
                                                    ------        --------          -------        -------
            Net deferred tax asset (liability)      $5,827        $(16,654)         $ 8,037        $(5,350)
                                                    ======        ========          =======        =======
</TABLE>

         The Company paid income taxes of $8,769, $22,201, and $22,088
         during the years ended March 31, 2005, 2004 and 2003, respectively.

         Included in "Prepaid and other assets" at March 31, 2005 in the
         accompanying consolidated balance sheet was income tax refunds
         receivable of $2,518.

15.      EMPLOYEE BENEFITS
         -----------------

         STOCK OPTION PLAN AND AGREEMENTS

         On August 30, 2002, the Company's shareholders approved KV's 2001
         Incentive Stock Option Plan (the "2001 Plan"), which allows for the
         issuance of up to 3,000,000 shares of common stock. Prior to the
         approval of the 2001 Plan, the Company operated under the 1991
         Incentive Stock Option Plan, as amended, which still allows for the
         issuance of up to 750,000 shares of common stock. Under the
         Company's stock option plans, options to acquire shares of common
         stock have been made available for grant to certain employees. Each
         option granted has an exercise price of not less than 100% of the
         market value of the common stock on the date of grant. The
         contractual life of each option is generally 10 years. The
         exercisability of the grants varies according to the individual
         options granted. In addition to these plans, the Company has issued
         stock options periodically to executives with employment agreements
         and to non-employee directors. At March 31, 2005, options to
         purchase 34,875 shares of stock were outstanding pursuant to
         employment agreements and grants to non-employee directors.

                                     79

<PAGE>
<PAGE>

         The following summary shows the transactions for the years ended
         March 31, 2005, 2004 and 2003 under option arrangements:

<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                                                      -------------------                         -------------------
                                                                       AVERAGE                                     AVERAGE
                                                 NO. OF               PRICE PER                NO. OF             PRICE PER
                                                 SHARES                 SHARE                  SHARES               SHARE
                                                 ------                 -----                  ------               -----
<S>                                            <C>                     <C>                   <C>                   <C>
         Balance, March 31, 2002...........    3,198,579               $ 8.12                1,435,756             $ 7.41
         Options granted...................      700,538                12.35                        -                  -
         Options becoming exercisable......            -                    -                  566,455               9.21
         Options exercised.................     (135,420)                5.26                 (135,420)              5.26
         Options canceled..................     (260,664)               11.67                  (75,952)             10.97
                                               ---------                                     ---------
         Balance March 31, 2003............    3,503,033                 8.81                1,790,839               8.00
         Options granted...................      677,313                19.56                        -                  -
         Options becoming exercisable......            -                    -                  541,924              12.17
         Options exercised.................     (966,036)                7.80                 (966,036)              7.80
         Options canceled..................     (437,502)               11.72                 (132,869)             10.37
                                               ---------                                     ---------
         Balance March 31, 2004............    2,776,808                11.33                1,233,858               9.71
         Options granted...................      676,250                22.19                        -                  -
         Options becoming exercisable......            -                    -                  431,164              14.42
         Options exercised.................     (220,743)                6.44                 (220,743)              6.44
         Options canceled..................     (129,517)               16.30                  (34,285)             13.35
                                               ---------                                     ---------
         Balance March 31, 2005............    3,102,798               $13.84                1,409,994             $11.58
                                               =========                                     =========
</TABLE>

         The weighted average fair value of options granted at market price
         was $3.29, $3.42, and $2.18 per share for the years ended March 31,
         2005, 2004 and 2003, respectively. The weighted average fair value
         of options granted with an exercise price exceeding market price on
         the date of grant was $2.94, $1.97, and $0.14 per share for the
         years ended March 31, 2005, 2004 and 2003, respectively.

         The following table summarizes information about stock options
         outstanding at March 31, 2005:

<TABLE>
<CAPTION>
                                         OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                        --------------------------------------------------------       -----------------------------
    RANGE OF              NUMBER          WEIGHTED AVERAGE           WEIGHTED            NUMBER          WEIGHTED
    EXERCISE            OUTSTANDING            LIFE                   AVERAGE          EXERCISABLE       AVERAGE
     PRICES             AT 3/31/05           REMAINING            EXERCISE PRICE       AT 3/31/05     EXERCISE PRICE
     ------             ----------           ---------            --------------       ----------     --------------
<C>                      <C>                  <C>                     <C>                <C>              <C>
$ 0.82 - $ 5.00          365,186              1 Years                 $ 3.14             306,717          $ 3.06

$ 5.01 - $10.00          614,120              5 Years                 $ 7.37             308,035          $ 7.23

$10.01 - $15.00          795,534              6 Years                 $12.04             379,562          $12.07

$15.01 - $20.00          614,938              7 Years                 $17.79             252,405          $18.24

$20.01 - $27.50          713,020              8 Years                 $23.48             163,275          $24.32
</TABLE>

         PROFIT SHARING PLAN

         The Company has a qualified trustee profit sharing plan (the
         "Plan") covering substantially all non-union employees. The
         Company's annual contribution to the Plan, as determined by the
         Board of Directors, is discretionary and was $300, $400, and $375
         for the years ended March 31, 2005, 2004 and 2003, respectively.
         The Plan includes features as described under Section 401(k) of the
         Internal Revenue Code.

                                     80

<PAGE>
<PAGE>

         The Company's contributions to the 401(k) investment funds are 50%
         of the first 7% of the salary contributed by each participant.
         Contributions of $1,547, $1,286, and $1,185 were made to the 401(k)
         investment funds during the years ended March 31, 2005, 2004 and
         2003, respectively.

         Contributions are also made to multi-employer defined benefit plans
         administered by labor unions for certain union employees. Amounts
         charged to pension expense and contributed to these plans were
         $200, $202, and $231 for the years ended March 31, 2005, 2004 and
         2003, respectively.

         HEALTH AND MEDICAL INSURANCE PLAN

         The Company contributes to health and medical insurance programs
         for its non-union and union employees. For non-union employees, the
         Company self-insures the first $150,000 of each employee's covered
         medical claims. Included in accrued liabilities in the consolidated
         balance sheets as of March 31, 2005 and 2004 were $20 and $450 of
         accrued health insurance reserves, respectively, for claims
         incurred but not reported. In fiscal 2005, the Company established
         a Voluntary Employees' Beneficiary Association for its non-union
         employees to fund payments made by the Company for covered medical
         claims. As a result of initially funding this plan, the Company's
         liability for claims incurred but not reported was reduced by $680.
         For union employees, the Company participates in a fully funded
         insurance plan sponsored by the union. Total health and medical
         insurance expense for the two plans was $9,431, $7,331, and $6,636
         for the years ended March 31, 2005, 2004 and 2003, respectively.

16.      RELATED PARTY TRANSACTIONS
         --------------------------

         The Company currently leases certain real property from an
         affiliated partnership of an officer and director of the Company.
         Lease payments made for this property for the years ended March 31,
         2005, 2004 and 2003 totaled $277, $271, and $269, respectively.

17.      EQUITY TRANSACTIONS
         -------------------

         As of March 31, 2005 and 2004, the Company had 40,000 shares of 7%
         Cumulative Convertible Preferred Stock (par value $.01 per share)
         outstanding at a stated value of $25 per share. The preferred stock
         is non-voting with dividends payable quarterly. The preferred stock
         is redeemable by the Company at its stated value. Each share of
         preferred stock is convertible into Class A common stock at a
         conversion price of $2.96 per share. The preferred stock has a
         liquidation preference of $25 per share plus all accrued but unpaid
         dividends prior to any liquidation distributions to holders of
         Class A or Class B common stock. No dividends may be paid on Class
         A or Class B common stock unless all dividends on the Cumulative
         Convertible Preferred Stock have been declared and paid. There were
         no undeclared and unaccrued cumulative preferred dividends at March
         31, 2005 and 2004. Also, under the terms of its credit agreement,
         the Company may not pay cash dividends in excess of 25% of the
         prior fiscal year's consolidated net income.

         The Company has reserved 750,000 shares of Class A common stock for
         issuance under KV's 2002 Consultants Plan. These shares may be
         issued from time to time in consideration for consulting and other
         services provided to the Company by independent consultants. Since
         inception of this plan, the Company has issued 47,732 Class A
         shares as payment for certain milestones under product development
         agreements.

         Holders of Class A common stock are entitled to receive dividends
         per share equal to 120% of the dividends per share paid on the
         Class B common stock and have one-twentieth vote per share in the
         election of directors and on other matters.

                                     81

<PAGE>
<PAGE>

         Under the terms of the Company's current loan agreement (see Note
         10), the Company has limitations on paying dividends, except in
         stock, on its Class A and Class B common stock. Payment of
         dividends may also be restricted under Delaware Corporation law.

         On September 8, 2003, the Company's Board of Directors declared a
         three-for-two stock split in the form of a 50% stock dividend of
         its common stock to shareholders of record on September 18, 2003,
         payable on September 29, 2003. Common stock was credited and
         retained earnings was charged for the aggregate par value of the
         shares issued. The stated par value of each share was not changed
         from $0.01.

         All per share data in this report has been restated to reflect the
         aforementioned three-for-two stock split in the form of a 50% stock
         dividend.

         In May 2003, the Company used $50,000 of the net proceeds from the
         Convertible Subordinated Notes issuance (see Note 10) to fund the
         repurchase of 2,000,000 shares of the Company's Class A common
         stock.

                                     82

<PAGE>
<PAGE>

18.      EARNINGS PER SHARE
         ------------------

         The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                            2005            2004            2003
                                                                            ----            ----            ----
<S>                                                                        <C>             <C>             <C>
                  Undistributed earnings:
                     Net income .......................................    $33,269         $45,848         $28,110
                     Less - preferred stock dividends..................        (70)           (436)            (70)
                                                                           -------         -------         -------
                     Undistributed earnings - basic EPS................     33,199          45,412          28,040
                     Add - preferred stock dividends...................         70             436              70
                     Add - interest expense on convertible
                        notes, net of tax..............................      4,099           3,507               -
                                                                           -------         -------         -------
                     Net income - diluted EPS..........................    $37,368         $49,355         $28,110
                                                                           =======         =======         =======
                  Allocation of undistributed earnings:
                     Class A common stock..............................    $24,316         $32,391         $20,211
                     Class B common stock..............................      8,883          13,021           7,829
                                                                           -------         -------         -------
                        Total allocated earnings - basic EPS...........    $33,199         $45,412         $28,040
                                                                           =======         =======         =======
                  Weighted average shares outstanding - basic:
                     Class A common stock..............................     34,228          33,046          33,997
                     Class B common stock..............................     15,005          15,941          15,803
                                                                           -------         -------         -------
                        Total weighted average shares
                           outstanding - basic.........................     49,233          48,987          49,800
                                                                           -------         -------         -------
                  Effect of dilutive securities:
                     Employee stock options............................      1,205           1,760           1,423
                     Convertible preferred stock.......................        338             338             338
                     Convertible notes.................................      8,692           7,623               -
                                                                           -------         -------         -------
                        Dilutive potential common shares...............     10,235           9,721           1,761
                                                                           -------         -------         -------
                        Total weighted average shares
                           outstanding - diluted.......................     59,468          58,708          51,561
                                                                           =======         =======         =======
                  Basic earnings per share:
                     Class A common stock..............................    $  0.71         $  0.98         $  0.59
                     Class B common stock..............................       0.59            0.82            0.50
                  Diluted earnings per share(1)........................       0.63            0.84            0.55
                                                                           =======         =======         =======
<FN>
-----------------

(1)           Excluded from the computation of diluted earnings per share
              are outstanding stock options whose exercise prices are
              greater than the average market price of the common shares for
              the period reported. For the years ended March 31, 2005, 2004
              and 2003, options to purchase 712,770, 206,771 and 405,735
              Class A and Class B common shares, respectively, were excluded
              from the computation.
</TABLE>

                                     83

<PAGE>
<PAGE>

19.      QUARTERLY FINANCIAL RESULTS (UNAUDITED)
         ---------------------------------------

<TABLE>
<CAPTION>
                                                 1ST           2ND           3RD           4TH
                                               QUARTER       QUARTER       QUARTER       QUARTER          YEAR
                                               -------       -------       -------       -------          ----
<S>                                            <C>           <C>           <C>           <C>            <C>
YEAR ENDED MARCH 31, 2005
-------------------------

Net sales..................................    $66,087       $79,322       $86,857       $71,227        $303,493
Gross profit...............................     42,353        52,466        56,922        44,070         195,811
Pretax income (loss).......................     11,543        19,591        20,062        (1,168)         50,028
Net income (loss)..........................      7,561        12,676        13,552          (520)         33,269
Basic earnings per share:
   Class A common stock....................       0.16          0.27          0.29         (0.01)           0.71
   Class B common stock....................       0.14          0.23          0.24         (0.01)           0.59
Diluted earnings per share.................       0.14          0.23          0.25         (0.01)           0.63

YEAR ENDED MARCH 31, 2004
-------------------------

Net sales..................................    $59,379       $71,019       $69,598       $83,945        $283,941
Gross profit...............................     38,389        46,879        46,837        53,409         185,514
Pretax income..............................     13,291        18,978        17,874        19,855          69,998
Net income.................................      8,573        12,241        11,529        13,505          45,848
Basic earnings per share:
   Class A common stock....................       0.17          0.27          0.25          0.29            0.98
   Class B common stock....................       0.14          0.22          0.21          0.24            0.82
Diluted earnings per share.................       0.16          0.22          0.21          0.24            0.84
</TABLE>

                                     84

<PAGE>
<PAGE>


20.      SEGMENT REPORTING
         -----------------

         The reportable operating segments of the Company are branded
         products, specialty generics and specialty materials. The Company
         has aggregated its branded product lines in a single segment
         because of similarities in regulatory environment, manufacturing
         processes, methods of distribution and types of customer. This
         segment includes patent-protected products and certain trademarked
         off-patent products that the Company sells and markets as brand
         pharmaceutical products. The specialty generics business segment
         includes off-patent pharmaceutical products that are
         therapeutically equivalent to proprietary products. The Company
         sells its brand and generic products primarily to pharmaceutical
         wholesalers, drug distributors and chain drug stores. The specialty
         materials segment is distinguished as a single segment because of
         differences in products, marketing and regulatory approval when
         compared to the other segments.

         Accounting policies of the segments are the same as the Company's
         consolidated accounting policies. Segment profits are measured
         based on income before taxes and are determined based on each
         segment's direct revenues and expenses. The majority of research
         and development expense, corporate general and administrative
         expenses, amortization and interest expense, as well as interest
         and other income, are not allocated to segments, but included in
         the "all other" classification. Identifiable assets for the three
         reportable operating segments primarily include receivables,
         inventory, and property and equipment. For the "all other"
         classification, identifiable assets consist of cash and cash
         equivalents, corporate property and equipment, intangible and other
         assets and all income tax related assets.

         The following represents information for the Company's reportable
         operating segments for fiscal 2005, 2004 and 2003.

<TABLE>
<CAPTION>
                                  FISCAL YEAR
                                     ENDED         BRANDED     SPECIALTY     SPECIALTY     ALL
                                   MARCH 31,      PRODUCTS     GENERICS      MATERIALS    OTHER     ELIMINATIONS   CONSOLIDATED
                                   ---------      --------     --------      ---------    -----     ------------   ------------
--------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>         <C>            <C>       <C>           <C>            <C>
NET REVENUES
                                     2005          $90,085     $191,870       $18,345   $  3,193      $     -        $303,493
                                     2004           82,868      181,455        16,550      3,068            -         283,941
                                     2003           43,677      179,724        17,395      4,200            -         244,996
--------------------------------------------------------------------------------------------------------------------------------
SEGMENT PROFIT (LOSS)
                                     2005           24,037      102,937         3,043    (79,989)           -          50,028
                                     2004           31,661      101,163         1,365    (64,191)           -          69,998
                                     2003            8,361       97,339         1,692    (63,811)           -          43,581
--------------------------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
                                     2005           25,015       66,834         8,001    459,625       (1,158)        558,317
                                     2004           24,585       70,581         8,343    426,087       (1,158)        528,438
                                     2003            7,819       69,303         8,797    267,907       (1,158)        352,668
--------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT ADDITIONS
                                     2005            2,463            -           318     60,841            -          63,622
                                     2004              420        1,685            71     28,416            -          30,592
                                     2003              634          116           143     15,220            -          16,113
--------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
                                     2005              217          235           140     13,312            -          13,904
                                     2004              332          123           141     12,067            -          12,663
                                     2003              260           55           164      7,294            -           7,773
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

         Consolidated revenues are principally derived from customers in
         North America and substantially all property and equipment is
         located in St. Louis, Missouri.

                                     85

<PAGE>
<PAGE>

21.      SUBSEQUENT EVENTS
         -----------------

         On April 14, 2005, the Company completed the purchase of a 260,000
         square foot building for $11,800. The property had been leased by
         the Company since April 2000 and will continue to function as the
         Company's main distribution facility. The purchase of the building
         was financed with cash on hand.

         In May 2005, the Company and FemmePharma mutually agreed to
         terminate the license agreement they entered into in April 2002
         (see Note 3). As part of this transaction, the Company acquired all
         of the common stock of FemmePharma for $25,000 after certain assets
         of the entity had been distributed to FemmePharma's other
         shareholders. Included in the Company's acquisition of FemmePharma
         are the worldwide marketing rights to an endometriosis product that
         has successfully completed Phase II clinical trials. This product
         was originally part of the licensing arrangement with FemmePharma
         that provided the Company, among other things, marketing rights for
         the product principally in the United States. In accordance with
         the new agreement, the Company is assuming responsibility for
         conducting the Phase III clinical study; has acquired worldwide
         licensing rights of the endometriosis product; is no longer
         responsible for milestone payments and royalties specified in the
         original licensing agreement; and has secured exclusive worldwide
         rights for use of the FemmePharma technology for vaginal
         anti-infective products. The Company believes the Phase III
         clinical study for the endometriosis product will begin during
         fiscal 2006. In connection with this transaction, the Company
         expects to incur a charge of approximately $30,000 in the first
         quarter of fiscal 2006, which includes the write-off of the $25,000
         payment plus preferred stock investments previously made, and which
         principally relates to in-process research and development.

         In May 2005, the Company entered into a long-term product
         development and marketing license agreement with Strides Arcolab,
         Ltd, (Strides) an Indian generic pharmaceutical developer and
         manufacturer, for exclusive marketing rights in the United States
         and Canada for 10 new generic drugs. Under the agreement, Strides
         will be responsible for developing, submitting for regulatory
         approval and manufacturing the 10 products and the Company will be
         responsible for exclusively marketing the products in the
         territories covered by the agreement. Under a separate agreement,
         the Company invested $11,300 in Strides' redeemable preferred
         stock.

                                     86

<PAGE>
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

         On August 17, 2004, the Company engaged KPMG LLP as its independent
         auditor. KMPG LLP replaced BDO Seidman LLP after their resignation
         which was reported in an 8-K filed July 13, 2004.

         There have been no disagreements with accountants on accounting or
         financial disclosure matters.

ITEM 9A. CONTROLS AND PROCEDURES
         -----------------------

         EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         The Company maintains disclosure controls and procedures that are
         designed to ensure that information required to be disclosed in its
         Exchange Act reports is recorded, processed, summarized and
         reported within the time periods specified in the SEC's rules and
         forms, and that such information is accumulated and communicated to
         the Company's management, including its principal executive officer
         and principal financial officer, as appropriate, to allow timely
         decisions regarding required disclosure. In designing and
         evaluating the disclosure controls and procedures, management
         recognized that any controls and procedures, no matter how well
         designed and operated, can provide only reasonable assurance of
         achieving the desired control objectives, and management
         necessarily was required to apply its judgment in evaluating the
         cost-benefit relationship of possible controls and procedures.

         As of the end of the period covered by this report, the Company
         carried out an evaluation, under the supervision and with the
         participation of its management, including its principal executive
         officer and principal financial officer, of the effectiveness of
         the design and operation of its disclosure controls and procedures.
         Based on the foregoing, the Company's principal executive officer
         and principal financial officer concluded that the Company's
         disclosure controls and procedures were effective as of the end of
         the period covered by this report.

         MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Management of the Company is responsible for establishing and
         maintaining adequate internal control over financial reporting. The
         Company's internal control over financial reporting is designed to
         provide reasonable assurance regarding the reliability of financial
         reporting and the preparation of financial statements for external
         purposes in accordance with generally accepted accounting
         principles.

         The Company's internal control over financial reporting includes
         those policies and procedures that (i) pertain to the maintenance
         of records that, in reasonable detail, accurately and fairly
         reflect the transactions and dispositions of the assets of the
         Company; (ii) provide reasonable assurance that transactions are
         recorded as necessary to permit preparation of financial statements
         in accordance with generally accepted accounting principles, and
         that receipts and expenditures of the Company are being made only
         in accordance with authorizations of management and directors of
         the Company; and (iii) provide reasonable assurance regarding the
         prevention or timely detection of unauthorized acquisition, use or
         disposition of the Company's assets that could have a material
         effect on the financial statements.

         Because of its inherent limitations, internal control over
         financial reporting may not prevent or detect misstatements. Also,
         projections of any evaluation of effectiveness to future periods
         are subject to the risk that controls may become inadequate because
         of changes in conditions, or that the degree of compliance with the
         policies or procedures may deteriorate.

         Management performed an assessment of the effectiveness of the
         Company's internal control over financial reporting as of March 31,
         2005. Management used the criteria set forth by the Committee of
         Sponsoring Organizations of the Treadway Commission (COSO) in
         Internal Control - Integrated Framework. As a result of this
         assessment and based on the criteria set forth in the COSO
         framework, management has concluded that, as of March 31, 2005, the
         Company's internal control over financial reporting was effective.

                                     87

<PAGE>
<PAGE>

         Management's assessment of the effectiveness of the Company's
         internal control over financial reporting as of March 31, 2005 has
         been audited by KPMG LLP, an independent registered public
         accounting firm, as stated in their report appearing herein.

         CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         There have been no changes in the Company's internal control over
         financial reporting, during the fiscal quarter ended March 31,
         2005, that have materially affected, or are reasonably likely to
         materially affect, the Company's internal control over financial
         reporting.

           Report of Independent Registered Public Accounting Firm
           -------------------------------------------------------

The Board of Directors and Shareholders
K-V Pharmaceutical Company:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that K-V
Pharmaceutical Company maintained effective internal control over financial
reporting as of March 31, 2005, based on the criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

                                     88

<PAGE>
<PAGE>


Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that K-V Pharmaceutical Company
maintained effective internal control over financial reporting as of March
31, 2005, is fairly stated, in all material respects, based on the criteria
established in Internal Control--Integrated Framework issued by COSO. Also,
in our opinion, K-V Pharmaceutical Company maintained, in all material
respects, effective internal control over financial reporting as of March
31, 2005, based on criteria established in Internal Control--Integrated
Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of K-V Pharmaceutical Company and subsidiaries as of March 31, 2005, and the
related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows for the year ended March 31, 2005, and
our report dated June 14, 2005 expressed an unqualified opinion on those
consolidated financial statements.

/s/ KPMG LLP

St. Louis, Missouri
June 14, 2005

                                     89

<PAGE>
<PAGE>


ITEM 9B. OTHER INFORMATION
         -----------------

         DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
         DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.

         On June 13, 2005, K-V Pharmaceutical Company (the "Registrant")
         designated Richard H. Chibnall, age 49, as its principal accounting
         officer. Mr. Chibnall has served as the Registrant's Vice
         President, Finance since February 2000 and will continue to serve
         in such position in addition to his duties as principal accounting
         officer. Gerald R. Mitchell, the Registrant's Vice President and
         Chief Financial Officer, formerly acted as both principal financial
         officer and principal accounting officer and will continue to serve
         as the Registrant's principal financial officer.

         Mr. Chibnall is employed by the Registrant pursuant to an
         employment agreement, dated December 22, 1995, as amended February
         1, 2000, and April 1, 2005. Under the employment agreement, Mr.
         Chibnall is entitled to an annual base salary of $220,000, which
         may be increased from year to year, and certain separation
         benefits. Mr. Chibnall is also entitled to participate in any
         fringe benefits normally provided to employees of the Registrant at
         comparable employment levels. The employment agreement
         automatically renews for successive one-year periods until
         terminated under the terms of the agreement.

         Under the employment agreement, if Mr. Chibnall's employment is
         involuntarily terminated without cause by the Registrant (other
         than within two years after a change of control of the Registrant),
         Mr. Chibnall will be entitled to severance pay equal to one-half of
         his then current salary. He would also receive continuation of any
         health and welfare benefits for a period of 6 months following the
         involuntary termination. In addition, all stock options held by Mr.
         Chibnall would immediately vest and become exercisable.

         Except in the case of Mr. Chibnall's death or disability, if Mr.
         Chibnall's employment is involuntarily terminated with or without
         cause within two years after the occurrence of a change of control
         (as defined in the employment agreement), Mr. Chibnall is entitled
         to severance pay equal to one and one-half times the sum of his
         annual salary and 18 months' worth of bonus. Mr. Chibnall also
         would continue to receive health and welfare benefits for a period
         of 18 months after such a termination. All stock options held by
         Mr. Chibnall would immediately vest and become exercisable.

         The employment agreement also contains restrictive covenants
         preventing Mr. Chibnall from competing against the Registrant or
         soliciting customers or employees of the Registrant for a period of
         24 months after termination of his employment.

                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------

         The information contained under the caption "INFORMATION CONCERNING
         NOMINEES AND DIRECTORS CONTINUING IN OFFICE" in the Company's
         definitive proxy statement to be filed pursuant to


                                     90

<PAGE>
<PAGE>

         Regulation 14(a) for its 2005 Annual Meeting of Shareholders, which
         involves the election of directors, is incorporated herein by this
         reference. Also see Item 4(a) of Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

         The information contained under the captions "EXECUTIVE
         COMPENSATION" and "INFORMATION AS TO STOCK OPTIONS" in the
         Company's definitive proxy statement to be filed pursuant to
         Regulation 14(a) for its 2005 Annual Meeting of Shareholders is
         incorporated herein by this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

         The information contained under the captions "SECURITY OWNERSHIP OF
         CERTAIN BENEFICIAL OWNERS" and "SECURITY OWNERSHIP OF MANAGEMENT"
         in the Company's definitive proxy statement to be filed pursuant to
         Regulation 14(a) for its 2005 Annual Meeting of Shareholders is
         incorporated herein by this reference.

         EQUITY COMPENSATION PLAN INFORMATION

         The following information regarding compensation plans of the
         Company is furnished as of March 31, 2005, the end of the Company's
         most recently completed fiscal year.

<TABLE>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                            REGARDING CLASS A COMMON STOCK
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                              NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                 NUMBER OF SECURITIES TO BE                                  FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF     WEIGHTED-AVERAGE EXERCISE    EQUITY COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,         PRICE OF OUTSTANDING        (EXCLUDING SECURITIES
                                    WARRANTS AND RIGHTS      OPTIONS, WARRANTS AND RIGHTS   REFLECTED IN COLUMN (a))
                                    -------------------      ----------------------------   ------------------------

         PLAN CATEGORY                      (a)                          (b)                          (c)

<S>                                      <C>                            <C>                         <C>
Equity compensation plans
approved by security holders(1)          2,700,457                      $14.12                      988,473

Equity compensation plans not
approved by security holders(2)              6,750                       $3.22                        N/A
                                         ---------

    Total                                2,707,207                      $14.10
                                         =========
<FN>
(1) Consists of the Company's 2001 Incentive Stock Option Plan. See Note 15
    of Notes to Consolidated Financial Statements.
(2) Consists of options granted to non-employee members of the Board of Directors.
</TABLE>

                                     91

<PAGE>
<PAGE>

<TABLE>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                            REGARDING CLASS B COMMON STOCK
--------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                              NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                 NUMBER OF SECURITIES TO BE                                  FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF     WEIGHTED-AVERAGE EXERCISE    EQUITY COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,         PRICE OF OUTSTANDING        (EXCLUDING SECURITIES
                                    WARRANTS AND RIGHTS      OPTIONS, WARRANTS AND RIGHTS   REFLECTED IN COLUMN (a))
                                    -------------------      ----------------------------   ------------------------

         PLAN CATEGORY                      (a)                          (b)                          (c)

<S>                                       <C>                           <C>                        <C>
Equity compensation plans
approved by security holders(1)           367,466                       $13.08                     1,214,399

Equity compensation plans not
approved by security holders(2)            28,125                        $4.82                        N/A
                                           ------

    Total                                 395,591                       $12.49
                                          =======

<FN>
(1) Consists of the Company's 2001 Incentive Stock Option Plan. See Note 15
    of Notes to Consolidated Financial Statements.
(2) Consists of options granted to non-employee members of the Board of Directors.
</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

         The information contained under the caption "TRANSACTIONS WITH
         DIRECTORS AND EXECUTIVE OFFICERS" in the Company's definitive proxy
         statement to be filed pursuant to Regulation 14(a) for its 2005
         Annual Meeting of Shareholders is incorporated herein by this
         reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
         --------------------------------------

         The information contained under the caption "FEES PAID TO
         INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS" in the Company's
         definitive proxy statement to be filed pursuant to Regulation 14(a)
         for its 2005 Annual Meeting of Shareholders is incorporated herein
         by this reference.


                                     92

<PAGE>
<PAGE>

                                   PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
         ---------------------------------------

(a)      1. Financial Statements:                                          Page

         The following consolidated financial statements of the Company
         are included in Part II, Item 8:

         Report of Independent Registered Public Accounting Firm.........    54

         Report of Independent Registered Public Accounting Firm.........    55

         Consolidated Balance Sheets as of March 31, 2005 and 2004.......    56

         Consolidated Statements of Income for the Years Ended March 31,
         2005, 2004 and 2003.............................................    57

         Consolidated Statements of Comprehensive Income for the Years
         Ended March 31, 2005, 2004 and 2003.............................    58

         Consolidated Statements of Shareholders' Equity for the Years
         Ended March 31, 2005, 2004 and 2003.............................    59

         Consolidated Statements of Cash Flows for the Years Ended
         March 31, 2005, 2004 and 2003...................................    60

         Notes to Financial Statements................................... 61-86

         Controls and Procedures.........................................    87

         Evaluation of Disclosure Controls and Procedures................    87

         Management's Report on Internal Control over Financial
         Reporting.......................................................    87

         Changes in Internal Control over Financial Reporting............    88

         Report of Independent Registered Public Accounting Firm.........    88

         2. Financial Statement Schedules:

         Report of Independent Registered Public Accounting Firm
         regarding Financial Statement Schedule..........................    94

         Schedule II - Valuation and Qualifying Accounts.................    95

(b)      Exhibits. See Exhibit Index on pages 97 through 104 of
         this Report. Management contracts and compensatory plans are
         designated on the Exhibit Index.

(c)      Financial Statement Schedules.

                                     93

<PAGE>
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Stockholders and Board of Directors
of K-V Pharmaceutical Company

The audits referred to in our report dated June 4, 2004, relating to the
consolidated financial statements of K-V Pharmaceutical Company, which are
included in Item 8 of this Form 10-K, included the audits of the
accompanying financial statement schedule for the years ended March 31, 2004
and 2003. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits. In our opinion, the 2004
and 2003 financial statement schedule presents fairly, in all material
respects, the information set forth therein.

                                                        /s/ BDO SEIDMAN, LLP


Chicago, Illinois
June 4, 2004

                                     94

<PAGE>
<PAGE>

<TABLE>
                                             SCHEDULE II
                                  VALUATION AND QUALIFYING ACCOUNTS

<CAPTION>
                                                              ADDITIONS
                                              BALANCE AT     CHARGED TO       AMOUNTS         BALANCE
                                               BEGINNING      COSTS AND      CHARGED TO       AT END
                                                OF YEAR       EXPENSES        RESERVES        OF YEAR
                                                -------       --------        --------        -------
                                                                  (in thousands)

<S>                                            <C>            <C>             <C>             <C>
Year Ended March 31, 2003:
Allowance for doubtful accounts............    $   403        $    (81)       $   (100)       $   422
Reserves for sales allowances..............     18,958          98,929          88,229         29,658
Inventory obsolescence.....................      1,108           2,053           2,158          1,003
                                               -------        --------        --------        -------
                                               $20,469        $100,901        $ 90,287        $31,083
                                               =======        ========        ========        =======

Year Ended March 31, 2004:
Allowance for doubtful accounts............    $   422        $    (20)       $      -        $   402
Reserves for sales allowances..............     29,658         103,262         112,272         20,648
Inventory obsolescence.....................      1,003           2,442           2,443          1,002
                                               -------        --------        --------        -------
                                               $31,083        $105,684        $114,715        $22,052
                                               =======        ========        ========        =======

Year Ended March 31, 2005:
Allowance for doubtful accounts............    $   402        $    235        $    176        $   461
Reserves for sales allowances..............     20,648         133,475         133,067         21,056
Inventory obsolescence.....................      1,002           3,182           2,891          1,293
                                               -------        --------        --------        -------
                                               $22,052        $136,892        $136,134        $22,810
                                               =======        ========        ========        =======
</TABLE>


Financial statements of K-V Pharmaceutical Company (separately) are omitted
because KV is primarily an operating company and its subsidiaries included
in the financial statements are wholly-owned and are not materially indebted
to any person other than through the ordinary course of business.


                                     95

<PAGE>
<PAGE>

                                 SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                        K-V PHARMACEUTICAL COMPANY


Date: June 14, 2005                    By      /s/  Marc S. Hermelin
      -------                             -----------------------------------
                                          Vice Chairman of the Board and
                                          Chief Executive Officer
                                          (Principal Executive Officer)

Date: June 14, 2005                    By      /s/  Gerald R. Mitchell
      -------                             -----------------------------------
                                          Vice President and Chief
                                          Financial Officer
                                          (Principal Financial Officer)

Date: June 14, 2005                    By     /s/  Richard H. Chibnall
      -------                             -----------------------------------
                                          Vice President, Finance
                                          (Principal Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the dates indicated by the following persons
on behalf of the Company and in their capacities as members of the Board of
Directors of the Company:

Date: June 14, 2005                    By      /s/  Marc S. Hermelin
                                          -----------------------------------
                                          Marc S. Hermelin

Date: June 14, 2005                    By      /s/  Victor M. Hermelin
                                          -----------------------------------
                                          Victor M. Hermelin

Date: June 14, 2005                    By      /s/  Norman D. Schellenger
                                          -----------------------------------
                                          Norman D. Schellenger

Date: June 14, 2005                    By      /s/  Alan G. Johnson
                                          -----------------------------------
                                          Alan G. Johnson

Date: June 14, 2005                    By      /s/  Kevin S. Carlie
                                          -----------------------------------
                                          Kevin S. Carlie

Date: June 14, 2005                    By      /s/  David A. Van Vliet
                                          -----------------------------------
                                          David Van Vliet

Date: June 14, 2005                    By      /s/  Jean M. Bellin
                                          -----------------------------------
                                          Jean M. Bellin

Date: June 14, 2005                    By      /s/  Terry B. Hatfield
                                          -----------------------------------
                                          Terry B. Hatfield

Date: June 14, 2005                    By      /s/  David S. Hermelin
                                          -----------------------------------
                                          David S. Hermelin

                                     96

<PAGE>
<PAGE>

                                EXHIBIT INDEX

  Exhibit No.                         Description
  -----------                         -----------

     3(a)         The Company's Certificate of Incorporation, which was
                  filed as Exhibit 3(a) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1981, is
                  incorporated herein by this reference.

     3(b)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective March 7, 1983, which was filed
                  as Exhibit 3(c) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 1983, is incorporated
                  herein by this reference.

     3(c)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective June 9, 1987, which was filed as
                  Exhibit 3(d) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1988, is incorporated herein
                  by this reference.

     3(d)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective September 24, 1987, which was
                  filed as Exhibit 3(f) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1988, is
                  incorporated herein by this reference.

     3(e)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective July 17, 1986, which was filed
                  as Exhibit 3(e) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 1996, is incorporated
                  herein by this reference.

     3(f)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective December 23, 1991, which was
                  filed as Exhibit 3(f) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1996, is
                  incorporated herein by this reference.

     3(g)         Certificate of Amendment to Certificate of Incorporation
                  of the Company, effective September 3, 1998, which was
                  filed as Exhibit 4(g) to the Company's Registration
                  Statement on Form S-3 (Registration Statement No.
                  333-87402), filed May 1, 2002, is incorporated herein by
                  this reference.

     3(h)         Bylaws of the Company, as amended through November 18,
                  1982, which was filed as Exhibit 3(e) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  1993, is incorporated herein by this reference.

     3(i)         Amendment to Bylaws of the Company, effective July 2,
                  1984, which was filed as Exhibit 4(i) to the Company's
                  Registration Statement on Form S-3 (Registration Statement
                  No. 333-87402), filed May 1, 2002, is incorporated herein
                  by this reference.

     3(j)         Amendment to Bylaws of the Company, effective December 4,
                  1986, which was filed as Exhibit 4(j) to the Company's
                  Registration Statement on Form S-3 (Registration Statement
                  No. 333-87402), filed May 1, 2002, is incorporated herein
                  by this reference.

     3(k)         Amendment to Bylaws of the Company effective March 17,
                  1992, which was filed as Exhibit 4(k) to the Company's
                  Registration Statement on Form S-3 (Registration Statement
                  No. 333-87402), filed May 1, 2002, is incorporated herein
                  by this reference.

     3(l)         Amendment to Bylaws of the Company effective November 18,
                  1992, which was filed as Exhibit 4(l) to the Company's
                  Registration Statement on Form S-3 (Registration Statement
                  No. 333-87402), filed May 1, 2002, is incorporated herein
                  by this reference.

                                     97

<PAGE>
<PAGE>

     3(m)         Amendment to Bylaws of the Company, effective December 30,
                  1993, which was filed as Exhibit 3(h) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  1996, is incorporated herein by this reference.

     3(n)         Amendment to Bylaws of the Company, effective September
                  24, 2002, which was filed as Exhibit 4(n) to the Company's
                  Registration Statement on Form S-3 (Registration Statement
                  No. 333-106294), filed June 19, 2003, is incorporated
                  herein by this reference.

     4(a)         Certificate of Designation of Rights and Preferences of 7%
                  Cumulative Convertible preferred stock of the Company,
                  effective June 9, 1987, and related Certificate of
                  Correction, dated June 17, 1987, which was filed as
                  Exhibit 4(f) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1987, is incorporated herein
                  by this reference.

     4(b)         Loan Agreement dated June 18, 1997 between the Company and
                  its subsidiaries and LaSalle National Bank ("LaSalle"),
                  which was filed as Exhibit 4(i) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 1997, is
                  incorporated herein by this reference.

     4(c)         Revolving Note, dated June 18, 1997, by the Company and
                  its subsidiaries in favor of LaSalle, which was filed as
                  Exhibit 4(j) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1997, is incorporated herein
                  by this reference.

     4(d)         Term Note, dated June 24, 1997, by the Company and its
                  subsidiaries in favor of LaSalle, which was filed as
                  Exhibit 4(k) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1997, is incorporated herein
                  by this reference.

     4(e)         Reimbursement Agreement dated as of October 16, 1997,
                  between the Company and LaSalle, which was filed as
                  Exhibit 4(f) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1998, is incorporated herein
                  by this reference.

     4(f)         Deed of Trust and Security Agreement dated as of October
                  16, 1997, between the Company and LaSalle, which was filed
                  as Exhibit 4(g) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 1998, is incorporated
                  herein by this reference.

     4(g)         First Amendment, dated as of October 28, 1998, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(h) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  1999, is incorporated herein by this reference.

     4(h)         Second Amendment, dated as of March 11, 1999, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(i) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  1999, is incorporated herein by this reference.

     4(i)         Third Amendment, dated June 22, 1999, to Loan Agreement
                  between the Company and its subsidiaries and LaSalle,
                  which was filed as Exhibit 4(j) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 2000, is
                  incorporated herein by this reference.

                                     98

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<PAGE>

     4(j)         Fourth Amendment, dated December 17, 1999, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(k) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  2000, is incorporated herein by this reference.

     4(k)         Fifth Amendment, dated December 21, 2001, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(l) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  2002, is incorporated herein by this reference.

     4(l)         Sixth Amendment, dated December 20, 2002, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(m) to the Company's
                  Annual Report on Form 10-K for the year ended March 31,
                  2003, is incorporated herein by this reference.

     4(m)         Seventh Amendment, dated April 28, 2003, to Loan Agreement
                  between the Company and its subsidiaries and LaSalle,
                  which was filed as Exhibit 4(n) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     4(n)         Indenture dated as of May 16, 2003, by and between the
                  Company and Deutsche Bank Trust Company Americas, filed on
                  May 21, 2003, as Exhibit 4.1 to the Company's Current
                  Report on Form 8-K, is incorporated herein by this
                  reference.

     4(o)         Registration Rights Agreement dated as of May 16, 2003, by
                  and between the Company and Deutsche Bank Securities,
                  Inc., as representative of the several Purchasers, filed
                  on May 21, 2003 as Exhibit 4.2 to the Company's Current
                  Report on Form 8-K, is incorporated herein by this
                  reference.

     4(p)         Eighth Amendment, dated June 30, 2003, to loan Agreement
                  between the Company and its subsidiaries and LaSalle,
                  which was filed as Exhibit 4(q) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 2004, is
                  incorporated herein by this reference.

     4(q)         Ninth Amendment, dated December 19, 2003, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, which was filed as Exhibit 4(r) to the Company's
                  Annual Report on Form 10-K for the year ended March 31, 2004,
                  is incorporated herein by this reference.

     4(r)         Tenth Amendment, dated December 20, 2004, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, filed on January 18, 2005, as Exhibit 10.1 to the
                  Company's Current Report on Form 8-K, is incorporated
                  herein by this reference.

     4(s)         Amended and Restated Loan Agreement, dated December 31,
                  2004, among the Company and its subsidiaries, LaSalle
                  National Bank Association and Citibank, F.S.B., filed on
                  January 18, 2005, as Exhibit 10.2 to the Company's Current
                  Report on Form 8-K, is incorporated herein by this
                  reference.

     10(a)*       First Amendment to and Restatement of the KV
                  Pharmaceutical 1981 Employee Incentive Stock Option Plan,
                  dated March 9, 1987 (the "Restated 1981 Option Plan"),
                  which was filed as Exhibit 10(t) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 1988, is
                  incorporated herein by this reference.

     10(b)*       Second Amendment to the Restated 1981 Option Plan, dated
                  June 12, 1987, which was filed as Exhibit 10(u) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1988, is incorporated herein by this reference.

     10(c)*       Revised Form of Stock Option Agreement, effective June 12,
                  1987, for the Restated 1981 Option Plan, which was filed
                  as Exhibit 10(v) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 1988, is incorporated
                  herein by this reference.

                                     99

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<PAGE>

     10(d)*       Consulting Agreement between the Company and Victor M.
                  Hermelin, Chairman of the Board, dated October 30, 1978,
                  as amended October 30, 1982, and Employment Agreement
                  dated February 20, 1974, referred to therein (which was
                  filed as Exhibit 10(m) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1983) and
                  subsequent Amendments dated as of August 12, 1986, which
                  was filed as Exhibit 10(f) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1987, and dated
                  as of September 15, 1987 (which was filed as Exhibit 10(s)
                  to the Company's Annual Report on Form 10-K for the year
                  ended March 31, 1988), and dated October 25, 1988 (which
                  was filed as Exhibit 10(n) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1989), and dated
                  October 30, 1989 (which was filed as Exhibit 10(n) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1990), and dated October 30, 1990 (which was
                  filed as Exhibit 10(n) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1991), and dated as
                  of October 30, 1991 (which was filed as Exhibit 10(i) to
                  the Company's Annual Report on Form 10-K for the year
                  ended March 31, 1992), are incorporated herein by this
                  reference.

     10(e)*       Restated and Amended Employment Agreement between the
                  Company and Gerald R. Mitchell, Vice President, Finance,
                  dated as of March 31, 1994, is incorporated herein by this
                  reference.

     10(f)*       Employment Agreement between the Company and Raymond F.
                  Chiostri, Corporate Vice-President and
                  President-Pharmaceutical Division, which was filed as
                  Exhibit 10(l) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1992, is incorporated herein
                  by this reference.

     10(g)        Lease of the Company's facility at 2503 South Hanley Road,
                  St. Louis, Missouri, and amendment thereto, between the
                  Company as Lessee and Marc S. Hermelin as Lessor, which
                  was filed as Exhibit 10(n) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1983, is
                  incorporated herein by this reference.

     10(h)        Amendment to the Lease for the facility located at 2503
                  South Hanley Road, St. Louis, Missouri, between the
                  Company as Lessee and Marc S. Hermelin as Lessor, which
                  was filed as Exhibit 10(p) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1992, is
                  incorporated herein by this reference.

     10(i)*       KV Pharmaceutical Company Fourth Restated Profit Sharing
                  Plan and Trust Agreement dated September 18, 1990, which
                  was filed as Exhibit 4.1 to the Company's Registration
                  Statement on Form S-8 No. 33-36400, is incorporated herein
                  by this reference.

     10(j)*       First Amendment to the KV Pharmaceutical Company Fourth
                  Restated Profit Sharing Plan and Trust dated September 18,
                  1990, is incorporated herein by this reference.

     10(k)*       Employment Agreement between the Company and Marc S.
                  Hermelin, Vice-Chairman, dated November 15, 1993, which
                  was filed as Exhibit 10(u) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1994, is
                  incorporated herein by this reference.

                                     100

<PAGE>
<PAGE>

     10(l)*       Second Amendment dated as of June 1, 1995, to Employment
                  Agreement between the Company and Marc S. Hermelin, which
                  was filed as Exhibit 10(x) to the Company's Quarterly
                  Report on Form 10-Q for the quarter ended June 30, 1996,
                  is incorporated herein by this reference.

     10(m)*       Stock Option Agreement dated as of January 22, 1996,
                  granting stock options to MAC & Co., which was filed as
                  Exhibit 10(z) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1996, is incorporated herein
                  by this reference.

     10(n)*       Third Amendment dated as of November 22, 1995, to
                  Employment Agreement between the Company and Marc S.
                  Hermelin, which was filed as Exhibit 10(aa) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1996, is incorporated herein by this reference.

     10(o)*       Stock Option Agreement dated as of November 22, 1995,
                  granting a stock option to Victor M. Hermelin, which was
                  filed as Exhibit 10(bb) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1996, is
                  incorporated herein by this reference.

     10(p)*       Stock Option Agreement dated as of November 6, 1996,
                  granting a stock option to Alan G. Johnson, which was
                  filed as Exhibit 10(s) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(q)*       Fourth Amendment to and Restatement, dated as of January
                  2, 1997, of the KV Pharmaceutical Company 1991 Incentive
                  Stock Option Plan, which was filed as Exhibit 10(y) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1997, is incorporated herein by this reference.

     10(r)*       Agreement between the Company and Marc S. Hermelin, Vice
                  Chairman, dated December 16, 1996, with supplemental
                  letter attached, which was filed as Exhibit 10(z) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1997, is incorporated herein by this reference.

     10(s)        Amendment to Lease dated February 17, 1997, for the
                  facility located at 2503 South Hanley Road, St. Louis,
                  Missouri, between the Company as Lessee and Marc S.
                  Hermelin as Lessor, which was filed as Exhibit 10(aa) to
                  the Company's Annual Report on Form 10-K for the year
                  ended March 31, 1997, is incorporated herein by this
                  reference.

     10(t)*       Stock Option Agreement dated as of January 3, 1997,
                  granting a stock option to Marc S. Hermelin, which was
                  filed as Exhibit 10(bb) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 1999, is
                  incorporated herein by this reference.

     10(u)*       Stock Option Agreement dated as of May 15, 1997, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(cc) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 1999, is incorporated herein
                  by this reference.


                                     101

<PAGE>
<PAGE>

     10(v)*       Amendment, dated as of October 30, 1998, to Employment
                  Agreement between the Company and Marc S. Hermelin, which
                  was filed as Exhibit 10(ee) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 1999, is
                  incorporated herein by this reference.

     10(w)        Exclusive License Agreement, dated as of April 1, 1999
                  between Victor M. Hermelin as licenser and the Company as
                  licensee, which was filed as Exhibit 10(ff) to the
                  Company's Annual Report on Form 10-K for the year ended
                  March 31, 1999 is incorporated herein by this reference.

     10(x)*       Stock Option Agreement dated as of March 31, 1999,
                  granting a stock option to Victor M. Hermelin, which was
                  filed as Exhibit 10(aa) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2001, is
                  incorporated by this reference.

     10(y)*       Stock Option Agreement dated as of March 31, 1999,
                  granting a stock option to Norman D. Schellenger, which
                  was filed as Exhibit 10(cc) to the Company's Annual Report
                  on Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(z)*       Stock Option Agreement dated as of April 1, 1999, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(gg) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2000, is incorporated by this
                  reference.

     10(aa)*      Stock Option Agreement dated as of August 16, 1999,
                  granting a stock option to Marc S. Hermelin, which was
                  filed as Exhibit 10 (hh) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2000, is
                  incorporated by this reference.

     10(bb)*      Stock Option Agreement dated as of October 13, 1999,
                  granting a stock option to Alan G. Johnson, which was
                  filed as Exhibit 10(ff) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(cc)*      Stock Option Agreement dated as of October 13, 1999,
                  granting a stock option to Alan G. Johnson, which was
                  filed as Exhibit 10(gg) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(dd)*      Stock Option Agreement dated as of October 13, 1999,
                  granting a stock option to Alan G. Johnson, which was
                  filed as Exhibit 10(hh) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(ee)*      Stock Option Agreement dated as of October 13, 1999,
                  granting a stock option to Alan G. Johnson, which was
                  filed as Exhibit 10(ii) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(ff)*      Amendment, dated December 2, 1999, to Employment Agreement
                  between the Company and Marc S. Hermelin, Vice-Chairman,
                  which was filed as Exhibit 10(ii) to the Company's Annual
                  Report on Form 10-K for the year ended March 31, 2000, is
                  incorporated by this reference.

     10(gg)*      Employment Agreement between the Company and Alan G.
                  Johnson, Senior Vice-President, Strategic Planning and
                  Corporate Growth, dated September 27, 1999, which was
                  filed as Exhibit 10(jj) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2000, is
                  incorporated by this reference.

                                     102

<PAGE>
<PAGE>

     10(hh)*      Consulting Agreement, dated as of May 1, 1999, between the
                  Company and Victor M. Hermelin, Chairman, which was filed
                  as Exhibit 10(kk) to the Company's Annual Report on Form
                  10-K for the year ended March 31, 2000, is incorporated by
                  this reference.

     10(ii)*      Stock Option Agreement dated as of June 1, 2000, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(gg) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2001, is incorporated by this
                  reference.

     10(jj)*      Stock Option Agreement dated as of June 1, 2000, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(hh) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2001, is incorporated by this
                  reference.

     10(kk)*      Stock Option Agreement dated as of April 9, 2001, granting
                  a stock option to Kevin S. Carlie, which was filed as
                  Exhibit 10(ii) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2002, is incorporated herein
                  by this reference.

     10(ll)*      Stock Option Agreement dated as of April 9, 2001, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(jj) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2002, is incorporated herein
                  by this reference.

     10(mm)*      Stock Option Agreement dated as of April 9, 2001, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(kk) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2002, is incorporated herein
                  by this reference.

     10(nn)*      Stock Option Agreement dated as of July 26, 2002, granting
                  a stock option to Marc S. Hermelin, which was filed as
                  Exhibit 10(rr) to the Company's Annual Report on Form 10-K
                  for the year ended March 31, 2003, is incorporated herein
                  by this reference.

     10(oo)*      Stock Option Agreement dated as of October 21, 2002,
                  granting a stock option to John P. Isakson, which was
                  filed as Exhibit 10(ss) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(pp)       License Agreement by and between the Company and
                  FemmePharma, Inc., dated as of April 18, 2002, which was
                  filed as Exhibit 10(tt) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(qq)       Stock Purchase Agreement by and between the Company and
                  FemmePharma, Inc., dated as of April 18, 2002, which was
                  filed as Exhibit 10(uu) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(rr)       Product Acquisition Agreement by and between the Company
                  and Schwarz Pharma dated as of March 31, 2003, which was
                  filed as Exhibit 10(vv) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(ss)       Product Acquisition Agreement by and between the Company
                  and Altana Inc. dated as of March 31, 2003, which was
                  filed as Exhibit 10(ww) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

     10(tt)*      Stock Option Agreement dated as of October 21, 2002,
                  granting a stock option to John P. Isakson, which was
                  filed as Exhibit 10(xx) to the Company's Annual Report on
                  Form 10-K for the year ended March 31, 2003, is
                  incorporated herein by this reference.

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<PAGE>

     10 (uu)*     Stock Option Agreement dated as of May 30, 2003, granting a
                  stock option to Marc S. Hermelin, which was filed as Exhibit
                  10(yy) to the Company's Annual Report on Form 10-K for the
                  year ended March 31, 2004, is incorporated herein by this
                  reference.

     10(vv)*      Amendment, dated November 5, 2004, to Employment Agreement
                  between the Company and Marc S. Hermelin, Vice-Chairman,
                  which was filed as Exhibit 10(a) to the Company's
                  Quarterly Report on Form 10-Q for the quarter ended
                  September 30, 2004, is incorporated herein by this
                  reference.

     10(ww)       Agreement and Plan of Merger by and among K-V Pharmaceutical
                  Company, Kestrel-Falcon Acquisition Corporation, FP1096, Inc.,
                  and FemmePharma Holding Company, Inc., dated as of May 4,
                  2005, filed herewith.

     21           List of Subsidiaries, filed herewith.

     23.1         Consent of KPMG LLP, filed herewith.

     23.2         Consent of BDO Seidman, LLP, filed herewith.

     31.1         Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) or Rule 15d-14(a), as adopted pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002, is filed
                  herewith.

     31.2         Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) or Rule 15d-14(a), as adopted pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002, is filed
                  herewith.

     32.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the  Sarbanes-Oxley  Act of 2002,
                  filed herewith.

     32.2         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
                  filed herewith.

<FN>
*Management contract or compensation plan.

                                    104