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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, 2004
                        Commission file number 1-9601

                         K-V PHARMACEUTICAL COMPANY
                           2503 South Hanley Road
                          St. Louis, Missouri 63144
                               (314) 645-6600

  Delaware (State or other jurisdiction of incorporation or organization)
               I.R.S. Employer Identification No: 43-0618919


         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, 2003, the last
business day of the Registrant's most recently completed second fiscal
quarter, was $643,339,373 and $176,775,780, respectively. As of June 9,
2004, the registrant had outstanding 33,010,420 and 16,054,975 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 2004 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 forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Any statements about our
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking. These
statements are often, but not always, made through the use of words or
phrases such as "anticipate," "estimate," "commit," "plans," "projects,"
"continuing," "ongoing," "expects," "management believes," "we believe," "we
intend" and similar words or phrases. Accordingly, these statements involve
estimates, assumptions and uncertainties that could cause actual results to
differ materially from those expressed in them. Any forward-looking
statements are qualified in their entirety by reference to the factors
discussed throughout this Form 10-K.

Factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to, the following:
(1) the degree to which we are successful in developing new products and
commercializing products under development; (2) the degree to which we are
successful in acquiring new pharmaceutical products, drug delivery
technologies and/or companies that offer these properties; (3) the
difficulty of predicting FDA approvals; (4) acceptance and demand for new
pharmaceutical products; (5) the impact of competitive products and pricing;
(6) the availability of raw materials; (7) the regulatory environment; (8)
fluctuations in operating results; (9) the difficulty of predicting the
pattern of inventory movements by our customers; (10) the impact of
competitive response to our efforts to leverage our brand power with product
innovation, promotional programs, and new advertising; (11) the availability
of third-party reimbursement for our products; (12) our dependence on sales
to a limited number of large pharmacy chains and wholesale drug distributors
for a large portion of our total net sales; (13) risks that the company may
not ultimately prevail in its Paragraph IV litigation and that any period of
exclusivity may not in fact be realized; and (14) the risks detailed from
time to time in our filings with the Securities Exchange Commission and
detailed in this Form 10-K.

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

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

         Unless the context otherwise indicates, when we use the words "we,"
         "our," "us" or "our company" 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 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 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)      FISCAL 2004 HIGHLIGHTS
         ----------------------

         RESULTS OF OPERATIONS

         In fiscal 2004, we achieved a record level of earnings and our
         ninth consecutive year of record revenues. The 63.1% increase in
         our fiscal 2004 net income compared to fiscal 2003 resulted
         primarily from a 15.9% increase in revenues to $283.9 million
         coupled with the impact on fiscal 2003 net income of a $16.5
         million litigation reserve established by us for potential damages
         associated with a lawsuit that is currently under appeal. The
         revenue increase in fiscal 2004 was largely due to continued growth
         of our branded products segment.

         PRODUCT DEVELOPMENT

         We recognize 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 7.9% in fiscal 2004 and 78.6% in fiscal 2003 compared to
         the respective prior fiscal years, and which we expect will
         increase by 20%-30% in fiscal 2005 compared to fiscal 2004 and,
         reflects our continued commitment to develop new products and/or
         technologies through our internal development programs, and with
         our external strategic partners. In fiscal 2004, Ther-Rx expanded
         its product offerings with technology-improved versions of the oral
         hematinic products acquired at the end of fiscal 2003. Also, over
         the past two fiscal years, ETHEX has added over 30 new products to
         its development pipeline, including eight products that received
         Abbreviated New Drug Application (ANDA) approval from the Food and
         Drug Administration (FDA).

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         Additionally, the Company has on file a New Drug Application (NDA)
         with the FDA relating to a previously reported research and
         development plan reported in the Company's Form 8-K filed April,
         2002. The product under this application utilizes KV's proprietary
         drug delivery technology and is targeted for launch in the women's
         healthcare arena. We anticipate approval and introduction of this
         NDA product during the second half of fiscal 2005. This product
         would participate in a therapy now addressed by branded products
         with annual sales of approximately $130 million. At the end of
         fiscal 2004, we had a series of other product filings awaiting
         approval from the FDA, the first of which was an ANDA received in
         May 2004. Additional approvals are expected to occur over the
         remainder of the year. In addition to our internal product
         development efforts, we have licensed the exclusive rights to
         co-develop certain generic and branded products with other drug
         delivery companies. In fiscal 2004, we expanded our product
         development efforts with strategic partners as follows:

                o   In January 2004, following successful completion of
                    Phase II studies on the endometriosis product we are
                    developing with FemmePharma, Inc., we purchased an
                    additional $3.0 million of FemmePharma's convertible
                    preferred stock and made an additional $1.0 million
                    payment under a separate license agreement with
                    FemmePharma. As of March 31, 2004, we have invested a
                    total of $5.0 million in FemmePharma's convertible
                    preferred stock and paid $2.0 million under the license
                    agreement. The endometriosis product currently being
                    developed employs FemmePharma's patented PARDEL(TM)
                    technology. The license agreement also provides for our
                    exclusive right to use the PARDEL(TM) technology for
                    certain other anti-infective products.

                o   In January 2004, we entered into a long-term product
                    development and marketing license agreement with Glenmark
                    Pharmaceuticals Inc., USA, a wholly-owned subsidiary of
                    Glenmark Pharmaceuticals Ltd. of India.  Under the
                    agreement, Glenmark will initially develop and license
                    to us eight generic products for regulatory approval and
                    marketing in North American markets.  The licensed products
                    include both Paragraph 3 and Paragraph 4 ANDA filing
                    opportunities.  The agreement also provides for the
                    development and licensing of additional generic ANDA
                    products, as well as for certain branded specialty
                    products which may incorporate Glenmark's proprietary
                    platform controlled release technology. The first product
                    launch covered under the agreement is expected to occur
                    during the last half of calendar 2005.

                o   During fiscal 2004, we entered into four separate
                    licensing agreements that will expand the future
                    presence of Gynazole-1(R), our vaginal antifungal cream
                    product, to over 50 markets in Europe, Latin America,
                    the Middle East, Asia, Indonesia, the People's Republic
                    of China, Australia and New Zealand. We also received,
                    during fiscal 2004, our first regulatory approval to
                    market Gynazole-1(R) into an international market.

         FINANCING

         During May 2003, we completed the issuance of $200.0 million of
         Contingent Convertible Subordinated Notes (the "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 Notes bear interest at a rate of 2.50% per annum and mature on
         May 16, 2033. We may redeem some or all of the Notes at any time on
         or after May 21, 2006, and holders may require us to repurchase all
         or a portion of their Notes on May 1, 2008, and each fifth year
         thereafter. The net proceeds to us were approximately $194.2
         million, after deducting underwriting discounts, commissions and
         offering expenses. The proceeds from the offering were used to
         purchase $50.0 million of our Class A Common Stock, with the
         remaining proceeds to be used to support the expansion of our
         business, including the potential funding of future acquisitions of
         products, technologies and businesses, to enter into product
         licensing arrangements, to increase research and development
         activities and for general corporate purposes.


                                     4

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         In April 2003, we 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. 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% per annum for the term of
         the loan. The facility consists of approximately 275,000 square
         feet of office, production, distribution and warehouse space.

         CAPITAL EXPENDITURES

         In fiscal 2004, our capital expenditures increased 35.2% to $21.8
         million, which excludes the $8.8 million cost of the 275,000 square
         foot building we purchased in April 2003 with proceeds from a term
         loan. This increase in capital spending reflected the continued
         expansion of our research and manufacturing capabilities. In fiscal
         2005, we expect capital expenditures to increase by up to $50.0
         million over fiscal 2004 levels as we ramp up
         manufacturing/distribution, laboratory capabilities and other
         facilities needed for planned growth over the next five to seven
         years.

(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 18 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 Particle Dynamics, 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 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.

         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.

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         For example, since its inception in March 1999, our Ther-Rx
         business has successfully launched five internally developed
         branded pharmaceutical products, all of which incorporate our drug
         delivery technologies. In addition, during fiscal 2004, we
         introduced technology-improved versions of the Chromagen(R) and
         Niferex(R) oral hematinic products that we acquired at the end of
         last year. 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 March 31, 2004, we have grown net revenues
         and net income at compounded annual growth rates of 19.5% and
         26.3%, respectively. Ther-Rx, which was established in 1999, has
         grown substantially since its inception and continues to gain
         market share in its women's healthcare family of products. By
         focusing on the development and marketing of
         technology-distinguished, multisource drugs, over half of the more
         than 125 specialty generic/non-branded products sold by our ETHEX
         subsidiary are industry leaders in the multisource-brand market.

         THER-RX -- OUR BRAND NAME PHARMACEUTICAL BUSINESS

         We established Ther-Rx, currently our fastest growing business
         segment, in 1999 to market brand name pharmaceutical products which
         incorporate our proprietary technologies. Since its inception,
         Ther-Rx has introduced over 15 products into two principal
         therapeutic categories - women's health and oral hematinics - where
         physician specialists can be reached using a smaller and 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 $43.7 million in fiscal
         2003 to $82.9 million in fiscal 2004 and represented 29.2% of our
         fiscal 2004 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 four 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 B6. 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. The third product, PreCare(R) Conceive(TM), is the
         first single nutritional pre-conception supplement designed for use
         by both men and women. The fourth product, PrimaCare(TM), 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. 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 New Drug Application, or
         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 26.9% market
         share in the U.S. prescription vaginal antifungal cream market.

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         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 and New Zealand. We also received, during fiscal
         2004, our first regulatory approval to market Gynazole-1(R) into an
         international market.

         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.

         On March 31, 2003, we completed two acquisitions of an aggregate of
         nine pharmaceutical products for a total cost of approximately
         $41.3 million. The acquisitions included two leading lines of
         hematinic products, Chromagen(R) and Niferex(R), and the related
         line of StrongStart(R) branded prenatal vitamins, a category in
         which Ther-Rx was already a market leader under the PreCare(R)
         banner. These acquired brands generated $22.6 million of net sales
         during fiscal 2004. Similar to our strategy with other acquired
         products, we introduced technology-improved versions of the oral
         hematinic product line. Since their introduction at the end of the
         second quarter, the reformulated hematinic brands have generated a
         69% growth rate in new prescription volume.

         Based on the addition of new products and our expectation of
         continued growth in our branded business, Ther-Rx added over 60 new
         branded sales representatives during fiscal 2004 to increase our
         specialty sales force to approximately 210. 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 act as barriers to entry which limit competition and
         reduce the rate of price erosion typically experienced in the
         generic market. ETHEX's net revenues were $181.5 million for fiscal
         2004, which represented 63.9% 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 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 30 new generic/non-branded products and
         have a number of products currently in development to be marketed
         by ETHEX. Since January 1, 2002, we have received eight new
         Abbreviated New Drug Application, or ANDA, approvals and have
         approvals currently pending.

         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 will be generic
         equivalents to brand name products with aggregate annual sales
         totaling over $5 billion and are expected to be launched at various
         times beginning in fiscal 2005 and continuing through fiscal 2007.

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         By focusing our efforts on the development and marketing of
         technology-distinguished, multisource drugs, over half of the more
         than 125 specialty generic/non-branded products sold by our ETHEX
         subsidiary are industry leaders in the multisource-brand market.

         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 approximately 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 48.1% of
         ETHEX's net revenues in fiscal 2004.

         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 11.3% of ETHEX's net
         revenues in fiscal 2004.

         PAIN MANAGEMENT. ETHEX currently markets 20 products in its pain
         management line. Included in this line are several controlled
         substance drugs, such as morphine and hydromorphone and oxycodone
         capsules. The pain management line accounted for 18.1% of ETHEX's
         net revenues in fiscal 2004.

         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 11.3% of ETHEX's net revenues in fiscal 2004.

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

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         PARTICLE DYNAMICS - OUR VALUE-ADDED RAW MATERIAL BUSINESS

         Particle Dynamics 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. Particle Dynamics is also a
         significant supplier of value-added raw material for our Ther-Rx
         and ETHEX businesses. Net revenues for Particle Dynamics were $16.6
         million in fiscal 2004, which represented 5.8% of our total net
         revenues. Particle Dynamics 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.

         STRATEGIES

         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. Since the acquisition and reformulation of PreCare(R),
         we have successfully introduced four internally developed brand
         name products: PreCare(R) Chewables, PremesisRx(TM), PreCare(R)
         Conceive(TM) and PrimaCare(TM). These products incorporate our
         proprietary oral extended release and tastemasking technologies. 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. In fiscal 2004, we expanded our branded
         product offerings by launching technology improved versions of the
         Chromagen(R) and Niferex(R) oral hematinic product lines that were
         acquired at the end of fiscal 2003. 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.


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         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;

         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 added over 60 new branded sales representatives
         in fiscal 2004 to increase our specialty sales force to
         approximately 210. 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 intend to continue to introduce generic counterparts to drugs
         whose patents have expired. When patents no longer protect a
         branded product, opportunities exist for ETHEX to introduce generic
         counterparts to branded products. 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), the only
         one-dose vaginal antifungal prescription cream treatment for yeast
         infections, incorporating 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.


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         We plan to continue to develop our drug delivery technologies and
         have identified various technologies with substantial growth
         potential, such as Trans-Cell(TM), 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.

         OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES

         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 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.

         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 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.

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

         o    Trans-Cell(TM) 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. The Trans-EP(TM)
              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 ideal 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.

         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.

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         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.

         SALES AND MARKETING

         Ther-Rx has a national sales and marketing infrastructure which
         includes approximately 210 sales representatives dedicated to
         promoting and marketing our branded pharmaceutical products to
         targeted physician specialists. By targeting physician specialists,
         we believe we can compete successfully without the need to build a
         large sales force. We also have a national sales management team,
         as well as a sales team dedicated to managed care and trade
         accounts.

         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 four more line extensions to address unmet
         needs, including the launch of PreCare(R) Chewables, Premesis
         Rx(TM), PreCare(R) Conceive(TM) and PrimaCare(TM). 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 yeast infections. In fiscal 2004, we expanded
         our branded product offerings even further 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. 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 such 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.

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         During fiscal 2004, our three largest customers accounted for 25%,
         16% and 13% of gross revenues. These customers were McKesson Drug
         Company, Cardinal Health and Amerisource Corporation, respectively.
         In fiscal 2003 and 2002, these customers accounted for gross
         revenues of 23%, 14% and 18% and 20%, 19% and 13%, respectively.

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

         RESEARCH AND DEVELOPMENT

         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
         2004, 2003 and 2002, total research and development expenses were
         $20.7 million, $19.1 million and $10.7 million, respectively.

         Ther-Rx currently has a number of products in its research and
         development pipeline at various stages of development. The Company
         has on file with the FDA an NDA application related to its
         previously reported research and development plan reported in a
         Form 8-K filed April 2002 that we expect approvals of in late
         fiscal 2005. The product under this application utilizes KV's
         proprietary drug delivery technology and is targeted for launch in
         the women's healthcare arena. This product would participate in a
         therapy now addressed by branded products with annual sales of
         approximately $130 million. 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.

         ETHEX currently has more than 30 products in its research and
         development pipeline at various stages of development and
         exploration. 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.

         In addition to our internal product development and marketing
         efforts, we have licensed the exclusive rights to co-develop and
         market more than 15 products with other drug delivery companies.
         These products will be generic/non-branded equivalents to brand
         name products with aggregate annual sales totaling over $5 billion
         and are expected to be launched at various times beginning in
         fiscal 2005.

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         Particle Dynamics currently has a number of products in its
         research and development pipeline at various stages of development.
         Particle Dynamics 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.

         PATENTS AND OTHER PROPRIETARY RIGHTS

         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 2021 relating to our controlled
         release, site-specific, quick dissolve and tastemasking
         technologies. We have been granted 34 U.S. patents and have 17 U.S.
         patent applications pending. In addition, we have 32 foreign issued
         patents and a total of 71 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 50 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, 2004,
         aggregating approximately 1.1 million square feet, are located in
         the St. Louis, Missouri area. We own approximately 575,000 square
         feet, with the balance under various leases at pre-determined
         annual rates under agreements expiring from fiscal 2005 through
         fiscal 2013, subject in most cases to renewal at our option. In
         fiscal 2005, we expect capital expenditures to increase by up to
         $50.0 million over fiscal 2004 levels as we ramp up
         manufacturing/distribution, and laboratory capabilities and general
         administrative offices purchased during fiscal 2004, and other
         facilities needed for planned growth over the next five to seven
         years.

         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 comply with applicable regulatory requirements.

         We seek to maintain inventories at sufficient levels to support
         current production and sales levels. During fiscal 2004, we
         encountered no serious shortage of any particular raw materials and
         have no indication that significant shortages will occur in the
         foreseeable future.


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         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 other 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.

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         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 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. Analogous abbreviated
         application procedures apply to antibiotic drug products that are
         bio-equivalent to previously approved antibiotics. 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. 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 the subject of
         conflicting 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 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 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, 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 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 have
         complied with those deadlines.


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         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 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 Drug
         Enforcement Agency, 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. 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. It 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.

         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 regulation 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, 2004, we employed a total of 1,016 employees. We
         are party to a collective bargaining agreement covering 155
         employees that will expire December 31, 2004. We believe that our
         relations with our employees are good.

         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.


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         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 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 assurances 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.

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         WE MAY BE UNABLE TO MANAGE OUR GROWTH.

         Over the past nine 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 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, 2004, our three
         largest customers accounted for 25%, 16% and 13% 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.

         CHANGES TO FDA REGULATIONS AND GUIDELINES, AS WELL AS COURT
         DECISIONS AND POSSIBLE ENACTMENT OF FURTHER CHANGES IN THE
         UNDERLYING STATUTORY PROVISIONS MAY IMPAIR OUR ABILITY TO QUALIFY
         FOR OR UTILIZE FULLY THE 180-DAY GENERIC MARKETING EXCLUSIVITY
         PERIOD FOR PATENT CHALLENGES, SUBSTANTIALLY DIMINISHING THE VALUE
         OF A FAVORABLE RULING AND THE INCENTIVES FOR CHALLENGING LISTED
         PATENTS. 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 IT WILL RECEIVE FINAL FDA
         APPROVAL OF ITS 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.

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         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 August 1999, the FDA issued a notice of proposed rulemaking in
         which it proposed new regulations for implementing the 180-day
         generic market exclusivity provisions. Additionally, the FDA
         announced an interim modification to its generic drug exclusivity
         policies in a March 2000 Industry Guidance and in a July 13, 2000
         interim rule. On October 24, 2002, the FDA published an additional
         proposal to adopt regulations that would further alter the patent
         listing and certification procedures on which the opportunities for
         180-day generic exclusivity are based. On November 1, 2002, the FDA
         withdrew the August 1999 proposed rule, announcing that it would,
         instead, apply the 180-day exclusivity provisions based on the
         applicable statutory language as interpreted from time-to-time by
         the Courts in private litigation involving patent infringement
         claims or in litigation involving direct challenges to FDA's
         policies and interpretations of the law. On June 18, 2003, the FDA
         issued final regulations based on the October 24, 2002 proposal. We
         believe that these new regulations are likely to be challenged in
         Court, and cannot predict whether they will be upheld after such a
         challenge.

         Additionally, legislation has been introduced in Congress that
         would make similar and/or additional changes in the provisions of
         the Hatch-Waxman Amendments governing the listing of patents, the
         requirements for making certifications to patents and the
         circumstances in which a company may be awarded a 180-day marketing
         exclusivity period following a successful challenge to a listed
         patent. The language and scope of possible legislation on these
         issues is still being vigorously debated and it is impossible to
         predict whether, when or in what form any statutory changes may be
         enacted as a result. The range of proposals being debated include
         proposals that would severely limit or completely eliminate 180-day
         generic exclusivity.

         Some of these proposals, if enacted, could substantially change the
         incentives and the manner in which patents on drug products are
         enforced and challenged. Because our business involves both
         enforcement of our own patents and challenges to the patents of
         others, we are not in a position to predict whether any such
         proposals, if enacted, would ultimately have a positive or negative
         impact on our business. One or more of our product development or
         marketing plans could be adversely affected either by additional
         changes in the language or interpretation of the Hatch-Waxman
         provisions or by an extended period of uncertainty over whether and
         in what form such changes may be made.

         While it is our practice not to disclose patent challenges, as of
         March 31, 2004, we have the following patent challenges
         pending which were publicly reported by the branded companies:

         We filed an ANDA with the FDA seeking permission to market a
         generic version of Levoxyl(R) (levothyroxine sodium) marketed by
         King Pharmaceutical. We issued a notice to King on its Paragraph IV
         certification, which alleges noninfringement of their patent and
         seek FDA approval to market generic versions of all dosages of
         Levoxyl(R) before expiration of the patents for the product. King
         filed suit against us August, 2003 in the District of Delaware.
         Pursuant to the Hatch-Waxman Act, the filing of the suit against us
         institutes an automatic stay of FDA approval of our ANDA until the
         earlier of a judgment, or 30 months from the date of the suit. The
         trial is currently scheduled to begin in December, 2004.

         We also filed an ANDA with the FDA seeking permission to market a
         generic version of the 100mg and 200mg strengths of Toprol(R) XL
         (metoprolol succinate) in extended release capsule form, marketed
         by AstraZeneca LP. We issued a notice to AstraZeneca on its
         Paragraph IV certification, which alleges noninfringement of their
         patents and seek FDA approval to market generic versions of the
         100mg and 200mg strengths of Toprol(R) XL before expiration of the
         patents for the products. AstraZeneca initially filed two suits
         against us in May and August 2003, which subsequently were combined
         in the Eastern District of Missouri.

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         Pursuant to the Hatch-Waxman Act, the filing date of the suit
         against us institutes an automatic stay of the FDA approval of the
         Company's ANDA until the earlier of a judgment, or 30 months from
         the date of the suit. The trial is currently scheduled to begin in
         April 2005.

         KV believes approval of its ANDA's with Paragraph IV submissions
         would represent a significant revenue opportunity for us, and as
         such intends to continue to vigorously defend its position on each
         of these filings. Should the Company be successful in these cases,
         it could have a materially positive effect on the future revenues
         of the Company.

         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 low-volume pharmaceutical
         products that contained phenylpropanolamine, or PPA, and that were
         discontinued in 2000 and 2001. We are presently named as 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 on December 23, 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 United States
         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
         now been segregated into a lawsuit brought by Johnny Fulcher
         individually and on behalf of the wrongful death beneficiaries of
         Linda Fulcher, deceased, against KV. 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. Discovery only recently has
         begun and we believe that we may have substantial defenses to these
         claims, though the ultimate outcome of this case and the potential
         effect cannot be determined.

         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 have provided for
         legal defense costs and indemnity payments involving PPA claims on
         a going forward basis, including the Mississippi lawsuit that was
         served 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
         any claims that may be raised in the current and future litigation.

         BECAUSE WE ARE INVOLVED IN CERTAIN LEGAL PROCEEDINGS WE MAY BE
         REQUIRED TO PAY DAMAGES THAT MAY IMPAIR OUR PROFITABILITY AND
         REDUCE OUR LIQUIDITY.

         ETHEX is a defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, filed in federal court in San Antonio, Texas. In
         general, the plaintiffs allege that ETHEX's comparative promotion
         of its Ethezyme(TM) to Healthpoint's Accuzyme(R) product resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair competition and
         misappropriation of trade secrets. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair competition and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16.5 million.


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         On October 1, 2002, the U.S. District Court for the Western
         District of Texas denied ETHEX's motion to set aside the jury's
         verdict. On December 17, 2002, the court entered a judgment
         awarding attorneys' fees to Healthpoint in an amount to be
         subsequently determined.

         We believe that the jury award is excessive and is not sufficiently
         supported by the facts or the law. We are vigorously prosecuting an
         appeal. We and our counsel believe that there are meritorious
         arguments to be raised during the appeal process; however, we
         cannot give any assurance that we will prevail on appeal. As a
         result of the court's earlier decisions, our results of operations
         for the quarter ended September 30, 2002 included a provision for
         potential damages of $16.5 million, which was reflected in accrued
         liabilities on our consolidated balance sheet as of March 31, 2004.
         As discussed above, Healthpoint also requested reimbursement for
         approximately $1.8 million in attorneys' fees in addition to the
         judgment. In September 2003, the court entered an order specifying
         the amount of attorneys' fees to be awarded. As a result of this
         decision, we recorded, during the quarter ended September 30, 2003,
         an additional provision of $1.8 million, which was reflected in
         accrued liabilities on our consolidated balance sheet as of March
         31, 2004.

         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.

                                     25

<PAGE>
<PAGE>

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

         Many government and third-party payors, including Medicare,
         Medicaid, HMOs and 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.

         On September 25, 2003, the Commonwealth of Massachusetts filed an
         action styled Commonwealth of Massachusetts v. Mylan Laboratories,
         Inc. et al, in federal court in Massachusetts against ETHEX and 12
         other manufacturers of generic pharmaceutical products. The
         Complaint alleges, among other things, that the defendants reported
         inflated pricing information for their drugs to data reporting
         services, and that Massachusetts relied on this pricing data in
         setting reimbursement rates under the Medicaid program. The
         Complaint also alleges that Massachusetts received rebates from the
         defendants under the Medicaid Drug Rebate Program that were
         materially less than that to which Massachusetts was entitled.
         Massachusetts seeks to recover from the defendants the amount that
         it believes it overpaid and the amount it is owed in rebates, based
         on claims under Massachusetts and federal law. The case is in its
         early stages, and fact discovery has not yet begun. ETHEX is
         vigorously defending the litigation. This action, if successful,
         could adversely affect us and may have a material adverse effect on
         our business, results of operations, financial condition and cash
         flows.

         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 year 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.

         THE IMPACT OF NEW ACCOUNTING PRINCIPLES COULD HAVE A MATERIAL
         ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

         We account for stock options granted to employees under Accounting
         Principles Board Opinion No. 25, Accounting for Stock Issued to
         Employees. Under this standard, no compensation cost is recorded
         for stock options granted to employees at fair market value on the
         date of grant. The Financial Accounting Standards Board has issued
         an exposure draft of a new accounting standard for stock options
         that would require the cost of stock options granted to employees
         to be expensed. This and other new accounting principles adopted in
         the future may have a material adverse effect on our results of
         operations.

                                     26

<PAGE>
<PAGE>

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

         As a result of our issuance of 2.5% Contingent Convertible
         Subordinated Notes (the "Notes") in May 2003, our indebtedness
         increased by $200.0 million. 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;

         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.

                                     27

<PAGE>
<PAGE>

                        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 health maintenance
         organizations (HMOs) and managed care organizations (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, 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.


                                     28

<PAGE>
<PAGE>

         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 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 have 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 also must be
         registered with the Drug Enforcement Administration, or DEA, and
         similar 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. We are currently in
         material compliance with cGMP and are registered with the
         appropriate agencies. Non-compliance with applicable cGMP
         requirements or the 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 other 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 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.

                                     29

<PAGE>
<PAGE>

         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 a larger, more established sales
         force 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. Currently,
         ETHEX is a defendant in ongoing litigation with Healthpoint,
         regarding allegations of unfair competition and misleading
         marketing. A jury ruled in favor of Healthpoint and the trial court
         refused to set it aside. As a result, we made an appropriate
         provision for liability in our financial statements. We are
         vigorously prosecuting an appeal of the trial court's decision.
         Competitors' objections also may be pursued in complaints before
         governmental agencies or courts.


                                     30

<PAGE>
<PAGE>

         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, 2004, our directors and executive officers
         beneficially own approximately 15% of our Class A Common Stock and
         approximately 50% of our Class B Common Stock. As a result, these
         persons control approximately 47% 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
         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.


                                     31

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<PAGE>

         OUR REPORTED EARNINGS PER SHARE MAY BE MORE VOLATILE BECAUSE OF THE
         CONTINGENT CONVERSION PROVISION OF THE NOTES ISSUED IN MAY 2003.

         Holders of the Notes issued in May 2003 may convert the Notes into
         our Class A Common Stock during any quarter, if the closing sale
         price of our Class A Common Stock for at least 20 trading days in
         the period of 30 consecutive trading days ending on the last
         trading day of the quarter preceding the quarter in which the
         conversion occurs is more than $27.61 per share (120% of the
         conversion price per share of our Class A Common Stock) on that
         30th trading day. Until this contingency is met, the shares
         underlying the Notes are not included in the calculation of basic
         or fully diluted earnings per share. Should this contingency be
         met, reported earnings per share would be expected to decrease as a
         result of the inclusion of the underlying shares in the earnings
         per share calculation. An increase in volatility in our stock price
         could cause this condition to be met in one quarter and not in a
         subsequent quarter, increasing the volatility of reported fully
         diluted earnings per share.

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

         As of March 31, 2004, an aggregate of 2,415,818 shares of our Class
         A Common Stock and 360,990 shares of our Class B Common Stock were
         issuable upon exercise of outstanding stock options under our stock
         option plans, and an additional 1,279,862 shares of our Class A
         Common Stock and 1,249,000 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, 2004, 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.

                                     32

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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 following 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.                        11/30/04         None
                     15,000    KV/Ther-Rx Office                       02/28/05         6 Months(3)
                     23,000    KV Office/R&D/Mfg.                      12/31/06         5 Years(1)
                    122,350    KV Office/Whse./Lab                     Owned            N/A
                     90,000    KV Mfg. Oper.                           Owned            N/A
                     87,020    Under renovation(4)                     Owned            N/A
                    275,505    Under renovation(5)                     Owned            N/A
                    260,160    ETHEX/Ther-Rx/PDI Distribution          04/30/12         5 Years(1)
                     40,000    KV Warehouse                            11/30/05         1 Year(2)
                    128,960    ETHEX/PDI Office/Whse.                  05/31/11         5 Years(1)

<FN>
         ----------------------------------------
         (1) Two five-year options.
         (2) Two one-year options.
         (3) Two six-month options.
         (4) This facility is currently being renovated to provide an
             additional research lab facility.
         (5) 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. See "Management's Discussion and Analysis of Results
             of Operations, Liquidity and Capital Resources-Liquidity and
             Capital Resources."
</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
         -----------------

         ETHEX is a defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, filed in federal court in San Antonio, Texas. In
         general, the plaintiffs allege that ETHEX's comparative promotion
         of its Ethezyme(TM) to Healthpoint's Accuzyme(R) product resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair competition and
         misappropriation of trade secrets. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair competition and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16.5 million. On
         October 1, 2002, the U.S. District Court for the Western District
         of Texas denied ETHEX's motion to set aside the jury's verdict. On
         December 17, 2002, the court entered a judgment awarding attorneys'
         fees to Healthpoint in an amount to be subsequently determined.

                                     33

<PAGE>
<PAGE>

         We believe that the jury award and judgment is excessive and is not
         sufficiently supported by the facts or the law. We are vigorously
         prosecuting an appeal. We and our counsel believe that there are
         meritorious arguments to be raised during the appeal process;
         however, we cannot give any assurance that we will prevail on
         appeal. As a result of the court's earlier decisions, our results
         of operations for the quarter ended September 30, 2002 included a
         provision for potential damages of $16.5 million, which was
         reflected in accrued liabilities on our consolidated balance sheet
         as of March 31, 2004. As discussed above, Healthpoint also
         requested reimbursement for approximately $1.8 million in
         attorneys' fees in addition to the judgment. In September 2003, the
         court entered an order specifying the amount of attorneys' fees to
         be awarded. As a result of this decision, we recorded, during the
         quarter ended September 30, 2003, an additional provision of $1.8
         million, which was reflected in accrued liabilities on our
         consolidated balance sheet as of March 31, 2004.

         The Company and ETHEX are 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
         general, the plantiffs allege that ETHEX's comparative promotion of
         its Ethezyme(TM) 830 to Healthpoint's Accuzyme(R) product resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair competition and
         misappropriation of trade secrets. The case has been inactive for
         several years. Discovery has resumed and the case is expected to
         proceed to trial in August, 2004. The Company believes it has
         meritorious defenses and will vigorously defend the case; however,
         it cannot give any assurance that it will prevail.

         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 court
         in Minnesota. It is alleged that the Company and ETHEX infringe 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 paintiff's motion for a preliminary injunction,
         which allows ETHEX to continue marketing the product during the
         pendancy of the subject lawsuit and calls into question CIMA's and
         Schwarz's ability to prevail in the lawsuit. Discovery is active.
         The Company believes it has meritorious defenses and will
         vigorously defend the case; however, it cannot give any assurance
         that 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 court in Minnesota. In
         general, Solvay alleges that ETHEX's comparative promotion of its
         Pangestyme CN 10 and Pangestyme CN 20 products to Solvay's Creon 10
         and Creon 20 products resulted in false advertising and misleading
         statements under various federal and state laws, and constituted
         unfair and deceptive trade practices. Discovery has recently become
         active. The Company believes it has meritorious defenses and will
         vigorously defend the case; however, it cannot give any assurance
         that it will prevail.

         We previously distributed several low-volume pharmaceutical
         products that contained phenylpropanolamine, or PPA, and that were
         discontinued in 2000 and 2001. We are presently named as 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 on December 23, 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 United States
         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
         now been segregated into a lawsuit brought by Johnny Fulcher
         individually and on behalf of the wrongful death beneficiaries of
         Linda Fulcher, deceased, against KV. 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. Discovery only recently has
         begun and we believe that we may have substantial defenses to these
         claims, though the ultimate outcome of this case and the potential
         effect cannot be determined.

         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 have provided for
         legal defense costs and indemnity payments involving PPA claims on
         a going forward basis, including the Mississippi lawsuit that was
         served 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
         any claims that may be raised in the current and future litigation.

         On September 25, 2003, the Commonwealth of Massachusetts filed an
         action styled Commonwealth of Massachusetts v. Mylan Laboratories,
         Inc. et al in federal court in Massachusetts, against ETHEX and 12
         other manufacturers of generic pharmaceutical products. The
         Complaint alleges, among other things, that the defendants reported
         inflated pricing information for their drugs to data reporting
         services, and that Massachusetts relied on this pricing data in
         setting reimbursement rates under the Medicaid program. The
         Complaint also alleges that Massachusetts received rebates from the
         defendants under the Medicaid Drug Rebate Program that were
         materially less than that to which Massachusetts was entitled.
         Massachusetts seeks to recover from the defendants the amount that
         it believes it overpaid and the amount it is owed in rebates, based
         on claims under Massachusetts and federal law. The case is in its
         early stages, and fact discovery has not yet begun. ETHEX is
         vigorously defending the litigation.


                                     34

<PAGE>
<PAGE>

         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 we propose to market and for
         which we have filed Abbreviated New Drug Applications and provided
         notice of certification required under the provisions of the
         Hatch-Waxman Act (see "Risks Related to Our Business").

         While it is not feasible to predict the ultimate outcome of such
         other proceedings, we believe that the ultimate outcome of such
         other proceedings will not have a material adverse effect on our
         results of operations or financial position.

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, 2004.

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>
Victor M. Hermelin(1)   90      Chairman of the Board of the Company since 1972;
                                Treasurer of the Company from 1971 to 2000;
                                Director and Vice President of Particle Dynamics,
                                Inc since 1974.

Marc S. Hermelin        62      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.

Alan G. Johnson         69      Director, Senior Vice President-Strategic
                                Planning and Corporate Growth since September 27,
                                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, Treasurer and Chief Financial
                                Officer since 1981.

<CAPTION>
     The term of office for each executive officer of the Company expires at
     the next annual meeting of the Board of Directors or at such time as
     his successor has been elected and qualified.

<FN>
-------------------------------
(1) Victor M. Hermelin is the father of Marc S. Hermelin.
</TABLE>

                                     35

<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, 2004 was 774 and 410, respectively (not separately
         counting shareholders whose shares are held in "nominee" or "street"
         names, which are estimated to represent approximately 5,000 of
         Class A and of Class B additional 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 2004 and 2003, as
         reported on the New York Stock Exchange and considering the 3 for 2
         stock split declared on September 8, 2003 were as follows:

<TABLE>
<CAPTION>
                                                           CLASS A COMMON STOCK
                                                           --------------------

                                            FISCAL 2004                            FISCAL 2003
                                            -----------                            -----------
         QUARTER                      HIGH               LOW                 HIGH                LOW
         -------                      ----------------------                 -----------------------

         <S>                         <C>               <C>                  <C>                <C>
         First...................... $20.29            $12.61               $21.30             $16.75
         Second.....................  23.49             17.91                16.00              11.19
         Third......................  27.67             22.22                15.77              10.00
         Fourth.....................  27.51             22.10                16.00              10.95

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

                                            FISCAL 2004                            FISCAL 2003
                                            -----------                            -----------
         QUARTER                      HIGH               LOW                 HIGH                LOW
         -------                      ----------------------                 -----------------------

         <S>                         <C>               <C>                  <C>                <C>
         First...................... $20.39            $12.63               $22.00             $17.50
         Second.....................  23.53             18.09                16.17              11.20
         Third......................  27.77             22.31                15.93              10.21
         Fourth.....................  29.40             22.60                16.26              11.19
</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
         2004 and 2003 on 40,000 shares of Cumulative Convertible Preferred
         Stock. There were no undeclared and unaccrued cumulative preferred
         dividends at March 31, 2004.


                                     36

<PAGE>
<PAGE>

         The $366,000, or $9.14 per share, of undeclared and unaccrued
         cumulative preferred dividends at March 31, 2003 were paid on May
         12, 2003. Also, under the terms of our credit agreement, we may not
         pay cash dividends in excess of 25% of the prior 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.

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

<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                          --------------------------------------------------------------------
                                            2004          2003           2002           2001            2000
                                            ----          ----           ----           ----            ----
BALANCE SHEET DATA:

<S>                                       <C>            <C>            <C>             <C>           <C>
Total assets                              $528,438       $352,668       $195,192        $151,417      $140,385
Long-term debt                             210,741         10,106          4,387           5,080        16,779
Shareholders' equity                       257,749        260,616        158,792         125,942        97,799


INCOME STATEMENT DATA:

<CAPTION>
                                                                 YEARS ENDED MARCH 31,
                                          --------------------------------------------------------------------
                                            2004          2003           2002           2001            2000
                                            ----          ----           ----           ----            ----

<S>                                       <C>            <C>            <C>             <C>           <C>
Revenues                                  $283,941       $244,996       $204,105        $177,767      $142,734
   % Increase                                15.9%          20.0%          14.8%           24.5%         26.5%
Operating income(a)(b)                    $ 73,771       $ 42,929       $ 49,294        $ 37,972      $ 34,192
Net income(a)(b)(c)                         45,848         28,110         31,464          23,625        24,308
Net income
   per common
   share-diluted(d)                       $   0.90       $   0.55       $   0.65        $   0.49      $   0.53
Preferred stock dividends                 $    436       $     70       $     70        $    420      $    420

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

(a) Operating income in fiscal 2004 included a $3.5 million net payment
    received by us in accordance with a legal settlement (see Note 11
    in the accompanying Notes to Consolidated Financial Statements) and
    an additional reserve of $1.8 million for attorney's fees
    associated with a lawsuit (see Note 10 in the accompanying Notes to
    Consolidated Financial Statements). The impact of these items, net
    of applicable income taxes, was to increase net income by $1.1
    million and diluted earnings per share by $.02 in fiscal 2004.

(b) Operating income in fiscal 2003 included a reserve of $16.5 million
    for potential damages associated with a lawsuit (see Note 10 in the
    accompanying Notes to Consolidated Financial Statements). 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.

(c) Net income in fiscal 2000 included a gain associated with a $7.0
    million arbitration award. The award, net of applicable income
    taxes and expenses, was $3.9 million.

(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.
</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 caption
         "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 were incorporated in 1971 and have
         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, we have grown
         into a fully integrated specialty pharmaceutical company. We also
         develop, manufacture and market technologically advanced,
         value-added raw material products for the pharmaceutical,
         nutritional, food and personal care industries.

         CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our consolidated financial statements are presented on the basis of
         accounting principles that are generally accepted in the United
         States. 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, our management
         makes estimates and judgments that affect the reported amounts of
         assets, liabilities, revenues and expenses and related disclosures.
         We base our estimates and judgments on our historical experience,
         the terms of existing contracts, our observance of trends in the
         industry, information that we obtain from our customers and outside
         sources, and on various other assumptions that we believe 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 these
         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 policies are
         described below.

         REVENUE AND PROVISION FOR SALES RETURNS AND ALLOWANCES. When we
         sell our products, we reduce the amount of revenue we recognize
         from such sale 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
         product 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.


                                     38

<PAGE>
<PAGE>

         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.

         ALLOWANCE FOR INVENTORIES. 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 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 intangible assets 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.

                                     39

<PAGE>
<PAGE>

         RESULTS OF OPERATIONS

         FISCAL 2004 COMPARED TO FISCAL 2003

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>         <C>
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%
</TABLE>

         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. Since we introduced
         technology-improved versions of the hematinic products in the
         second quarter of fiscal 2004, these products have generated a 69%
         growth rate 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.


                                     40

<PAGE>
<PAGE>

         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. We anticipate these approvals will occur in fiscal
         2005 and, as a result, we expect specialty generic sales growth to
         return to higher levels in fiscal 2005. The first of these
         approvals was received in May 2004 for two strengths of Morphine
         Sulphate extended release tablets which are the generic equivalent
         to MS Contin(R).

         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.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>         <C>
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%
</TABLE>

         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 cost variances
         associated with lower production volume.


                                     41

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>           <C>
Research and development                        $20,651        $19,135           $1,516        7.9%
 as % of net revenues                               7.3%           7.8%
</TABLE>

         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. In fiscal 2005, we expect
         research and development costs to increase by approximately 20-30%
         over fiscal 2004 levels.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>           <C>
Selling and administrative                       $88,333       $69,584           $18,749       26.9%
   as % of net revenues                             31.1%         28.4%
</TABLE>

         The increase in selling and administrative expense was primarily
         due 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 (see Note 10 in the
         accompanying Notes to Consolidated Financial Statements), Paragraph
         IV litigation and other matters.

         We anticipate that selling and administrative expenses could
         increase as much as 30% to 40% for fiscal 2005 reflecting a full
         year of our most recent sales force expansion to more than 200
         sales representatives, continued expected increases in litigation
         expenses associated with ANDA patent challenges, and the expected
         approval and launch of a new women's healthcare branded product
         planned for the second half of fiscal 2005. To the extent the
         approval of this product by the FDA is delayed, anticipated expense
         spending levels would be diminished.


                                     42

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                               <C>           <C>               <C>          <C>
Amortization of intangible assets                 $4,459        $2,321            $2,138       92.1%
 as % of net revenues                                1.6%          0.9%
</TABLE>

         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
         ----------

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                --------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------         --------     -------

<S>                                              <C>           <C>              <C>         <C>
Litigation                                       $(1,700)      $16,500          $(18,200)   (110.3)%
</TABLE>

         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
         (see Note 10 in the accompanying Notes to Consolidated Financial
         Statements). 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
         ----------------

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                               <C>           <C>              <C>           <C>
Operating income                                  $73,771       $42,929          $30,842       71.8%
</TABLE>

         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 expenses of a $16.5 million litigation
         reserve established by us for potential damages associated with a
         lawsuit that is currently under appeal.

                                     43

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ----------------------------------------------------
                                                                                       CHANGE
                                                                                 --------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     --------

<S>                                               <C>            <C>              <C>        <C>
Interest expense                                  $5,865         $325             $5,540     1,704.6%
</TABLE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                               <C>            <C>              <C>         <C>
Interest and other income                         $2,092         $977             $1,115      114.1%
</TABLE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>            <C>               <C>         <C>
Provision for income taxes                        $24,150       $15,471           $8,679      56.1%
   effective tax rate                                34.5%         35.5%
</TABLE>

         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.

                                     44

<PAGE>
<PAGE>

         NET INCOME
         ----------

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2004          2003               $           %
                                                 --------      --------          --------    -------

<S>                                              <C>            <C>               <C>         <C>
Net income                                        $45,848       $28,110           $17,738     63.1%
    Diluted earnings per share                       0.90          0.55              0.35     63.6%
</TABLE>

         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 for potential damages associated with a
         lawsuit that is currently under appeal.

         FISCAL 2003 COMPARED TO FISCAL 2002

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                       CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>         <C>
Branded products                                 $ 43,677      $ 40,424          $ 3,253       8.0%
 as % of net revenues                                17.8%         19.8%
Specialty generics                                179,724       141,007           38,717      27.5%
 as % of net revenues                                73.4%         69.1%
Specialty materials                                17,395        19,557           (2,162)    (11.1)%
 as % of net revenues                                 7.1%          9.6%
Other                                               4,200         3,117            1,083      34.7%
                                                 ========      ========          =======
   Total net revenues                            $244,996      $204,105          $40,891      20.0%
</TABLE>

         The increase in branded product sales was due to continued growth
         of our women's healthcare family of products. Sales from this
         product group increased $5.6 million, or 20.1%, in fiscal 2003.
         Gynazole-1(R), our vaginal antifungal product, continued its market
         penetration as its market share increased to 18% at the end of
         fiscal 2003, compared to 13% at the end of the prior fiscal year.
         Due to its continued growth in market share, sales of Gynazole-1(R)
         increased $4.4 million, or 53.4% during the year. Also included in
         the women's healthcare family of products is the PreCare(R) product
         line which contributed $1.2 million of incremental sales in fiscal
         2003. This increase was primarily attributable to increased sales
         volume associated with PrimaCare(R), a prescription
         prenatal/postnatal multivitamin and mineral supplement with
         essential fatty acids, which has continued to show growth in market
         share since its introduction in the fourth quarter of fiscal 2002.
         Further, the PreCare(R) family of products is currently the leading
         branded line of prescription prenatal nutritional supplements in
         the United States. Increased sales from the women's healthcare
         family of products was partially offset by a $2.3 million, or
         18.4%, decline in sales from the branded products cardiovascular
         product line. The decrease in cardiovascular sales was due to the
         impact of customer buying during the fourth quarter of the prior
         fiscal year in anticipation of a year-end price increase coupled
         with increased substitution of our generic equivalent products.

         The increase in sales for specialty generics resulted primarily
         from higher sales volume in the cardiovascular, pain management and
         cough/cold product lines, coupled with continued expansion of our
         other product lines,


                                     45

<PAGE>
<PAGE>

         including gastrointestinal and anti-anxiety. Increased sales from
         these product lines were partially offset by a reduction in sales
         in our prenatal vitamin product line. The cardiovascular product
         line, which comprised 45.9% of specialty generic sales in fiscal
         2003, contributed $11.2 million of increased sales from existing
         products and $5.3 million of incremental sales volume from the
         April 2002 ANDA approval and subsequent launch of Potassium
         Chloride 20 mg. tablets (generic equivalent to K-Dur(R)). Sales
         volume for the pain management product line increased $11.6 million
         due to market share gains coupled with the impact of a full year of
         sales of two products introduced in the prior year. The remaining
         $12.9 million of increased sales volume resulted primarily from new
         product introductions in the cough/cold, gastrointestinal and
         anti-anxiety product lines coupled with a full year of sales on
         products introduced in the prior year. We introduced 16 and 14 new
         specialty generic/non-branded products in fiscal 2003 and 2002,
         respectively. The $0.9 million decline in sales volume for the
         prenatal product line was primarily attributable to a reduction in
         the corresponding brand equivalent market. This market decline was
         due, in part, to the introduction of Primacare(R) by our branded
         products segment in the fourth quarter of fiscal 2002. The
         increased sales volume experienced by specialty generics during
         fiscal 2003 was partially offset by $1.4 million of product price
         erosion that resulted primarily from normal and expected pricing
         pressures in the pain management and cough/cold product lines.

         The decrease in specialty material product sales was primarily due
         to an unexpected softness in the nutritional supplement market for
         which the specialty materials segment is a supplier.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>         <C>
Branded products                                 $ 38,460      $ 34,643          $  3,817       11.0%
 as % of net revenues                                88.1%         85.7%
Specialty generics                                106,854        80,733            26,121       32.4%
 as % of net revenues                                59.5%         57.3%
Specialty materials                                 5,720         6,931            (1,211)     (17.5)%
 as % of net revenues                                32.9%         35.4%
Other                                                (565)        1,395            (1,960)    (140.5)%
                                                 ========      ========          ========
   Total gross profit                            $150,469      $123,702          $ 26,767       21.6%
    as % of total net revenues                       61.4%         60.6%
</TABLE>

         The increase in gross profit was attributable to the sales growth
         experienced by the branded products and specialty generics
         segments, offset partially by a sales decline in the specialty
         materials segment. The higher gross profit percentage was favorably
         impacted by price increases of branded products that took effect at
         the beginning of fiscal 2003 and higher margins realized on new
         specialty generic products introduced during the current and prior
         fiscal years. The gross profit percentage increases experienced by
         the branded products and specialty generics segments were partially
         offset by a decline in the gross profit percentage at the specialty
         raw materials segment. This decline resulted from unfavorable cost
         variances associated with lower production.

                                     46

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>          <C>
Research and development                         $19,135       $10,712           $8,423       78.6%
 as % of net revenues                                7.8%          5.2%
</TABLE>

         The increase in research and development expense was primarily due
         to higher costs associated with the expansion of clinical testing
         connected to our internal product development efforts and higher
         personnel expenses related to the growth of our research and
         development staff.

                                     47

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>          <C>
Selling and administrative                       $69,584       $61,343           $8,241       13.4%
 as % of net revenues                               28.4%         30.1%
</TABLE>

         The increase in selling and administrative expense resulted
         primarily from an increase in specialty generic/non-branded
         marketing and promotional expenses, an increase in personnel costs
         associated with corporate administration and branded products
         marketing and higher insurance costs. These increases were
         partially offset by a reduction in legal expenses which resulted
         from insurance reimbursements of defense costs in the Healthpoint
         litigation.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                               <C>           <C>               <C>         <C>
Amortization of intangible assets                 $2,321        $2,353            $(32)       (1.4)%
</TABLE>

         The decrease in amortization of intangible assets was due primarily
         to the implementation of SFAS No. 142, Goodwill and Other
         Intangible Assets, which discontinued the amortization of goodwill
         effective April 1, 2002 (see Note 2 in the accompanying Notes to
         Consolidated Financial Statements).

         LITIGATION
         ----------

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>             <C>             <C>           <C>
Litigation                                       $16,500         $  -            $16,500       n/a %
</TABLE>

         In September 2002, the Company 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 previously
         rendered jury verdict in a lawsuit against ETHEX (see Note 10 in
         the accompanying Notes to Consolidated Financial Statements).


                                     48

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>          <C>
Operating income                                 $42,929       $49,294           $(6,365)     (12.9)%
</TABLE>

         The decrease in operating income resulted from the $16.5 million
         litigation reserve established by us for potential damages
         associated with a lawsuit. Excluding the effect of the litigation
         reserve, operating income for fiscal 2003 would have increased
         $10.1 million, or 20.6%, to $59.4 million.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                               <C>            <C>               <C>        <C>
Interest and other income                         $977           $411              $566       137.7%
</TABLE>

         The increase in interest and other income was primarily due to the
         investment of $72.4 million of proceeds from the July 2002
         secondary public offering in short-term, highly liquid investments.

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

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>          <C>
Provision for income taxes                       $15,471       $17,891           $(2,420)     (13.5)%
   effective tax rate                               35.5%         36.2%
</TABLE>


         The decline in the effective tax rate was primarily due to an
         increase in the usage of research and development tax credits to
         reduce our tax liability.

                                     49

<PAGE>
<PAGE>

         NET INCOME
         ----------

<TABLE>
<CAPTION>
                                                                YEARS ENDED MARCH 31,
                                                 ---------------------------------------------------
                                                                                        CHANGE
                                                                                 -------------------
             ($ IN THOUSANDS):                     2003          2002               $           %
                                                 --------      --------          -------     -------

<S>                                              <C>           <C>               <C>          <C>
Net income                                       $28,110       $31,464           $(3,354)     (10.7)%
  diluted earnings per share                        0.55          0.65             (0.10)     (15.4)%
</TABLE>

         The decrease in net income resulted from the $16.5 million
         litigation reserve established by us for potential damages
         associated with a lawsuit. The impact of the litigation reserve,
         net of applicable taxes, reduced net income by $10.4 million. The
         more significant percentage decline in earnings per diluted share
         for fiscal 2003 resulted from an increase in weighted average
         shares outstanding due to the issuance of approximately 3.3 million
         shares of Class A Common Stock in the secondary public offering
         that was completed in July 2002. Excluding the effect of the
         litigation reserve, net income for fiscal 2003 would have increased
         $7.1 million, or 22.5%, to $38.6 million, or $0.75 per diluted
         share.

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

         Cash and cash equivalents and working capital were $226.9 million
         and $306.6 million, respectively, at March 31, 2004, compared to
         $96.3 million and $137.9 million, respectively, at March 31, 2003.
         Internally generated funds from product sales continued to be the
         primary source of operating capital used in the funding of our
         businesses. The net cash flow from operating activities was $34.0
         million in fiscal 2004 compared to $43.3 million in fiscal 2003.
         This decrease resulted primarily from a decline in reserve balances
         associated with sales returns and allowances, an increase in
         inventories related to a number of specialty generic products we
         expect to launch in the first half of fiscal 2005 and increased
         inventories associated with the hematinic brands that we acquired
         at the end of fiscal 2003, an increase in prepaid and other assets,
         and a decrease in current liabilities due primarily to the timing
         of payments made on accounts payable and accrued income taxes. The
         decrease in net cash flow from operating activities in fiscal 2004
         was partially offset by an increase in net income.

         Net cash flow used in investing activities was $40.1 million for
         fiscal 2004 compared to $32.1 million for the prior year. Capital
         expenditures of $21.8 million were primarily for purchasing
         machinery and equipment to upgrade and expand our pharmaceutical
         manufacturing and distribution capabilities, and other building
         renovation projects. We expect our capital expenditures in fiscal
         2005 to increase by up to $50.0 million as we ramp up
         manufacturing/distribution, laboratory capabilities and other
         facilities needed for planned growth over the next five to seven
         years. Other investing activities in fiscal 2003 included a $3.0
         million payment related to the purchase of certain licensing rights
         combined with an equity investment in FemmePharma, Inc., a women's
         healthcare company. In January 2004, we made an additional $4.0
         million payment to FemmePharma, Inc. to complete the purchase of
         certain trademark rights for a product under development and to
         increase our equity investment in the company. On March 31, 2003,
         we acquired the product rights and trademarks to the Niferex(R)
         line of hematinic products for a cash payment made in April 2003
         for $14.3 million. Also, on March 31, 2003, we completed the
         purchase of product rights and trademarks to the Chromagen(R) and
         StrongStart(R) product lines for a $13.0 million cash payment made
         on March 31, 2003 and two non-interest bearing $7.0 million
         promissory notes, one of which was repaid in fiscal 2004 and the
         other of which is due on March 31, 2005.

                                     50

<PAGE>
<PAGE>

         Debt increased to $218.7 million at March 31, 2004 compared to
         $17.6 million at March 31, 2003. The increase primarily resulted
         from the issuance in May 2003 of $200.0 million in 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 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. 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.
         The net proceeds to us were $194.2 million, after deducting
         underwriting discounts, commissions and offering expenses. In April
         2003, we 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 facility consists of approximately 275,000 square feet of
         office, production, distribution and warehouse space that we are
         currently renovating. The remaining principal balance plus any
         unpaid interest is due in April 2008. 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.

         During May 2003, we used $50.0 million of the net proceeds from the
         Convertible Subordinated Notes issuance to fund the repurchase of
         2.0 million shares of our Class A Common Stock.

         We currently have a $40.0 million unsecured revolving line of
         credit with a bank that expires in October 2006. In December 2003,
         we increased our unsecured supplemental credit line with the same
         bank from $20.0 million to $25.0 million. The unsecured
         supplemental credit line of $25.0 million, which is available for
         financing acquisitions, expires in December 2004. At March 31,
         2004, we had $11.6 million in open letters of credit issued under
         the revolving credit line and no cash borrowings under either
         credit facility.

         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, 2004
-----------------------------
Long-term debt obligations                          $218,650     $ 7,909       $3,153       $ 7,588     $200,000
Operating lease obligations                           17,548       3,186        4,899         3,941        5,522
Other long-term obligations                            3,122           -            -             -        3,122
                                                 ----------------------------------------------------------------
 Total contractual cash obligations                 $239,320     $11,095       $8,052       $11,529     $208,644
                                                 ----------------------------------------------------------------
</TABLE>


         We believe our cash and cash equivalents balance, cash flows from
         operations, funds available under our credit facilities, and
         proceeds received from the Convertible Subordinated Notes issuance
         will be adequate to fund operating activities for the presently
         foreseeable future, including an increase in debt obligations, a
         significant increase in capital expenditures, higher research and
         development costs, 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 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.


                                     51

<PAGE>
<PAGE>

         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.

         RECENTLY ISSUED ACCOUNTING STANDARDS

         In January 2003, the FASB issued Interpretation No. (FIN) 46,
         Consolidation of Variable Interest Entities, an interpretation of
         ARB No. 51. The primary objectives of FIN 46 are to provide
         guidance on the identification of entities which a company may
         control through means other than through voting rights ("variable
         interest entities") and to determine when and which business
         enterprise ("primary beneficiary") should consolidate the variable
         interest entity. FIN 46 requires existing unconsolidated variable
         interest entities to be consolidated by their primary beneficiaries
         if the entities do not effectively disperse risks among the parties
         involved. Variable interest entities that effectively disperse
         risks will not be consolidated unless a single party holds an
         interest or combination of interests that effectively recombines
         risks that were previously dispersed. In addition, FIN 46 requires
         that the primary beneficiary, as well as all other enterprises with
         a significant variable interest in a variable interest entity, make
         additional disclosures. Certain disclosure requirements of FIN 46
         were effective for financial statements issued after January 31,
         2003. In December 2003, the FASB revised FIN 46 (FIN 46R) to
         address certain FIN 46 implementation issues. The revised
         provisions were applicable no later than the first reporting period
         ending after March 15, 2004. We adopted FIN 46 and FIN 46R on March
         31, 2004 and, based upon the evaluation performed of all interests,
         have determined we do not have any variable interest entities that
         require consolidation.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity. SFAS 150 establishes standards for how entities classify
         and measure in their statement of financial position certain
         financial instruments with characteristics of both liabilities and
         equity. The provisions of SFAS 150 are effective for financial
         instruments entered into or modified after May 31, 2003, and
         otherwise at the beginning of the first fiscal interim period
         beginning after June 15, 2003. The adoption of this statement did
         not have a material impact on our results of operations or
         financial position.

         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 our financial condition or results of operations.

                                     52

<PAGE>
<PAGE>

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, 2004.

         In May 2003, we issued $200.0 million 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.

         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

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 2003 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three 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 2003, and the
results of their operations and their cash flows for each of the three 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

                                     54

<PAGE>
<PAGE>

<TABLE>
                                   K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                          MARCH 31,
                                                                                    ---------------------
                                                                                      2004         2003
                                                                                    --------     --------
                                                                               (IN THOUSANDS, EXCEPT SHARE DATA)

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

Current Assets:
Cash and cash equivalents..................................................         $226,911     $ 96,288
Receivables, less allowance for doubtful accounts of $402 and $422
   in 2004 and 2003, respectively..........................................           65,872       57,385
Inventories, net...........................................................           50,697       42,343
Prepaid and other assets...................................................            6,591        2,709
Deferred tax asset.........................................................            8,037       14,791
                                                                                    --------     --------
   Total Current Assets....................................................          358,108      213,516
Property and equipment, less accumulated depreciation......................           75,777       51,903
Intangible assets and goodwill, net........................................           80,809       82,577
Other assets...............................................................           13,744        4,672
                                                                                    --------     --------
   Total Assets............................................................         $528,438     $352,668
                                                                                    ========     ========

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

Current Liabilities:
Accounts payable...........................................................         $ 12,650     $ 15,588
Accrued liabilities........................................................           30,917       52,548
Current maturities of long-term debt.......................................            7,909        7,484
                                                                                    --------     --------
   Total Current Liabilities...............................................           51,476       75,620
Long-term debt.............................................................          210,741       10,106
Other long-term liabilities................................................            3,122        2,913
Deferred tax liability.....................................................            5,350        3,413
                                                                                    --------     --------
   Total Liabilities.......................................................          270,689       92,052
                                                                                    --------     --------

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 2004 and
   2003 (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
   36,080,583 and 23,651,290 at March 31, 2004 and 2003, respectively......              362          236
Class B -- issued 16,148,739 and 10,577,119 at March 31, 2004 and 2003,
   respectively (convertible into Class A shares on a one-for-one basis)...              162          106
Additional paid-in capital.................................................          123,828      120,961
Retained earnings..........................................................          184,580      139,341
Less: Treasury Stock, 3,035,948 shares of Class A and 80,142 shares
   of Class B Common Stock in 2004 and 32 shares of Class A and
   53,428 shares of Class B Common Stock, in 2003, at cost.................          (51,183)         (28)
                                                                                    --------     --------
Total Shareholders' Equity.................................................          257,749      260,616
                                                                                    --------     --------

Total Liabilities and Shareholders' Equity.................................         $528,438     $352,668
                                                                                    ========     ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     55

<PAGE>
<PAGE>

<TABLE>
                                 K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                                             YEAR ENDED MARCH 31,
                                                            --------------------------------------------------
                                                              2004                   2003               2002
                                                            --------               --------           --------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                         <C>                    <C>                <C>
Net revenues................................                $283,941               $244,996           $204,105
Cost of sales...............................                  98,427                 94,527             80,403
                                                            --------               --------           --------
Gross profit................................                 185,514                150,469            123,702
                                                            --------               --------           --------

Operating expenses:
    Research and development................                  20,651                 19,135             10,712
    Selling and administrative..............                  88,333                 69,584             61,343
    Amortization of intangible assets.......                   4,459                  2,321              2,353
    Litigation..............................                  (1,700)                16,500                 --
                                                            --------               --------           --------
Total operating expenses....................                 111,743                107,540             74,408
                                                            --------               --------           --------

Operating income............................                  73,771                 42,929             49,294
                                                            --------               --------           --------

Other expense (income):
    Interest expense........................                   5,865                    325                350
    Interest and other income...............                  (2,092)                  (977)              (411)
                                                            --------               --------           --------
Total other expense (income), net...........                   3,773                   (652)               (61)
                                                            --------               --------           --------

Income before income taxes..................                  69,998                 43,581             49,355
Provision for income taxes..................                  24,150                 15,471             17,891
                                                            --------               --------           --------

Net income..................................                $ 45,848               $ 28,110           $ 31,464
                                                            ========               ========           ========

Net income per common share-basic...........                   $0.93                  $0.56              $0.69
                                                               =====                  =====              =====

Net income per common share-diluted.........                   $0.90                  $0.55              $0.65
                                                               =====                  =====              =====

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                     56

<PAGE>
<PAGE>

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

<CAPTION>
                                                           FOR THE YEARS ENDED MARCH 31, 2004, 2003 AND 2002
                                               ----------------------------------------------------------------------------
                                                          CLASS A  CLASS B  ADDITIONAL                            TOTAL
                                               PREFERRED  COMMON   COMMON    PAID IN    TREASURY   RETAINED   SHAREHOLDERS'
                                                 STOCK     STOCK    STOCK    CAPITAL     STOCK     EARNINGS      EQUITY
                                                 -----     -----    -----    -------     -----     --------      ------
                                                                      (IN THOUSANDS, EXCEPT SHARE DATA)

<S>                                               <C>      <C>      <C>      <C>        <C>        <C>          <C>
BALANCE AT MARCH 31, 2001....................     $ 2      $189     $107     $ 45,792   $    (55)  $ 79,907     $125,942
Net income...................................      --        --       --           --         --     31,464       31,464
Dividends paid on preferred stock............      --        --       --           --         --        (70)         (70)
Conversion of 200,000 shares of preferred
 stock to 1,125,000 Class A Shares...........      (2)       11       --           (9)        --         --           --
Sale of 12,825 Class A shares to employee
 profit sharing plan.........................      --        --       --          332          6         --          338
Issuance of 5,061 Class A shares
 under product development agreement.........      --        --       --          125         --         --          125
Conversion of 32,575 Class B shares to
 Class A shares..............................      --        --       --           --         --         --           --
Stock Options exercised - 108,018 shares
 of Class A less 8,847 shares repurchased
 and 80,685 shares of Class B less 170
 shares repurchased..........................      --         1        1          991         --         --          993
                                                ---------------------------------------------------------------------------
BALANCE AT MARCH 31, 2002....................      --       201      108       47,231        (49)   111,301      158,792
Net income...................................      --        --       --           --         --     28,110       28,110
Dividends paid on preferred stock............      --        --       --                      --        (70)         (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         --         --       72,380
Sale of 40,461 Class A shares to employee
 profit sharing plan.........................      --        --       --          884         21         --          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         --         --          499
                                                ---------------------------------------------------------------------------
BALANCE AT MARCH 31, 2003....................      --       236      106      120,961        (28)   139,341      260,616
Net income...................................      --        --       --           --         --     45,848       45,848
Dividends paid on preferred stock............      --        --       --                      --       (436)        (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         --         --          505
Purchase of common stock for treasury........      --        --       --           --    (51,155)        --      (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         --         --        2,371
                                                ---------------------------------------------------------------------------
BALANCE AT MARCH 31, 2004....................     $--      $362     $162     $123,828   $(51,183)  $184,580     $257,749
                                                ===========================================================================

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     57

<PAGE>
<PAGE>

<TABLE>
                                      K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                         YEAR ENDED MARCH 31,
                                                                                ---------------------------------------
                                                                                  2004           2003            2002
                                                                                --------       --------        --------
                                                                                            (IN THOUSANDS)

<S>                                                                             <C>            <C>             <C>
Operating Activities:
Net income.............................................................         $ 45,848       $ 28,110        $ 31,464
Adjustments to reconcile net income to net cash provided by
 operating activities:
   Depreciation, amortization and other non-cash charges...............           12,663          7,773           6,478
   Deferred income tax (benefit) provision.............................            8,691         (8,091)         (2,376)
   Deferred compensation...............................................              209            196             183
   Litigation..........................................................            1,825         16,500               -
Changes in operating assets and liabilities:
   Increase in receivables, net........................................           (8,487)        (3,167)        (27,959)
   Increase in inventories.............................................           (9,977)        (5,623)         (2,886)
   (Increase) decrease in prepaid and other assets.....................           (6,294)           496             765
   (Decrease) increase in accounts payable and accrued
    liabilities........................................................          (10,471)         7,127          10,228
                                                                                --------       --------        --------
Net cash provided by operating activities..............................           34,007         43,321          15,897
                                                                                --------       --------        --------

Investing Activities:
   Purchase of property and equipment, net.............................          (21,792)       (16,113)         (8,484)
   Purchase of stock and intangible assets.............................           (4,000)        (3,000)              -
   Product acquisition.................................................          (14,300)       (13,000)              -
                                                                                --------       --------        --------
Net cash used in investing activities..................................          (40,092)       (32,113)         (8,484)
                                                                                --------       --------        --------

Financing Activities:
   Principal payments on long-term debt................................           (8,237)          (743)           (693)
   Dividends paid on preferred stock...................................             (436)           (70)            (70)
   Proceeds from issuance of convertible notes.........................          194,165              -               -
   Purchase of common stock for treasury...............................          (51,155)             -               -
   Proceeds from issuance of common stock..............................                -         72,380               -
   Sale of common stock to employee profit sharing plan................                -            905             338
   Exercise of common stock options....................................            2,371            499             993
                                                                                --------       --------        --------
Net cash provided by financing activities..............................          136,708         72,971             568
                                                                                --------       --------        --------

Increase in cash and cash equivalents..................................          130,623         84,179           7,981
Cash and cash equivalents:
   Beginning of year...................................................           96,288         12,109           4,128
                                                                                --------       --------        --------
   End of year.........................................................         $226,911       $ 96,288        $ 12,109
                                                                                ========       ========        ========

Non-cash investing and financing activities:
   Term loan to finance building purchase..............................         $  8,800       $      -        $      -
   Term loans refinanced...............................................                -          1,738           2,450
   Issuance of common stock under product development
    agreement..........................................................              505              -             125
   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>

                                     58

<PAGE>
<PAGE>


                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               (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 accounting principles generally accepted in
              the United States of America. 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
              accounting principles generally accepted in the United States
              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 only those highly liquid
              investments that are readily convertible to cash and that have
              original maturities of three months or less. At March 31, 2004
              and 2003, cash equivalents totaled $226,532 and $92,635,
              respectively.

                                     59

<PAGE>
<PAGE>

              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 potentially
              obsolete 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. 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. Upon approval, 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.
              Amortization of goodwill for fiscal 2002 was $55. Basic and
              diluted earnings per share for fiscal 2002 would have been
              unchanged if goodwill amortization was excluded from net
              income on a pro forma basis.

              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.

              These investments are 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.

                                     60

<PAGE>
<PAGE>

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

              Revenue from product sales is recognized when the merchandise
              is shipped to an unrelated third party pursuant to Staff
              Accounting Bulletin No. 104, Revenue Recognition. Accordingly,
              revenue is recognized when all of the following occur: a
              purchase order is received from a customer; title and risk of
              loss pass to the Company's customer upon shipment of the
              merchandise under the terms of FOB shipping point; prices and
              estimated sales provisions for product returns, sales rebates,
              payment discounts, chargebacks, and other promotional
              allowances are reasonably determinable; and the customer's
              payment ability has been reasonably assured.

              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 upon shipment 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 at the time of shipment.

                   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 shipment
                        of product 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 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 estimating
                        chargebacks are calculated primarily using
                        historical chargeback experience, actual contract
                        pricing and estimated wholesaler inventory levels.


                                     61

<PAGE>
<PAGE>

              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
              $103,262, $98,929 and $98,593 for the years ended March 31,
              2004, 2003 and 2002, respectively. The reserve balances
              related to the sales provisions totaled $20,648 and $29,658 at
              March 31, 2004 and 2003, respectively, and are included in
              "Receivables, less allowance for doubtful accounts" in the
              accompanying consolidated balance sheets.

              The Company also enters into long-term agreements under which
              it assigns marketing rights for the products it has developed
              to pharmaceutical marketers. Royalties are earned based on the
              sale of products.

              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 31%, 16% and 11%, and 33%, 20% and 14% of gross
              receivables at March 31, 2004 and 2003, respectively.

              During fiscal 2004, KV's three largest customers accounted for
              25%, 16% and 13% of gross revenues. In fiscal 2003 and 2002,
              the Company's three largest customers accounted for gross
              revenues of 23%, 18% and 14% and 20%, 19% and 13%,
              respectively.

              The Company maintains cash balances 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.

              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
              patented life of the product.

                                     62

<PAGE>
<PAGE>

              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.

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

              Financing costs of $5,835 related to the Contingent
              Convertible Notes issuance are being amortized over five years
              to the first date the debt can be put by the holders to the
              Company. Deferred financing costs 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 based on the
              treasury stock method and 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. Common share equivalents have been
              excluded from the computation of diluted earnings per share
              where their inclusion would be anti-dilutive.

              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
              basis. 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.

                                     63

<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 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>
                                                                             2004         2003         2002
                                                                             ----         ----         ----

<S>                                                                        <C>          <C>          <C>
                  Net income, as reported........................          $45,848      $28,110      $31,464
                  Stock based employee
                   compensation expense,
                   net of tax....................................             (695)        (815)        (815)
                                                                           -------      -------      -------
                  Pro forma net income...........................          $45,153      $27,295      $30,649
                                                                           =======      =======      =======

                  Earnings per share:
                     Basic - as reported.........................          $  0.93      $  0.56      $  0.69
                     Basic - pro forma...........................             0.91         0.55         0.67
                     Diluted - as reported.......................             0.90         0.55         0.65
                     Diluted - pro forma.........................             0.88         0.53         0.64
</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 in fiscal 2004, 2003 and 2002,
              respectively: no dividend yield; expected volatility of 43%,
              45% and 56%; risk-free interest rate of 3.00%, 2.40% and 6.00%
              per annum; and expected option terms ranging from 3 to 10
              years for all three years. Weighted averages are used because
              of varying assumed exercise dates.

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

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

              The Company uses a derivative to hedge variable interest rate
              exposure related to a term loan secured by a building. To
              achieve hedge accounting, the criteria specified in SFAS No.
              133, "Accounting for Derivative Instruments and Hedging
              Activities" must be met. SFAS 133 requires all derivatives,
              whether designated for hedging relationships or not, to be
              recorded on the consolidated balance sheet at fair value. The
              accounting for changes in the value of a derivative depends on
              whether the contract has been designated and qualifies for
              hedge accounting. The impact of the Company's derivative on
              fiscal 2004 consolidated net income was not material.

                                     64

<PAGE>
<PAGE>

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

              In January 2003, the FASB issued Interpretation No. (FIN) 46,
              Consolidation of Variable Interest Entities, an interpretation
              of ARB No. 51. The primary objectives of FIN 46 are to provide
              guidance on the identification of entities which the Company
              may control through means other than through voting rights
              ("variable interest entities") and to determine when and which
              business enterprise ("primary beneficiary") should consolidate
              the variable interest entity. FIN 46 requires existing
              unconsolidated variable interest entities to be consolidated
              by their primary beneficiaries if the entities do not
              effectively disperse risks among the parties involved.
              Variable interest entities that effectively disperse risks
              will not be consolidated unless a single party holds an
              interest or combination of interests that effectively
              recombines risks that were previously dispersed.

                                     65

<PAGE>
<PAGE>

              In addition, FIN 46 requires that the primary beneficiary, as
              well as all other enterprises with a significant variable
              interest in a variable interest entity, make additional
              disclosures. Certain disclosure requirements of FIN 46 were
              effective for financial statements issued after January 31,
              2003. In December 2003, the FASB revised FIN 46 (FIN 46R) to
              address certain FIN 46 implementation issues. The revised
              provisions were applicable no later than the first reporting
              period ending after March 15, 2004. The Company adopted FIN 46
              and FIN 46R on March 31, 2004 and, based upon the evaluation
              performed of all interests, have determined the Company does
              not have any variable interest entities that require
              consolidation.

              In May 2003, the FASB issued SFAS No. 150, Accounting for
              Certain Financial Instruments with Characteristics of both
              Liabilities and Equity. SFAS 150 establishes standards for how
              entities classify and measure in their statement of financial
              position certain financial instruments with characteristics of
              both liabilities and equity. The provisions of SFAS 150 are
              effective for financial instruments entered into or modified
              after May 31, 2003, and otherwise for the first fiscal interim
              period beginning after June 15, 2003. The adoption of this
              statement did not have a material impact on the Company's
              results of operations or financial position.


              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.

3.       ACQUISITIONS AND LICENSE AGREEMENTS
         -----------------------------------

         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
         is intended for use in the treatment of endometriosis under
         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 and will pay up to an additional $7,500
         upon successful achievement of certain regulatory milestones. These
         milestone payments will commence upon submission of a New Drug
         Application (NDA) to the Food and Drug Administration for the
         initial product covered by the License Agreement. The amounts paid
         and the costs to be incurred under this agreement will be allocated
         to license agreements and amortized over the estimated lives of the
         products upon launch. The Company is also obligated to pay
         royalties on product sales covered by the License Agreement. These
         disbursements will be recognized as a cost of sales concurrently
         with the revenue earned on the products to which the royalties
         relate.

                                     66

<PAGE>
<PAGE>

         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.

4.       INVENTORIES
         -----------

         Inventories as of March 31, consist of:

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

<S>                                                           <C>            <C>
              Finished goods.....................             $31,028        $26,524
              Work-in-process....................               5,142          4,290
              Raw materials......................              15,529         12,532
                                                              -------        -------
                                                               51,699         43,346
              Reserves for obsolescence..........              (1,002)        (1,003)
                                                              -------        -------
                                                              $50,697        $42,343
                                                              =======        =======
</TABLE>

5.       PROPERTY AND EQUIPMENT
         ----------------------

         Property and equipment as of March 31, consist of:

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

<S>                                                               <C>             <C>
              Land and improvements............................   $  2,083        $  2,083
              Building and building improvements...............     17,767          17,246
              Machinery and equipment..........................     43,442          35,548
              Office furniture and equipment...................     15,051          12,185
              Leasehold improvements...........................     11,338          10,708
              Construction-in-progress.........................     24,529           5,848
                                                                  --------        --------
                                                                   114,210          83,618
              Less accumulated depreciation and amortization...    (38,433)        (31,715)
                                                                  --------        --------
                 Net property and equipment....................   $ 75,777        $ 51,903
                                                                  ========        ========
</TABLE>

         Capital additions to property and equipment were $30,592,
         $16,113 and $8,484 for fiscal 2004, 2003 and 2002, respectively.
         Depreciation and amortization of property and equipment was $6,718,
         $5,434 and $4,107 for fiscal 2004, 2003 and 2002, respectively.

         Property and equipment projects classified as construction-in-
         progress at March 31, 2004 are projected to be completed during
         fiscal 2005 at an estimated cost of $47,000.

                                     67

<PAGE>
<PAGE>

6.       INTANGIBLE ASSETS AND GOODWILL
         ------------------------------

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

<TABLE>
<CAPTION>
                                                                   2004                                     2003
                                                      -------------------------------          -----------------------------
                                                       GROSS                                    GROSS
                                                      CARRYING           ACCUMULATED           CARRYING         ACCUMULATED
                                                       AMOUNT            AMORTIZATION           AMOUNT          AMORTIZATION

<S>                                                   <C>                 <C>                  <C>                <C>
              Product rights - Micro-K(R).......      $36,140             $ (9,099)            $36,140            $(7,294)
              Product rights - PreCare(R).......        8,433               (1,968)              8,433             (1,546)
              Trademarks acquired:
                 Niferex(R).....................       14,834                 (742)             14,834                  -
                 Chromagen(R)/StrongStart(R)....       27,642               (1,382)             27,642                  -
              License agreements................        3,825                    -               1,000                  -
              Trademarks and patents............        2,980                 (411)              3,114               (303)
                                                      -------             --------             -------            -------
                  Total intangible assets.......       93,854              (13,602)             91,163             (9,143)
              Goodwill..........................          557                    -                 557                  -
                                                      -------             --------             -------            -------
                                                      $94,411             $(13,602)            $91,720            $(9,143)
                                                      =======             ========             =======            =======
</TABLE>

         As of March 31, 2004, the Company's intangible assets have a
         weighted average useful life of approximately 20 years.
         Amortization of intangible assets was $4,459, $2,321 and $2,298 for
         fiscal 2004, 2003 and 2002, respectively. Amortization of goodwill
         was $55 for fiscal 2002.

         Estimated annual amortization expense is $4,563, $4,600, $4,615,
         $4,630 and $4,645 for fiscal 2005, 2006, 2007, 2008 and 2009,
         respectively.

                                     68

<PAGE>
<PAGE>

7.       OTHER ASSETS
         ------------

         Other assets as of March 31, consist of:

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

<S>                                                               <C>                <C>
                  Cash surrender value of life insurance......    $ 2,531            $1,634
                  Other investments...........................      5,000             2,000
                  Deferred financing costs, net...............      4,993                44
                  Deposits....................................      1,220               994
                                                                  -------            ------

                                                                  $13,744            $4,672
                                                                  =======            ======
</TABLE>

8.       ACCRUED LIABILITIES
         -------------------

         Accrued liabilities as of March 31, consist of:

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

<S>                                                               <C>               <C>
                  Salaries, wages, incentives and benefits....    $ 6,160           $ 6,202
                  Income taxes................................      2,409             8,402
                  Promotion expenses..........................        635             2,744
                  Payments due on product acquisitions........          -            15,983
                  Litigation reserve..........................     18,325            16,500
                  Other.......................................      3,388             2,717
                                                                  -------           -------
                                                                  $30,917           $52,548
                                                                  =======           =======
</TABLE>

9.       LONG-TERM DEBT
         --------------

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

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

<S>                                                              <C>                <C>
                  Industrial revenue bonds....................   $    205           $   530
                  Notes payable...............................      6,731            13,234
                  Building mortgages..........................     11,714             3,826
                  Convertible notes...........................    200,000                 -
                                                                 --------           -------
                                                                  218,650            17,590
                  Less current portion........................     (7,909)           (7,484)
                                                                 --------           -------
                                                                 $210,741           $10,106
                                                                 ========           =======
</TABLE>

         In December 2003, the Company increased its credit agreement with a
         bank to $65,000. The revised agreement provides for an extension of
         the Company's $40,000 revolving line of credit along with an
         increase from $20,000 to $25,000 in the supplemental credit line
         that is available for financing acquisitions. These credit
         facilities expire in October 2006 and December 2004, respectively.
         The revolving credit lines are unsecured and interest is charged at
         the lower of the prime rate or the one-month LIBOR rate plus 150
         basis points. At March 31, 2004, the Company had no cash borrowings
         outstanding under either credit facility and $11,561 in open
         letters of credit issued under the credit facilities. The credit
         agreement includes covenants that 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 ratio and a maximum senior
         leverage ratio. As of March 31, 2004, the Company was in compliance
         with all of its covenants.

                                     69

<PAGE>
<PAGE>

         The industrial revenue bonds, which bear interest at 7.35% per
         annum, mature serially through 2005 and are collateralized by
         certain property and equipment, as well as through a letter of
         credit, which may only be accessed in case of default on the bonds.
         The bonds do not allow the holder to require the Company to redeem
         the bonds.

         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 facility consisted of approximately
         275,000 square feet of office, production, distribution and
         warehouse space. The remaining principal balance plus any unpaid
         interest is due in April 2008. 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. At
         March 31, 2004, 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.

         In conjunction with the Altana acquisition agreement, the Company
         entered into two unsecured promissory notes to finance a portion of
         the transaction (see Note 3). The notes payable balance outstanding
         at March 31, 2004 relates to the note due on March 31, 2005. The
         second unsecured promissory entered into with Altana was repaid on
         March 31, 2004.

         On May 16, 2003, the Company issued $200,000 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.

         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

                                     70

<PAGE>
<PAGE>

                   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.

         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, 2004 are
         as follows:

                  2005..........................          $  7,909
                  2006..........................               973
                  2007..........................             2,180
                  2008..........................             1,674
                  2009..........................             5,914
                  Thereafter....................           200,000
                                                          --------
                                                          $218,650
                                                          ========

         The Company paid interest of $3,215, $389 and $417 during the years
         ended March 31, 2004, 2003 and 2002, respectively.

10.      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, 2004,
         2003 and 2002 was $5,246, $4,785 and $4,441, respectively.

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

                  2005..........................            $3,186
                  2006..........................             2,576
                  2007..........................             2,323
                  2008..........................             1,962
                  2009..........................             1,979
                  Later years...................             5,522

         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 $28,900.

                                     71

<PAGE>
<PAGE>

         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 one officer 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. The Company expensed $209,
         $196 and $183, under this agreement in the years ended March 31,
         2004, 2003 and 2002, respectively.

         LITIGATION

         ETHEX Corporation (ETHEX), a subsidiary of the Company, is a
         defendant in a lawsuit styled Healthpoint, Ltd. v. ETHEX
         Corporation, filed in federal court in San Antonio, Texas. In
         general, the plaintiffs allege that ETHEX's comparative promotion
         of its Ethezyme(TM) to Healthpoint's Accuzyme(R) product resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair competition and
         misappropriation of trade secrets. In September 2001, the jury
         returned verdicts against ETHEX on certain false advertising,
         unfair competition, and misappropriation claims. The jury awarded
         compensatory and punitive damages totaling $16,500. On October 1,
         2002, the U.S. District Court for the Western District of Texas
         denied ETHEX's motion to set aside the jury's verdict. On December
         17, 2002, the court entered a judgment awarding attorneys' fees to
         Healthpoint in an amount to be subsequently determined.

         The Company believes that the jury award and the judgment is
         excessive and is not sufficiently supported by the facts or the
         law. The Company is vigorously prosecuting an appeal. The Company
         and its counsel believe it has meritorious arguments to be raised
         during the appeal process; however, the Company cannot give any
         assurance that it will prevail on appeal. As a result of the
         court's earlier decisions, the Company's results of operations for
         the quarter ended September 30, 2002 included a provision for
         potential damages of $16,500, which was reflected in accrued
         liabilities on the Company's consolidated balance sheet as of March
         31, 2004. As discussed above, Healthpoint also requested
         reimbursement for approximately $1,800 in attorneys' fees in
         addition to the judgment. In September 2003, the court entered an
         order specifying the amount of attorneys' fees to be awarded. As a
         result of this decision, during the quarter ended September 30,
         2003, the Company recorded an additional provision of $1,825, which
         was reflected in accrued liabilities on the Company's consolidated
         balance sheet as of March 31, 2004.

         The Company and ETHEX are 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
         general, the plantiffs allege that ETHEX's comparative promotion of
         its Ethezyme(TM) 830 to Healthpoint's Accuzyme(R) product resulted
         in false advertising and misleading statements under various
         federal and state laws, and constituted unfair competition and
         misappropriation of trade secrets. The case has been inactive for
         several years. Discovery has resumed and the case is expected to
         proceed to trial in August, 2004. The Company believes it has
         meritorious defenses and will vigorously defend the case; however,
         it cannot give any assurance that it will prevail.

         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 court
         in Minnesota. It is alleged that the Company and ETHEX infringe 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 plaintiff's motion for a preliminary injunction,
         which allows ETHEX to continue marketing the product during the
         pendancy of the subject lawsuit and calls into question CIMA's and
         Schwarz's ability to prevail in the lawsuit. Discovery is active.
         The Company believes it has meritorious defenses and will
         vigorously defend the case; however, it cannot give any assurance
         that it will prevail.

                                     72

<PAGE>
<PAGE>

         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 court in Minnesota. In
         general, Solvay alleges that ETHEX's comparative promotion of its
         Pangestyme CN 10 and Pangestyme CN 20 products to Solvay's Creon 10
         and Creon 20 products resulted in false advertising and misleading
         statements under various federal and state laws, and constituted
         unfair and deceptive trade practices. Discovery has recently become
         active. The Company believes it has meritorious defenses and will
         vigorously defend the case; however, it cannot give any assurance
         that it will prevail.

         KV previously distributed several low volume 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 on December 23, 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 United States
         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 now been segregated into a lawsuit brought by Johnny
         Fulcher individually and on behalf of the wrongful death
         beneficiaries of Linda Fulcher, deceased, against KV. 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.

                                     73

<PAGE>
<PAGE>

         Discovery has only recently begun and management believes that the
         Company may have substantial defenses to these claims, though the
         ultimate outcome of this case and the potential effect cannot be
         determined.

         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 has
         provided for legal defense costs and indemnity payments involving
         PPA claims on a going forward basis, 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 any claims that may be raised in the
         current and future litigation.

         On September 25, 2003, the Commonwealth of Massachusetts filed
         Commonwealth of Massachusetts v. Mylan Laboratories, Inc. et al in
         Massachusetts federal court, against ETHEX Corp. and 12 other
         manufacturers of generic pharmaceutical products. The complaint
         alleges, among other things, that the defendants reported inflated
         pricing information for their drugs to data reporting services, and
         that Massachusetts relied on this pricing data in setting
         reimbursement rates under the Medicaid program. The complaint also
         alleges that Massachusetts received rebates from the defendants
         under the Medicaid Drug Rebate Program that were materially less
         than that to which Massachusetts was entitled. Massachusetts seeks
         to recover from the defendants the amount that it believes it
         overpaid and the amount it is owed in rebates, based on claims
         under Massachusetts and federal law. The case is in its early
         stages, and fact discovery has not yet begun. ETHEX is vigorously
         defending the litigation.

                                     74

<PAGE>
<PAGE>

         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 filed Abbreviated New Drug Applications and
         provided notice of certification required under the provisions of
         the Hatch-Waxman 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.

11.      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.

12.      INCOME TAXES
         ------------

         The fiscal 2004, 2003, and 2002 provisions 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 fiscal years 2004, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                    2004            2003             2002
                                                                    ----            ----             ----
<S>                                                                <C>             <C>             <C>
                  PROVISION
                     Current
                        Federal...............................     $14,184         $21,524         $18,603
                        State.................................       1,275           2,038           1,664
                                                                   -------         -------         -------
                                                                    15,459          23,562          20,267
                                                                   -------         -------         -------
                     Deferred
                        Federal...............................       7,792          (7,207)         (2,199)
                        State.................................         899            (884)           (177)
                                                                   -------         -------         -------
                                                                     8,691          (8,091)         (2,376)
                                                                   -------         -------         -------
                                                                   $24,150         $15,471         $17,891
                                                                   =======         =======         =======
</TABLE>

         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>
                                                                     2004           2003            2002
                                                                     ----           ----            ----

<S>                                                                <C>             <C>             <C>
                  Expected income tax expense.................     $24,499         $15,253         $17,274
                  State income taxes, less
                     Federal income tax benefit...............       1,413             750             967
                  Business credits............................      (1,240)           (370)           (260)
                  Other ......................................        (522)           (162)            (90)
                                                                   -------         -------         -------
                                                                   $24,150         $15,471         $17,891
                                                                   =======         =======         =======
</TABLE>

                                     75

<PAGE>
<PAGE>

         As of March 31, 2004 and 2003, the tax effect of temporary
         differences between the tax basis of assets and liabilities and
         their financial reporting amounts are as follows:

<TABLE>
<CAPTION>
                                                              2004                              2003
                                                    -------------------------         ------------------------
                                                    CURRENT       NON-CURRENT         CURRENT      NON-CURRENT
                                                    -------       -----------         -------      -----------

<S>                                                 <C>            <C>                <C>           <C>
         Fixed asset basis differences........      $     -        $(4,870)           $     -       $(3,397)
         Reserves for inventory and
            receivables.......................        5,313              -              7,776             -
         Vacation pay reserve.................          460              -                456             -
         Deferred compensation................            -          1,164                  -         1,092
         Amortization.........................            -         (1,644)                 -        (1,108)
         Litigation reserve...................        6,704              -              6,056             -
         Convertible notes interest...........       (4,566)             -                  -             -
         Other................................          126              -                503             -
                                                    -------        -------            -------       -------
            Net deferred tax asset (liability)      $ 8,037        $(5,350)           $14,791       $(3,413)
                                                    =======        =======            =======       =======
</TABLE>

         The Company paid income taxes of $22,201, $22,088, and $15,578
         during the years ended March 31, 2004, 2003 and 2002, respectively.

13.      EMPLOYEE BENEFITS
         -----------------

         STOCK OPTION PLAN AND AGREEMENTS

         During fiscal 2002, the Board of Directors adopted the Company's
         2001 Incentive Stock Option Plan (the "2001 Plan"), which allows
         for the issuance of up to 3,750,000 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 allowed for the
         issuance of up to 4,500,000 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 the Stock Option Plan, the Company
         issues stock options periodically to executives with employment
         agreements and to non-employee directors. At March 31, 2004,
         options to purchase 34,875 shares of stock were outstanding
         pursuant to employment agreements and grants to non-employee
         directors.

                                     76

<PAGE>
<PAGE>

         The following summary shows the transactions for the fiscal years
         2004, 2003 and 2002 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, 2001...........       3,229,798             $ 6.85                  1,220,434             $ 6.03
         Options granted...................         543,000              13.63                          -                  -
         Options becoming exercisable......               -                  -                    578,034               8.53
         Options exercised.................        (283,054)              3.82                   (283,054)              3.82
         Options canceled..................        (291,165)              8.49                    (79,658)              7.09
                                                  ---------                                     ---------
         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
                                                  =========                                     =========
</TABLE>

         The weighted average fair value of options granted at market price
         was $3.42, $2.18, and $3.63 per share in fiscal 2004, 2003 and
         2002, respectively. The weighted average fair value of options
         granted with an exercise price exceeding market price on the date
         of grant was $1.97, $0.14, and $0.30 per share in fiscal 2004,
         2003, and 2002, respectively.

         The following table summarizes information about stock options
         outstanding at March 31, 2004:

<TABLE>
<CAPTION>
                                           OPTIONS OUTSTANDING                                   OPTIONS EXERCISABLE
                          --------------------------------------------------------         -------------------------------
      RANGE OF              NUMBER           WEIGHTED AVERAGE          WEIGHTED              NUMBER            WEIGHTED
      EXERCISE            OUTSTANDING             LIFE                  AVERAGE            EXERCISABLE         AVERAGE
       PRICES             AT 3/31/04            REMAINING           EXERCISE PRICE         AT 3/31/04       EXERCISE PRICE
       ------             ----------            ---------           --------------         ----------       --------------
<S>                        <C>                  <C>                     <C>                 <C>                 <C>
  $ 0.82 -  $ 5.00         438,781               2 Years                $ 3.11              307,744             $ 3.05
  $ 5.01 -  $10.00         755,403               6 Years                $ 7.31              355,506             $ 7.14
  $10.01 -  $15.00         837,343               7 Years                $12.03              333,948             $12.09
  $15.01 -  $20.00         521,122               7 Years                $17.64              214,416             $18.39
  $20.01 -  $25.50         224,159              10 Years                $23.67               22,244             $23.67
</TABLE>

                                     77

<PAGE>
<PAGE>

         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 $400, $375, and $350
         for fiscal 2004, 2003, and 2002, respectively. The Plan includes
         features as described under Section 401(k) of the Internal Revenue
         Code.

         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 $1,286, $1,185, and $1,028 were made to the 401(k)
         investment funds in fiscal 2004, 2003, and 2002, 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
         $202, $231, and $165 in fiscal 2004, 2003, and 2002, 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 $100,000 of each employee's covered
         medical claims. Included in accrued liabilities in the consolidated
         balance sheets as of March 31, 2004 and 2003 were $450 and $400 of
         accrued health insurance reserves, respectively, for claims
         incurred but not reported. 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 $7,331, $6,636, and $5,255, in fiscal 2004, 2003, and 2002,
         respectively.

14.      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 during the years ended March
         31, 2004, 2003, and 2002 totaled $271, $269, and $263,
         respectively.

15.      EQUITY TRANSACTIONS
         -------------------

         As of March 31, 2004 and 2003, 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 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, 2004. The $366 of
         undeclared and unaccrued cumulative preferred dividends at March
         31, 2003 was paid in fiscal 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.


                                     78

<PAGE>
<PAGE>

         During July 2002, the Company completed a public offering of
         approximately 3.3 million shares of Class A common stock. Net
         proceeds to the Company were $72,380 after deducting underwriting
         discounts, commissions and offering expenses.

         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.

         Under the terms of the Company's current loan agreement (see Note
         9), 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.

                                     79

<PAGE>
<PAGE>

16.      EARNINGS PER SHARE
         ------------------

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

<TABLE>
<CAPTION>
                                                                    2004            2003            2002
                                                                    ----            ----            ----
<S>                                                               <C>              <C>             <C>
         Numerator:
            Net income(1)(2)..................................    $45,848          $28,110         $31,464
            Preferred stock dividends.........................       (436)             (70)            (70)
                                                                  -------          -------         -------

            Numerator for basic earnings per
               share - income available to common
               shareholders...................................     45,412           28,040          31,394

            Effect of dilutive securities:
               Preferred stock dividends......................        436               70              70
                                                                  -------          -------         -------

            Numerator for diluted earnings per
               share - income available to common
               shareholders after assumed conversions.........    $45,848          $28,110         $31,464
                                                                  =======          =======         =======

         Denominator:
            Denominator for basic earnings per
               share -- weighted-average shares...............     48,987           49,800          45,612
                                                                  -------          -------         -------

            Effect of dilutive securities:
               Employee stock options.........................      1,760            1,423           1,887
               Convertible preferred stock....................        338              338             748
                                                                  -------          -------         -------
            Dilutive potential common shares..................      2,098            1,761           2,635
                                                                  -------          -------         -------

            Denominator for diluted earnings per
               share -- adjusted weighted-average shares
               and assumed conversions........................     51,085           51,561          48,247
                                                                  =======          =======         =======

            Basic earnings per share(3) ......................    $  0.93          $  0.56         $  0.69
                                                                  =======          =======         =======
            Diluted earnings per share(3)(4)(5)...............    $  0.90          $  0.55         $  0.65
                                                                  =======          =======         =======

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

         (1)  Net income for the year ended March 31, 2004 included a $3,525
              net payment received by the Company in accordance with a legal
              settlement (see Note 11) and an additional reserve of $1,825
              for attorney fees associated with a lawsuit (see Note 10). The
              impact of these items, net of applicable income taxes, was to
              increase net income by $1,097.

         (2)  Net income for the year ended March 31, 2003 included a
              reserve of $16,500 for potential damages associated with a
              lawsuit (see Note 10). The impact of the litigation reserve,
              net of the applicable tax effect, was $10,444.

         (3)  The two-class method for Class A and Class B common stock is
              not presented because the earnings per share are equivalent to
              the converted method since dividends were not declared or paid
              and each class of common stock has equal ownership of the
              Company.

         (4)  Employee stock options to purchase 206,771, 170,490 and 27,550
              shares of common stock at March 31, 2004, 2003 and 2002,
              respectively, were outstanding but not included in the
              computation of diluted earnings per share because the option
              exercise price was greater than the average market price of
              the common shares.

         (5)  The effect of 8,691,880 shares related to the assumed
              conversion of the $200,000 Convertible Subordinated Notes (see
              Note 9) has been excluded from the computation of diluted
              earnings per share as the conditions that would permit
              conversion have not been satisfied.
</TABLE>

                                     80

<PAGE>
<PAGE>

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

<TABLE>
<CAPTION>
                                                 1ST           2ND            3RD          4TH
                                               QUARTER       QUARTER        QUARTER       QUARTER          YEAR
                                               -------       -------        -------       -------          ----

<S>                                            <C>           <C>            <C>           <C>            <C>
FISCAL 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
Earnings per share -- basic................       0.17           0.25          0.24          0.28            0.93
Earnings per share -- diluted..............       0.17           0.24          0.23          0.27            0.90

FISCAL 2003
-----------
Net sales..................................    $49,227       $ 60,482       $61,929       $73,358        $244,996
Gross profit...............................     30,149         37,001        38,201        45,118         150,469
Pretax income (loss)(a)....................     10,621         (2,220)       15,555        19,625          43,581
Net income (loss)(a).......................      6,723         (1,405)       10,146        12,646          28,110
Earnings (loss) per share -- basic.........       0.15          (0.03)         0.20          0.25            0.56
Earnings (loss) per share -- diluted.......       0.14          (0.03)         0.19          0.24            0.55

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

      (a)   Pretax income for the three-months ended September 30, 2003 and the
            year ended March 31, 2004 included a $3,525 net payment received
            by the Company in accordance with a legal settlement (see Note
            11) and an additional reserve of $1,825 for attorney's fees
            associated with a lawsuit (see Note 10). The impact of these
            items, net of applicable income taxes, was to increase net
            income for the three-months ended September 30, 2003 and the
            year ended March 31, 2004 by $1,097.

      (b)   Pretax income (loss) for the three-months ended September 30,
            2002 and the year ended March 31, 2003 included a reserve of
            $16,500 for potential damages associated with a lawsuit (see
            Note 10). The impact of the litigation reserve, net of
            applicable income taxes was to reduce net income for the
            three-months ended September 30, 2002 and the year ended March 31,
            2003 by $10,444.
</TABLE>

18.      SEGMENT REPORTING
         -----------------

         The reportable operating segments of the Company are branded
         products, specialty generics and specialty materials. The operating
         segments are distinguished by differences in products, marketing
         and regulatory approval. 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. Accounting policies of the segments are the
         same as the Company's consolidated accounting policies.

                                     81

<PAGE>
<PAGE>

         The following represents information for the Company's reportable
         operating segments for fiscal 2004, 2003 and 2002.

<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                     2004         $82,868    $181,455       $16,550    $  3,068      $     -        $283,941
                                    2003          43,677     179,724        17,395       4,200            -         244,996
                                    2002          40,424     141,007        19,557       3,117            -         204,105
   ----------------------------------------------------------------------------------------------------------------------------
   Segment profit (loss) (a)(b)     2004          31,661     101,163         1,365     (64,191)           -          69,998
                                    2003           8,361      97,339         1,692     (63,811)           -          43,581
                                    2002           7,222      74,389         3,684     (35,940)           -          49,355
   ----------------------------------------------------------------------------------------------------------------------------
   Identifiable assets              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
                                    2002          12,555      58,618         8,774     116,403       (1,158)        195,192
   ----------------------------------------------------------------------------------------------------------------------------
   Property and                     2004             420       1,685            71      28,416            -          30,592
     equipment additions            2003             634         116           143      15,220            -          16,113
                                    2002             707         120           391       7,266            -           8,484
   ----------------------------------------------------------------------------------------------------------------------------
   Depreciation and                 2004             332         123           141      12,067            -          12,663
     Amortization                   2003             260          55           164       7,294            -           7,773
                                    2002              74          79           156       6,169            -           6,478
   ----------------------------------------------------------------------------------------------------------------------------

<FN>
     (a) In the "all other" classification, segment profit for fiscal 2004
         included a $3,525 net payment received by the Company in accordance
         with a legal settlement (see Note 11) and an additional reserve of
         $1,825 for attorney's fees associated with a lawsuit (see Note 10).

     (b) In the "all other" classification, segment profit (loss) for fiscal
         2003 included a litigation reserve of $16,500 for potential damages
         associated with a lawsuit (see Note 10).
</TABLE>

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

                                     82

<PAGE>
<PAGE>

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

         Not Applicable.

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

         The Company maintains disclosure controls and procedures that are
         designed to ensure that information required to be disclosed in our
         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 our 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, we carried out
         an evaluation, under the supervision and with the participation of
         our management, including our principal executive officer and
         principal financial officer, of the effectiveness of the design and
         operation of our disclosure controls and procedures. Based on the
         foregoing, our principal executive officer and principal financial
         officer concluded that our disclosure controls and procedures were
         effective as of the end of the period covered by this report.

         There have been no significant changes in our internal control over
         financial reporting or in other factors that materially affected,
         or is reasonably likely to materially affect, our internal controls
         over financial reporting in the fourth quarter of fiscal year 2004.

                                  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 Regulation 14(a)
         for its 2004 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 2004 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 2004 Annual Meeting of Shareholders is
         incorporated herein by this reference.



                                     83

<PAGE>
<PAGE>

         EQUITY COMPENSATION PLAN INFORMATION

         The following information regarding compensation plans of the
         Company is furnished as of March 31, 2004, 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)          2,409,068                       $11.79                     1,279,862

Equity compensation plans not
approved by security holders(2)              6,750                        $3.22                        N/A
                                         ---------
             Total                       2,415,818                       $11.76
                                         =========

<CAPTION>
                                         EQUITY COMPENSATION PLAN INFORMATION
                                            REGARDING CLASS B COMMON STOCK
----------------------------------------------------------------------------------------------------------------------
                                                                                              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)           332,865                       $9.10                      1,249,000

Equity compensation plans not
approved by security holders(2)            28,125                       $4.82                         N/A
                                          -------
             Total                        360,990                       $8.77
                                          =======

<FN>
(1) Consists of the Company's 2001 Incentive Stock Option Plan. See Note 13
    of Notes to Consolidated Financial Statements.
(2) Consists of options granted to non-employee members of the Board of Directors.
</TABLE>

                                     84

<PAGE>
<PAGE>

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 2004
         Annual Meeting of Shareholders is incorporated herein by this
         reference.

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

         The information contained under the caption "FEES BILLED BY
         INDEPENDENT PUBLIC ACCOUNTANTS" in the Company's definitive proxy
         statement to be filed pursuant to Regulation 14(a) for its 2004
         Annual Meeting of Shareholders is incorporated herein by this
         reference.

                                   PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
         ---------------------------------------------------------------

(a)      1. Financial Statements:                                          Page

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

         Report of Independent Certified Public Accountants.............     54

         Consolidated Balance Sheets as of March 31, 2004 and 2003......     55

         Consolidated Statements of Income for the Years Ended
         March 31, 2004, 2003 and 2002..................................     56

         Consolidated Statements of Shareholders' Equity for the
         Years Ended March 31, 2004, 2003 and 2002......................     57

         Consolidated Statements of Cash Flows for the Years
         Ended March 31, 2004, 2003 and 2002............................     58

         Notes to Financial Statements..................................     59

         2. Financial Statement Schedules:

         Report of Independent Certified Public Accountants regarding
         Financial Statement Schedule...................................     87

         Schedule II - Valuation and Qualifying Accounts................     88

                                     85

<PAGE>
<PAGE>

(b)      None.

(c)      Exhibits. See Exhibit Index on pages 90 through 97 of this Report.
         Management contracts and compensatory plans are designated on the
         Exhibit Index.

(d)      Financial Statement Schedules.

                                     86

<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. 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 such financial statement schedule presents fairly, in all
material respects, the information set forth therein.

                                                         /s/ BDO SEIDMAN, LLP


Chicago, Illinois
June 4, 2004

                                     87

<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, 2002:
Allowance for doubtful accounts............    $    448      $    113      $    158      $    403
Inventory obsolescence.....................         587         2,215         1,694         1,108
                                               --------      --------      --------      --------
                                               $  1,035      $  2,328      $  1,852      $  1,511
                                               ========      ========      ========      ========

Year Ended March 31, 2003:
Allowance for doubtful accounts............    $    403      $    (81)     $   (100)     $    422
Inventory obsolescence.....................       1,108         2,053         2,158         1,003
                                               --------      --------      --------      --------
                                               $  1,511      $  1,972      $  2,058      $  1,425
                                               ========      ========      ========      ========

Year Ended March 31, 2004:
Allowance for doubtful accounts............    $    422      $    (20)     $      -      $    402
Inventory obsolescence.....................       1,003         2,442         2,443         1,002
                                               --------      --------      --------      --------
                                               $  1,425      $  2,422      $  2,443      $  1,404
                                               ========      ========      ========      ========
</TABLE>

Financial statements of KV 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.

                                     88

<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, 2004                   By      /s/  Marc S. Hermelin
       -------                           -------------------------------------
                                           Vice Chairman of the Board and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

Date:  June 14, 2004                    By     /s/  Gerald R. Mitchell
       -------                            ------------------------------------
                                           Vice President, Treasurer and
                                           Chief Financial Officer
                                           (Principal Financial and 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, 2004                     By    /s/  Marc S. Hermelin
                                           -----------------------------------
                                             Marc S. Hermelin

Date:  June 14, 2004                     By    /s/  Victor M. Hermelin
                                         -------------------------------------
                                             Victor M. Hermelin

Date:  June 14, 2004                     By    /s/  Norman D. Schellenger
                                           -----------------------------------
                                             Norman D. Schellenger

Date:  June 14, 2004                     By    /s/  Alan G. Johnson
                                           -----------------------------------
                                             Alan G. Johnson

Date:  June 14, 2004                     By    /s/  Kevin S. Carlie
                                           -----------------------------------
                                             Kevin S. Carlie

Date:  June 14, 2004                     By    /s/  John P. Isakson
                                            ----------------------------------
                                              John P. Isakson

Date:  June 14, 2004                     By
                                            ----------------------------------
                                              Jean M. Bellin

                                     89

<PAGE>
<PAGE>

                                EXHIBIT INDEX

NEEDS TO BE UPDATED

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.

                                     90

<PAGE>
<PAGE>

     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.

     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 as of November 1, 1989, with the
                  Industrial Development Authority of the County of St.
                  Louis, Missouri, regarding private activity refunding and
                  revenue bonds issued by such Authority, including form of
                  Promissory Note executed in connection therewith, which
                  was filed as Exhibit 4(b) to the Company's Quarterly
                  Report on Form 10-Q for the quarter ended December 31,
                  1989, is incorporated herein by this reference.

     4(c)         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(d)         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(e)         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(f)         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(g)         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(h)         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(i)         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.

                                     91

<PAGE>
<PAGE>

     4(j)         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.

     4(k)         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(l)         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(m)         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(n)         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(o)         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(p)         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(q)         Eighth Amendment, dated June 30, 2003, to Loan Agreement
                  between the Company and its subsidiaries and LaSalle,
                  filed herewith.

     4(r)         Ninth Amendment, dated December 19, 2003, to Loan
                  Agreement between the Company and its subsidiaries and
                  LaSalle, filed herewith.

     10(a)*       Stock Option Agreement between the Company and Marc S.
                  Hermelin, Vice Chairman and Chief Executive Officer, dated
                  February 18, 1986, is incorporated herein by this
                  reference.

     10(b)*       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(c)*       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(d)*       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.

                                     92

<PAGE>
<PAGE>

     10(e)*       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(f)*       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(g)*       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(h)        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(i)        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(j)        Amendment to Lease Agreement, dated as of September 30,
                  1985, between the Industrial Development Authority of the
                  County of St. Louis, Missouri, as Lessor and KV
                  Pharmaceutical Company as Lessee, regarding lease of
                  facility located at 2303 Schuetz Road, St. Louis County,
                  Missouri, which was filed as Exhibit 10(q) to the
                  Company's Report on Form 10-Q for the quarter ended
                  December 31, 1985, is incorporated herein by this
                  reference.

     10(k)*       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(l)*       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(m)*       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.

                                     93

<PAGE>
<PAGE>

     10(n)*       Stock Option Agreement dated June 1, 1995, granting stock
                  option to Marc S. Hermelin, which was filed as Exhibit
                  10(w) to the Company's Quarterly Report on Form 10-Q for
                  the quarter ended June 30, 1996, is incorporated herein by
                  this reference.

     10(o)*       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(p)*       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(q)*       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(r)*       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(s)*       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(t)*       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(u)*       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(v)*       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(w)*       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(x)*       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.

     10(y)        Asset Purchase Agreement by and between K-V Pharmaceutical
                  Company and American Home Products Corporation, acting
                  through its Wyeth-Ayerst Laboratories division, dated as
                  of February 11, 1999, which was filed as Exhibit 2.1 to
                  the Company's Report on Form 8-K filed April 5, 1999, is
                  incorporated herein by this reference.

                                     94

<PAGE>
<PAGE>

     10(z)*       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(aa)       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(bb)*      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(cc)*      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(dd)*      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(ee)*      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(ff)*      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(gg)*      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(hh)*      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(ii)*      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(jj)*      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(kk)*      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.

     10(ll)*      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(mm)*      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.

                                     95

<PAGE>
<PAGE>

     10(nn)*      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(oo)*      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(pp)*      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(qq)*      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(rr)*      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(ss)*      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(tt)       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(uu)       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(vv)       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(ww)       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(xx)*      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.

     10(yy)       Stock Option Agreement dated as of May 30, 2003, granting
                  a stock option to Marc S. Hermelin, filed herewith.

     21           List of Subsidiaries, filed herewith.

     23           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.

                                     96

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<PAGE>

     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.

                                     97