** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**FORM 10-Q**

** **

**[MARK ONE]**

 

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

** **

**For the quarterly period ended March 31, 2008**

** **

**OR**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

** **

**For the transition periodfrom                   to**

 

**Commission File No. 000-30123**

 

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**SCIELE PHARMA, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                | ** ** | **58-2004779**                           |
|-------------------------------------------------------------|------------|------------------------------------------|
| (State  of incorporation)                                   |       | (I.R.S.  Employer Identification Number) |
| ** **                                                  | ** ** | ** **                               |
| **5 Concourse Parkway, Suite 1800, Atlanta,  Georgia** | ** ** | **30328**                                |
| (Address  of principal executive offices)                   |       | (Zip  code)                              |

 

**(770) 442-9707**

(Registrant’s telephone number, including area code):

 

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Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x    No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  x                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o    No x

 

As of April 28,2008, there were 35,041,191 shares of the Registrant’s Common Stockoutstanding.

 

 

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**SCIELE PHARMA, INC. AND SUBISIDIARIES**

**FORM 10-Q**

**INDEX**

 
| PART I.  | FINANCIAL INFORMATION                                                                                          | 1      |
|---------------|----------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                           |   |
| Item 1.       | Consolidated Balance Sheets at March  31, 2008 and December 31, 2007                                           | 1      |
|          |                                                                                                           |   |
|          | Consolidated  Statements of Operations for the three months ended March 31, 2008 and March  31, 2007           | 2      |
|          |                                                                                                           |   |
|          | Consolidated Statements of  Cash Flows for the three months ended March 31, 2008 and March 31,  2007 | 3      |
|          |                                                                                                           |   |
|          | Notes to  Consolidated Financial Statements                                                                    | 4      |
|          |                                                                                                           |   |
| Item 2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                    | 14     |
|          |                                                                                                           |   |
| Item 3.       | Quantitative  and Qualitative Disclosures about Market Risk                                                    | 22     |
|          |                                                                                                           |   |
| Item 4.       | Controls  and Procedures                                                                                       | 23     |
|          |                                                                                                           |   |
| PART II. | OTHER INFORMATION                                                                                              | 24     |
|          |                                                                                                           |   |
| Item 1.       | Legal Proceedings                                                                                              | 24     |
|          |                                                                                                           |   |
| Item 2.       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                   | 25     |
|          |                                                                                                           |   |
| Item 6.  | Exhibits                                                                                                       | 25     |

 

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**PART 1 - FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**SCIELE PHARMA, INC. AND SUBISIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(in thousands, except share and pershare data)**

** **
| ** **                                                                                                                                                        | ** ** | **March 31,**        | ** ** | ** **                  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                        | ** ** | **2008**

**(unaudited)** | ** ** | **December 31,  2007** | ** ** |
| **ASSETS**                                                                                                                                                        |       | ** **                |       |                        |       |
| Current assets:                                                                                                                                                   |       |                      |       |                        |       |
| Cash and cash  equivalents                                                                                                                                        |       | $                         | 149,313    |                        | $          | 154,628 |   |
| Marketable  securities                                                                                                                                            |       | 16,487                    |       | 33,660                      |       |
| Accounts  receivable, net of allowances of $2,795 and $2,582 at March 31, 2008 and  December 31, 2007, respectively                                     |       | 79,920                    |       | 71,709                      |       |
| Inventories                                                                                                                                                       |       | 25,412                    |       | 26,270                      |       |
| Income taxes  receivable                                                                                                                                          |       | 9,606                     |       | 13,608                      |       |
| Deferred tax  assets                                                                                                                                              |       | 5,430                     |       | 4,121                       |       |
| Other assets                                                                                                                                                      |       | 40,746                    |       | 42,652                      |       |
| Total current  assets                                                                                                                                             |       | 326,914                   |       | 346,648                     |       |
| Property and  equipment, net of accumulated depreciation of $9,917 and $8,791 at March 31,  2008 and December 31, 2007, respectively                              |       | 35,456                    |       | 29,676                      |       |
| Other assets:                                                                                                                                                     |       |                      |       |                        |       |
| Intangibles, net                                                                                                                                                  |       | 370,834                   |       | 345,556                     |       |
| Goodwill                                                                                                                                                          |       | 78,205                    |       | 70,809                      |       |
| Deferred tax  assets                                                                                                                                              |       | —                    |       | 4                           |       |
| Other                                                                                                                                                             |       | 16,810                    |       | 23,975                      |       |
| Total other  assets                                                                                                                                               |       | 465,849                   |       | 440,344                     |       |
| Total assets                                                                                                                                                      |       | $                         | 828,219    |                        | $          | 816,668 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                    |       |                      |       |                        |       |
| Current  liabilities:                                                                                                                                             |       |                      |       |                        |       |
| Account payable                                                                                                                                                   |       | $                         | 27,722     |                        | $          | 34,031 |   |
| Accrued expenses                                                                                                                                                  |       | 31,816                    |       | 26,490                      |       |
| Total current  liabilities                                                                                                                                        |       | 59,538                    |       | 60,521                      |       |
| Long-term  liabilities:                                                                                                                                           |       |                      |       |                        |       |
| Convertible debt                                                                                                                                                  |       | 325,000                   |       | 325,000                     |       |
| Deferred tax  liabilities                                                                                                                                         |       | 6,385                     |       | 4,408                       |       |
| Other  liabilities                                                                                                                                                |       | 1,682                     |       | 1,742                       |       |
| Total  liabilities                                                                                                                                                |       | 392,605                   |       | 391,671                     |       |
| Stockholders’  equity:                                                                                                                                       |       |                      |       |                        |       |
| Preferred stock,  1,000,000 shares authorized and none outstanding                                                                                                |       | —                    |       | —                      |       |
| Common stock,  $0.001 par value; 100,000,000 shares authorized; 35,714,270 and 36,032,299  issued at March 31, 2008 and December 31, 2007, respectively |       | 36                        |       | 36                          |       |
| Additional  paid-in capital                                                                                                                                       |       | 267,273                   |       | 272,334                     |       |
| Retained  earnings                                                                                                                                                |       | 184,512                   |       | 172,966                     |       |
| Accumulated  other comprehensive income (loss)                                                                                                                    |       | 548                       |       | (2,832                      | )          |
| Stockholders’  equity before treasury stock                                                                                                                  |       | 452,369                   |       | 442,504                     |       |
| Less: Treasury stock  at cost, Common stock, 722,502 and 754,919 shares at March 31, 2008 and  December 31, 2007, respectively                          |       | (16,755                   | )          | (17,507                     | )          |
| Total  stockholders’ equity                                                                                                                                  |       | 435,614                   |       | 424,997                     |       |
| Total  liabilities and stockholders’ equity                                                                                                                  |       | $                         | 828,219    |                        | $          | 816,668 |   |

 
| See accompanying notes  to consolidated financial statements. |
|---------------------------------------------------------------|

 

1

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**SCIELE PHARMA, INC. AND SUBISIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited, in thousands, except pershare data)**

** **
| ** **                                   | ** ** | **For the Three Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                   | ** ** | **March 31,**                                 | ** ** |
| ** **                                   | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| Net revenues                                 |       | $                                                  | 100,438    |   | $ | 82,257 |   |
| Operating costs  and expenses:               |       |                                               |       |   |   |
| Cost of revenues                             |       | 10,383                                             |       | 11,053 |   |
| Selling, general  and administrative         |       | 53,344                                             |       | 39,695 |   |
| Depreciation and  amortization               |       | 8,031                                              |       | 6,671 |   |
| Research and  development                    |       | 8,780                                              |       | 5,981 |   |
| Total operating  costs and expenses          |       | 80,538                                             |       | 63,400 |   |
| Operating income                             |       | 19,900                                             |       | 18,857 |   |
| Other (expense)  income:                     |       |                                               |       |   |   |
| Interest expense                             |       | (2,865                                             | )          | (933 | ) |
| Interest income                              |       | 1,671                                              |       | 1,760 |   |
| Loss on equity  investment                   |       | (417                                               | )          | — |   |
| Impairment on  equity investment             |       | (1,199                                             | )          | — |   |
| Total other  (expense) income                |       | (2,810                                             | )          | 827 |   |
| Income before  provision for income taxes    |       | 17,090                                             |       | 19,684 |   |
| Provision for  income taxes                  |       | 5,544                                              |       | 6,686 |   |
| Net income                                   |       | 11,546                                             |       | 12,998 |   |
| Other comprehensive  income (loss)           |       | 3,380                                              |       | (17 | ) |
| Comprehensive  income                        |       | $                                                  | 14,926     |   | $ | 12,981 |   |
| Net income per  common share:                |       |                                               |       |   |   |
| Basic                                        |       | $                                                  | 0.33       |   | $ | 0.37 |   |
| Diluted                                      |       | $                                                  | 0.32       |   | $ | 0.36 |   |
| Weighted average  common shares outstanding: |       |                                               |       |   |   |
| Basic                                        |       | 35,352                                             |       | 35,170 |   |
| Diluted                                      |       | 35,798                                             |       | 36,288 |   |

 
| See accompanying notes  to consolidated financial statements. |
|---------------------------------------------------------------|

 

2

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**SCIELE PHARMA, INC. AND SUBISIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited, in thousands)**

** **
| ** **                                                                         | ** ** | **For The Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**                                 | ** ** |
| ** **                                                                         | ** ** | **2008**                                           | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                             |       |                                               |       |   |   |
| Net income                                                                         |       | $                                                  | 11,546     |   | $ | 12,998 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                               |       |   |   |
| Depreciation  expense                                                              |       | 1,101                                              |       | 797 |   |
| Amortization  expense                                                              |       | 6,930                                              |       | 5,874 |   |
| Stock-based  compensation expense                                                  |       | 3,001                                              |       | 3,055 |   |
| Excess tax  benefit on share-based awards                                          |       | (396                                               | )          | (464 | ) |
| Non-cash  interest expense                                                         |       | 530                                                |       | 172 |   |
| Deferred income  tax expense                                                       |       | 672                                                |       | 1,555 |   |
| Changes in  assets and liabilities, net of acquired assets and liabilities:        |       |                                               |       |   |   |
| Accounts  receivable                                                               |       | (7,005                                             | )          | (10,635 | ) |
| Inventories                                                                        |       | 1,258                                              |       | 4,363 |   |
| Other current  assets and other assets                                             |       | 1,483                                              |       | (7,269 | ) |
| Income taxes  receivable                                                           |       | 3,981                                              |       | 3,891 |   |
| Accrued expenses  and other long-term liabilities                                  |       | 6,414                                              |       | (3,355 | ) |
| Accounts payable                                                                   |       | (6,895                                             | )          | 771 |   |
| Net cash  provided by operating activities                                         |       | 22,620                                             |       | 11,753 |   |
| Cash flows from  investing activities:                                             |       |                                               |       |   |   |
| Purchases and  advanced payments for products and licenses                         |       | (32,208                                            | )          | (2,832 | ) |
| Purchases of  property and equipment                                               |       | (5,508                                             | )          | (905 | ) |
| Proceeds from  sale of marketable securities                                       |       | 19,127                                             |       | 74,803 |   |
| Purchases of  marketable securities                                                |       | (1,985                                             | )          | (80,406 | ) |
| Net cash used in  investing activities                                             |       | (20,574                                            | )          | (9,340 | ) |
| Cash flows from  financing activities:                                             |       |                                               |       |   |   |
| Repurchases of  common stock                                                       |       | (10,000                                            | )          | (448 | ) |
| Excess tax  benefit on share-based awards                                          |       | 396                                                |       | 464 |   |
| Net proceeds from  stock option exercises                                          |       | 1,610                                              |       | 715 |   |
| Net cash (used  in) provided by financing activities                               |       | (7,994                                             | )          | 731 |   |
| Effect of  foreign exchange rates on cash                                          |       | 633                                                |       | (213 | ) |
| Net (decrease) increase  in cash and cash equivalents                              |       | (5,315                                             | )          | 2,931 |   |
| Cash and cash  equivalents, beginning of period                                    |       | 154,628                                            |       | 45,261 |   |
| Cash and cash  equivalents, end of period                                          |       | $                                                  | 149,313    |   | $ | 48,192 |   |
|                                                                               |       |                                               |       |   |   |
| Supplemental  cash flow information:                                               |       |                                               |       |   |   |
| Cash paid for  income taxes                                                        |       | $                                                  | 946        |   | $ | 617 |   |
| Cash paid for  interest                                                            |       | $                                                  | —     |   | $ | 1,407 |   |

 
| See accompanying notes  to consolidated financial statements. |
|---------------------------------------------------------------|

 

3

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** **

**SCIELE PHARMA,INC. AND SUBISIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**1.****                                      Basis of Presentation**

 

Theaccompanying unaudited interim consolidated financial statements reflect alladjustments (consisting solely of normal recurring adjustments) which are, inthe opinion of management necessary to a fair presentation of the financialposition, results of operations and cash flows of Sciele Pharma, Inc. andsubsidiaries (the “Company”)  for theinterim periods. Certain footnote disclosures normally included in financialstatements prepared according to accounting principles generally accepted inthe United States of America have been condensed or omitted from these interimfinancial statements as permitted by the rules and regulations of theSecurities and Exchange Commission. Interim results are not necessarilyindicative of results for the full year. Management of the Company hasmade a number of estimates and assumptions relating to the reporting of assetsand liabilities and the disclosure of contingent liabilities at the dates ofthe consolidated balance sheets and revenues and expenses during the reportingperiods to prepare these consolidated financial statements in conformity withaccounting principles generally accepted in the United States of America.Actual results could differ from those estimates. All significant inter-companyaccounts and transactions have been eliminated in consolidation.  Theinterim results should be read in conjunction with the financial statements andnotes thereto included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2007 (File No. 000-30123).

 

**2.****                                      New Accounting Pronouncements**

 

In March 2008,the Financial Accounting Standards Board (“FASB”) issued FASB Statement (“SFAS”)No. 161, *Disclosures about DerivativeInstruments and Hedging Activities.* This Statement requiresdisclosure of the fair values of derivative instruments and their gains andlosses in a tabular format, disclosure of derivative features that are creditrisk—related and cross-referencing within footnotes to enable financialstatement users to locate important information about derivative instruments.This statement is effective for financial statements issued for fiscal yearsand interim periods beginning after November 15, 2008. The Company has notdetermined the impact, if any, SFAS No. 161 will have on its futurefinancial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), *Business Combinations.* This Statement establishes principlesand requirements for how the acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, and anynoncontrolling interest in the acquiree; recognizes and measures the goodwillacquired in the business combination or a gain from a bargain purchase;determines what information to disclose to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination. This Statement is effective as of the beginning of an entity’sfirst fiscal year that begins after December 15, 2008. The Company has notdetermined the impact, if any, SFAS No. 141(R) will have on itsfuture financial statements.

 

In December 2007,the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements.* This Statementestablishes accounting and reporting standards that require the ownershipinterests in subsidiaries’ non-parent owners be clearly presented in the equitysection of the balance sheet; requires the amount of consolidated net incomeattributable to the parent and to the noncontrolling interest be clearlyidentified and presented on the face of the consolidated statement of income;requires that changes in a parent’s ownership interest while the parent retainsits controlling financial interest in its subsidiary be accounted forconsistently; requires that when a subsidiary is deconsolidated, any retainednoncontrolling equity investment in the former subsidiary be initially measuredat fair value and the gain or loss on the deconsolidation of the subsidiary bemeasured using the fair value of any noncontrolling equity; requires thatentities provide disclosures that clearly identify the interests of the parentand the interests of the noncontrolling owners. This Statement is effective asof the beginning of an entity’s first fiscal year that begins after December 15,2008. The Company has not determined the impact, if any, SFAS No. 160 willhave on its financial statements.

 

In February 2007,the FASB issued SFAS No. 159, *The FairValue for Financial Assets and Financial Liabilities*. This Statementpermits entities to choose to measure financial assets and liabilities, withcertain exceptions, at fair value at specified election dates. A businessentity shall report unrealized gains and losses on items for which the fairvalue option has been elected in earnings at each subsequent reporting date.This Statement is effective as of the beginning of an entity’s first fiscalyear that begins after November 15, 2007. The adoption of SFAS No. 159did not have an impact on the Company’s financial statements.

 

4

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In September,2006, the FASB issued SFAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*.This Statement requires an employer to recognize the over funded or underfunded status of a defined benefit postretirement plan (other than amultiemployer plan) as an asset or liability in its statement of financialposition and to recognize changes in that funded status in the year in whichthe changes occur through comprehensive income. This statement also requires anemployer to measure the funded status of a plan as of the date of its year-endstatement of financial position, with limited exceptions. An employer withpublicly traded equity securities is required to initially recognize the fundedstatus of a defined benefit postretirement plan and to provide the requireddisclosures as of the end of the fiscal year ending after December 15,2006. The requirement to measure plan assets and benefit obligations as of thedate of the employer’s fiscal year-end statement of financial position iseffective for fiscal years ending after December 15, 2008. The adoption ofSFAS No. 158 did not have an impact on the Company’s financial statements.

 

On September 15,2006 the FASB issued SFAS No. 157, *Fair Value Measurements*.This Statement provides guidance for using fair value to measure assets andliabilities. This Statement references fair value as the price that would bereceived to sell an asset or paid to transfer a liability in an orderlytransaction between market participants in the market in which the reportingentity transacts. This Statement applies whenever other standards require (orpermit) assets or liabilities to be measured at fair value. This Statement doesnot expand the use of fair value in any new circumstances. It is effective forfinancial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years, with an additional oneyear deferral for non-financial assets and liabilities. 

** **

Effective January1, 2008, the Company determines the fair market values of its financialinstruments based on the fair value hierarchy established in SFAS No. 157,which requires an entity to maximize the use of observable inputs and minimizethe use of unobservable inputs when measuring fair value. The standarddescribes three levels of inputs that may be used to measure fair value asfollows:

 

Level 1

 

Quoted prices inactive markets for identical assets or liabilities. Level 1 assets andliabilities include debt and equity securities and derivative contracts thatare traded in an active exchange market, as well as certain U.S. Treasurysecurities that are highly liquid and are actively traded in over-the-countermarkets.

 

Level 2

 

Observable inputsother than Level 1 prices, such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. Level 2 assets andliabilities include debt securities with quoted prices that are traded lessfrequently than exchange-traded instruments and derivative contracts whosevalue is determined using a pricing model with inputs that are observable inthe market or can be derived principally from or corroborated by observablemarket data. This category generally includes U.S. Government and agencymortgage-backed debt securities, corporate debt securities, derivativecontracts, residential mortgage and loans held-for-sale.

 

Level 3

 

Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities. Level 3 assets andliabilities include financial instruments whose value is determined usingpricing models, discounted cash flow methodologies, or similar techniques, aswell as instruments for which the determination of fair value requiressignificant management judgment or estimation. This category generally includescertain private equity investments, retained residual interests insecuritizations, residential MSRs, asset-backed securities (ABS), highlystructured or long-term derivative contracts and certain collateralized debtobligations (CDO) where independent pricing information was not able to beobtained for a significant portion of the underlying assets.

 

As of March 31,2008, the Company’s marketable securities in Note 4 are Level 1 assets as defined bySFAS No. 157.

 

**3.****                                      Stock Based Compensation**

 

Effective January 1,2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R) (“SFAS123R”), “*Share-Based Payment*”, using themodified-prospective-transition method. Under that transition method,compensation cost recognized in the three months ended March 31, 2008 and March 31,2007 includes: (a) compensation cost for all share-based payments grantedprior to, but not yet vested as of January 1, 2006, based on the grantdate fair value estimated in accordance with the original provisions of SFAS No. 123,and (b) compensation cost for all share-based payments granted subsequentto January 1, 2006, based on the grant-date fair value estimated inaccordance with the provisions of SFAS No. 123R.  Stock-basedcompensation is included in selling, general, and administrative expense andresearch and development expense as follows (in thousands):

 
| ** **                          | ** ** | **For the  Three Months Ended March 31, 2008** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
|                                | ** ** | **Restricted  Stock  And Restricted  Stock Units**  | ** ** | **Stock  Options** | ** ** | **ESOP** | ** ** | **Total** | ** ** |
| Selling, general and administrative |       | $                                                   | 2,486      |   | $ | 191 |   | $ | — |   | $ | 2,677 |   |
| Research and development            |       | 276                                                 |       | 48 |   | — |   | 324 |   |
| Total stock-based compensation      |       | $                                                   | 2,762      |   | $ | 239 |   | $ | — |   | $ | 3,001 |   |

 
| ** **                          | ** ** | **For the Three Months Ended March 31, 2007** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|
|                                | ** ** | **Restricted  Stock  And Restricted  Stock Units** | ** ** | **Stock  Options** | ** ** | **ESOP** | ** ** | **Total** | ** ** |
| Selling, general and administrative |       | $                                                  | 1,327      |   | $ | 440 |   | $ | 979 |   | $ | 2,746 |   |
| Research and development            |       | 147                                                |       | 110 |   | 52 |   | 309 |   |
| Total stock-based compensation      |       | $                                                  | 1,474      |   | $ | 550 |   | $ | 1,031 |   | $ | 3,055 |   |

 

At March 31, 2008, the Company had onestock-based compensation plan allowing for the issuance of stock options,restricted stock, restricted stock units and an employee stock ownership plan (“ESOP”).  In 2007 and through March 31,2008, the Company issued restricted stock and restricted stock units toexecutives and employees. The following table summarizes restricted stock andrestricted stock units outstanding (shares in thousands):

 

5

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| ** **                            | ** ** | **Number of   Shares  Subject to  Issuance** | ** ** | **Weighted  Average  Share  Price** | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at December 31, 2007 |       | 1,328                                        |       | $                                   | 20.60      |   |
| Granted                               |       | 64                                           |       |                                | 23.22      |   |
| Cancelled                             |       | (25                                          | )          |                                | 23.89      |   |
| Vested and issued                     |       | (99                                          | )          |                                | 23.25      |   |
| Outstanding at March 31, 2008    |       | 1,268                                        |       | $                                   | 20.85      |   |

 

The restrictions on therestricted stock and restricted stock units lapse according to one of twoschedules.  Under one schedule, therestrictions will lapse on the earlier date at which either specific keyperformance objectives have been reached or on the fifth anniversary date ofthe issuance.  Under the second schedule,the restrictions will lapse 25% annually over four years for employees and33.3% annually over three years for directors.  The fair value of the restricted stock and restricted stock units areexpensed over the period during which the restrictions lapse.

 

The Company’s ESOPprovides benefits to substantially all employees.  The annual contribution, if any, to the ESOPis at the discretion of the Board of Directors of the Company.  The Company distributed 32,417 shares and45,081 shares to the ESOP in the three months ended March 31, 2008 and March 31,2007, respectively.

** **

Thefollowing table summarizes options outstanding at March 31, 2008 andchanges during the three months ended (shares in thousands):

 
| ** **                       | ** ** | **Number of Shares   Subject to Issuance** | ** ** | **Weighted Average   Share   Price** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|
| Outstanding at December 31, 2007 |       | 1,294                                      |       | $                                    | 16.35      |   |
| Granted                          |       | —                                     |       | —                               |       |
| Cancelled                        |       | (57                                        | )          | 22.75                                |       |
| Exercised                        |       | (116                                       | )          | 13.88                                |       |
| Outstanding at March 31, 2008    |       | 1,121                                      |       | $                                    | 16.28      |   |

 

**4.****                                      Marketable Securities**

 

The Company classifies its existing marketable securities asavailable-for-sale. All available-for-sale securities are classified as currentas the Company has the ability to use them for current operating and investingpurposes. There were no realized losses or gains from marketable securities inthe three months ended March 31, 2008 or March 31, 2007.  The carrying amount of available-for-salesecurities and their approximate fair values are as follows (in thousands):

 
| ** **                 | ** ** | **As of March 31, 2008** | ** ** |
|----------------------------|------------|-------------------------------|------------|
| ** **                 | ** ** | **Amortized  Cost**           | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Government bonds      |       | $                             | 4,504      |   | $ | 26 |   | $ | — |   | $ | 4,530 |   |
| Federal agency obligations |       | 1,336                         |       | 4 |   | — |   | 1,340 |   |
| Corporate bonds            |       | 10,689                        |       | 2 |   | (74 | ) | 10,617 |   |
| Total                      |       | $                             | 16,529     |   | $ | 32 |   | $ | (74 | ) | $ | 16,487 |   |

 
| ** **                 | ** ** | **As of December 31, 2007** | ** ** |
|----------------------------|------------|----------------------------------|------------|
| ** **                 | ** ** | **Amortized  Cost**              | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| U.S. Government bonds      |       | $                                | 14,677     |   | $ | 2 |   | $ | (51 | ) | $ | 14,628 |   |
| Federal agency obligations |       | 4,354                            |       | 1 |   | (15 | ) | 4,340 |   |
| Corporate bonds            |       | 14,779                           |       | 2 |   | (89 | ) | 14,692 |   |
| Total                      |       | $                                | 33,810     |   | $ | 5 |   | $ | (155 | ) | $ | 33,660 |   |

 

6

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The age of gross unrealized losses and fair value by investment categoryfor all securities in a loss position as of March 31, 2008 is as follows(in thousands):

 
| ** **      | ** ** | **Less than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total**     | ** ** |
|-----------------|------------|-------------------------|------------|-----------------------|------------|---------------|------------|
| ** **      | ** ** | **Fair Value**          | ** ** | **UnrealizedLosses**  | ** ** | **FairValue** | ** ** | **Unrealized Losses** | ** ** | **Fair Value** | ** ** | **UnrealizedLosses** | ** ** |
| Corporate bonds |       | $                       | 4,487      |                  | $          | (18           | )          | $ | 4,911 |   | $ | (56 | ) | $ | 9,398 |   | $ | (74 | ) |
| Total           |       | $                       | 4,487      |                  | $          | (18           | )          | $ | 4,911 |   | $ | (56 | ) | $ | 9,398 |   | $ | (74 | ) |

 

TheCompany has determined that its unrealized losses are temporary based on theminor amount of the losses compared to amortized cost and the short duration ofthe losses, as well as the credit worthiness of the investees. The Companyexpects that all losses will be recovered, and intends to hold securities torecovery. If market, industry and/or investee conditions deteriorate, we mayincur future impairments.

 

The amortized cost and estimated fair value of marketable securities at March 31,2008 by contractual maturity are shown below (in thousands):

 
| ** **                               | ** ** | **Cost** | ** ** | **Estimated Fair Value** | ** ** |
|------------------------------------------|------------|----------|------------|--------------------------|------------|
| Due in one year or less                  |       | $        | 8,620      |                     | $          | 8,634 |   |
| Due after one year through three years   |       | 7,057    |       | 7,001                    |       |
| Due after three years through five years |       | 514      |       | 514                      |       |
| Due after five years                     |       | 338      |       | 338                      |       |
| Total                                    |       | $        | 16,529     |                     | $          | 16,487 |   |

 

**5.****                                      Inventories**

 

Inventories consist of purchased pharmaceutical products and are statedat the lower of cost or market. Cost is determined using the first-in,first-out method, and market is considered to be net realizable value.Inventories consist of finished product and bulk product awaiting processingand packaging into finished product. Inventories consisted of the following (in thousands):

 
| ** **        | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------|------------|--------------------------|------------|-----------------------------|------------|
| Bulk product      |       | $                        | 7,325      |                        | $          | 7,783 |   |
| Finished product  |       | 20,572                   |       | 20,894                      |       |
| Gross inventories |       | 27,897                   |       | 28,677                      |       |
| Reserves          |       | (2,485                   | )          | (2,407                      | )          |
| Net inventories   |       | $                        | 25,412     |                        | $          | 26,270 |   |

 

**6.****                                      Goodwill, Product Rights, and Other Intangibles**

 

In June 2007,the Company acquired Alliant Pharmaceuticals, Inc. in a transactionaccounted for under SFAS No. 141, *BusinessCombinations*. Alliant was a specialty pharmaceutical company focusedon acquiring, developing and commercializing proprietary products for thepediatric and pediatric specialty markets. The Company recorded $134.5 millionin intangible assets and goodwill for the acquisition of Alliant, whichincluded $114.6 million in purchase price, $1.2 million in transaction costsand $18.7 million in assumed liabilities. As of March 31, 2008 the Company had $78.2 million capitalized asgoodwill related to the acquisition, an increase of $7.4 million compared tothe December 31, 2007 balance of $70.8 million.  This increase was due to on goingexpenditures related to the acquisition and the outcome of a settlementcontingency related to working capital.

 

7

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In January 2008, the Company obtained U.S. Food &Drug Administration (“FDA”) approval for four dosage strengths of a new Sularformulation, 8.5-milligram, 17-milligram, 25.5-milligram and 34-milligramdosages.  The new Sular formulation, which utilizes SkyePharma’s patentedGEOMATRIX technology,  provides a lower dose of Sular for each of itscurrent doses.  The Company launched the new Sular formulation during thefirst quarter of 2008.  During the threemonths ended March 31, 2008, a $2.0 million milestone payment was made inconjunction with obtaining approval from the FDA and capitalized to intangibleassets and is now being amortized over the estimated useful life.

 

In January, 2008, the Company launched Fosteum.Fosteum is a prescription medical food product for the dietary management ofthe metabolic processes of osteopenia and osteoporosis.  The $5.0 million intangible asset related tothe licensing rights obtained is now being amortized over the estimated usefullife.

 

In February, 2008, the Company launched Fenoglide inthe U.S. Fenoglide, indicated for the treatment of hyperlipidemia andhypertriglyceridemia, utilizes LifeCycle Pharma’s Meltdose(R) technology,which is designed to provide enhanced absorption and greater bioavailability.The $9.0 million intangible asset recorded during 2007 related to the licensingrights obtained is now being amortized over the estimated useful life.

 

In March 2008,the Company acquired from Verus Pharmaceuticals, Inc. the Twinjectepinephrine auto-injector (epinephrine injection, USP 1:1000) for the treatmentof severe allergic reactions and anaphylaxis. Under the agreement, Scieleacquired Twinject and certain other related Verus products under developmentfor $29.1 million. Verus may also receive additional payments resulting fromthe achievement of certain development milestones. Anaphylaxis is a sudden,severe, and potentially life-threatening allergic reaction triggered byexposure to one or more allergens, including foods, insect stings, drugs, andlatex products.  The Company recorded $25.2million in intangible assets related to licensing rights, $2.8 million inproperty and equipment for equipment to produce the Twinject device, $1.0million in inventory and $0.1 million in other assets.  The intangible assets acquired will beamortized over its estimated useful life.

 

Intangibleassets which are not deemed to have an indefinite life are amortized on astraight line basis over their respective useful lives.  Thefollowing table reflects the components of intangible assets (in thousands):

 
| ** **                     | ** ** | **As of March 31, 2008** | ** ** |
|--------------------------------|------------|-------------------------------|------------|
| ** **                     | ** ** | **Gross  Amount**             | ** ** | **Accumulated  Amortization** | ** ** | **Net  Amount** | ** ** | **Original  Weighted Average Life** | ** ** |
| Licensing rights               |       | $                             | 465,278    |   | $ | (108,895) |   | $ | 356,383 |   | 17.3 years |   |
| Trade names                    |       | 11,960                        |       | (3,705) |   | 8,255 |   | 19.1 years |   |
| Supply/Distribution agreements |       | 10,350                        |       | (6,280) |   | 4,070 |   | 10.0 years |   |
| Other intangibles              |       | 3,176                         |       | (1,050) |   | 2,126 |   | 19.7 years |   |
| Total                          |       | $                             | 490,764    |   | $ | (119,930) |   | $ | 370,834 |   |   |   |

 
| ** **                     | ** ** | **As of December 31, 2007** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **Gross Amount**                 | ** ** | **Accumulated  Amortization** | ** ** | **Net Amount** | ** ** | **Original  Weighted  Average Life** | ** ** |
| Licensing rights               |       | $                                | 433,070    |   | $ | (102,432) |   | $ | 330,638 |   | 17.5 years |   |
| Trade names                    |       | 11,960                           |       | (3,539) |   | 8,421 |   | 19.1 years |   |
| Supply/Distribution agreements |       | 10,350                           |       | (6,021) |   | 4,329 |   | 10.0 years |   |
| Other intangibles              |       | 3,176                            |       | (1,008) |   | 2,168 |   | 19.7 years |   |
| Total                          |       | $                                | 458,556    |   | $ | (113,000) |   | $ | 345,556 |   |   |   |

 

8

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Amortization is calculated on a straight-line basis over the estimateduseful life of the intangible asset. Estimated annual amortization expense foreach of the five succeeding fiscal years is as follows (in thousands):

 
| **Fiscal year ended  December 31:** | ** ** | **Amount** | ** ** |
|------------------------------------------|------------|------------|------------|
| 2008                                     |       | $          | 29,716     |   |
| 2009                                     |       | 29,828     |       |
| 2010                                     |       | 29,828     |       |
| 2011                                     |       | 29,828     |       |
| 2012                                     |       | 28,112     |       |
|                                          |            |            |            |  |

 

**7.****                                      Other Long Term Assets**

 

Other long term assets consisted of the following (in thousands):

 
| ** **                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Deferred finance costs                  |       | $                  | 7,009      |                  | $          | 7,551 |   |
| Refundable payment for product licenses |       | 4,000              |       | 9,000                 |       |
| Deposits                                |       | 49                 |       | 49                    |       |
| Long-term investments                   |       | 5,752              |       | 7,375                 |       |
| Total other assets                      |       | $                  | 16,810     |                  | $          | 23,975 |   |

 

In the secondquarter of 2007, the Company paid Plethora Solutions Holding plc$7.0 million in conjunction with the closing of an exclusive licensingagreement to market Plethora’s product, PSD502, for premature ejaculation. Ofthe $7.0 million, $6.3**millionpurchased an equity stake in Plethora equating to 1,772,505 new ordinaryshares. The remaining $0.7 million was allocated to the license itself andexpensed as in process research and development in 2007.  The Company’s investment in Plethora amountsto approximately 5.6% of the ordinary shares outstanding. Plethora isheadquartered in the United Kingdom and is listed on the London Stock Exchange.Per the agreement with Plethora, the shares purchased will not be sold untilthe earlier of FDA approval of PSD502 or June 2011.  In the first quarter of 2008, the Company recognizeda $1.2 million impairment on the asset based on sustained declines in stockvalue in excess of industry trends.  Theremaining $5.1 million investment in Plethora is accounted for under the costmethod and is classified as a long-term investment above.

 

In the thirdquarter of 2007, the Company signed an exclusive agreement with AddrenexPharmaceuticals, Inc. to market, upon approval by the FDA, a patented,extended-release formulation of clonidine hydrochloride for the treatment ofhypertension and attention deficit and hyperactivity disorder in North America.Under the terms of the agreement, the Company paid $6 million, of which$1.2 million was allocated to an equity stake in Addrenex, and$4.8 million was expensed as in-process research and development in thethird quarter of 2007. In the first quarter of 2008, the Company recognized aloss of $0.4 million as its portion of Addrenex’s loss.  The Company will have the right to increaseits equity position in the future. The Company will also make regulatorymilestone payments of up to $11 million and royalty payments to Addrenexon future product sales. In accordance with Accounting Principles Board OpinionNo. 18, *The Equity Method of Accountingfor Investments in Common Stock*, the remaining $0.7 million Addrenexinvestment is being accounted for using the equity method and is classified as along-term investment above.

 

9

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**8.****                                      Accrued Expenses**

 

Accrued expenses consisted of the following (in thousands):

 
| ** **                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Employee compensation and benefits |       | $                  | 5,279      |                  | $          | 7,316 |   |
| Product returns                    |       | 5,526              |       | 1,299                 |       |
| Product rebates                    |       | 3,418              |       | 2,385                 |       |
| Sales deductions                   |       | 6,654              |       | 6,039                 |       |
| Accrued royalties                  |       | 4,337              |       | 5,049                 |       |
| Accrued interest                   |       | 3,202              |       | 1,075                 |       |
| Other                              |       | 3,400              |       | 3,327                 |       |
| Total accrued expenses             |       | $                  | 31,816     |                  | $          | 26,490 |   |

 

**9.****                                      Long-term Debt**

 

On May 14, 2007, theCompany issued and sold $325.0 million aggregate principal amount of2.625% Contingent Convertible Senior Notes due 2027 (the “Notes”) in anunderwritten registered offering. The Notes are due May 15, 2027 andinterest is payable semi-annually in arrears on May 15 and November 15of each year, beginning November 15, 2007. In addition to the interest onthe Notes, after May 15, 2012, the Company will also be required to paycontingent interest during specified six-month periods if the average tradingprice of the Notes per $1,000 principal amount for the five day trading periodending on the third trading day immediately preceding the first day of theapplicable six-month period equals $1,200 or more. During any period whencontingent interest is payable, it will be payable at a rate equal to 0.5% perannum. In addition, if the Company defaults in its reporting obligations underthe indenture, it can elect to pay special interest on the Notes at a rateequal to 0.25% per annum as the sole remedy for a specified period of time.

 

The Notes are seniorunsecured obligations and rank equally in right of payment with each other andwith all other senior unsecured indebtedness. The Notes are subordinated inright of payment to all of existing and future secured indebtedness (to theextent of the value of the collateral securing the same). The indenture doesnot contain any restriction on the payment of dividends, the incurrence ofindebtedness or the repurchase of securities, and does not contain anyfinancial covenants.

 

*ConversionRights.*    Holders may convert the Notesonly under certain circumstances as described in our Report on Form 10-K forfiscal 2007.

 

10

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The Notes will beconvertible into cash and, if applicable, shares of our common stock. Uponconversion, holders will receive, per $1,000 principal amount being converted,a “settlement amount” that is equal to the sum of the “daily settlement amounts”for each of the 30 trading days during the “cash settlement averaging period.”The “daily settlement amount” for each trading day consists of (i) cashequal to the lesser of $33.33 and the “daily conversion value”; and (ii) tothe extent the daily conversion value exceeds $33.33, a number of shares equalto the excess of the daily conversion value over $33.33, divided by thevolume-weighted average price per share of our common stock on that trading day.The “cash settlement averaging period” is the 30 consecutive trading daysbeginning on, and including, the third trading day following the conversiondate; provided that if a Note is surrendered for conversion within the periodprior to maturity, the cash settlement averaging period is the 30 consecutivetrading days beginning on, and including, the 30th scheduled trading dayprior to the maturity date. The “daily conversion value” on a given trading daygenerally means one-thirtieth of the product of the applicable conversion rateand the volume-weighted average price per share of our common stock on thattrading day.

 

The Company willadjust the conversion rate applicable to the Notes in the event we make anycash distributions to holders of our common stock. The Notes are subject toadditional anti-dilution protection. The Company capitalized $9.5 million offinancing costs in association with the issuance of the 2007 Notes. It is beingamortized over 5 years, the estimated life of the notes.

 

In March 2004,the Company issued a total of $150.0 million of its 1.75% seniorsubordinated contingent convertible notes due in 2024 (the “2004 Notes”) intransactions that were exempt from registration in reliance upon Rule 144Aand other available exemptions under the Securities Act. In May 2006 andpursuant to a registered exchange offer, the Company exchanged each outstanding2004 Note with new notes (the “2006 Notes”) that, among other things, requiredthe Company to redeem the $150.0 million 2004 Notes with cash instead ofcommon stock.

 

In June 2007,the Company redeemed all of its 2006 Notes with the proceeds from the issuanceof the Notes, for $150.0 million, the face value of the bonds and 839,930shares of Company stock, pursuant to the terms of the exchange offer. Theremaining capitalized financing costs associated with the 2006 Notes exchangeof $5.3 million were expensed in the second quarter of 2007.

 

The Company had nodebt (including under its credit facility) other than the aforementioned notesoutstanding at March 31, 2008 or December 31, 2007.

 

**10.****                               Credit Agreement**

 

On September 18,2006, the Company entered into a senior secured credit agreement (the “CreditAgreement”) with UBS Securities LLC and LaSalle Bank National Association aslead arrangers, UBS AG, Stamford Branch, as issuing bank, administrative agentand collateral agent, Regents Bank, Fifth Third Bank and Bank of America, N.A.as co-documentation agents and UBS Loan Finance LLC, as swingline lender. TheCredit Agreement provides the Company and its Cayman subsidiary, Sciele PharmaCayman Ltd., with a five-year revolving credit facility of up to $100.0million, with an option to expand the facility credit line by up to anadditional $75.0 million.

 

Borrowings under thecredit facility bear interest at the lenders’ corporate base rate or LIBOR,plus a specified margin of between 1.75% and 2.5% depending on the Company’sratio of indebtedness to earnings. The Credit Agreement contains customarynegative covenants and financial covenants with which the Company is not incompliance as of March 31, 2008. The Company is seeking an amendment or waiver of this covenant so thatwe will be in compliance therewith.

 

The Company’s obligationsunder the Credit Agreement are secured by a pledge of substantially all of itsassets and are guaranteed by substantially all of its subsidiaries that are notborrowers.

 

The Company had noborrowings under this credit facility as of March 31, 2008.

 

The Credit Agreementcontains customary negative covenants and financial covenants. As ofMarch 31, 2008 the Company is not in compliance with the maximum totalleverage ratio covenant. We are seeking an amendment or waiver of this covenantso that we will be in compliance.

11

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**11.****                               Share Buyback Program**

 

On August 3, 2007, theCompany adopted a share repurchase program authorizing the repurchase of up to$40.0 million of outstanding common stock. This plan had replaced all prior share repurchase plans and was set toexpire on August 2, 2008.  Therepurchases under this plan in 2007 and 2008 were as follows:

 
| **Fiscal Period**                              | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Per Share** | ** ** | **Total Number of   Shares Purchased as  Part of Publicly  Announced Plans** | ** ** | **Approximate Dollar Value of Shares  That May Yet Be  Purchased Under  the Plans** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------|------------|-----------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| Common stock repurchases authorized            |       |                                    |       |                          |       |                                                                              |       | $                                                                                        | 40,000,000 |   |
| August 3 through September 30, 2007  |       | 305,214                                 |       | $                             | 22.94      |                                                                              | 305,214    |                                                                                     | $          | 32,997,703 |   |
| October 1 through December 31, 2007  |       | 620,640                                 |       | 20.83                         |       | 620,640                                                                           |       | $                                                                                        | 20,071,908 |   |
| January 1 through January 31, 2008   |       | —                                  |       | —                        |       | —                                                                            |       | $                                                                                        | 20,071,908 |   |
| February 1 through February 29, 2008 |       | —                                  |       | —                        |       | —                                                                            |       | $                                                                                        | 20,071,908 |   |
| March 1 through March 31, 2008       |       | 528,598                                 |       | 18.88                         |       | 528,598                                                                           |       | $                                                                                        | 10,090,896 |   |
| Total                                          |       | 1,454,452                               |       | $                             | 20.56      |                                                                              | 1,454,452  |                                                                                     |       |   |

 

Allshares repurchased under our program have been retired.

 

On April 25, 2008, the Company adopted a new sharerepurchase program, authorizing the repurchase of up to $100.0 million ofoutstanding common stock. This plan had replaced all prior share repurchaseplans and is set to expire on April 24, 2009.

 

**12.****                               Income Taxes**

 

At March 31, 2008,the Company had approximately $600,000 of total gross unrecognized taxbenefits.  Included in the totalunrecognized tax benefits was approximately $340,000 (net of federal benefit onstate issues) of tax benefits that, if recognized, would favorably affect theeffective income tax rate in any future periods.

 

The Company recognizesinterest and penalties related to income tax matters as income taxexpense.  As of March 31, 2008, wehad accrued approximately $440,000 (net of federal benefit on state issues) forthe payment of interest.

 

During the period, theCompany settled an examination with the state of New York and as a result,gross unrecognized tax benefits decreased by approximately $23,000.

 

The Company is currentlyunder IRS examination for the 2005 and 2006 tax years.  This audit is expected to be concluded within12 months and it is reasonably possible that the IRS will resolve some of thematters presently under consideration, which may increase or decreaseunrecognized tax benefits for these years. At this time, we estimate a range ofthe outcome of the examination to be approximately $300,000 to $400,000 ofinterest primarily on timing items related to inventory.  We accrued additional interest ofapproximately $89,000 for this item in the current period.  The Company should not be subject to stateand local examinations for tax periods before 2001 or foreign tax examinationsbefore 2002.

 

12

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**13.****                               Earnings Per Share**

 

Below is the calculation of basic and diluted net income per common share(in thousands, except per share data):

 
| ** **                                             | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **March 31,**             | ** ** |
| ** **                                             | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| Net income                                             |       | $                              | 11,546     |   | $ | 12,998 |   |
|                                                   |       |                           |       |   |   |
| Weighted average common shares outstanding-basic       |       | 35,352                         |       | 35,170 |   |
| Dilutive effect of stock options and restricted  stock |       | 446                            |       | 764 |   |
| Dilutive effect of contingent convertible debt         |       | —                         |       | 354 |   |
| Weighted average common shares outstanding-diluted     |       | 35,798                         |       | 36,288 |   |
|                                                   |       |                           |       |   |   |
| Net income per common share:                           |       |                           |       |   |   |
| Basic                                                  |       | $                              | 0.33       |   | $ | 0.37 |   |
| Diluted                                                |       | $                              | 0.32       |   | $ | 0.36 |   |

 

For the three months ended March 31, 2008 and 2007, there were186,225 and 82,225 outstanding options to purchase common shares, respectively,that were excluded because their impact would be anti-dilutive.

 

**14.****                               Segment Reporting**

 

The Company is engaged solely in the business of marketing and sellingprescription pharmaceutical products. Accordingly, the Company’s business isclassified in a single reportable segment, the sale and marketing ofprescription products. Prescription products include a variety of brandedpharmaceuticals in the Cardiovascular, Diabetes, Women’s Health, and Pediatric markets.

 

The following presents revenues for prescription products by area oftreatment:

 
| ** **              | ** ** | **For the Three Months Ended** | ** ** |
|-------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **March 31,**             | ** ** |
| ** **              | ** ** | **2008**                       | ** ** | **2007** | ** ** |
| Cardiovascular/Diabetes |       | $                              | 67,561     |   | $ | 56,701 |   |
| Women’s Health     |       | 20,030                         |       | 16,568 |   |
| Pediatrics/Other        |       | 12,847                         |       | 8,988 |   |
| Net Revenues            |       | $                              | 100,438    |   | $ | 82,257 |   |

 

**15.****                               Commitments and Contingencies**

 

The Company, certainformer and current officers and directors are defendants in a consolidatedsecurities lawsuit filed on August 22, 2002 in the United States DistrictCourt for the Northern District of Georgia. Plaintiffs in the class actionalleged in general terms that we violated Sections 11 and 12(a) of theSecurities Act of 1933 and that we violated Sections 10(b) and 20(a) ofthe Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.In an amended complaint, Plaintiffs claim that we issued a series ofmaterially false and misleading statements to the market in connection with ourpublic offering on April 24, 2002 and thereafter relating to alleged “channelstuffing” activities. The amended complaint also alleged controlling personliability on behalf of certain of our officers under Section 15 of theSecurities Act of 1933 and Section 20 of the Securities Exchange Act of1934. Plaintiffs seek an unspecified amount of compensatory damages.

 

On September 29,2004, the U.S. District Court for the Northern District of Georgia heldthat the amended complaint was a “shotgun” pleading because it failedto properly link the allegations with the causes of action.  Thecourt indicated that it would dismiss, without prejudice, theclass action lawsuit  unless Plaintiffs amended their complaint tocorrect the pleading deficiencies and pay all ofthe  Defendants’  fees and costs associated with filing themotion to dismiss the lawsuit. Plaintiffs did not file a second amendedcomplaint as permitted, but instead filed a motion asking the District Court tolift the

 

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condition in itsSeptember 29, 2004 order that they must pay Defendants’ fees andcosts before further amendment. On June 22, 2005, the District Courtdenied Plaintiffs’ motion and gave them another opportunity to amend ifthey paid Defendants’ fees and costs. Once again, Plaintiffs chosenot to file a second amended complaint. Instead, Plaintiffs filed anappeal to the United States Court of Appeals for the Eleventh Circuit.

 

On September 18,2006, the Eleventh Circuit Court of Appeals affirmed the District Court’sdetermination that the Amended Complaint was a “shotgun pleading” that didnot satisfy the pleading requirements under the federal rules.  The Courtof Appeals, however, disagreed with the remedy ordered by the DistrictCourt.  Instead of dismissing the Amended Complaint with a right tofurther amend if Plaintiffs paid Defendants’ fees and costs, the Court ofAppeals held that the District Court should have ordered Plaintiffsto replead under Federal Rule of Civil Procedure 12(e).  TheCourt of Appeals also held that Plaintiffs’ claims under theSecurities Act of 1933 must meet the heightened pleading standards ofFederal Rule of Civil Procedure 9(b) because those claims soundin fraud.  Accordingly, the Court of Appeals vacated the District Court’sorders and remanded with instructions to order a repleading. On April 20,2007, Plaintiffs filed a second amended complaint. On June 29,2007, the Company filed a motion to dismiss the secondamended complaint, which currently is pending.  ****No accrual is recorded inthe Company’s financial statements related to this case as the Company believesthat its risk of loss is remote.****

 

The parties recentlyengaged in a mediation that led to an agreement in principle to settle all ofthe claims in the class action lawsuit for an amount up to $4.7 million. Thesettlement is to be entirely funded by the Company’s insurance carriers.  The parties have entered into a Memorandum ofUnderstanding regarding certain terms of the settlement.  The settlement is subject to preliminary andfinal approval by the U.S. District Court. The Company expects to receive these approvals during fiscal year 2008.

 

On September 10,2007, the Company received a Paragraph 4 certification in connection with Sular40mg indicating that Mylan Laboratories, Inc. wishes to introduce ageneric version of this product. On November 9, 2007, the Company receiveda Paragraph 4 certification in connection with Sular 20mg and 30mg indicatingthat Mylan Laboratories, Inc. wishes to introduce a generic version ofeach of these products. These certifications relate to U.S. Patent No. 4,892,741which expires June 8, 2008. As a result, the Company has initiated patentlitigation in the United States District Court for the District of Delaware.

 

The Company is alsoinvolved with other various legal proceedings incident to the course ofbusiness.  None of these proceedings areexpected to have a material adverse effect on the consolidated financialstatements.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following should be read with the consolidated financial statementsand related footnotes and Management’s Discussion and Analysis of Results ofOperations and Financial Condition included in our Annual Report on Form 10-Kfor the year ended December 31, 2007 (File No. 000-30123). Theresults discussed below are not necessarily indicative of the results to beexpected in any future periods. The following discussion containsforward-looking statements that are subject to risks and uncertainties, whichcould cause actual results to differ from the statements made.

 

**Overview**

 

Sciele Pharma, Inc.is a pharmaceutical company specializing in sales, marketing and development ofbranded prescription products focused on the therapeutic areas of Cardiovascular,Diabetes, Women’s Health, and Pediatrics. The Company’s Cardiovascular andDiabetes products treat patients with high cholesterol, hypertension, hightriglycerides, unstable angina and Type 2 diabetes; its Women’s Healthproducts are designed to improve the health and well-being of women and mothersand their babies; and its  Pediatricsproducts treat allergies, asthma, coughs and colds, and attention deficit andhyperactivity disorder (ADHD). Founded in 1992 and headquartered in Atlanta,Georgia. Sciele Pharma employs more than 900 people.  The Company’s success is based on placing theneeds of patients first, improving health and quality of life, and implementingits business platform – an Entrepreneurial Spirit, Innovation, ExecutionExcellence, Simplicity, and Teamwork.

 
| **Cardiovascular and Diabetes** | ** ** | **Women’s Health** | ** ** | **Pediatric**                          | ** ** |
|---------------------------------|------------|-------------------------|------------|----------------------------------------|------------|
| Fenoglide                       |       | Fosteum                 |       | Allegra                                |       |
| Fortamet                        |       | Prenate DHA             |       | Methylin                               |       |
| Nitrolingual                    |       | Prenate Elite           |       | Orapred                                |       |
| Prandin                         |       | Zovirax                 |       | Twinject (promotion  starting Q2 2008) |       |
| Sular                           |       |                    |       |                                   |       |
| Triglide                        |       |                    |       |                                   |       |

** **

**14**

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Our current operating plan focuses on maximizing salesof our existing product portfolio. We also plan to accelerate growth bylaunching line extensions to our current products and by acquiring or licensingapproved products, development products, and other businesses. We plan to focuson products which complement our Cardiovascular, Diabetes, Women’s Health andPediatric categories that allow us to leverage our sales force infrastructure.

 

We currently market and sell 24 products, 14 of whichare actively promoted. We promote our products through our nationwide sales andmarketing force, targeting high-prescribing primary care physicians,endocrinologists, cardiologists, obstetricians and gynecologists, andpediatricians.

** **

**Results of Operations**

 

*Cardiovascular/Diabetes Net Revenues.*Net revenues from our Cardiovascular/Diabetes products increased $10.9 millionor 19%, to $67.6 million for the three months ended March 31, 2008,compared to $56.7 million for the three months ended March 31, 2007. Theincrease was primarily due to the growth in Triglide prescriptions, the launchof Fenoglide, the marketing of Prandin during the first quarter of 2008, andprice increases implemented during 2007.

 
| ** **               | ** ** | **Change in total dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** | **Change in new dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Cardiovascular/Diabetes: |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                                                                         |       |
| Sular                    |       | -3                                                                                                                                                                                                                                  | %          | -7                                                                                                                                                                                                                           | %          |
| Triglide                 |       | 24                                                                                                                                                                                                                                  | %          | 7                                                                                                                                                                                                                            | %          |
| Nitrolingual(b)          |       | -4                                                                                                                                                                                                                                  | %          | -6                                                                                                                                                                                                                           | %          |
| Fortamet                 |       | -13                                                                                                                                                                                                                                 | %          | -14                                                                                                                                                                                                                          | %          |
| Fenoglide(c)             |       | N/A                                                                                                                                                                                                                                 |       | N/A                                                                                                                                                                                                                          |       |
| Prandin (d)              |       | -1                                                                                                                                                                                                                                  | %          | 3                                                                                                                                                                                                                            | %          |

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(a)                                  Source:IMS’s Next Generation Prescription Services data.

 

(b)                                 Webelieve that IMS data does not capture prescriptions of Nitrolingual from someof the non-retail channels and prescription trends in the non-retail channelwhich may have a significant impact on the reported change.

 

(c)                                Fenoglidewas launched in February 2008.

 

(d)                                 Prandinwas launched by Sciele in January 2008.

 

*Women’s Health Net Revenues.*****Net revenues from our promoted Women’s Health productsincreased $3.4 million or 20%, to $20.0 million for the three months ended March 31,2008, compared to $16.6 million for the three months ended March 31, 2007.This increase is primarily related to the prescription growth associated withthe successful launch of Prenate DHA in the second quarter of 2007 and priceincreases implemented during 2007.

 
| ** **           | ** ** | **Change in total dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** | **Change in new dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Women’s Health: |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                                                                         |       |
| Prenate Elite        |       | -24                                                                                                                                                                                                                                 | %          | -29                                                                                                                                                                                                                          | %          |
| Prenate DHA(b)       |       | N/A                                                                                                                                                                                                                                 |       | N/A                                                                                                                                                                                                                          |       |
| Zovirax              |       | -2                                                                                                                                                                                                                                  | %          | -2                                                                                                                                                                                                                           | %          |
| Fosteum (c)          |       | N/A                                                                                                                                                                                                                                 |       | N/A                                                                                                                                                                                                                          |       |

----

(a)                                  Source:IMS’s Next Generation Prescription Services data.

 

(b)                                 PrenateDHA was launched in June 2007.

 

(c)                                  Fosteumwas launched by Sciele in January 2008.

 

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*Pediatric/Other Net Revenues.* Net revenues from our Pediatric/otherproducts increased $3.8 million or 43%, to$12.8 million for the three months ended March 31, 2008 compared to $9.0million for the three months ended March 31, 2007. This increase isprimarily due to the addition of our Alliant pediatric products in the secondquarter of 2007, partially offset by decreased Furadantin sales. Sales ofFuradantin were higher than normal during the three months ended March 31,2007, as we experienced delays in production delivery during 2006 due tomanufacturing issues that were resolved in the first quarter of 2007.

 
| ** **         | ** ** | **Change in total dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** | **Change in new dispensed prescriptions  for the three months ended  March 31, 2008 compared  to the three months ended  March 31, 2007(a)** | ** ** |
|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Pediatrics/Other:  |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                                                                         |       |
| Orapred ODT        |       | 53                                                                                                                                                                                                                                  | %          | 52                                                                                                                                                                                                                           | %          |
| Methlyin  Chewable |       | 20                                                                                                                                                                                                                                  | %          | 21                                                                                                                                                                                                                           | %          |
| Allegra            |       | 549                                                                                                                                                                                                                                 | %          | 311                                                                                                                                                                                                                          | %          |
| Twinject (b)       |       | 17                                                                                                                                                                                                                                  | %          | 16                                                                                                                                                                                                                           | %          |

----

(a)                                  Source:IMS’s Next Generation Prescription Services data.

 

(b)                                 Twinjectwas acquired by Sciele in March 2008 and promotion by Sciele began duringthe second quarter of 2008.

 

*Cost of Revenues.*  Cost of revenues for the threemonths ended March 31, 2008 were $10.4 million compared to $11.1million for the three months ended March 31, 2007. The decrease reflects achange in product mix and a lower per unit cost of reformulated Sular,partially offset by increases in freight costs for the three months ended March 31,2008 as compared to the three months ended March 31, 2007.

 

*Gross Margin.*  Gross margin for the threemonths ended March 31, 2008 was 90% compared to 87% for the three monthsended March 31, 2007.  This improvementin gross margin for the three months ended March 31, 2008 is the result ofa change in product mix, lower Sular production costs, and the effect of priceincreases implemented during 2007, partially offset by increases in freightcosts.

 

*Selling, General and Administrative Expenses.*  Selling,general and administrative expenses increased $13.6 million, to$53.3 million for the three months ended March 31, 2008, compared to$39.7 million for the three months ended March 31, 2007. The increase primarily reflects the Company’s newPediatric sales force, higher commissions, royalties and costs associated withthe launches of the new Sular formulation, Prandin and Fenoglide.

 

*Depreciation and Amortization Expense.* Depreciation and amortization expense increased $1.3 million to$8.0 million for the three months ended March 31, 2008, compared to$6.7 million for the three months ended March 31, 2007.   This increase is primarily due to theacquisition of Alliant Pharmaceuticals. The Company believes there are nointangible asset or long lived asset impairments as of March 31, 2008.

 

*Research and Development Expense.*  Researchand development expense increased $2.8 million to $8.8 million for thethree months ended March 31, 2008, compared to $6.0  million for thethree months ended March 31, 2007. The increase primarily reflects the pivotal clinical trials of thepravastatin/fenofibrate combination for the treatment of mixed dyslipidemia andglycopyrrolate for the treatment of chronic moderate-to-severe drooling inpediatric patients.

 

*Interest Expense.*  Interest expense was$2.9 million for the three months ended March 31, 2008, compared to$0.9 million for the three months ended March 31, 2007. Theincrease is a result of an increase in outstanding notes of $175 million, aswell as a higher interest rate paid on the current quarter notes.

 

*Interest Income.*  Interest income was$1.7 million for the three months ended March 31, 2008, compared to$1.8 million for the three months ended March 31, 2007. Thedecrease is primarily due to lower average cash and marketable securitiesbalances and lower interest rates.

 

*Loss on Equity Investments*. Losson equity investments was $0.4 million for the three months ended March 31,2008. This is related to the investment in Addrenex Pharmaceuticals, Inc. Theinvestment is accounted for under the equity method. There were no comparativeexpenses for the same period of 2007.

 

 

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*Impairment on Equity Investments*. Impairment on equity investments was$1.2 million for the three months ended March 31, 2008. The impairment isrelated to the Company’s investment in Plethora Solutions Holdings plc (see Note7). There were no comparative expenses for the same period of 2007.

 

*Provision for Income Taxes.*  Incometaxes were provided for at an effective rate of 32.4% for the three monthsended March 31, 2008, compared to an effective rate of 34.0% for the threemonths ended March 31, 2007. This decrease in the effective tax rate isdue to the change in the mix of tax jurisdictions, both domestic andinternational, where our income was earned.

 

**Liquidity and Capital Resources**

 

Our liquidityrequirements arise from working capital requirements, product developmentactivities, funding of acquisitions and product licenses and debt service. Weexpect to need additional funds to acquire or obtain licenses for new products,develop and test new products and potentially to acquire other businesses,which may increase our cost of capital. We may seek funding through public andprivate financing and may seek to incur debt, issue and sell shares of ourstock, or both, either to finance a transaction or as consideration for atransaction. Adequate funds for these purposes, whether through the financialmarkets or from other sources, may not be available when we need them or onterms acceptable to us. Insufficient funds could cause us to delay, scale backor abandon some or all of our product acquisitions, licensing opportunities,marketing programs, product development programs, potential businessacquisitions and manufacturing opportunities. We have historically met thesecash requirements through cash from operations, borrowings and the issuance andsale of common stock.

* *

*Operating Activities*

 

Our cash and cashequivalents were $149.3 million at March 31, 2008.  Net cash provided by operating activities forthe three months ended March 31, 2008 was $22.6 million.  Cash inflows reflect net income of$11.5 million (adjusted for non-cash items depreciation, amortization,compensation, and interest expense totaling $11.8 million), a decrease in othercurrent assets and other assets of $1.5 million, a decrease in incometaxes receivable of $4.0 million, resulting from positive earnings during thequarter, a decrease in inventories of $1.3 million, primarily related tobetter inventory management and an increase in accrued expenses and otherlong-term liabilities of $6.4 million, primarily related to increasedcommissions and royalties as a result of increased sales.  These cash inflows were partially offset bycash outflows from higher accounts receivable of $7.0 million, as a resultof increases in sales, a decrease in accounts payable of $6.9 million,primarily related to our completion of the new Sular line during the firstquarter of 2008.

 

Ourcash and cash equivalents were $48.2 million on March 31, 2007.  Net cash provided by operating activities forthe three months ended March 31, 2007 was $11.8 million.  Cash inflows reflect net income for thequarter of $13.0 million (adjusted for non-cash items depreciation,amortization, compensation, and interest expense totaling $10.9 million), a decrease in inventory of $4.4 million,resulting primarily from sales of promoted products; a decrease in income taxreceivable of  $3.9 million, resultingprimarily from higher pre-tax income and an increase in the effective tax rate;and an increase of accounts payable of $0.8 million, resulting primarily fromincreased operations.  These cash inflowswere partially offset by cash outflows from higher accounts receivable of$10.6 million, relating to increased net revenues; an increase of othercurrent assets and other assets of $7.3 million, the decrease of accruedexpenses and other long-term liabilities of $3.4 million.

 

*Investing Activities*

 

Net cash used ininvesting activities for the three months ended March 31, 2008 was $20.6 million,compared to net cash used in investing activities for the three months ended March 31,2007 which was $9.3 million. Cash outflows relate to the purchase ofproduct licenses of $32.2 million, related to the acquisitions of Twinject,Fosteum and Sular, capital spending of $5.5 million, primarily for thepurchase of Twinject production equipment and development of a manufacturingline related to Sular Geomatrix and purchases of marketable securities of $2.0 million.  These cash outflows were partially offset by proceedsfrom sales of marketable securities of $19.1 million.

 

Netcash used in investing activities for the three months ended March 31,2007 was $9.3 million.  Cashoutflows related to purchases of products and licenses of $2.8 million,purchases of marketable securities of $80.4 million and purchases of propertyand equipment of $0.9 million. These cash outflows were partially offset by proceeds from the sale ofmarketable securities of $74.8 million.

 

*Financing Activities*

 

Net cash used infinancing activities was $8.0 million for the three months ended March 31,2008, reflecting repurchases of our common stock for $10.0 million, partiallyoffset by net proceeds from the issuance of common stock

 

 

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under our equity incentive plans of $1.6 million and excesstax benefit on stock option exercises of $0.4 million.

 

Netcash provided by financing activities was $0.7 million for the threemonths ended March 31, 2007, reflecting the issuance of common stock underour equity incentive plans of $0.7 million and excess tax benefit on stock option exercises of $0.4 million,  partially offset by repurchases of commonstock of $0.4 million.

 

We believe that our cashon hand and cash we expect to generate from our operations will be sufficientto fund our working capital requirements, at least for the next twelve months.However, in the event that we make significant acquisitions, we may need toraise additional funds through additional borrowings or the issuance of debt orequity securities, or both. Some of our supply agreements contain minimumpurchase requirements. We do not expect that meeting those requirements willresult in the acquisition of excessive inventory. We expect we will alsoexperience growth in our accounts receivable as our sales increase.

 

We maintain supplyagreements with third party suppliers for all of our products. Some of thesesupply agreements contain minimum purchase requirements. For most of thesesupply agreements, we believe that our inventory requirements and relatedpurchases of inventory will exceed the minimum purchase requirement in 2008. Inthose cases in which we do not believe our purchases will exceed the minimumpurchase requirements, we are seeking or have sought to negotiate waivers ormodifications of the minimum purchase requirements.

 

On May 14, 2007, the Company issued and sold $325.0 millionaggregate principal amount of its 2.625% Contingent Convertible Senior Notesdue 2027 (the “2007 Notes”) in an underwritten registered offering under theSecurities Act of 1933, as amended. The 2007 Notes are more thoroughlydescribed in Note 9 to our financial statements. In June 2007,following the issuance of the 2007 Notes and with the proceeds therefrom, theCompany redeemed all of its 1.75% Contingent Convertible Senior SubordinatedNotes Due 2024. In addition to the $150.0 million face value of theredeemed notes, the noteholders received a total of 839,930 shares of Companycommon stock.

 

On September 18, 2006, we entered into a seniorsecured credit agreement (the “Credit Agreement”) with UBS Securities LLCand LaSalle Bank National Association among others. The Credit Agreementprovides us and our Cayman subsidiary with a five-year revolving creditfacility of up to $100 million, with an option to expand the facilitycredit line by up to an additional $75.0 million.

 

Borrowings under the CreditAgreement bear interest at the lenders’ corporate base rate or LIBOR, plus aspecified margin of between 1.75% and 2.5% depending on the Company’s ratio ofindebtedness to earnings.  The Credit Agreementcontains customary negative covenants and financial covenants. As of March 31,2008 the Company is not in compliance with the maximum total leverage ratiocovenant.  The Company is seeking anamendment or waiver of this covenant so that we will be in compliance. Ourobligations under the Credit Agreement are secured by a pledge of substantiallyall of our assets and are guaranteed by substantially all of our subsidiariesthat are not borrowers.

 

The Company had noborrowings under this credit facility as of March 31, 2008.

 

On August 3, 2007,the Company adopted a share repurchase program authorizing the repurchase of upto $40.0 million of outstanding common stock.  This plan had replaced all prior sharerepurchase plans and was set to expire on August 2, 2008.  The repurchases under this plan in 2007 and2008 were as follows:

 

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| **Fiscal Period**                          | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans** | ** ** | **Approximate Dollar  Value of Shares  That May Yet Be  Purchased Under  the Plans** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|
| Common stock  repurchases authorized            |       |                                         |       |                               |       |                                                                                                           |       | $                                                                                                                            | 40,000,000 |   |
| August 3  through September 30, 2007  |       | 305,214                                      |       | $                                  | 22.94      |                                                                                                           | 305,214    |                                                                                                                         | $          | 32,997,703 |   |
| October 1  through December 31, 2007  |       | 620,640                                      |       | 20.83                              |       | 620,640                                                                                                        |       | $                                                                                                                            | 20,071,908 |   |
| January 1  through January 31, 2008   |       | —                                       |       | —                             |       | —                                                                                                         |       | $                                                                                                                            | 20,071,908 |   |
| February 1  through February 29, 2008 |       | —                                       |       | —                             |       | —                                                                                                         |       | $                                                                                                                            | 20,071,908 |   |
| March 1  through March 31, 2008       |       | 528,598                                      |       | 18.88                              |       | 528,598                                                                                                        |       | $                                                                                                                            | 10,090,896 |   |
| Total                                           |       | 1,454,452                                    |       | $                                  | 20.56      |                                                                                                           | 1,454,452  |                                                                                                                         |       |   |

 

Allshares repurchased under this program have been retired.

 

On April 25, 2008, the Company adopted a new sharerepurchase program, authorizing the repurchase of up to $100.0 million ofoutstanding common stock. This plan replaced all prior share repurchase plansand is set to expire on April 24, 2009.

 

We expect that our existing sources of working capitalor liquidity will be sufficient to enable us to execute our main operationalgoals of maximizing the sales of our existing products and acquiring companieshaving such products, accelerating growth by launching line extensions to ourcurrent products and acquiring or licensing approved products or late stagedevelopment products, as well as any capital requirements necessary to meetthese operational goals.

 

**Critical Accounting Policies**

 

We rely on the use of estimates and make assumptions that impact our financial condition and results.  These estimates and assumptions are based on historical results and trends as well as our forecasts as to how these might change in the future.  While we believe that the estimates we use are reasonable, actual results could differ from those estimates.  The most critical accounting policies that may materially impact our results of operations include:

 

·                  *Allowancefor doubtful accounts.    *We are required toestimate the level of accounts receivable recorded on our balance sheet whichwill ultimately not be paid. Among other things, this assessment requiresanalysis of the financial strength of our customers, which can be highly subjective,particularly in the recent difficult general economic environment. Our policyis to estimate bad debt expense based on prior experience supplemented by aperiodic customer specific review when needed. If we over or under estimate thelevel of accounts receivable that will not be paid, there may be a materialimpact to our financial statements.

 

·                  *Salesdeductions.    *We provide volume rebates,contractual price reductions with drug wholesalers and insurance companies, andcertain other sales related deductions on a regular basis. The exact level ofthese deductions is not always immediately known and thus we must record anestimate at the time of sale. Our estimates are based on historical experiencewith similar programs, and since we have a relatively small customer base,customer specific historical experience is often useful in determining theestimated level of deductions expected to be refunded to our customers whensales incentives are offered. If we over or under estimate the level of sales deductions,there may be a material impact to our financial statements.

 

·                  *Productreturns.    *In the pharmaceutical industry,customers are normally granted the right to return product for a refund if theproduct has not been used prior to its expiration date, which is typically twoto three years from the date of manufacture. Our return policy allows productreturns for products within an eighteen-month window from six months prior tothe expiration date and up to twelve months after the expiration date. Ourreturn policy conforms to industry standard practices. We believe that we havesufficient data to estimate future returns over the revised time period at thetime of sale. Management is required to estimate the level of sales which willultimately be returned pursuant to our return policy, and record a relatedreserve at the time of sale. These amounts are deducted from our gross sales todetermine our net revenues. Our estimates take into consideration historicalreturns of a given product, product specific information provided by ourcustomers and information obtained regarding the levels of inventory being heldby our customers, as well as overall purchasing patterns by our customers.Management periodically reviews the reserves established for returns andadjusts them based on actual experience. If we over or under estimate the levelof sales which will ultimately be returned, there may be a material impact toour financial statements.

 

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·                  *Liabilitiesassumed with the acquisition of product rights.    *Inconnection with the acquisition of product rights, we assume certainliabilities for returns of product shipped by the seller prior to theacquisition date. At the acquisition date, we estimate the amount of theassumed liabilities based on actual sales return data from the seller andinclude that amount in the allocation of the total purchase price. We reviewthe estimated liability on an annual basis. If we over or under estimateliabilities assumed, there may be a material impact to our financialstatements.

 

·                  *Intangibleassets and Goodwill.    *When we acquire therights to manufacture and sell a product, we record the aggregate purchaseprice, along with the value of the product related liabilities that we assume,as intangible assets. We use the assistance of valuation experts to help usallocate the purchase price to the fair value of the various intangible assetsthat we have acquired. Then, we must estimate the economic useful life of eachof these intangible assets in order to amortize their cost as an expense in ourstatement of operations over the estimated economic useful life of the relatedasset. The factors that drive the actual economic useful life of apharmaceutical product are inherently uncertain, and include patent protection,physician loyalty and prescribing patterns, competition by products prescribedfor similar indications, future introductions of competing products not yet FDAapproved, the impact of promotional efforts and many other issues. We use allof these factors in initially estimating the economic useful lives of ourproducts, and we also continuously monitor these factors for indications ofappropriate revisions.

 

In assessing therecoverability of our intangible assets, we must make assumptions regardingestimated future cash flows and other factors. If the estimated undiscountedfuture cash flows do not exceed the carrying value of the intangible assets, wemust determine the fair value of the intangible assets. If the fair value ofthe intangible assets is less than its carrying value, an impairment loss willbe recognized in an amount equal to the difference. We review intangible assetsfor impairment at least annually and whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. The Company tests its goodwill asset by comparing the fair valueof the Company’s reporting unit to the carrying value. The carrying value isdetermined by assigning the assets and liabilities, including the existinggoodwill and intangible assets, to the reporting unit. Goodwill is consideredimpaired if the carrying amount exceeds the fair value of the asset. Suchevents or circumstances that may lead to impairment include but are not limitedto, lack of promotional sensitivity, the introduction of competitive productsand changes in government regulations. If we determine that an intangible assetis impaired, a non-cash impairment charge would be recognized. If we shouldincur an impairment loss, there may be a material impact to the financialstatements.

 

·                  *IncomeTaxes.    *Income taxes are provided for underthe liability method. This approach requires the recognition of deferred taxassets and liabilities for the expected future tax consequences of differencesbetween the tax basis of assets or liabilities and their carrying amounts inthe consolidated financial statements. A valuation allowance is provided fordeferred tax assets if it is more likely than not that these items will either expirebefore we are able to realize their benefit or if future deductibility isuncertain.

 

Developing the provisionfor income taxes requires significant judgment and expertise in international,federal and state income tax laws, regulations and strategies, including thedetermination of deferred tax assets and liabilities and, if necessary, anyvaluation allowances that may be required for deferred tax assets. Ourjudgments and tax strategies are subject to audit by various taxingauthorities. While we believe we have provided adequately for our income taxliabilities in our consolidated financial statements, adverse determinations bythese taxing authorities could have a material adverse effect on ourconsolidated financial condition and results of operations.

 

·                  *Inventoryobsolescence.    *Our products have shelf livesranging from 18 to 48 months. We must estimate the amount of inventoryrecorded on our balance sheet that will not be sold prior to expiration. Thisestimate requires analysis of forecasted demand for our products, ourpromotional focus, amounts of our products currently held by our customers andthe impact on our products of competing products. If we over or under estimatethe amount of inventory that will not be sold prior to expiration, there may bea material impact to our financial statements.

 

**Forward Looking Statements**

 

This Report on Form 10-Q contains forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995. These statements involve a number of risks and uncertainties. Althoughour forward-looking statements reflect the good faith judgment of ourmanagement, these statements can only be based on facts and factors currentlyknown by us. Consequently, forward-looking statements are inherently subject torisks and uncertainties, and actual results and outcomes may differ materiallyfrom results and outcomes discussed in the forward-looking statements.

 

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Forward-looking statements can be identified by theuse of forward-looking words such as “believes,” “expects,” “hopes,” “may,” “plan,”“intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “proforma,” “reasonably likely” or “anticipates,” or other similar words (includingtheir use in the negative), or by discussions of future matters such as thedevelopment of new products, technology enhancements, possible changes inlegislation and other statements that are not historical. These statementsinclude but are not limited to statements under the “Management’s Discussionand Analysis of Financial Conditions and Results of Operations” caption as wellas all other sections in this Report on Form 10-Q.

 

Risks and uncertainties that could cause ourforward-looking statements to fail to occur include, but are not limited to,the following:

 

·                  We may not attain expected revenuesand earnings;

 

·                  Wemay not realize anticipated sales if our products or our licensors’ products donot receive regulatory approval;

 

·                  If we areunsuccessful in obtaining or renewing third party payor contracts for ourproducts, we may experience reductions in sales levels and may fail to reachanticipated sales levels;

 

·                  If demand for our products exceedsour initial expectations or the ability of our suppliers to providedemand-meeting quantities of product and samples, our future ability to sellthese products could be adversely impacted;

 

·                  The potential growth rate for ourpromoted products may be limited by slower growth for the class of drugs towhich our promoted products belong and by unfavorable clinical studies aboutsuch class of drugs;

 

·                  We may encounter problems in themanufacture or supply of our products, for which we depend entirely on thirdparties;

 

·                  Strong competition exists in the saleof our promoted products, which could adversely affect expected growth of ourpromoted products’ sales or increase our costs to sell our promoted products;

 

·                  We may not be able to protect ourcompetitive position for our promoted products from patent infringers;

 

·                  Certain of our products haveexperienced manufacturing issues. If the issues recur and cannot be resolved,our ability to acquire the product for sale and sampling will be adverselyaffected;

 

·                  We may incur unexpected costs inintegrating new products into our operations;

 

·                  We may be unable to develop or marketline extensions for our products, or, even if developed, obtain patentprotection for our line extensions; further, introductions by us of lineextensions of our existing products may require us to make unexpected changesin our estimates for future product returns and reserves for obsoleteinventory. If these risks occur, our operating results would be adverselyaffected;

 

·                  If we have difficulties acquiring newproducts or rights to market new products from third parties, our financialresults could be adversely affected;

 

·                  Our licensor/supplier can terminateour rights to commercialize Nitrolingual and the sale of the 60 mg dose size ofthis product has not yet met our expectation;

 

·                  We depend on a small seniormanagement group, the departure of any member of which would likely adverselyaffect our business if a suitable replacement member could not be found;

 

·                  An adverse interpretation or rulingby one of the taxing jurisdictions in which we operate could adversely affectedour operating results;

 

·                  A small number of customers accountsfor a large portion of our sales and the loss of one of them, or changes intheir purchasing patterns, could result in substantially reduced sales, substantiallyand adversely affecting our financial results;

 

·                  If third-party payors do notadequately reimburse patients for our products, doctors may not prescribe them;

 

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·                  Our business is subject to increasinggovernment price controls and other healthcare cost containment measures;

 

·                  Side effects of, or marketing ormanufacturing problems with our products could result in product liabilityclaims which could be costly to defend and could result in the withdrawal orrecall of products from the market;

 

·                  We rely on operational data obtainedfrom IMS, an industry accepted data source. IMS data may not accurately reflectactual prescriptions (for instance, we believe IMS data does not capture allproduct prescriptions from some non-retail channels);

 

·                  An adverse judgment in the pendingpatent litigation or in the securities class action litigation in which we andcertain current and former directors and executive officers are defendantscould have a material adverse effect on our results of operations andliquidity;

 

·                  If we fail to obtain, or encounterdifficulties in obtaining, regulatory approval for new products or new uses ofexisting products, or if our development agreements are terminated, we willhave expended significant resources for no return;

 

·                  Our business and products are highlyregulated; the regulatory status of some of our products makes these productssubject to increased competition and other risks; and we run the risk that we,or third parties on whom we rely, could violate the governing regulations;

 

·                  We may be found noncompliant withapplicable federal, state or international laws, rules or regulationswhich could result in fines and/or product recalls or otherwise cause us toexpand significant resources to correct such noncompliance;

 

·                  If generic competitors that completewith any of our products are introduced, our revenues may be adverselyaffected; and

 

·                  Some unforeseen difficulties mayoccur.

 

Therisk factors described above as well as in the “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” section is notexhaustive. We may not have correctly identified and appropriately assessed allfactors affecting our business and the publicly available and other informationwith respect to these matters may not be complete and correct. Additional risksand uncertainties not presently known to us or that we currently believe to beimmaterial also may adversely impact us. Should any risks and uncertainties developinto actual events, these developments could have material adverse effects onour business, financial condition, and results of operations. For thesereasons, we caution you not to place undue reliance on our forward-lookingstatements.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

TheCompany is exposed to certain market risks that arise in the ordinary course ofbusiness. A discussion of the Company’s primary market risk exposure ispresented below.

** **

**Foreign Currency Exchange Risk**

 

Ourpurchases of Sular, Triglide, Prenate DHA, and Nitrolingual are made in Eurosand Pounds Sterling. Although we did not enter into any forward contracts inthe first quarter of 2008, we may eliminate risks from foreign currencyfluctuations after the time of shipment of product by entering into forwardcontracts for these purchases of inventory at the time of product shipments. TheCompany’s earnings and cash flows could be adversely affected in the future bythe relationship of the U.S. dollar with foreign currencies.

** **

**Market Risk on Investments**

 

Thefair value of our investment portfolio would be negatively affected by anincrease in interest rates. Since the majority of the Company’s investments arefixed rate interest-bearing securities and therefore subject to the risk ofloss in market value from an increase in rates or a change in the underlyingrisk of the issuers of the notes, the Company’s future earnings and cash flowscould be affected adversely if the Company were to sell the securities prior totheir maturity date. There 

 

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were no realized losses from thesale of investments for the three months ended March 31, 2008. At March 31,2008, the Company had total net unrealized losses from marketable securities ofless than $0.1 million.

 

**Market Risk on Variable Rate Debt**

** **

In connection with borrowings incurred under thesenior secured revolving credit facility arranged by UBS Securities LLC, wecould experience market risk with respect to changes in the general level ofthe interest rates and its effect upon our interest expense. Borrowings underthis facility bear interest at variable rates. Because such rates are variable,an increase in interest rates will result in additional interest expense and areduction in interest rates will result in reduced interest expense.Accordingly, our present exposure to interest rate fluctuations is primarilydependent on rate changes that may occur while borrowings under thiscredit facility are outstanding. At March 31, 2008 there was no debtoutstanding under this facility.

** **

**Market Risk on Fixed Rate Debt**

** **

The Company’s long-term fixed interest rate seniorsubordinated contingent convertible notes are also subject to market risk.Fixed rate debt outstanding at March 31, 2008 was $325.0 million withan interest rate of 2.625%. All other things being equal, the fair market valueof the Company’s fixed rate debt will increase as rates decline and willdecrease as rates rise. The fixed rate notes outstanding totaling$325.0 million at March 31, 2008 had a fair value of $311.8 millionbased on quoted market rates.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

We maintain a set of disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the reports that we file under the Securities Exchange Act of1934, as amended ("Exchange Act"). These reports are recorded,processed, summarized and reported within the time periods specified in theSEC's rules and forms. After discussions with our registered independent publicaccountant, we carried out an additional evaluation under the supervision andwith the participation of management, including our Chief Executive Officer andour Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures pursuant to Rule 13a-15(e) ofthe Exchange Act as of the end of the period covered by this report. Our ChiefExecutive Officer and our Chief Financial Officer have concluded that ourdisclosure controls and procedures were effective as of March 31, 2008 and thedeficiency reported in our Form 10-Q/A for the quarter ended September 30, 2007(the “Form 10-Q/A”) has been remediated. 

** **

**Changes in Internal Control over Financial Reporting**

 

Other than for the remediation of the deficiency asreported in our Form 10-Q/A, there have been no changes in our internalcontrols over financial reporting during the quarter ended March 31, 2008 thathave materially affected, or are reasonably likely to materially affect, our internalcontrols over financial reporting. 

 

 

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**PART II—OTHER INFORMATION**

 

**ITEM 1: LEGAL PROCEEDINGS**

 

The Company, certain former and current officers anddirectors are defendants in a consolidated securities lawsuit filed on August 22,2002 in the United States District Court for the Northern District of Georgia.Plaintiffs in the class action alleged in general terms that we violatedSections 11 and 12(a) (a) of the Securities Act of 1933 and that weviolated Sections 10(b) and 20(a) of the Securities Exchange Actof 1934 and Rule 10b-5 promulgated thereunder. In an amended complaint,Plaintiffs claim that we issued a series of materially false andmisleading statements to the market in connection with our public offering on April 24,2002 and thereafter relating to alleged “channel stuffing” activities. Theamended complaint also alleged controlling person liability on behalf ofcertain of our officers under Section 15 of the Securities Act of 1933 andSection 20 of the Securities Exchange Act of 1934. Plaintiffs seek anunspecified amount of compensatory damages.

 

On September 29, 2004, the U.S. District Courtfor the Northern District of Georgia held that the amended complaint was a“shotgun” pleading because it failed to properly link the allegations withthe causes of action.  The court indicated that itwould dismiss, without prejudice, the class action lawsuit unless Plaintiffs amended their complaint to correct the pleading deficienciesand pay all of the  Defendants’  fees and costsassociated with filing the motion to dismiss the lawsuit. Plaintiffs did notfile a second amended complaint as permitted, but instead filed a motion askingthe District Court to lift the condition in its September 29,2004 order that they must pay Defendants’ fees and costs before furtheramendment. On June 22, 2005, the District Court denied Plaintiffs’motion and gave them another opportunity to amend if they paid Defendants’fees and costs. Once again, Plaintiffs chose not to file a second amendedcomplaint. Instead, Plaintiffs filed an appeal to the United States Courtof Appeals for the Eleventh Circuit.

 

On September 18, 2006, the Eleventh Circuit Courtof Appeals affirmed the District Court’s determination that the AmendedComplaint was a “shotgun pleading” that did not satisfy the pleadingrequirements under the federal rules.  The Court of Appeals,however, disagreed with the remedy ordered by the District Court. Instead of dismissing the Amended Complaint with a right to further amend ifPlaintiffs paid Defendants’ fees and costs, the Court of Appeals held thatthe District Court should have ordered Plaintiffs to replead under FederalRule of Civil Procedure 12(e).  The Court of Appeals also held thatPlaintiffs’ claims under the Securities Act of 1933 must meetthe heightened pleading standards of Federal Rule of Civil Procedure9(b) because those claims sound in fraud.  Accordingly, the Court ofAppeals vacated the District Court’s orders and remanded with instructions toorder a repleading. On April 20, 2007, Plaintiffs filed asecond amended complaint. On June 29, 2007, the Company filed amotion to dismiss the second amended complaint, which currently is pending. ****No accrual is recorded inthe Company’s financial statements related to this case as the Company believesthat its risk of loss is remote.****

 

The parties recently engaged in a mediation that ledto an agreement in principle to settle all of the claims in the class actionlawsuit for an amount up to $4.7 million. The settlement is to be entirelyfunded by the Company’s insurance carriers. The parties have entered into a Memorandum of Understanding regardingcertain terms of the settlement.  The settlementis subject to preliminary and final approval by the U.S. District Court.  The Company expects to receive theseapprovals during 2008.

 

On September 10, 2007, the Company received aParagraph 4 certification in connection with Sular 40mg indicating that MylanLaboratories, Inc. wishes to introduce a generic version of this product.On November 9, 2007, the Company received a Paragraph 4 certification inconnection with Sular 20mg and 30mg indicating that Mylan Laboratories, Inc.wishes to introduce a generic version of each of these products. Thesecertifications relate to U.S. Patent No. 4,892,741 which expires June 8,2008. As a result, the Company has initiated patent litigation in the UnitedStates District Court for the District of Delaware.

 

The Company is also involved with other various legalproceedings incident to the course of business. None of these proceedings are expected to have a material adverse effecton the consolidated financial statements.

 

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**ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

On August 3, 2007, the Company adopted a sharerepurchase program authorizing the repurchase of up to $40.0 million ofoutstanding common stock.  This plan hadreplaced all prior share repurchase plans and was set to expire onAugust 2, 2008.  The repurchasesunder this plan in 2007 and 2008 were as follows:

 
| **Fiscal Period**                          | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans** | ** ** | **Approximate Dollar  Value of Shares  That May Yet Be  Purchased Under  the Plans** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|
| Common stock  repurchases authorized            |       |                                         |       |                               |       |                                                                                                           |       | $                                                                                                                            | 40,000,000 |   |
| August 3  through September 30, 2007  |       | 305,214                                      |       | $                                  | 22.94      |                                                                                                           | 305,214    |                                                                                                                         | $          | 32,997,703 |   |
| October 1  through December 31, 2007  |       | 620,640                                      |       | 20.83                              |       | 620,640                                                                                                        |       | $                                                                                                                            | 20,071,908 |   |
| January 1  through January 31, 2008   |       | —                                       |       | —                             |       | —                                                                                                         |       | $                                                                                                                            | 20,071,908 |   |
| February 1  through February 29, 2008 |       | —                                       |       | —                             |       | —                                                                                                         |       | $                                                                                                                            | 20,071,908 |   |
| March 1  through March 31, 2008       |       | 528,598                                      |       | 18.88                              |       | 528,598                                                                                                        |       | $                                                                                                                            | 10,090,896 |   |
| Total                                           |       | 1,454,452                                    |       | $                                  | 20.56      |                                                                                                           | 1,454,452  |                                                                                                                         |       |   |

 

Allshare repurchases have been retired.

 

On April 25, 2008, the Company adopted a new sharerepurchase program, authorizing the repurchase of up to $100.0 million ofoutstanding common stock. This plan replaced all prior share repurchase plansand is set to expire on April 24, 2009.

 

**ITEM 6: EXHIBITS**

 
| 31.1   |   | Certifications of Chief  Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and  15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                          |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                               |
| 31.2   |   | Certifications of Chief  Financial Officer, Secretary and Treasurer pursuant to Securities Exchange  Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                                                                               |
| 32.1   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                |
|   |   |                                                                                                                                                                                                               |
| 32.2   |   | Certification of Chief  Financial Officer, Secretary and Treasurer pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                       |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                         | **SCIELE PHARMA, INC.** |
|-------------------------|-------------------------|
|                    | (Registrant)            |
|                    |                    |
| Date:  May 1, 2008 | By:                     | /s/  PATRICK P. FOURTEAU |
|                    | * *                | Patrick  P. Fourteau*Chief Executive Officer  (principal executive officer)* |
| * *                | * *                |
| Date:  May 1, 2008 | By:                     | /s/  DARRELL BORNE |
|                    |                    | Darrell  Borne |
| * *                | * *                | *Executive Vice President, Chief Financial  Officer,* |
| * *                | * *                | *Secretary and Treasurer  (principal accounting and financial officer)* |

 

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