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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|[MARK ONE]                                   |                                                                                         
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended June 30, 2003
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from                             to

Commission File No. 000-30123

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FIRST HORIZON PHARMACEUTICAL CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State of incorporation)                                              |  | 58-2004779(I.R.S. Employer Identification Number)
|----------------------------------------------------------------------------- |  | -------------------------------------------------
|6195 Shiloh Road, Alpharetta, Georgia(Address of principal executive offices) |  | 30005(Zip code)                                  

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(Registrant's
telephone number, including area code):(770) 442-9707

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

As
of July 31, 2003, there were 34,955,268 shares of the Registrant's Common Stock outstanding.

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FIRST HORIZON PHARMACEUTICAL CORPORATION  FORM 10-Q  INDEX

|                              |  |                                                                                                          |  | PAGE
|----------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION |  |                                                                                                         
|Item 1.                       |  | Consolidated Balance Sheets at June 30, 2003 and December 31, 2002                                       |  | 1   
|                              |  | Consolidated Statements of Operations for the three and six months ended June 30, 2003 and June 30, 2002 |  | 2   
|                              |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and June 30, 2002           |  | 3   
|                              |  | Notes to Consolidated Financial Statements                                                               |  | 4   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                    |  | 9   
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                               |  | 19  
|Item 4.                       |  | Controls and Procedures                                                                                  |  | 19  
|PART II. OTHER INFORMATION    |  |                                                                                                         
|Item 1.                       |  | Legal Proceedings                                                                                        |  | 20  
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                |  | 20  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                          |  | 20  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                      |  | 20  
|Item 5.                       |  | Other Information                                                                                        |  | 20  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                         |  | 21  
|                              |  | Signatures                                                                                               |  | 22  
|                              |  | Certifications                                                                                           |  |     

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                       |                                                                                                                                                                             | June 30,
2003                              |         | December 31,
2002 |        
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                 |                                                                                                                                                                             |                                            |         |                   |        
|Current assets:                        |                                                                                                                                                                             |                                            |         |                   |        
|                                       | Cash and cash equivalents                                                                                                                                                   |                                            | $       | 34,374            |        
|                                       | Accounts receivable, net of allowance for doubtful accounts, discounts and contractual adjustments of $771 and $767 at June 30, 2003 and December 31, 2002, respectively    |                                            |         | 14,215            |        
|                                       | Inventories                                                                                                                                                                 |                                            |         | 15,229            |        
|                                       | Samples and other prepaid expenses                                                                                                                                          |                                            |         | 4,289             |        
|                                       | Income taxes receivable                                                                                                                                                     |                                            |         | 5,790             |        
|                                       | Current deferred tax assets                                                                                                                                                 |                                            |         | 8,779             |        
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|                                       |                                                                                                                                                                             | Total current assets                       |         |                   | 82,676 
|Property and equipment, net            |                                                                                                                                                                             |                                            | 1,994   |                   |        
|Other assets:                          |                                                                                                                                                                             |                                            |         |                   |        
|                                       | Intangibles, net                                                                                                                                                            |                                            |         | 248,237           |        
|                                       | Other assets                                                                                                                                                                |                                            |         | 243               |        
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|                                       |                                                                                                                                                                             | Total other assets                         |         |                   | 248,480
|                                       |                                                                                                                                                                             | Total assets                               |         | $                 | 333,150
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY   |                                                                                                                                                                             |                                            |         |                   |        
|Current liabilities:                   |                                                                                                                                                                             |                                            |         |                   |        
|                                       | Accounts payable                                                                                                                                                            |                                            | $       | 9,257             |        
|                                       | Accrued expenses                                                                                                                                                            |                                            |         | 33,342            |        
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|                                       |                                                                                                                                                                             | Total current liabilities                  |         |                   | 42,599 
|Long-term liabilities:                 |                                                                                                                                                                             |                                            |         |                   |        
|                                       | Deferred tax liabilities                                                                                                                                                    |                                            |         | 446               |        
|                                       | Other long-term liabilities                                                                                                                                                 |                                            |         | 217               |        
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|                                       |                                                                                                                                                                             | Total liabilities                          |         |                   | 43,262 
|Stockholders' equity:                  |                                                                                                                                                                             |                                            |         |                   |        
|                                       | Preferred stock, 1,000,000 share authorized and none outstanding                                                                                                            |                                            |         |                  |        
|                                       | Common stock, $0.001 par value; 100,000,000 shares authorized; 34,948,675 and 35,436,629 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively |                                            |         | 35                |        
|Additional paid-in capital             |                                                                                                                                                                             |                                            | 285,953 |                   |        
|Deferred compensation                  |                                                                                                                                                                             |                                            | (32     | )                 |        
|Retained earnings                      |                                                                                                                                                                             |                                            | 3,716   |                   |        
|Accumulated other comprehensive income |                                                                                                                                                                             |                                            | 216     |                   |        
|                                       |                                                                                                                                                                             |                                            |         |                   |        
|                                       |                                                                                                                                                                             | Total stockholder's equity                 |         |                   | 289,888
|                                       |                                                                                                                                                                             | Total liabilities and stockholders' equity |         | $                 | 333,150
|                                       |                                                                                                                                                                             |                                            |         |                   |        

The accompanying notes are an integral part of these consolidated financial statements.

1

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

|                                                |                                                            | For The Quarter Ended
June 30,     |        | For The Six Months Ended
June 30, |       
|----------------------------------------------- | ---------------------------------------------------------- | ---------------------------------- | ------ | --------------------------------- | ------
|
|Net Revenues                                    |                                                            | $                                  | 20,958 |                                   | $     
|Operating costs and expenses:                   |                                                            |                                    |        |                                   |       
|                                                | Cost of revenues (excluding amortization and depreciation) |                                    |        | 5,937                             |       
|                                                | Selling, general and administrative expense                |                                    |        | 15,538                            |       
|                                                | Depreciation and amortization                              |                                    |        | 4,179                             |       
|                                                | Impairment charge                                          |                                    |        | 4,152                             |       
|                                                | Research and development expense                           |                                    |        | 570                               |       
|                                                |                                                            |                                    |        |                                   |       
|                                                |                                                            | Total operating costs and expenses |        | $                                 | 30,376
|                                                |                                                            |                                    |        |                                   |       
|Operating income (loss)                         |                                                            |                                    | (9,418 | )                                 |       
|                                                |                                                            |                                    |        |                                   |       
|Other (expense) income:                         |                                                            |                                    |        |                                   |       
|                                                | Interest expense                                           |                                    |        | (109                              | )     
|                                                | Interest income                                            |                                    |        | 100                               |       
|                                                | Other                                                      |                                    |        |                                  |       
|                                                |                                                            |                                    |        |                                   |       
|                                                |                                                            | Total other (expense) income       |        | $                                 | (9    
|                                                |                                                            |                                    |        |                                   |       
|Income (loss) before provision for income taxes |                                                            |                                    | (9,427 | )                                 |       
|Benefit (provision) for income taxes            |                                                            |                                    | 3,323  |                                   |       
|                                                |                                                            |                                    |        |                                   |       
|Net income (loss)                               |                                                            | $                                  | (6,104 | )                                 | $     
|Other comprehensive income                      |                                                            | $                                  | 148    |                                   | $     
|                                                |                                                            |                                    |        |                                   |       
|Comprehensive income (loss)                     |                                                            | $                                  | (5,956 | )                                 | $     
|                                                |                                                            |                                    |        |                                   |       
|Net income (loss) per common share:             |                                                            |                                    |        |                                   |       
|                                                | Basic earnings (loss) per common share                     |                                    | $      | (0.18                             | )     
|                                                |                                                            |                                    |        |                                   |       
|                                                | Diluted earnings (loss) per common share:                  |                                    | $      | (0.18                             | )     
|                                                |                                                            |                                    |        |                                   |       
|Weighted average common shares outstanding:     |                                                            |                                    |        |                                   |       
|                                                | Basic                                                      |                                    |        | 34,875                            |       
|                                                |                                                            |                                    |        |                                   |       
|                                                | Diluted                                                    |                                    |        | 34,875                            |       
|                                                |                                                            |                                    |        |                                   |       

The accompanying notes are an integral part of these consolidated financial statements.

2

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

|                                                                                            |                                                                            | For The Six Months Ended June 30,                   |                                                    
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                                                       |                                                                            |                                                     |                                                    
|Net income (loss)                                                                           |                                                                            | $                                                   | (14,783                                            
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |                                                                            |                                                     |                                                    
|                                                                                            | Depreciation and amortization                                              |                                                     |                                                    
|                                                                                            | Impairment charge                                                          |                                                     |                                                    
|                                                                                            | Non-cash interest expense                                                  |                                                     |                                                    
|                                                                                            | Deferred income tax benefit                                                |                                                     |                                                    
|                                                                                            | Non-cash compensation expense                                              |                                                     |                                                    
|                                                                                            | Reduction in taxes payable  stock option exercises                        |                                                     |                                                    
|                                                                                            | Changes in assets and liabilities, net of acquired assets and liabilities: |                                                     |                                                    
|                                                                                            |                                                                            | Accounts receivable                                 |                                                    
|                                                                                            |                                                                            | Inventories                                         |                                                    
|                                                                                            |                                                                            | Samples and other prepaid expenses and other assets |                                                    
|                                                                                            |                                                                            | Income taxes receivable                             |                                                    
|                                                                                            |                                                                            | Accrued expenses and other                          |                                                    
|                                                                                            |                                                                            | Accounts payable                                    |                                                    
|                                                                                            |                                                                            |                                                     |                                                    
|                                                                                            |                                                                            |                                                     | Net cash (used in) provided by operating activities
|Cash flows from investing activities:                                                       |                                                                            |                                                     |                                                    
|                                                                                            | Purchase of product licenses and other intangibles                         |                                                     |                                                    
|                                                                                            | Purchase of property and equipment                                         |                                                     |                                                    
|                                                                                            |                                                                            |                                                     |                                                    
|                                                                                            |                                                                            |                                                     | Net cash used in investing activities              
|Cash flows from financing activities:                                                       |                                                                            |                                                     |                                                    
|                                                                                            | Capitalized financing costs incurred                                       |                                                     |                                                    
|                                                                                            | Repurchase of common stock                                                 |                                                     |                                                    
|                                                                                            | Proceeds from long-term debt                                               |                                                     |                                                    
|                                                                                            | Principal payments on long-term debt                                       |                                                     |                                                    
|                                                                                            | Net proceeds from issuance of common stock                                 |                                                     |                                                    
|                                                                                            |                                                                            |                                                     |                                                    
|                                                                                            |                                                                            |                                                     | Net cash (used in) provided by financing activities
|Effect of foreign exchange rates on cash                                                    |                                                                            |                                                     | 166                                                
|Net change in cash and cash equivalents                                                     |                                                                            |                                                     | (13,035                                            
|Cash and cash equivalents, beginning of period                                              |                                                                            |                                                     | 47,409                                             
|                                                                                            |                                                                            |                                                     |                                                    
|Cash and cash equivalents, end of period                                                    |                                                                            | $                                                   | 34,374                                             
|                                                                                            |                                                                            |                                                     |                                                    
|Supplemental Cash Flow Information:                                                         |                                                                            |                                                     |                                                    
|Cash paid for taxes                                                                         |                                                                            | $                                                   | 4,782                                              
|                                                                                            |                                                                            |                                                     |                                                    
|Cash paid for interest                                                                      |                                                                            | $                                                   | 88                                                 
|                                                                                            |                                                                            |                                                     |                                                    

The accompanying notes are an integral part of these consolidated financial statements.

3

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FIRST HORIZON PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(unaudited)

The
accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) which management considers necessary for
fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. Certain footnote disclosures normally included in financial statements
prepared according to generally accepted accounting principles in the United States of America have been condensed or omitted from these interim financial statements as permitted by the rules and
regulations of the Securities and Exchange Commission. Interim results are not necessarily indicative of results for the full year. The interim results should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-30123).

In
December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock Based CompensationTransition and
Disclosurean amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent disclosure
in both annual and interim financial statements. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002.
The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company applies Accounting
Principles Board Opinion ("APB") No. 25 and related interpretations in accounting
for its stock-based compensation plans and, effective December 15, 2002, adopted the disclosure provisions of SFAS No. 148.

In
January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin 51." The primary objectives of
FIN No. 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and
how to determine when and which business enterprise should consolidate the VIE. Additionally, FIN No. 46 requires additional disclosures for any Company with any interest in a VIE regarding the
nature, purpose, size, and activities of the VIE and the Company's maximum exposure to loss as a result of its involvement with the VIE. The interpretation is effective immediately for any VIEs
created after January 31, 2003 and for VIEs in which the Company obtains an interest after that date. The adoption of this interpretation did not have a material impact on the Company's
financial condition or results of operations.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, this Statement clarifies
under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the
statement of cash flows. This statement is effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on the Company's financial
condition or results of operations.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes
how an issuer classifies and

4

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measures
certain financial instruments with characteristics of both liabilities and equity. This statement is effective for instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company's financial
condition or results of operations.

The
Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for all stock options issued to employees. Accordingly, the
Company records compensation expense for any stock option grants with exercise prices lower than fair value, recognized ratably over the vesting period.

Had
compensation costs for the Company's options been determined using the Black Scholes option-pricing models prescribed by SFAS No. 123,"Accounting for Stock Based
Compensation," the Company's pro forma net income (loss) per common share would have been reported as follows (in thousands except per share data):

|                                            |                                                                                                                              | For The Quarter Ended
June 30, |        | For The Six Months Ended
June 30, |  
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------ | --------------------------------- | -
|
|Net income (loss) as reported               |                                                                                                                              | $                              | (6,104 | )                                 | $
|Deduct:                                     |                                                                                                                              |                                |        |                                   |  
|                                            | Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax effects |                                |        | (574                              | )
|                                            |                                                                                                                              |                                |        |                                   |  
|Pro forma                                   |                                                                                                                              | $                              | (6,678 | )                                 | $
|                                            |                                                                                                                              |                                |        |                                   |  
|Net income (loss) per common share-basic:   |                                                                                                                              |                                |        |                                   |  
|                                            | As reported                                                                                                                  |                                | $      | (0.18                             | )
|                                            | Pro forma                                                                                                                    |                                | $      | (0.19                             | )
|Net income (loss) per common share-diluted: |                                                                                                                              |                                |        |                                   |  
|                                            | As reported                                                                                                                  |                                | $      | (0.18                             | )
|                                            | Pro-forma                                                                                                                    |                                | $      | (0.19                             | )

The weighted average fair value per share of options granted during the six months ended June 30, 2003 and 2002 is estimated at $3.19 and
$18.31, respectively. The value of options is estimated on the date of the grant using the following weighted average assumptions:

2003

2002Risk-free interest rate

2.38
%
5.05
%Expected dividend yield



Expected lives

5 years

7 yearsExpected volatility

137.25
%
85.46
%


The
Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions, and are fully transferable, which differ significantly from the Company's stock option awards. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility and expected survival rates of the options.

Certain
prior year amounts have been reclassified to conform to the current year financial statement presentation. As a result of SFAS No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," a previously reported extraordinary loss on debt extinguishment of $0.9 million net of taxes for
the second quarter of 2002

5

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has
been reclassified to interest expense and to income tax benefit. To effect this reclassification, interest expense for the quarter and six months ended June 30, 2002 has been increased by
$1.4 million and the income tax benefit has been increased by $0.5 million.

Inventories
consist of purchased pharmaceutical products and are stated at 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 processing and packaging into finished product. The Company revised its revenues
forecast in the second quarter of 2003. As a result of the Company's revised forecast, at June 30, 2003, the Company had an allowance for excess and obsolete inventory of $4.6 million
compared to $2.8 million at December 31, 2002. Inventories at June 30, 2003 and December 31, 2002 consisted of (in thousands):

June 30,
2003

December 31,
2002Bulk product

$
7,182

$
7,543Finished product


8,047


9,901$
15,229

$
17,444


Samples
primarily consist of product samples used in the sales and marketing efforts of the Company's products. Samples are expensed upon distribution, as a selling expense. As a result
of the Company's revised forecast, at June 30, 2003, the Company had an ending balance in its allowance for excess and obsolete sample inventory of $0.5 million compared to
$0.0 million at December 31, 2002. Sample inventories at June 30, 2003 and December 31, 2002 were $1.8 and $2.3 million, respectively.

Accrued
expenses at June 30, 2003 and December 31, 2002 consist of the following (in thousands):

June 30,
2003

December 31,
2002Employee compensation and benefits

$
3,022

$
2,125Product returns


16,088


12,216Sales deductions


10,036


10,671Assumed liabilitiesproduct acquisitions


1,528


3,665Income taxes payable





4,266Other


2,668


3,317$
33,342

$
36,260


Product
returns

In
September 2002, the Company launched Tanafed DP and Tanafed DMX, line extensions to the Company's Tanafed Suspension and Tanafed DM products. These line extensions were
launched in response to increasing competition by knock off products to Tanafed Suspension and Tanafed DM. Due to the launch of Tanafed DP and Tanafed DMX, the Company expected increased returns of
Tanafed Suspension, as prescriptions were expected to be filled with the line extensions. The Company estimated returns of approximately $3.8 million and provided for this amount in
September 2002. The Company decided to withdraw Tanafed Suspension in April 2003 which was earlier than planned. The Company also decided to withdraw Tanafed DM in April 2003. As
a result, the Company estimated that it would incur an additional $3.4 million in returns of Tanafed Suspension and Tanafed DM and provided for this amount in the results of operations for the
quarter ended March 31, 2003 as a deduction from revenue. For the quarter ended March 31, 2003, the Company also provided for an

6

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additional
$0.6 million for projected shipping cost related to the withdrawal of Tanafed Suspension and Tanafed DM recorded as a selling expense.

Assumed
liabilitiesproduct acquisitions

In
connection with the acquisition of rights for Robinul, Ponstel, Cognex, Prenate, Furadantin, and Sular the Company assumed certain liabilities for returns of product shipped by the
seller prior to the acquisition date. At the acquisition date, the Company estimated the amount of the assumed liabilities based on actual sales return data from the seller and included that amount in
the allocation of the total purchase price. The Company periodically reviews the estimated liability. Generally, no adjustment is made to the reserve until two or three years subsequent to the
acquisition due to the lag time between when a product is sold and when it is returned. During the quarter and six month periods ended June 30, 2003, the Company determined that the established
reserves for Prenate and Cognex were in excess of the currently expected returns. As a result of the revised estimate, the Company reduced the liability and increased net revenues by
$0.5 million and $1.0 million for the quarter and six months ended June 30, 2003, respectively.

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

|                                                   |  | For The Quarter Ended
June 30, |        | For The Six Months Ended
June 30,
|-------------------------------------------------- |  | ------------------------------ | ------ | ---------------------------------
|
|Net income (loss)                                  |  | $                              | (6,104 | )                                
|Other comprehensive income                         |  |                                | 148    |                                  
|                                                   |  |                                |        |                                  
|Comprehensive income (loss)                        |  | $                              | (5,956 | )                                
|                                                   |  |                                |        |                                  
|Weighted average common shares outstandingbasic   |  |                                | 34,875 |                                  
|Diluted effect of Stock Options                    |  |                                |       |                                  
|                                                   |  |                                |        |                                  
|Weighted average common shares outstandingdiluted |  |                                | 34,875 |                                  
|                                                   |  |                                |        |                                  
|Basic earnings (loss) per common share:            |  | $                              | (0.18  | )                                
|                                                   |  |                                |        |                                  
|Diluted earnings (loss) per common share:          |  | $                              | (0.18  | )                                
|                                                   |  |                                |        |                                  

For the quarter and six months ended June 30, 2003, there were 312,256 and 432,928 potential common shares outstanding that were excluded
from the diluted net (loss) per share calculation because their effect would have been anti-dilutive.

In
the second quarter of 2003, the Company revised its revenue forecast for all of its products. The Company also evaluated the remaining estimated useful lives of its intangible assets
and as a result changed the remaining estimated useful life of its Cognex intangible assets from 20 years to 10 years. An analysis of the projected undiscounted cash flows for all
intangibles was performed as required by SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".    The analysis of the projected undiscounted
cash flows for Cognex indicated that the carrying value of the asset was not recoverable over the revised remaining useful life of the asset. The Company estimated the fair market value of the Cognex
assets using (1) a market multiple methodology, (2) a comparable transaction methodology and (3) a discounted cash flow methodology. Based on the estimated fair market value, it
was determined that the carrying value of the Cognex licensing rights was in excess of the fair value, and an impairment charge of $4.2 million was recorded for the second quarter of 2003. As a
result of the impairment charge taken and the revised estimated useful life of Cognex, amortization expense will decrease by approximately $0.2 million per year beginning in the third quarter
of 2003.

7

---



The
following table reflects the components of intangible assets as of June 30, 2003 (in thousands):

|                               |  | Gross Amount |         | Accumulated
Amortization |   | Impairment
Charge |   | Net Amount |        | Weighted
Average Life
|------------------------------ |  | ------------ | ------- | ------------------------ | - | ----------------- | - | ---------- | ------ | ---------------------
|Licensing rights               |  | $            | 244,415 |                          | $ | (20,244           | ) | $          | (4,152 | )                    
|Trade names                    |  |              | 11,060  |                          |   | (908              | ) |            |       |                      
|Contracts                      |  |              | 8,300   |                          |   | (2,320            | ) |            |       |                      
|Supply/Distribution agreements |  |              | 11,490  |                          |   | (2,148            | ) |            |       |                      
|Other intangibles              |  |              | 3,082   |                          |   | (338              | ) |            |       |                      
|                               |  |              |         |                          |   |                   |   |            |        |                      
|Total                          |  | $            | 278,347 |                          | $ | (25,958           | ) | $          | (4,152 | )                    
|                               |  |              |         |                          |   |                   |   |            |        |                      

For the three and six months ended June 30, 2003, amortization expense related to the intangible assets was $4.0 million and
$8.0 million, respectively. Amortization is calculated on a straight-line basis over the estimated useful life of the intangible asset. Estimated annual amortization expense for
each of the five succeeding fiscal years is as follows (in thousands):

Fiscal year ended
December 31:

Amount2003

$
15,9612004

$
15,7072005

$
15,5072006

$
15,4042007

$
14,191


The
Company operates in a single segment, the sale and marketing of prescription products.

On
July 8, 2002, the Company announced a share buyback program. This program authorized the repurchase of up to $8.0 million in common stock until July 5, 2003. For
the six months ended June 30, 2003, the Company repurchased 807,000 shares of common stock at an aggregate cost of approximately $2.0 million. Through June 30, 2003, the Company
had repurchased a total of 823,400 shares of common stock at an aggregate cost of approximately $2.1 million. These shares were retired.

On
February 11, 2003, the Company entered into a Credit Agreement for a $20.0 million senior secured revolving credit facility with various lenders and LaSalle Bank
National Association, as Administrative Agent. Borrowings may be used for working capital requirements and general corporate purposes. Borrowings are secured by substantially all of the Company's
assets. Borrowings bear interest at the Company's option at the base rate in effect from time to time plus an applicable margin or the Eurodollar rate, plus an applicable margin. The applicable margin
will vary dependent upon our leverage ratio in effect from time to time. The revolving facility matures on February 11, 2006. The revolving loan contains various covenants, including covenants
relative to maintaining financial ratios and earnings levels, limitations on acquisitions, dispositions, mergers and capital expenditures, limitations on incurring additional indebtedness and a
prohibition on payment of dividends and certain issuances of our capital stock. As of March 31, 2003 and June 30, 2003, the Company was not in compliance with certain financial covenants
of the Credit Agreement. The Company is seeking a waiver for these covenant violations. Unless the Company obtains a waiver of these covenant violations, the Company will not have access to borrowings
under this credit facility. As of June 30, 2003, there was no outstanding balance on the Credit Agreement. For the quarter ended June 30, 2003, there were no borrowings or repayments
under the Credit Agreement.

8

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following should be read with the consolidated financial statements and related footnotes and Management's Discussion and Analysis of Results of Operations and Financial Condition
included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-30123.) The results discussed below are not
necessarily indicative of the results to be expected in any future periods. The following discussion contains forward-looking statements that are subject to risks and uncertainties, which could cause
actual results to differ from the statements made.

Overview

The Company is a specialty pharmaceutical company that markets and sells brand name prescription products. The Company focuses on the treatment of cardiovascular,
obstetrical and gynecological, pediatric and gastroenterological conditions and disorders. The Company seeks to acquire or license pharmaceutical products that other companies do not actively market
that have high sales growth potential, are promotion-sensitive and complement the Company's existing products. In addition, the Company seeks to develop new patentable formulations, use new delivery
methods and seek regulatory approval for new indications for existing products. The Company may also acquire companies with complementary products or development pipelines as well as late stage
development companies consistent with its therapeutic focus.

On
July 17, 2003, the Company announced its revised strategy and operating plan. The revised strategy focuses on reducing expenses, implementing systems and controls to improve
efficiency and expanding the sales force. Excluding costs to hire and train representatives, management currently plans that annualized selling, general and administrative expenses should approximate
$45 million with a sales force of 200 representatives and $60 million with 400 representatives. The expansion of the Company's sales force is planned to take place in two phases. The
first phase is planned to expand the sales force to a total of 250 representatives and is expected to be completed by the end of 2003. The second phase of the expansion is planned to increase the
sales force to a total of 400 representatives and is expected to be completed in the first half of 2004. Pending implementation of the Company's revised operating plan, the Company does not currently
intend to pursue any acquisitions.

Results of Operations

Net Revenue.Net revenues for the quarter ended June 30, 2003 decreased $5.0 million or 19% to
$21.0 million, as compared to $26.0 million for the quarter ended June 30, 2002. Net revenues for the six months ended June 30, 2003 decreased $19.6 million or 37%
to $33.5 million, as compared to $53.1 million for the six months ended June 30, 2002. Net revenues decreased for the quarter and six month period primarily as a result of
(1) the continued effort to reduce the levels of trade inventories for a majority of the Company's promoted products (including Sular, Nitrolingual, Tanafed DP, Prenate GT, Ponstel and Robinul)
and a few of the Company's non-promoted products, and (2) reduced sales of the Company's non-promoted products. Net revenue for the quarter and six months ended
June 30, 2003, include an increase in net revenues of $0.5 million and $1.0 million, respectively, for the reduction in the recorded liability for estimated future returns of
Cognex and Prenate. Net revenues for the six months ended June 30, 2003, include a decrease of $3.4 million for an accrual for estimated future returns of the Tanafed Suspension and
Tanafed DM products.

According
to IMS Health's National Prescription Audit Plus data, new prescriptions of Sular decreased 1.9% and total prescriptions increased 1.8%, for the quarter ended
June 30, 2003, compared to the quarter ended March 31, 2003. Also based on that data, new prescriptions of Sular increased 8.3% and total prescriptions increased 2.5%, for the quarter
ended June 30, 2003, compared to the quarter ended June 30, 2002. Trade levels of inventory decreased by 28.2% from December 2002 to

9

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June 2003
(Source: IMS Health Pipeline report). Months on hand (defined as units on hand divided by monthly demand at the wholesalers) were 3.2 months at June 30, 2003,
3.0 months at March 31, 2003 and 4.1 months at December 31, 2002 (Source: IMS Health Pipeline report). The Company seeks to maintain 1.5 months of inventory on hand
with its wholesalers. While the Company continued its efforts to reduce the levels of trade inventories of Sular during the second quarter, the Company was delayed in achieving its goal due to the
difficulty in managing the large number of wholesalers' warehouses, each of which independently orders supplies of inventory. The Company expects to limit shipments of Sular in the third quarter of
2003 and possibly in future quarters in an effort to further reduce the levels of trade inventories. Net revenues of Sular were approximately $7.5 million and $9.6 million for the
quarter and six months ended June 30, 2003, respectively compared to $10.5 million and $11.6 million for the quarter and six months ended June 30, 2002, respectively. The
Company acquired Sular in March 2002.

The
Company has entered into agreements with its three largest wholesale customers to provide to the Company data about the levels of inventory on hand with the wholesalers and
incentivize wholesalers to maintain between 0.5 and 1.5 months of inventory on hand. The Company believes that these agreements and the implementation of other measures will help the Company
better manage the levels of trade inventories with wholesalers.

Net
revenues of the promoted pediatric and OB/GYN franchise products (namely the Prenate line, the Tanafed line, and Ponstel), were approximately $5.3 million for the quarter
ended June 30, 2003 compared to approximately $5.0 million for the quarter ended June 30, 2002.

Unit
sales of the Prenate line were significantly lower for the six months ended June 30, 2003 compared to the six months ended June 30, 2002 primarily as a result of
(1) an interruption in the supply of Prenate GT, and, (2) the previously reported increase in generic competition with the Prenate line which the Company began to experience in the
second quarter of 2002. Due to an interruption in the supply of Prenate GT to the Company during 2003, the Prenate GT inventory on hand for most of 2003 had an expiration date of six months or less.
While the Company has on hand adequate supplies of Prenate GT to fill current demand the Company continues to work with its manufacturers to better align its supply with anticipated future demand for
Prenate GT.

Total
dispensed prescriptions of Prenate GT and Prenate Advance decreased 7.0% for the quarter ended June 30, 2003 as compared to the quarter ended March 31, 2003, and
increased 11.3% for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002, according to IMS Health's National Prescription Audit Plus data. The
substitution rates of Prenate GT, as measured by new dispensed prescriptions captured by Prenate GT and knock-off products, were 37.1% for the quarter ended March 31, 2003 and 42.0%
for the quarter ended June 30, 2003 (Source: IMS Health's National Prescription Audit Plus data). Total dispensed prescriptions and substitution rates were adversely affected
during the second quarter of 2003 due to limited supplies of Prenate GT inventory which the Company encountered during the first half of 2003.

Total
dispensed prescriptions of the Tanafed line increased 7.3% for the quarter ended June 30, 2003 compared to the quarter ended June 30, 2002 according to IMS Health's
National Prescription Audit Plus data.Also according to that data, total dispensed prescriptions of the Tanafed line decreased 40.7% for
the quarter ended June 30, 2003 compared to the quarter ended March 31, 2003. The Company attributes this decline to the seasonal nature of this product and the decline is consistent
with past experience. Sales of the Tanafed line are typically higher in the Company's fourth and first quarters which correspond to the cold season. Net revenues of the Tanafed line for the six months
ended June 30, 2003 include a decrease of $3.4 million for an accrual for estimated future returns of the Tanafed Suspension and Tanafed DM products recorded in the quarter ended
March 31, 2003.

According
to IMS Health's National Prescription Audit Plus data, total prescriptions of Ponstel increased 0.7% for the quarter ended June 30, 2003 as compared to the
quarter ended March 31, 2003.

10

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Also
based on that data, total prescriptions increased 4.1% for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. Net revenues of Ponstel for the quarter
ended June 30, 2003 were approximately equal to net revenues for the quarter ended June 30, 2002.

The
Company introduced the 60-dose version of Nitrolingual during the second quarter of 2003 which helped increase sales of the 200-dose version of Nitrolingual.
According to IMS Health's National Prescription Audit Plus data, total prescriptions of Nitrolingual increased 0.7% for the quarter ended June 30, 2003 as compared to the quarter
ended June 30, 2002. The Company believes that IMS data does not capture prescriptions from some of the non-retail channels. Net revenues of Nitrolingual increased 58% for the
quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002, as a result of increased unit sales. Net revenues of Nitrolingual decreased 7% for the six months ended
June 30, 2003 as compared to the six months ended June 30, 2002, as a result of decreased unit sales.

According
to IMS Health's National Prescription Audit Plus data, total prescriptions of Robinul increased 6.8% for the quarter ended June 30, 2003 as compared to the
quarter ended March 31, 2003. Also based on that data, total prescriptions increased 9.7% for the quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. Net
revenues for the quarter ended June 30, 2003 were approximately equal to net revenues for the quarter ended June 30, 2002.

Net
revenues of the Company's non-promoted products decreased 98% and 84% for the quarter and six months ended June 30, 2003, respectively as compared to the quarter
and six months ended June 30, 2002, respectively. The decline was the result of lower unit sales for these brands and higher allowances for returns.

In
connection with the acquisition of rights for Robinul, Ponstel, Cognex, Prenate, Furadantin and Sular the Company assumed certain liabilities for returns of product shipped by the
seller prior to the acquisition date. At the respective acquisition dates, the Company estimated the amount of the assumed liabilities based on actual sales return data from the seller and included
that amount in the allocation of the total purchase price. The Company periodically reviews the estimated liability. Generally, no adjustment is made to the reserve until two to three years subsequent
to the acquisition due to the lag time between when a product is sold and when it is returned. Net revenues for the quarter and six months ended June 30, 2003 include an increase in net
revenues of $0.5 million and $1.0 million, respectively related to the reduction in the recorded liability for estimated future returns of Cognex and Prenate.

Cost of Revenues.Cost of revenues for the quarter ended June 30, 2003 were $5.9 million compared to
$4.7 million for the quarter ended June 30, 2002. Cost of revenues for the six months ended June 30, 2003 were $10.0 million compared to $9.0 million for the six
months ended June 30, 2002. As a result of a change in the Company's sales forecast, cost of revenues for the quarter and six months ended June 30, 2003 included an increased allowance
for obsolete and excess inventory of $2.2 million and $3.5 million, respectively. These charges were primarily for the Company's non-promoted products, excess Sular and
Tanafed inventory and short dated Prenate GT inventory. Cost of revenues for the quarter and six months ended June 30, 2002 do not include a comparable allowance for obsolete and excess
inventory.

Gross Margin.Gross margin for the quarter ended June 30, 2003 was 72% compared to 82% for the quarter ended
June 30, 2002. Gross margin for the six months ended June 30, 2003 was 70% compared to 83% for the six months ended June 30, 2002. Approximately ten percentage points of this
decrease in gross margin percentage for the quarter and six months ended June 30, 2003 resulted from the increased allowance for obsolete and excess inventory. Also affecting gross margin was a
change in product sales mix.

11

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Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased $1.3 million, or
8%, to $15.5 million for the quarter ended June 30, 2003, compared to $16.8 million for the quarter ended June 30, 2002. Selling related expenses decreased due to lower
co-promotion expenses incurred for promotion of the Company's Sular product due to the termination of a co-promotion agreement in the second quarter of 2003, and lower quarter
over quarter marketing and training expenses which were higher in the quarter ended June 30, 2002 due to the launch of Sular in 2002. The Company recorded expenses totaling $1.3 million
during the quarter ended June 30, 2003 for an allowance for obsolete sample inventory and severance for departing employees.    Selling, general and administrative expenses for the
quarter ended June 30, 2002 do not include comparable expenses.

Selling,
general and administrative expenses increased $1.7 million, or 6%, to $32.6 million for the six months ended June 30, 2003, compared to $30.9 million
for the six months ended June 30, 2002. Selling, general and administrative expenses for the six months ended June 30, 2003 include expenses totaling $2.7 million for an allowance
for obsolete sample inventory, shipping cost related to the withdrawal of Tanafed and Tanafed DM and severance for departing employees.    Selling, general and administrative expenses for
the six months ended June 30, 2002 do not include comparable expenses. These increased expenses were offset by lower marketing and training expenses due to the launch of Sular in 2002, and
lower royalty expenses.

Depreciation and Amortization Expense.Depreciation and amortization expense increased $0.1 million, or 2%, to
$4.2 million for the quarter ended June 30, 2003 compared to $4.1 million for the quarter ended June 30, 2002. Depreciation and amortization expense increased
$2.0 million, or 32% to $8.3 million for the six months ended June 30, 2003 compared to $6.3 million for the six months ended June 30, 2002. This increase resulted
from higher amortization expense related to the acquisition of Sular in March 2002.

Impairment Charge.In the second quarter of 2003, the Company revised its revenue forecast for all of its products and
evaluated the remaining estimated useful lives of its intangible assets. As a result, the Company changed the remaining estimated useful life of its Cognex intangible assets from 20 years to
10 years. An analysis of the projected undiscounted cash flows for all intangibles was performed as required by SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".    The analysis of the projected undiscounted cash flows for Cognex indicated that the carrying value of the asset was not recoverable over the revised
remaining useful life of the asset. The Company
estimated the fair market value of the Cognex assets and based on the estimated fair market value, it was determined that the carrying value of the Cognex licensing rights was in excess of the fair
value, and an impairment charge of $4.2 million was recorded for the second quarter of 2003. As a result of the impairment charge taken and the revised estimated useful life of Cognex,
amortization expense will decrease by approximately $0.2 million per year beginning in the third quarter of 2003.

Research and Development Expense.Research and development expense increased $0.3 million to $0.6 million for
the quarter ended June 30, 2003 compared to $0.3 million for the quarter ended June 30, 2002. Research and development expense increased $0.9 million to $1.5 million
for the six months ended June 30, 2003 compared to $0.6 million for the six months ended June 30, 2002. The increase in expense is primarily a result of costs associated with
manufacturing transfers for the Company's Ponstel, Cognex and Furadantin products and development costs for the Prenate line.

In
late 2002, the FDA issued a notice about various cough and cold combination products, which requires that the Company obtain FDA approval of the Company's Tanafed products before
January 1, 2005 in order to be able to thereafter continue to market and sell these products as prescription products. The Company has not yet determined the estimated cost to obtain FDA
approval. The Company continues to evaluate its strategy for its Tanafed products, which may include incurring significant developmental expenses to obtain FDA approval or may involve marketing
Tanafed products

12

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as
non-prescription products, which could have a material adverse effect on net revenues and profit margins for the Tanafed product line.

Interest Expense.Interest expense was $0.1 million for the quarter and six months ended June 30, 2003 compared
to $2.7 million and $4.1 million for the quarter and six months ended June 30, 2002, respectively. For the quarter and six months ended June 30, 2003, the Company had no
debt outstanding. As a result of SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," a previously
reported extraordinary loss on debt extinguishment of $0.9 million net of taxes for the second quarter of 2002 has been reclassified to interest expense and to income tax benefit. To effect
this reclassification, interest expense for the quarter and six months ended June 30, 2002 has been increased by $1.4 million and the income tax benefit has been increased by
$0.5 million.

Interest Income.Interest income was $0.1 million and $0.2 million for the quarter and six months ended
June 30, 2003, respectively, compared to $0.1 million and $0.3 million for the quarter and six months ended June 30, 2002. The decrease in interest income for the
six-month period ended June 30, 2003 is primarily due to a lower average cash balance.

Benefit (Provision) for Income Taxes.Income taxes were provided for at a rate of 35.2% for the quarter ended June 30,
2003 and 35.5% for the six months of June 30, 2003, compared to 38.5% for the quarter and six months ended June 30, 2002. The decrease in the effective rate is due to the effect of
non-deductible expenses. For the quarter and six months ended June 30, 2003, the Company had a pre-tax loss. The effect of non-deductible expenses resulted
in a reduced tax benefit for the quarter.

Liquidity and Capital Resources

The Company's liquidity requirements arise primarily from debt service, working capital requirements, product development activities and funding of acquisitions.
The Company has met these cash requirements through cash from operations, borrowings for product acquisitions and the issuance of common stock.

The
Company's cash and cash equivalents were $34.4 million at June 30, 2003. Net cash used in operating activities for the six months ended June 30, 2003 was
$10.9 million. This use of cash was primarily the result of the net loss, the decrease in accrued expenses and accounts payable, and an increase in samples and other prepaid expenses, offset by
non-cash depreciation and amortization expense, non-cash impairment charge, non-cash compensation expense, non-cash interest expense and decreases in
accounts receivable and inventory.

The
Company estimates that it will refund to customers approximately $7.2 million in the third quarter of 2003 as the Company receives returns of Tanafed Suspension and Tanafed DM
which, as previously reported, the Company ceased to sell in April 2003.

The
Company maintains supply agreements with third party suppliers for most of its products. Some of these supply agreements contain minimum purchase requirements. For most of these
supply agreements, the Company believes that its inventory requirements and related purchases of inventory will exceed the minimum purchase requirement in 2003. In those cases in which the Company
does not believe its purchases will exceed the minimum purchase requirements, the Company is seeking to negotiate waivers or modifications of the minimum purchase requirements.

Recent
regulatory developments affecting the Company's Tanafed line could affect the Company's liquidity requirements. In late 2002, the FDA issued a notice about various cough and cold
combination products, which requires that the Company obtain FDA approval of the Company's Tanafed products before January 1, 2005 in order to be able to thereafter continue to market and sell
these products as prescription products. The Company has not yet determined the estimated cost to obtain FDA

13

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approval.
The Company continues to evaluate its strategy for its Tanafed products, which may include incurring significant developmental expenses to obtain FDA approval or may involve marketing
Tanafed products as non-prescription products, which could have a material adverse effect on net revenues and profit margins for the Tanafed product line.

Net
cash used in investing activities for the six months ended June 30, 2003 was $0.6 million. The use of this cash was primarily for purchases of software and computer
equipment.

Net
cash used in financing activities was $1.7 million for the six months ended June 30, 2003. The primary use of this cash was to repurchase shares of the Company's
outstanding common stock under its share repurchase program and fees paid to obtain a new credit facility through LaSalle Bank N.A., offset by proceeds from the sale of stock.

The
Company has no borrowing outstanding under the credit facility. For the quarter and six months ended June 30, 2003, there were no borrowings or repayments under the Credit
Agreement. At June 30, 2003, the Company was not in compliance with certain financial covenants of this credit facility. Unless the Company obtains a waiver of these covenant violations, the
Company will not have access to borrowings under this credit facility.

The
Company believes that its cash and cash equivalents and cash which it expects to generate from operations will be adequate to fund its current working capital requirements for at
least the next 12 months. However, in the event that the Company makes significant acquisitions in the future, it may be required to raise additional funds through additional borrowings or the
issuance of debt or equity securities.

Critical Accounting Policies

The Company views its critical accounting policies to be those policies which are very important to the portrayal of the Company's financial condition and results
of operations, and require management's most difficult, complex or subjective judgments. The circumstances that make these judgments difficult
or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. The Company believes its critical accounting policies to be as follows:



14

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15

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Forward Looking Statements

The Management's Discussion and Analysis of Financial Condition and Results of Operations discussion as well as information contained elsewhere in this Report
contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include statements about the following:



16

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When
used in this Report, the Company intends the words "may", "believe," "anticipate," "planned," "expect," "require," "intend," and "depend" to identify"forward-looking statements."
The Company's forward-looking statements involve uncertainties and other factors, including those described in this Quarterly Report and under the caption "Business-Risk Factors" contained
in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 under the following headings "Our operating results are substantially dependent upon the
contribution of Sular, which has been below expectations since we acquired the product and which has adversely affected our operating results," "Unexpected increases in
2002 year-end quantities of Sular on-hand with wholesalers may adversely effect sales of Sular during 2003," "The potential growth rate for Sular may be limited by
slower growth for the class of drugs to which Sular belongs," "Sales of Prenate GT have been adversely affected by the introduction of competitive products," "The shelf life of Prenate GT increases
the

17

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likelihood
of returns of Prenate GT, thereby reducing net sales," "Sales of our Tanafed products have been adversely affected by the introduction of competitive products," "The FDA recently issued a
notice which may cause us to incur increased expenses and adversely affect our ability to continue to market and sell our Tanafed products," "Periodic emphasis of our sales force on one or more of our
products and other factors from time-to-time adversely affect sales of other of our products," "We may not be able to increase our sales to compensate for the decrease in sales
of our non-promoted products," "Introductions by us of line extensions of our existing products may require that we make unexpected changes in our estimates for future product returns and
reserves for obsolete inventory which would adversely affect our operating results," "There is a risk that we may incur charges for intangible asset impairment," "Our launch of a smaller size of
Nitrolingual Pumpspray may not be successful," "Our growth will suffer if we do not acquire rights to new products and integrate them successfully," "There is uncertainty regarding a potential
reorganization plan," "We depend entirely on third parties to our products," "We may encounter interruptions in our supply of Ponstel," "We may encounter interruptions in our supply of Furadantin," We
may encounter interruptions in our supply of Cognex," "Our existing supply agreements may prohibit us from entering into potentially more favorable supply relationships with others," "Part of our
growth strategy is to acquire businesses which subjects us to additional risks," "We face generic and other competition that could lower prices and unit sales," "Strong competition exists for our
products, and competitors have recently introduced new products and therapies that could make some of our products obsolete," "A small number of customers account for a large portion of our sales and
the loss of one of them, or changes in their purchasing patterns, could result in reduced sales," "If our products under development fail in clinical studies, if we fail or encounter difficulties in
obtaining regulatory approval for new products or new uses of existing products, or if our development agreements are terminated, we will have expended significant resources for no return," "We or
third parties may violate government regulations," "If third-party payors do not adequately reimburse patients for our products, doctors may not prescribe them," "We depend on highly trained
management, and we may not be able to keep current management or hire qualified management in the future," "Product liability claims and product recalls could limit sales and increase costs," "An
adverse judgment in the securities class action litigation in which we and certain directors and executive officers are defendants could have a material adverse effect on our results of operations and
liquidity," "The incurrence of debt could reduce our growth and profitability," "We expect to require additional funding, and if we cannot obtain it, our sales, profits, acquisitions and development
projects could suffer," "Competitors could offer a product competitive with Sular," "If we do not secure or enforce patents and other intellectual property rights, we could encounter increased
competition that would adversely affect our operating results," "Our products could infringe the intellectual property rights of third -parties, which could require us to pay license fees or defend
litigation that would be expensive or prevent us from selling products," "The
regulatory status of some of our products makes these products subject to increased competition and other risks," "We face risks under one of our development agreements because the other party to the
agreement is a related party," "Pohl-Boskamp can terminate our rights to Nitrolingual Pumpspray," and "We have limited experience selling products in other countries." These risk factors
may cause actual results, performance or achievements, to be different from that suggested by the Company's forward-looking statements. You should not place undue reliance on forward-looking
statements. The Company does not intend to update prescription data contained in this report. The Company does not undertake to update forward-looking statements to reflect future events or
circumstances.

18

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
Company's operating results and cash flows are subject to fluctuations from changes in foreign currency exchange rates and interest rates. The Company's purchases of Nitrolingual
under its agreement with Pohl-Boskamp and its purchases of Sular product inventory from Bayer are made in Euros. The Company eliminates the risk of foreign currency fluctuations after the
time of shipment of product by entering into forward contracts for these purchases of inventory at the time of product shipments. The Company currently holds Euros in certain European countries. In
addition, sales of Cognex in Europe are recognized in Euros. While the effect of foreign currency translations has not been material to the Company's results of operations to date, currency
translations on cash held in foreign countries, export sales or import purchases could be adversely affected in the future by the relationship of the U.S. dollar with foreign currencies.

In
connection with borrowings under the Company's senior secured revolving credit facility arranged by LaSalle Bank N. A., the Company could experience market risk with respect to
changes in the general level of the interest rates and the effect upon interest expense. Borrowings under this facility bear interest at variable rates. Because such rates are variable, an increase in
interest rates will result in additional interest expense and a reduction in interest rates will result in reduced interest expense. Accordingly, the Company's present exposure to interest rate
fluctuations is primarily dependent on rate changes that may occur while borrowings under the senior secured credit facility are outstanding. As of June 30, 2003, there was no debt outstanding
under this facility and the facility was not used at any time during the quarter or six months ended June 30, 2003.

ITEM 4. CONTROLS AND PROCEDURES

The
Company maintains a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company carried out an evaluation
(the "Evaluation"), under the supervision and with the participation of management, including the Company's President and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. The Company's President and Chief Financial Officer concluded that the Company's
disclosure controls and procedures provide reasonable assurance as of the end of the quarter for which the report is being filed that (i) information required to be disclosed in the Company's
reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC's rules and forms and (ii) such information is accumulated and communicated to the Company's management, including the Company's President and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.

The
Company is committed to a continuing process of identifying, evaluating and implementing improvements to the effectiveness of the Company's disclosure and internal controls and
procedures. The Company's management, including its President and Chief Financial Officer, does not expect that the Company's controls and procedures will prevent all errors. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time,

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controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in any control system,
misstatements due to error or violations of law may occur and not be detected.

There
have not been any changes in the Company's internal controls over financial reporting identified in connection with the Evaluation that occurred during the Company's last quarter
that has materially affected or, to the knowledge of management, is reasonably likely to materially affect the Company's internal controls.

PART IIOTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

There
were no material developments during the three and six months ended June 30, 2003 in the previously reported putative class action lawsuit naming the Company and certain
affiliates as defendants.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

At
June 30, 2003 the Company was not in compliance with certain financial covenants under its senior secured revolving credit facility arranged through LaSalle Bank N. A.. At
June 30, 2003 the outstanding balance on the senior secured revolving credit facility was zero and there was no activity under the credit facility for the quarter ended June 30, 2003.
The Company is in the process of seeking a waiver of these covenant violations.

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

At
the Annual Meeting of Stockholders held May 16, 2003, Jerry N. Ellis and John N. Kapoor, Ph.D. were re-elected to Company's Board of Directors as Class A
Directors. There were 31,493,373 shares voted for and 1,666,435 shares withheld for Jerry Ellis, and 32,792,360 shares voted for and 367,178 shares withheld for John Kapoor. The Company's
Class B and C Directors, Jon Saxe, Pierre Lapalme and Patrick Zenner, continue to serve on the Board. The terms of the Class A, B and C Directors expire at the Annual Meeting of
Stockholders in fiscal years 2006, 2004 and 2005, respectively.

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



3.1(1)

Restated Certificate of Incorporation, as amended3.2*

Amended and Restated By-laws4.1(2)

Form of Stock Certificate10.1*

Separation Agreement and Full Release of All Claims dated May 19, 2003 between the Registrant and Mahendra G. Shah10.2*

Separation Agreement and Full Release of All Claims dated as of May 22, 2003 between the Registrant and Andrew Shales10.3*

Separation Agreement and Full Release of All Claims dated as of May 22, 2003 between the Registrant and Jack Spencer10.4*

2003 Nonqualified Stock Option Plan10.5*

Employment Agreement dated as of May 16, 2003 between the Registrant and Patrick Fourteau10.6*

Employment Agreement dated as of June 12, 2003 between the Registrant and Darrell Borne31.1*

Certifications of President and Chief Operating Officer31.2*

Certifications of Chief Financial Officer, Treasurer and Secretary32.1*

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                      |  | FIRST HORIZON PHARMACEUTICAL CORPORATION(Registrant)
|--------------------- |  | ----------------------------------------------------
|Date: August 13, 2003 |  | By:                                                 
|Date: August 13, 2003 |  | By:                                                 

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