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

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 March 31, 2004                
|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)                                  
|(770) 442-9707(Registrant's telephone number, including area code):          

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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 April 30, 2004, there were 35,906,297 shares of the Registrant's Common Stock outstanding.



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FIRST HORIZON PHARMACEUTICAL CORPORATION  FORM 10-Q  INDEX

PAGEPART I. FINANCIAL INFORMATIONItem 1.

Consolidated Balance Sheets at March 31, 2004 and December 31, 2003

3Consolidated Statements of Operations for the three months ended March 31, 2004 and March 31, 2003

4Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and March 31, 2003

5Notes to Consolidated Financial Statements

6Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13Item 3.

Quantitative and Qualitative Disclosures about Market Risk

21Item 4.

Controls and Procedures

22PART II. OTHER INFORMATIONItem 1.

Legal Proceedings

23Item 2.

Changes in Securities and Use of Proceeds

23Item 3.

Defaults Upon Senior Securities

23Item 4.

Submission of Matters to a Vote of Security Holders

23Item 5.

Other Information

23Item 6.

Exhibits and Reports on Form 8-K

24Signatures

25Certifications


2

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                                                                                                                                             |                                                                                                                                                                           | (unaudited)
March 31, 2004 |                                            | December 31, 2003
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | -----------------
|ASSETS                                                                                                                                                                       |                                                                                                                                                                           |                            |                                            |                  
|Current assets:                                                                                                                                                              |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             | Cash and cash equivalents                                                                                                                                                 |                            | $                                          | 157,499          
|                                                                                                                                                                             | Marketable securities                                                                                                                                                     |                            |                                            | 47,533           
|                                                                                                                                                                             | Accounts receivable, net of allowance for doubtful accounts, discounts and contractual adjustments of $400 and $546 at March 31, 2004 and December 31, 2003, respectively |                            |                                            | 11,287           
|                                                                                                                                                                             | Inventories                                                                                                                                                               |                            |                                            | 9,038            
|                                                                                                                                                                             | Income taxes receivable                                                                                                                                                   |                            |                                            | 2,778            
|                                                                                                                                                                             | Current deferred tax assets                                                                                                                                               |                            |                                            | 2,712            
|                                                                                                                                                                             | Other current assets                                                                                                                                                      |                            |                                            | 5,448            
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total current assets                       |                  
|Property and equipment, net                                                                                                                                                  |                                                                                                                                                                           |                            | 2,900                                      |                  
|Other assets:                                                                                                                                                                |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             | Intangibles, net                                                                                                                                                          |                            |                                            | 236,475          
|                                                                                                                                                                             | Other assets                                                                                                                                                              |                            |                                            | 5,079            
|                                                                                                                                                                             | Deferred tax assets                                                                                                                                                       |                            |                                            | 72               
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total other assets                         |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total assets                               |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                         |                                                                                                                                                                           |                            |                                            |                  
|Current liabilities:                                                                                                                                                         |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             | Accounts payable                                                                                                                                                          |                            | $                                          | 4,571            
|                                                                                                                                                                             | Accrued expenses                                                                                                                                                          |                            |                                            | 11,457           
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total current liabilities                  |                  
|Long-term liabilities:                                                                                                                                                       |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             | Convertible debt                                                                                                                                                          |                            |                                            | 150,000          
|                                                                                                                                                                             | Other long-term liabilities                                                                                                                                               |                            |                                            | 461              
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total liabilities                          |                  
|Stockholders' equity:                                                                                                                                                        |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             | Preferred stock, 1,000,000 shares authorized and none outstanding                                                                                                         |                            |                                            |                 
|Common stock, $0.001 par value; 100,000,000 shares authorized; 35,883,408 and 35,595,442 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |                                                                                                                                                                           |                            | 36                                         |                  
|Additional paid-in capital                                                                                                                                                   |                                                                                                                                                                           |                            | 292,191                                    |                  
|Retained earnings                                                                                                                                                            |                                                                                                                                                                           |                            | 21,808                                     |                  
|Accumulated other comprehensive income                                                                                                                                       |                                                                                                                                                                           |                            | 297                                        |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total stockholders' equity                 |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            | Total liabilities and stockholders' equity |                  
|                                                                                                                                                                             |                                                                                                                                                                           |                            |                                            |                  

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

3

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

|                                                |                                                            | For The Quarter Ended March 31, |                                   
|----------------------------------------------- | ---------------------------------------------------------- | ------------------------------- | ----------------------------------
|
|Net Revenues                                    |                                                            | $                               | 32,018                            
|Operating costs and expenses:                   |                                                            |                                 |                                   
|                                                | Cost of revenues (excluding amortization and depreciation) |                                 |                                   
|                                                | Selling, general and administrative expense                |                                 |                                   
|                                                | Depreciation and amortization                              |                                 |                                   
|                                                | Research and development expense                           |                                 |                                   
|                                                |                                                            |                                 |                                   
|                                                |                                                            |                                 | Total operating costs and expenses
|                                                |                                                            |                                 |                                   
|Operating income (loss)                         |                                                            |                                 | 8,280                             
|                                                |                                                            |                                 |                                   
|Other (expense) income:                         |                                                            |                                 |                                   
|                                                | Interest expense                                           |                                 |                                   
|                                                | Interest income                                            |                                 |                                   
|                                                | Other                                                      |                                 |                                   
|                                                |                                                            |                                 |                                   
|                                                |                                                            |                                 | Total other (expense) income      
|                                                |                                                            |                                 |                                   
|Income (loss) before provision for income taxes |                                                            |                                 | 8,373                             
|Benefit (provision) for income taxes            |                                                            |                                 | (3,326                            
|                                                |                                                            |                                 |                                   
|Net income (loss)                               |                                                            | $                               | 5,047                             
|Other comprehensive income (loss)               |                                                            | $                               | (17                               
|                                                |                                                            |                                 |                                   
|Comprehensive income (loss)                     |                                                            | $                               | 5,030                             
|                                                |                                                            |                                 |                                   
|Net income (loss) per common share:             |                                                            |                                 |                                   
|                                                | Basic earnings (loss) per common share                     |                                 | $                                 
|                                                |                                                            |                                 |                                   
|                                                | Diluted earnings (loss) per common share                   |                                 | $                                 
|                                                |                                                            |                                 |                                   
|Weighted average common shares outstanding:     |                                                            |                                 |                                   
|                                                | Basic                                                      |                                 |                                   
|                                                |                                                            |                                 |                                   
|                                                | Diluted                                                    |                                 |                                   
|                                                |                                                            |                                 |                                   

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

4

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

|                                                                                                   |                                            | For The Three Months Ended March 31,                                       |                                                    
|-------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                                                              |                                            |                                                                            |                                                    
|Net income (loss)                                                                                  |                                            | $                                                                          | 5,047                                              
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                            |                                                                            |                                                    
|                                                                                                   |                                            | Depreciation and amortization                                              |                                                    
|                                                                                                   |                                            | 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: |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            | Net cash provided by (used in) operating activities
|Cash flows from investing activities:                                                              |                                            |                                                                            |                                                    
|                                                                                                   | Purchase of marketable securities          |                                                                            |                                                    
|                                                                                                   | 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               |                                                                            |                                                    
|                                                                                                   | Net proceeds from issuance of common stock |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            |                                                    
|                                                                                                   |                                            |                                                                            | Net cash provided by (used in) financing activities
|Effect of foreign exchange rates on cash                                                           |                                            |                                                                            | (10                                                
|Net change in cash and cash equivalents                                                            |                                            |                                                                            | 123,777                                            
|Cash and cash equivalents, beginning of period                                                     |                                            |                                                                            | 33,722                                             
|                                                                                                   |                                            |                                                                            |                                                    
|Cash and cash equivalents, end of period                                                           |                                            | $                                                                          | 157,499                                            
|                                                                                                   |                                            |                                                                            |                                                    
|Supplemental Cash Flow Information:                                                                |                                            |                                                                            |                                                    
|Cash paid for taxes                                                                                |                                            | $                                                                          | 333                                                
|                                                                                                   |                                            |                                                                            |                                                    
|Cash paid for interest                                                                             |                                            | $                                                                          | 13                                                 
|                                                                                                   |                                            |                                                                            |                                                    

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

5

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FIRST HORIZON PHARMACEUTICAL CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (unaudited)

1.     Basis of Presentation

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 accounting principles generally accepted 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, 2003 (File
No. 000-30123).

2.     New Accounting Pronouncements

During December 2003, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 104, Revenue
Recognition, which supercedes SAB No. 101, Revenue Recognition in Financial Statements.
This Bulletin's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF
00-21,Accounting for Revenue Arrangements with Multiple Deliverables. While the wording of SAB No. 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The issuance of this Bulletin did not
impact the Company's accounting policy for revenue recognition.

During
December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 132 (revised 2003),Employers' Disclosures about Pensions
and Other Postretirement
Benefitsan amendment of FASB Statements No. 87, 88, and 106. This Statement revises disclosure requirements about pension plans and other postretirement
benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87,Employers' Accounting for Pensions,SFAS
No. 88,Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,and SFAS
No. 106,Employers' Accounting for Postretirement Benefits Other Than Pensions.This Statement requires additional disclosures about the assets,
obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. In addition, the various elements of pension and other postretirement
benefit costs must be disclosed on a quarterly basis. The annual disclosure provisions of SFAS No. 132 (revised 2003) generally are effective for fiscal years ending after December 15,
2003, while the interim disclosure provisions are effective for interim periods beginning after December 15, 2003. The adoption of SFAS No. 132 (revised 2003) did not have a material
impact on the Company's financial condition or results of operations.

3.     Stock Options

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

6

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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
March 31,2004

2003Net income (loss) as reported

$
5,047

$
(8,679
)Deduct:Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax effects


(641
)

(153
)Pro forma

$
4,406

$
(8,832
)Net income (loss) per common share-basic:As reported

$
0.14

$
(0.25
)Pro forma

$
0.12

$
(0.25
)Net income (loss) per common share-diluted:As reported

$
0.14

$
(0.25
)Pro-forma

$
0.12

$
(0.25
)


The
weighted average fair value per share of options granted during the three months ended March 31, 2004 and 2003 is estimated at $12.78 and $4.66, respectively. The value of
options is estimated on the date of the grant using the following weighted average assumptions:

2004

2003Risk-free interest rate

3.02
%
2.10
%Expected dividend yield



Expected lives

5 years

5 yearsExpected volatility

129.27
%
165.4
%


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.

4.     Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

5.     Marketable Securities

The Company classifies its existing marketable securities as available-for-sale. All available-for-sale securities
are considered current, as the Company intends to use them for current operating and investing purposes. There were no realized gains or losses in the three months ended March 31, 2004. At
March 31, 2004, the Company had total unrealized gains from marketable securities of $0.

7

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The
carrying amount of available-for-sale securities and their approximate fair values at March 31, 2004 were as follows (in thousands):

|                                               |  | Amortized Cost |        | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|---------------------------------------------- |  | -------------- | ------ | ---------------------- | - | ----------------------- |  | ----------
|U.S. Government and Federal agency obligations |  | $              | 22,750 |                        | $ | 64                      |  | $         
|Corporate bonds                                |  |                | 24,783 |                        |   | 17                      |  |           
|                                               |  |                |        |                        |   |                         |  |           
|Total                                          |  | $              | 47,533 |                        | $ | 81                      |  | $         
|                                               |  |                |        |                        |   |                         |  |           

6.     Inventories

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. At
March 31, 2004, the Company had an allowance for excess and obsolete inventory of $2.2 million compared to $2.4 million at December 31, 2003. Inventories at
March 31, 2004 and December 31, 2003 consisted of (in thousands):

March 31, 2004

December 31, 2003Bulk product

$
4,539

$
6,050Finished product


4,499


5,138$
9,038

$
11,188


7.     Samples

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. Sample inventories at March 31, 2004 and December 31, 2003 were $1.0 million and $0.8 million, respectively and are included in other current assets.

8.     Accrued Expenses

Accrued expenses at March 31, 2004 and December 31, 2003 consist of the following (in thousands):

March 31,
2004

December 31, 2003Employee compensation and benefits

$
1,113

$
1,830Product returns


2,370


3,813Sales deductions


4,250


4,287Royalties


966


546Assumed liabilities  product acquisitions


236


824Other


2,522


1,910$
11,457

$
13,210


8

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9.     Earnings Per Share

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

For The Quarter Ended
March 31,2004

2003Net income (loss)

$
5,047

$
(8,679
)Other comprehensive income (loss)


(17
)

18Comprehensive income (loss)

$
5,030

$
(8,661
)Weighted average common shares outstanding-basic


35,745


35,274Diluted effect of Stock Options


1,101


Weighted average common shares outstanding-diluted


36,846


35,274Basic earnings (loss) per common share:

$
0.14

$
(0.25
)Diluted earnings (loss) per common share:

$
0.14

$
(0.25
)


For
the quarter ended March 31, 2004, there were 703,437 potential common shares outstanding that were excluded from the diluted net income per share calculation because their
effect would have been anti-dilutive. The convertible debt could also be converted into 6,772,005 shares of common stock in the future, subject to certain contingencies outlined in
footnote 15. Because such contingencies were not fulfilled, the convertible debt was not considered in the calculation of diluted income per common share.

10.   Impairment Charge

In the second quarter of 2003, the Company formulated a new sales and marketing strategy upon the Company hiring Mr. Patrick Fourteau as its President and
Chief Operating Officer. This new strategy resulted in the discontinuation of the pursuit of a line extension for Cognex as well as the subsequent plans to promote the product. As part of this new
strategy, using market research, the Company updated its forecasts of Cognex sales projections to reflect a cycle life through June 2013, the period of time that the Company expects it will
continue to sell the product in the future. As a result, the estimated useful life of Cognex was decreased from a remaining life of 17 years to 10 years, and using the estimated future
undiscounted cash flows over the useful life of the product, the intangible asset related to Cognex was not projected to be recoverable.

The
Company contracted with an independent third party valuation company who provided the Company with a fair value of the intangible asset related to Cognex which resulted in an
impairment charge of $4.2 million being recorded as of June 30, 2003. The methodologies used by this external firm to determine a fair value for Cognex included a combination of a market
approach which used a marketable multiple methodology and a comparable transaction methodology, as well as an income approach using a discounted cash flow methodology.

9

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11.   Intangible Assets

The following table reflects the components of intangible assets as of March 31, 2004 (in thousands):

|                               |  | Gross Amount |         | Accumulated Amortization |   | Impairment Charge |   | Net Amount |        | Weighted Average Life
|------------------------------ |  | ------------ | ------- | ------------------------ | - | ----------------- | - | ---------- | ------ | ---------------------
|Licensing rights               |  | $            | 244,483 |                          | $ | (29,307           | ) | $          | (4,152 | )                    
|Trade names                    |  |              | 11,060  |                          |   | (1,325            | ) |            |       |                      
|Contracts                      |  |              | 8,300   |                          |   | (3,587            | ) |            |       |                      
|Supply/Distribution agreements |  |              | 11,490  |                          |   | (3,158            | ) |            |       |                      
|Other intangibles              |  |              | 3,082   |                          |   | (411              | ) |            |       |                      
|                               |  |              |         |                          |   |                   |   |            |        |                      
|Total                          |  | $            | 278,415 |                          | $ | (37,788           | ) | $          | (4,152 | )                    
|                               |  |              |         |                          |   |                   |   |            |        |                      

For
the three months ended March 31, 2004, amortization expense related to the intangible assets was $3.9 million. 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:

Amount2004

$
15,6862005

$
15,4862006

$
15,3822007

$
14,0772008

$
13,826


12.   Segment Reporting

The Company is engaged solely in the business of marketing and selling prescription pharmaceutical products. Accordingly, the Company's business is classified in
a single reportable segment, the sale and marketing of prescription products. Prescription products include a variety of branded pharmaceuticals for the treatment of cardiovascular, obstetrical and
gynecological, pediatric and gastroenterological conditions and disorders.

The
following presents revenues for prescription products by area of treatment:

For The Three Months Ended
March 31,2004

2003Cardiovascular

$
14,545

$
3,941Women's Health/Pediatrics


13,222


7,033Non Promoted


4,251


1,520Net Revenues

$
32,018

$
12,494


13.   Share Buyback Program

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. Through July 5, 2003, the Company repurchased 823,400 shares of its common stock at an aggregate cost of approximately $2.1 million. On August 25, 2003, the
Company authorized the repurchase of up to an additional $7.9 million of common stock and extended the repurchase program to August 31, 2004. In

10

---



September 2003,
the Company repurchased an additional 162,225 shares of common stock at an aggregate cost of approximately $1.0 million. Through December 31, 2003, the Company had
repurchased a total of 985,625 shares of common stock at an aggregate cost of approximately $3.1 million. These shares were retired. No shares were repurchased during the quarter ended
March 31, 2004.

14.   Credit Agreement

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 the Company's leverage ratio in effect from time to time. The revolving facility, as amended, matures on August 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, 2004, the Company was in compliance with all financial
covenants of the Credit Agreement. As of March 31, 2004 there was no outstanding balance on the Credit Agreement. For the quarter ended March 31, 2004, there were no borrowings or
repayments under the Credit Agreement.

15.   Long-term Debt

In March 2004, the Company issued a total of $150.0 million of its 1.75% senior subordinated contingent convertible notes due 2024 in transactions
that were exempt from registration in reliance upon Rule 144A and other available exemptions under the Securities Act. The notes are due March 8, 2024 and accrued interest is payable
semi-annually in arrears on March 8 and September 8 of each year, commencing on September 8, 2004. In addition to the interest on the notes, after March 8,
2007, the Company will also pay contingent interest during specified six-month periods if the average trading price of the notes per $1,000 principal amount for the five day trading period
ending on the third trading day immediately preceding the first day of the applicable six-month period equals $1,200 or more. During any period when contingent interest is
payable, it will be payable at a rate equal to 0.5% per annum. As this contingent interest feature is based on the underlying trading price of the Notes, the contingent interest qualifies as an
embedded derivative. As of March 31, 2004, management determined that the fair value of this contingent interest embedded derivative is not material. The net proceeds from this issuance, after
deducting offering expenses, were approximately $145.4 million.

Holders
of the notes may initially convert the notes into shares of the Company's common stock at a conversion rate of 45.1467 shares per $1,000 principal amount of the notes, which is
equivalent to a conversion price of $22.15 per share, subject to anti-dilution adjustments, before the close of business on March 8, 2024. Holders may convert the notes only under
the following circumstances: (1) during any calendar quarter commencing after June 30, 2004, if the closing sales price of the Company's common stock exceeds 120% of the conversion price
for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) if the notes have been called for redemption;
(3) during the five trading day period immediately following any nine consecutive trading day period in which the trading price of the notes per $1,000 principal amount for each day of that
period was less than 95% of the product of the closing price of the Company's common stock and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or
(4) the occurrence of specified corporate transactions.

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The
Company has the option to redeem the notes beginning March 13, 2007 at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including
contingent interest, if any.

The
holders of the notes have the option to require the Company to repurchase the notes on March 8 of 2009, 2014 and 2019, and upon a change in control, at a price equal to 100%
of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

In
connection with the issuance of the notes, on March 25, 2004 the Company filed a registration statement on Form S-3 with the Securities and Exchange
Commission to register for resale the 6.8 million shares of the Company's common stock issuable, subject to anti-dilution adjustments, upon conversion of the notes. The registration
statement is expected to become effective during the second quarter of 2004.

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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, 2003 (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

We are a specialty pharmaceutical company that markets and sells brand name prescription products. Our current operating plan focuses on maximizing the sales of
our existing product portfolio. We plan to accelerate growth by launching line extensions to our current products and acquiring or licensing approved products or late stage development products. We
plan to focus on products that fit within the Cardiology and Women's Health/Pediatric categories that will allow us to leverage our existing sales force infrastructure.

We
sell our products to pharmaceutical wholesalers (who in turn distribute to pharmacies), chain drug stores, other retail merchandisers and, on a limited basis, directly to pharmacies.
We recognize revenue when our products are shipped and the customer takes ownership and assumes the risk of loss. Our sales force targets high-prescribing primary care physicians and
select specialty physicians. Our sales force seeks to develop close relationships with these physicians and respond to their needs and the needs of their patients. These physicians, in turn, write
prescriptions for our products in order to treat their patients. We evaluate the effectiveness of our sales and marketing efforts by monitoring prescription trends of our promoted products.

Results of Operations

Net Revenue.Net revenues for the quarter ended March 31, 2004 increased $19.5 million, or 156%, to
$32.0 million, as compared to $12.5 million for the quarter ended March 31, 2003. Net revenues increased for the quarter primarily as a result of a $16.8 million increase
in sales of the Company's promoted products and a $2.7 million increase in sales of the Company's non-promoted products. This increase in sales was primarily the result of
(1) the increase in total prescriptions of most of our promoted products, and (2) the effort in the first quarter of 2003 to reduce the levels of trade inventories for a majority of the
Company's promoted and non-promoted products.

In
late 2002, our wholesaler customers purchased what we believe to be excessive levels of inventory of our products in anticipation of future price increases. This adversely impacted
our sales in the first half of 2003. As a result of limiting shipments to wholesalers in the first half of 2003 and thereby attempting to reduce the amount of inventory held by the wholesalers, unit
sales decreased 29%, from the first half of 2002 compared to the first half of 2003.

Prior
to developing systems in 2003 to track wholesaler inventory levels, we first learned of the wholesalers increasing the trade levels of inventory in
mid-December 2002 upon receiving the IMS Health Pipeline Report which was a report provided by IMS Health Incorporated that provides information on inventory levels held by certain
major wholesalers. This Report indicated that wholesaler inventory levels were higher than expected by the Company. This additional inventory was purchased by the wholesalers prior to our
January 2003 product price increases, allowing these wholesaler customers to increase the prices they charge their retail customers in the first quarter of 2003, thereby improving their margins
for these products. In response, in the second and third quarters of 2003, we entered into inventory management agreements with our three largest wholesale customers

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to
incentivise the wholesaler's to maintain on average one month of inventory. Trade levels of our promoted products were approximately one month at March 31, 2004.

Net
revenues for the three months ended March 31, 2003, also include a decrease of $3.4 million for an accrual for estimated future returns of the Tanafed Suspension and
Tanafed DM products which we discontinued in April 2003.



|                |  | Change in total dispensed prescriptions
for the quarter ended March 31, 2004
compared to the quarter ended March 31, 2003(a) |    | Change in new dispensed prescriptions
for the quarter ended March 31, 2004
compared to the quarter ended March 31, 2003(a) |   
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------------------------- | --
|Sular           |  | +5.3                                                                                                                         | %  | +10.0                                                                                                                      | % 
|Nitrolingual(b) |  | (7.2                                                                                                                         | )% | (8.9                                                                                                                       | )%
|Prenate line    |  | (29.0                                                                                                                        | )% | (31.9                                                                                                                      | )%
|Tanafed line    |  | (7.4                                                                                                                         | )% | (12.1                                                                                                                      | )%
|Robinul line    |  | +6.0                                                                                                                         | %  | +3.5                                                                                                                       | % 
|Ponstel         |  | (13.1                                                                                                                        | )% | (14.5                                                                                                                      | )%

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Net
revenues of the promoted Cardiovascular products (namely Sular and Nitrolingual), were approximately $14.5 million for the first quarter of 2004 compared to approximately
$3.9 million for the first quarter of 2003. Net revenues of Sular, were approximately $10.7 million for the first quarter of 2004 compared to $2.1 million for the first quarter of
2003. This increase in net revenues was primarily the result of the increase in total prescriptions in the first quarter of 2004 compared to the first quarter of 2003 and the effort to reduce trade
levels of Sular held by our wholesaler customers during 2003. Net revenues of Nitrolingual were $3.8 million for the first quarter of 2004 compared to $1.9 million for the first quarter
of 2003. This increase was primarily the result of the reduction in trade levels of inventory during 2003.

Net
revenues of the promoted Women's Health/Pediatric products (namely the Prenate line, the Tanafed line, the Robinul line and Ponstel), were approximately $13.2 million for
first quarter of 2004 compared to approximately $7.0 million for the first quarter of 2003. This increase was primarily the result of the efforts to reduce the trade levels of inventory during
the first quarter of 2003, partially offset by lower revenues of the Prenate line.

In
March 2004, we announced that we were launching Prenate Elite, the next generation of the Prenate line of prenatal vitamins. We began promoting and selling Prenate Elite in
April 2004. Net revenues of Prenate GT and Prenate Advance were $2.0 million for the quarter ended March 31, 2004, reflecting the Company's effort to reduce the amount of
inventory in the trade in preparation for the launch of Prenate Elite.

Cost of Revenues.Cost of revenues for the quarter ended March 31, 2004 were $5.6 million compared to
$4.2 million for the quarter ended March 31, 2003. Cost of revenues for the quarters

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ended
March 31, 2004 and March 31, 2003 includes an increase in the allowance for excess and obsolete inventory of $0.4 million and $1.3 million, respectively.

Gross Margin.Gross margin for the quarter ended March 31, 2004 was 83% compared to 67% for the quarter ended
March 31, 2003. This increase in margin was primarily the result of the $1.3 million increase in the allowance for excess and obsolete inventory incurred the first quarter of 2003 and a
change in the product sales mix.

Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased $3.0 million, or
18%, to $13.9 million for the quarter ended March 31, 2004 compared to $16.9 million for the quarter ended March 31, 2003. Selling related expenses decreased due to lower
co-promotion expenses incurred for promotion of our Sular product due to the termination of a co-promotion agreement in the second quarter of 2003, as well as lower selling
expense as a result of the Company's revised strategy and operating plan. General and administrative expenses decreased primarily as a result of expenses incurred in the first quarter of 2003 relating
to severance for departing executives, as well as lower operating expenses as a result of the Company's revised strategy and operating plan.

Depreciation and Amortization Expense.Depreciation and amortization expense was $4.1 million for the quarters ended
March 31, 2004 and March 31, 2003.

Research and Development Expense.Research and development expense decreased $0.7 million to $0.2 million for
the quarter ended March 31, 2004 compared to $0.9 million for the quarter ended March 31, 2003. The decrease in expense is primarily a result of costs associated with
manufacturing transfers for the Company's Ponstel, Cognex and Furadantin products incurred in 2003. There was no comparable cost incurred in the first quarter of 2004.

In
late 2002, the FDA issued a notice about various cough and cold combination products, which we believe requires us to obtain FDA approval of our Tanafed products in order to be able
to continue to market and sell these products as prescription products. In October 2003, the FDA issued a draft guidance document to address their current approach to handling compliance issues
for drugs marketed without FDA approval. We have not yet determined the estimated cost to obtain FDA approval. We are performing early phase clinical trials that are required for FDA approval
regardless of the eventual prescription versus over-the-counter status. Based on the findings of the planned Phase 1 trial, we will finalize our development strategy and seek a
pre-IND meeting with the FDA. We may incur significant developmental expenses to obtain FDA approval or may begin 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.

Interest Expense.Interest expense was $0.2 million for the quarter ended March 31, 2004 compared to
$0.01 million for the quarter ended March 31, 2003. For the quarter ended March 31, 2003, the Company had no debt outstanding.

In
March 2004, the Company issued a total of $150.0 million of its 1.75% senior subordinated contingent convertible notes due 2024. The notes are due March 8, 2024
and accrued interest is payable semi-annually in arrears on March 8 and September 8 of each year, commencing on September 8, 2004. In addition to the interest on the
notes, after March 8, 2007, the Company will also pay contingent interest during specified six-month periods if the average trading price of the Notes per $1,000 principal amount
for the five day trading period ending on the third trading day immediately preceding the first day of the applicable six-month period equals $1,200 or more. During any period when
contingent interest is payable, it will be payable at a rate equal to 0.5% per annum. The net proceeds from this issuance after deducting offering expenses were approximately $145.4 million.

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Holders
of the notes may initially convert the notes into shares of the Company's common stock at a conversion rate of 45.1467 shares per $1,000 principal amount of the notes, which is
equivalent to a conversion price of $22.15 per share, subject to anti-dilution adjustments, before the close of business on March 8, 2024. Holders may convert the notes only under
the following circumstances: (1) during any calendar quarter commencing after June 30, 2004, if the closing sales price of the Company's common stock exceeds 120% of the
conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) if the notes have been called for
redemption; (3) during the five trading day period immediately following any nine consecutive trading day period in which the trading price of the notes per $1,000 principal amount for each day
of that period was less than 95% of the product of the closing price of the Company's common stock and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the
notes; or (4) the occurrence of specified corporate transactions.

The
Company has the option to redeem the notes beginning March 13, 2007 at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including
contingent interest, if any.

The
holders of the notes have the option to require the Company to repurchase the notes on March 8 of 2009, 2014 and 2019, and upon a change in control, at a price equal to 100%
of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

Interest Income.Interest income was $0.3 million for the quarter ended March 31, 2004 compared to
$0.1 million for the quarter ended March 31, 2003. The increase in interest income for the quarter ended March 31, 2004 is primarily due to a higher average cash and marketable
securities balance.

Benefit (Provision) for Income Taxes.Income taxes were provided for at a rate of 39.7% for the quarter ended
March 31, 2004 compared to 35.7% for the three months ended March 31, 2003. The increase in the effective rate is due to the change in the ratio of non-deductible expenses to
pre-tax income, as well as an increase in the state tax rate as a result of a change in the mix of states were our sales occurred.

Liquidity and Capital Resources

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

The
Company's cash and cash equivalents were $157.5 million at March 31, 2004. Net cash provided by operating activities for the three months ended March 31, 2004
was $13.0 million. This increase in cash was primarily the result of net income plus the decrease in accounts receivable, non-cash depreciation and amortization expense, and the
decrease in inventories and income taxes receivable, partially offset by the increase in other current assets and other assets and the decrease in accrued expenses and accounts payable. Net cash used
in operating activities for the three months ended March 31, 2003 was $6.0 million. This use of cash was primarily the result of the net loss and the related tax benefit recorded as a
receivable, the increases in other current assets and other assets, and inventories and a decrease in accounts payable, offset by a decrease in accounts receivable, an increase in accrued expenses and
other and non-cash depreciation and amortization expense and non-cash compensation expense.

We
believe that our cash on hand, cash we expect to generate from our operations and availability under our revolving credit facility will be sufficient to fund our working capital
requirements, at least for the next twelve months. However, in the event that we make significant acquisitions in the future, we may need to raise additional funds through additional borrowings or the
issuance of debt or equity

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securities,
or both. Our purchase of inventory impacts our liquidity. During 2004, we expect to invest cash in the purchase of inventory. Some of our supply agreements contain minimum purchase
requirements and we believe we will adhere to those requirements in 2004. We expect we will also experience growth in our accounts receivable as our sales increase.

In
late 2002, the FDA issued a notice about various cough and cold combination products, which we believe requires us to obtain FDA approval of our Tanafed products in order to be able
to continue to market and sell these products as prescription products. In October 2003, the FDA issued a draft guidance document to address their current approach to handling compliance issues
for drugs marketed without FDA approval. We have not yet determined the estimated cost to obtain FDA approval. We are performing early phase clinical trials that are required for FDA approval
regardless of the eventual
prescription versus over-the-counter status. Based on the findings of the planned Phase 1 trial, we will finalize our development strategy and seek a pre-IND
meeting with the FDA. We may incur significant developmental expenses to obtain FDA approval or may begin 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 three months ended March 31, 2004 was $37.8 million. The use of this cash was for purchases of marketable securities
($37.5 million) and the purchase of equipment ($0.3 million).

Net
cash used in investing activities for the three months ended March 31, 2003 was $0.2 million. The use of this cash was primarily for purchases of software and
equipment.

Net
cash provided by financing activities was $148.5 million for the three months ended March 31, 2004. The primary increase in cash was the result of our issuance of
$150.0 million 1.75% contingent convertible senior subordinated notes offset by approximately $4.6 million in offering related expenses. We also raised $3.1 million in cash from
the sale of stock related to stock option exercises.

Net
cash used in financing activities was $2.1 million for the three months ended March 31, 2003. The primary use of this cash was $2.0 million to repurchase shares
of the Company's outstanding stock under its share repurchase program and $0.2 million for fees paid to obtain a new credit facility through LaSalle Bank N.A.

In
March 2004, the Company issued a total of $150.0 million of its 1.75% senior subordinated contingent convertible notes due 2024. The notes are due March 8, 2024
and accrued interest is payable semi-annually in arrears on March 8 and September 8 of each year, commencing on September 8, 2004. In addition to the interest on the
notes, after March 8, 2007, we will also pay contingent interest during specified six-month periods if the average trading price of the notes per $1,000 principal amount for the
five day trading period ending on the third trading day immediately preceding the first day of the applicable six-month period equals $1,200 or more. During any period when contingent
interest is payable, it will be payable at a rate equal to 0.5% per annum. The net proceeds from this issuance after deducting offering expenses were approximately $145.4 million.

Holders
of the notes may initially convert the notes into shares of our common stock at a conversion rate of 45.1467 shares per $1,000 principal amount of the notes, which is equivalent
to a conversion price of $22.15 per share, subject to anti-dilution adjustments, before the close of business on March 8, 2024. Holders may convert the convertible notes only under
the following circumstances: (1) during any calendar quarter commencing after June 30, 2004, if the closing sales price of our common stock exceeds 120% of the conversion price for at
least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) if the notes have been called for redemption; (3) during
the five trading day period immediately following any nine consecutive trading day period in which the trading price of the notes per $1,000 principal amount for each day of that period was less than
95% of the product of the closing price of our common stock and

17

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the
number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or (4) the occurrence of specified corporate transactions.

We
have the option to redeem the notes beginning March 13, 2007 at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including
contingent interest, if any.

The
holders of the notes have the option to require us to repurchase the notes on March 8 of 2009, 2014 and 2019, and upon a change in control, at a price equal to 100% of their
aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

On
February 11, 2003, we entered into a for a $20 million senior secured revolving credit facility with various lenders and LaSalle Bank National Association, as
Administrative Agent. Subject to the satisfaction of certain borrowing base requirements, we may from time-to-time borrow monies under the revolving facility for working
capital requirements and general corporate purposes. Borrowings are secured by substantially all of our assets. Borrowings bear interest at our 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. As of
April 30, 2004, we had no borrowings outstanding under this facility. The revolving facility, as amended, matures on August 11, 2006. Fees payable under the revolving facility include a
one-time commitment fee of 0.685% of the stated amount of the facility, an unused commitment fee based on funds committed but not borrowed under the revolving facility at rates which vary
dependent upon our leverage ratio in effect from time-to-time and letter of credit fees equal to 0.25% per annum of the face amount of letters of credit issued and outstanding
under the revolving facility. The revolving facility may be prepaid from time-to-time or terminated at our discretion without penalty.

The
revolving loan contains various restrictive 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, 2004, we were in compliance with these financial covenants.

Critical Accounting Policies

We view our critical accounting policies to be those policies which are very important to the portrayal of our 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. We believe our critical accounting policies are as follows:



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19

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Forward Looking Statements

This report contains forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to
materially differ from those described. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to
be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private
Securities Litigation Reform Act of 1995. These risks include, without limitation:



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This
list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included
herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary
statements and risk factors included in our other filings with the Securities and Exchange Commission.

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 product inventory under its agreement with Pohl-Boskamp and its purchases of Sular product inventory from Bayer are made in Euros. The Company historically
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 should 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

21

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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 March 31, 2004, there was no debt outstanding under this facility and the facility was not used at any time during the quarter ended March 31, 2004.

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 & Chief Executive Officer 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(b) of the Exchange Act. The Company's
President & Chief Executive Officer 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 & Chief Executive Officer 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 & Chief Executive Officer 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, 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
ended March 31, 2004 that has materially affected or, to the knowledge of management, is reasonably likely to materially affect, the Company's internal controls over financial reporting.

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PART IIOTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

There were no material developments during the three months ended March 31, 2004 in the previously reported putative class action lawsuit naming the
Company and certain affiliates as defendants.

On
April 15, 2004 we filed a patent infringement action against Breckenridge Pharmaceutical, Inc. in the U.S. District Court for the Northern District of Illinois, on the grounds that
their product, Duotan PD, infringes the patents for our products, Tanafed DP and Tanafed DMX. In response, on April 21, 2004, Breckenridge filed for declaratory
judgment in the U.S. District Court for the Southern District of Florida seeking to invalidate the Tanafed patents.

We
intend to vigorously litigate our infringement action and defend Breckenridge's motion for declaratory judgment. While we believe that Breckenridge's product, Duotan, infringes the
patent for Tanafed, we cannot assure you that we will prevail. If we lose our infringement action and Breckenridge is successful in invalidating the Tanafed patent we could lose market share for
Tanafed or we may have to decrease the price of Tanafed to keep its sales competitive, resulting in a loss of earnings and profits from Tanafed sales.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

In March 2004, the Company issued a total of $150.0 million of its 1.75% senior subordinated contingent convertible notes due 2024 in transactions
that were exempt from registration in reliance upon Rule 144A and other available exemptions under the Securities Act. The notes are due March 8, 2024 and accrued interest is payable
semi-annually in arrears on March 8 and September 8 of each year, commencing on September 8, 2004. In addition to the interest on the notes, after March 8,
2007, the Company will also pay contingent interest during specified six-month periods if
the average trading price of the Notes per $1,000 principal amount for the five day trading period ending on the third trading day immediately preceding the first day of the applicable
six-month period equals $1,200 or more. During any period when contingent interest is payable, it will be payable at a rate equal to 0.5% per annum. The net proceeds from this issuance
after deducting offering expenses were approximately $145.4 million. The information set forth in Part I of this Quarterly Report on Form 10-Q in Note 15
("Long-term Debt") of the Notes to Consolidated Financial Statements of the Company is incorporated herein by reference. The Company intends to use the proceeds of the offering for future
acquisitions of products, technologies and businesses and for general corporate purposes.

In
connection with the issuance of the notes, on March 25, 2004 the Company filed a registration statement on Form S-3 with the Securities and Exchange
Commission to register for resale the 6.8 million shares of the Company's common stock issuable, subject to anti-dilution adjustments, upon conversion of the notes. As of the date
hereof, the Registration Statement has not yet been declared effective. The registration statement is expected to become effective during the second quarter of 2004.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.OTHER INFORMATION

None

23

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



31.1*

Certifications of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*

Certifications of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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SIGNATURES

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: May 10, 2004 |  | By:                                                 
|Date: May 10, 2004 |  | By:                                                 

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