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

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FORM 10-Q

|[MARK ONE]                                    |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31, 2005
|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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange Act).
Yes ý        No o

As of April 30, 2005, there were 35,004,860 shares of the Registrant's Common Stock outstanding.



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FIRST HORIZON PHARMACEUTICAL CORPORATION  FORM 10-Q  INDEX

|                                 |  |                                                                                                    |  | PAGE
|-------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|PART I.    FINANCIAL INFORMATION |  |                                                                                                   
|Item 1.                          |  | Consolidated Balance Sheets at March 31, 2005 and December 31, 2004                                |  | 1   
|                                 |  | Consolidated Statements of Operations for the three months ended March 31, 2005 and March 31, 2004 |  | 2   
|                                 |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and March 31, 2004 |  | 3   
|                                 |  | Notes to Consolidated Financial Statements                                                         |  | 4   
|Item 2.                          |  | Management's Discussion and Analysis of Financial Condition and Results of Operations              |  | 12  
|Item 3.                          |  | Quantitative and Qualitative Disclosures about Market Risk                                         |  | 20  
|Item 4.                          |  | Controls and Procedures                                                                            |  | 21  
|PART II.    OTHER INFORMATION    |  |                                                                                                   
|Item 1.                          |  | Legal Proceedings                                                                                  |  | 22  
|Item 2.                          |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 22  
|Item 5.                          |  | Other Information                                                                                  |  | 23  
|Item 6.                          |  | Exhibits                                                                                           |  | 23  
|                                 |  | Signatures                                                                                         |  | 24  
|                                 |  | Certifications                                                                                     |  |     

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                                                                     |                                                                                                                                                       | March 31,
2005                             |         | December 31,
2004 |        
|---------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                                               |                                                                                                                                                       |                                            |         |                   |        
|Current assets:                                                                                      |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Cash and cash equivalents                                                                                                                             |                                            | $       | 20,904            |        
|                                                                                                     | Marketable securities                                                                                                                                 |                                            |         | 112,617           |        
|                                                                                                     | Accounts receivable, net of allowance for doubtful accounts and discounts of $758 and $749 at March 31, 2005 and December 31, 2004, respectively      |                                            |         | 24,192            |        
|                                                                                                     | Inventories                                                                                                                                           |                                            |         | 30,547            |        
|                                                                                                     | Income taxes receivable                                                                                                                               |                                            |         | 2,446             |        
|                                                                                                     | Current deferred tax assets                                                                                                                           |                                            |         | 3,219             |        
|                                                                                                     | Other current assets                                                                                                                                  |                                            |         | 9,766             |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total current assets                       |         |                   | 203,691
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|Property and equipment, net                                                                          |                                                                                                                                                       |                                            | 5,300   |                   |        
|Other assets:                                                                                        |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Intangibles, net                                                                                                                                      |                                            |         | 276,553           |        
|                                                                                                     | Other                                                                                                                                                 |                                            |         | 10,046            |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total other assets                         |         |                   | 286,599
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total assets                               |         | $                 | 495,590
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 |                                                                                                                                                       |                                            |         |                   |        
|Current liabilities:                                                                                 |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Account payable                                                                                                                                       |                                            | $       | 19,272            |        
|                                                                                                     | Accrued expenses                                                                                                                                      |                                            |         | 7,982             |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total current liabilities                  |         |                   | 27,254 
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|Long-term liabilities:                                                                               |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Convertible debt                                                                                                                                      |                                            |         | 150,000           |        
|                                                                                                     | Deferred tax liabilities                                                                                                                              |                                            |         | 4,744             |        
|                                                                                                     | Other long-term liabilities                                                                                                                           |                                            |         | 418               |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total liabilities                          |         |                   | 182,416
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|Stockholders' equity:                                                                                |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Preferred stock, 1,000,000 shares authorized and none outstanding                                                                                     |                                            |         |                  |        
|                                                                                                     | Common stock, $0.001 par value; 100,000,000 shares authorized; 36,001,568 and 36,087,044 issued at March 31, 2005 and December 31, 2004, respectively |                                            |         | 36                |        
|                                                                                                     | Additional paid-in capital                                                                                                                            |                                            |         | 286,690           |        
|                                                                                                     | Retained earnings                                                                                                                                     |                                            |         | 50,903            |        
|                                                                                                     | Accumulated other comprehensive loss                                                                                                                  |                                            |         | (1,265            | )      
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       |                                            | 336,364 |                   |        
|Less: Treasury stock at cost, Common stock, 1,000,000 shares at March 31, 2005 and December 31, 2004 |                                                                                                                                                       |                                            | (23,190 | )                 |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     | Total stockholders' equity                                                                                                                            |                                            |         | 313,174           |        
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        
|                                                                                                     |                                                                                                                                                       | Total liabilities and stockholders' equity |         | $                 | 495,590
|                                                                                                     |                                                                                                                                                       |                                            |         |                   |        

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

1

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

|                                            |                                             | For The Quarter Ended March 31,    |       
|------------------------------------------- | ------------------------------------------- | ---------------------------------- | ------
|
|Net Revenues                                |                                             | $                                  | 40,957
|Operating costs and expenses:               |                                             |                                    |       
|                                            | Cost of revenues                            |                                    |       
|                                            | Selling, general and administrative expense |                                    |       
|                                            | Depreciation and amortization               |                                    |       
|                                            | Research and development expense            |                                    |       
|                                            |                                             |                                    |       
|                                            |                                             | Total operating costs and expenses |       
|                                            |                                             |                                    |       
|Operating income                            |                                             |                                    | 11,475
|                                            |                                             |                                    |       
|Other (expense) income:                     |                                             |                                    |       
|                                            | Interest expense                            |                                    |       
|                                            | Interest income                             |                                    |       
|                                            | Other                                       |                                    |       
|                                            |                                             |                                    |       
|                                            |                                             | Total other (expense) income       |       
|                                            |                                             |                                    |       
|Income before provision for income taxes    |                                             |                                    | 11,495
|Provision for income taxes                  |                                             |                                    | (3,907
|                                            |                                             |                                    |       
|Net income                                  |                                             | $                                  | 7,588 
|Other comprehensive loss                    |                                             |                                    | (1,178
|                                            |                                             |                                    |       
|Comprehensive income                        |                                             | $                                  | 6,410 
|                                            |                                             |                                    |       
|Net income per common share:                |                                             |                                    |       
|                                            | Basic earnings per common share             |                                    | $     
|                                            |                                             |                                    |       
|                                            | Diluted earnings per common share           |                                    | $     
|                                            |                                             |                                    |       
|Weighted average common shares outstanding: |                                             |                                    |       
|                                            | Basic                                       |                                    |       
|                                            |                                             |                                    |       
|                                            | Diluted                                     |                                    |       
|                                            |                                             |                                    |       

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

2

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

|                                                                                            |                                                                            | For The Three Months Ended March 31,  |                                                    
|------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                                                       |                                                                            |                                       |                                                    
|Net income                                                                                  |                                                                            | $                                     | 7,588                                              
|Adjustments to reconcile net income to net cash (used in) provided by operating activities: |                                                                            |                                       |                                                    
|                                                                                            | Depreciation and amortization                                              |                                       |                                                    
|                                                                                            | Non-cash interest expense                                                  |                                       |                                                    
|                                                                                            | Deferred income tax expense                                                |                                       |                                                    
|                                                                                            | Reduction in taxes payablestock option exercises                          |                                       |                                                    
|                                                                                            | Changes in assets and liabilities, net of acquired assets and liabilities: |                                       |                                                    
|                                                                                            |                                                                            | Accounts receivable                   |                                                    
|                                                                                            |                                                                            | Inventories                           |                                                    
|                                                                                            |                                                                            | Other current assets and other assets |                                                    
|                                                                                            |                                                                            | Income taxes receivable               |                                                    
|                                                                                            |                                                                            | Accrued expenses and other            |                                                    
|                                                                                            |                                                                            | Accounts payable                      |                                                    
|                                                                                            |                                                                            |                                       |                                                    
|                                                                                            |                                                                            |                                       | Net cash (used in) provided by operating activities
|Cash flows from investing activities:                                                       |                                                                            |                                       |                                                    
|                                                                                            | Purchase of products                                                       |                                       |                                                    
|                                                                                            | Purchase of property and equipment                                         |                                       |                                                    
|                                                                                            | Proceeds from sale of marketable securities                                |                                       |                                                    
|                                                                                            | Purchase of marketable securities                                          |                                       |                                                    
|                                                                                            |                                                                            |                                       |                                                    
|                                                                                            |                                                                            |                                       | 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 (used in) provided by financing activities
|Effect of foreign exchange rates on cash                                                    |                                                                            |                                       | (706                                               
|Net change in cash and cash equivalents                                                     |                                                                            |                                       | (15,682                                            
|Cash and cash equivalents, beginning of period                                              |                                                                            |                                       | 36,586                                             
|                                                                                            |                                                                            |                                       |                                                    
|Cash and cash equivalents, end of period                                                    |                                                                            | $                                     | 20,904                                             
|                                                                                            |                                                                            |                                       |                                                    
|Supplemental Cash Flow Information:                                                         |                                                                            |                                       |                                                    
|Cash paid for income taxes                                                                  |                                                                            | $                                     | 122                                                
|                                                                                            |                                                                            |                                       |                                                    
|Cash paid for interest                                                                      |                                                                            | $                                     | 1,325                                              
|                                                                                            |                                                                            |                                       |                                                    

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

3

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FIRST HORIZON PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 2004 (File
No. 000-30123).

2.     New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement 153,"Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No.29."The standard is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged
and eliminates the exception under ABP Opinion No. 29 for an exchange of similar productive assets and replaces it with an exception for exchanges of nonmonetary assets that do not have
commercial substance. The standard is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS no. 153 is not expected to have
a material impact on the Company's financial position or results of operations.

In
December 2004, the FASB issued Statement 123 (revised 2004),"Share-Based Payment."The standard eliminates the
disclosure-only election under SFAS 123 and requires the
recognition of compensation expense for stock options and other forms of equity compensation based on the fair value of the instruments on the date of grant. The standard is effective for fiscal years
beginning after June 15, 2005. See Note 3 for the disclosures of the pro forma dilutive impact on net income and earnings per share of expensing stock options based on the Black-Scholes
model.

In
November 2004, the FASB issued Statement 151,"Inventory Costs."The standard clarifies that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS no. 151 is not
expected to have a material impact on the Company's financial position or results of operations.

3.     Stock Options

The Company applies Accounting Principles Board Opinion ("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 valuation model prescribed by SFAS No. 123, "Accounting for
Stock Based Compensation," the

4

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Company's
pro forma net income per common share would have been reported as follows (in thousands, except per share amounts):

|                                     |                                                                                                                              | For The Quarter Ended
March 31, |      
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -----
|
|Net income as reported               |                                                                                                                              | $                               | 7,588
|Deduct:                              |                                                                                                                              |                                 |      
|                                     | Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax effects |                                 |      
|                                     |                                                                                                                              |                                 |      
|Pro forma                            |                                                                                                                              | $                               | 7,103
|                                     |                                                                                                                              |                                 |      
|Net income per common share-basic:   |                                                                                                                              |                                 |      
|                                     | As reported                                                                                                                  |                                 | $    
|                                     | Pro forma                                                                                                                    |                                 | $    
|Net income per common share-diluted: |                                                                                                                              |                                 |      
|                                     | As reported                                                                                                                  |                                 | $    
|                                     | Pro-forma                                                                                                                    |                                 | $    

The
weighted average fair value per share of options granted during the three months ended March 31, 2005 and 2004 is estimated at $15.17 and $12.78, respectively. The value of
options is estimated on the date of the grant using the following weighted average assumptions:

|                        |  | 2005    |   | 2004    |  
|----------------------- |  | ------- | - | ------- | -
|Risk-free interest rate |  | 3.79    | % | 3.02    | %
|Expected dividend yield |  |        |   |        |  
|Expected lives          |  | 5 years |   | 5 years |  
|Expected volatility     |  | 117.02  | % | 129.27  | %

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.     Marketable Securities

The Company classifies its existing marketable securities as available-for-sale. All available-for-sale securities
are classified as current as the Company has the ability to use them for current operating and investing purposes. There were $0.3 million in realized losses in the three months ended
March 31, 2005. At March 31, 2005, the Company had total net unrealized losses from marketable securities of $2.5 million.

The
carrying amount of available-for-sale securities and their approximate fair values at March 31, 2005 were as follows (in thousands):

|                                               |  | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Fair
Value
|---------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | ----------
|U.S. Government and Federal agency obligations |  | $              | 83,547  |                        | $ |                        |  | $         
|Corporate bonds                                |  |                | 31,614  |                        |   |                        |  |           
|                                               |  |                |         |                        |   |                         |  |           
|Total                                          |  | $              | 115,161 |                        | $ |                        |  | $         
|                                               |  |                |         |                        |   |                         |  |           

5

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The
following table presents the age of gross unrealized losses and fair value by investment category for all securities in a loss position as of March 31, 2005 (in thousands):

|                                               |  | Less than 12 Months |        | 12 Months or More |   | Total  |  
|---------------------------------------------- |  | ------------------- | ------ | ----------------- | - | ------ | -
|
|U.S. Government and Federal agency obligations |  | $                   | 68,890 |                   | $ | (1,381 | )
|Corporate bonds                                |  |                     | 27,094 |                   |   | (637   | )
|                                               |  |                     |        |                   |   |        |  
|Total                                          |  | $                   | 95,984 |                   | $ | (2,018 | )
|                                               |  |                     |        |                   |   |        |  

The Company has determined that its unrealized losses are temporary based on the minor amount of the losses compared to amortized cost and the
short duration of the losses, as well as the credit worthiness of the investees. The Company expects that all losses will be recovered, and intends to hold securities to recovery. If market, industry
and/or investee conditions deteriorate, we may incur future impairments.

The
amortized cost and estimated fair value of marketable securities at March 31, 2005 by contractual maturity are shown below (in thousands):

|                                         |  | Cost |         | Estimated
Fair Value
|---------------------------------------- |  | ---- | ------- | --------------------
|Due in one year or less                  |  | $    | 7,415   |                     
|Due after one year through three years   |  |      | 81,048  |                     
|Due after three years through five years |  |      | 18,931  |                     
|Due after five years                     |  |      | 7,767   |                     
|                                         |  |      |         |                     
|                                         |  | $    | 115,161 |                     
|                                         |  |      |         |                     

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

|                                               |  | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Fair
Value
|---------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | ----------
|U.S. Government and Federal agency obligations |  | $              | 93,964  |                        | $ | 14                      |  | $         
|Corporate bonds                                |  |                | 68,443  |                        |   |                        |  |           
|                                               |  |                |         |                        |   |                         |  |           
|Total                                          |  | $              | 162,407 |                        | $ | 14                      |  | $         
|                                               |  |                |         |                        |   |                         |  |           

5.     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.
Inventories, net of reserves of $0.9 million at March 31, 2005 and December 31, 2004, consisted of (in thousands):

|                  |  | March 31,
2005 |        | December 31,
2004
|----------------- |  | -------------- | ------ | -----------------
|Bulk product      |  | $              | 12,606 |                  
|Finished product  |  |                | 17,941 |                  
|                  |  |                |        |                  
|Total inventories |  | $              | 30,547 |                  
|                  |  |                |        |                  

6

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6.     Intangible Assets

On
March 28, 2005, the Company acquired the worldwide rights to Fortamet and Altoprev from Andrx Corporation. The Company paid Andrx $50 million, and may pay up to an additional
$35 million when Andrx achieves certain defined manufacturing levels and delivers certain quantity of Altoprev. Andrx is also entitled to royalties on net sales, as defined.

With
the assistance of valuation experts, the Company will allocate the purchase price to the fair value of the various intangible assets which are not deemed to have an indefinite life.
Intangible assets are amortized on a straight line basis over their respective useful lives. The intangible assets recorded in connection with the acquisition of Fortamet and Altoprev are anticipated
to be amortized over a period of fifteen years.

The
following table reflects the components of intangible assets as of March 31, 2005 (in thousands):

|                               |  | Gross Amount |         | Accumulated
Amortization |   | Net Amount |   | Expected Life
|------------------------------ |  | ------------ | ------- | ------------------------ | - | ---------- | - | -------------
|Licensing rights               |  | $            | 300,267 |                          | $ | (45,666    | ) | $            
|Trade names                    |  |              | 11,060  |                          |   | (1,878     | ) |              
|Contracts                      |  |              | 8,300   |                          |   | (5,247     | ) |              
|Supply/Distribution agreements |  |              | 11,490  |                          |   | (4,315     | ) |              
|Other intangibles              |  |              | 3,107   |                          |   | (565       | ) |              
|                               |  |              |         |                          |   |            |   |              
|Total                          |  | $            | 334,224 |                          | $ | (57,671    | ) | $            
|                               |  |              |         |                          |   |            |   |              

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

|                               |  | Gross Amount |         | Accumulated
Amortization |   | Net Amount |   | Expected Life
|------------------------------ |  | ------------ | ------- | ------------------------ | - | ---------- | - | -------------
|Licensing rights               |  | $            | 249,715 |                          | $ | (42,540    | ) | $            
|Trade names                    |  |              | 11,060  |                          |   | (1,739     | ) |              
|Contracts                      |  |              | 8,300   |                          |   | (4,832     | ) |              
|Supply/Distribution agreements |  |              | 11,490  |                          |   | (4,056     | ) |              
|Other intangibles              |  |              | 3,082   |                          |   | (527       | ) |              
|                               |  |              |         |                          |   |            |   |              
|Total                          |  | $            | 283,647 |                          | $ | (53,694    | ) | $            
|                               |  |              |         |                          |   |            |   |              

For
the three months ended March 31, 2005, amortization expense related to the intangible assets was $4.0 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:

Amount2005

$
18,5292006

$
19,1362007

$
19,0322008

$
17,7272009

$
17,476


7

---



7.     Other Assets

Other assets at March 31, 2005 and December 31, 2004 consisted of the following (in thousands):

March 31,
2005

December 31,
2004Capitalized finance costs

$
4,534

$
4,619Advance payment for product licenses


5,453


5,426Deposits


59


59Total other assets

$
10,046

$
10,104


During
the second quarter of 2004, the Company announced an agreement with SkyePharma PLC, granting it the exclusive license to market and distribute a cardiovascular product in the
United States. The agreement requires the Company to pay $5.0 million to SkyePharma upon signing the agreement and up to an additional $15.0 million is payable thereafterall
of which are contingent upon milestones related to the U.S. Food and Drug Administration ("FDA") approval. The product has been submitted to the FDA for approval. The Company intends to begin
marketing and distribution shortly after receipt of the FDA approval.

8.     Accrued Expenses

Accrued expenses at March 31, 2005 and December 31, 2004 consisted of the following (in thousands):

March 31,
2005

December 31,
2004Employee compensation and benefits

$
1,420

$
1,951Product returns


970


1,563Product rebates


1,118


2,031Sales deductions


1,307


2,549Accrued royalties


1,447


1,202Product license fee





5,000Other


1,720


6,212$
7,982

$
20,508


9.     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 in 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, which commenced 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, 2005, management determined that the fair value of this contingent interest embedded derivative was not material. The net proceeds from this issuance, after
deducting offering expenses, were approximately $145.4 million. Financing costs of $4.6 million were incurred with the issuance which are being amortized on a straight line basis over
the life of the notes and are included in other assets in the consolidated balance sheet.

8

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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.

In
connection with the issuance of the notes, on March 30, 2004 the Company filed a registration statement on Form S-3 with the Securities and Exchange
Commission to register for
resale of 6.8 million shares of the Company's common stock issuable, subject to anti-dilution adjustments, upon conversion of the notes. The registration statement became effective
during the second quarter of 2004.

The
Company had no debt other than the aforementioned notes outstanding at March 31, 2005 or December 31, 2004.

10.   Credit Agreement

On February 11, 2003, the Company entered into 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 matures on February 11, 2006. The revolving loan contains various covenants, including
covenants relative to maintaining financial ratios and earnings levels, limitations on acquisitions, dispositions, mergers and capital expenditures, limitations on incurring additional indebtedness
and a prohibition on payment of dividends and certain issuances of capital stock. As of March 31, 2005, there was no outstanding balance on the Credit Agreement. For the quarter ended
March 31, 2005, there were no borrowings or repayments under the Credit Agreement. In April 2005, the Company borrowed $20.0 million on the facility.

11.   Share Buyback Program

In July 2002, the Company announced a share repurchase program. This program authorized the repurchase of up to $8 million in common stock until
July 2003. Through July 2003, the Company repurchased 823,400 shares of its common stock at an aggregate cost of approximately $2.1 million. In August 2003, the Company's
Board of Directors authorized the repurchase of up to an additional $7.9 million of common stock and extended the repurchase program to August 2004. In September 2003, the Company
repurchased 162,225 shares of common stock at an aggregate cost of approximately $1.0 million. Through December 2003, the Company had repurchased a total of 985,625

9

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shares
of common stock at an aggregate cost of approximately $3.1 million. During the six months ended June 2004, the Company repurchased a total of 260,000 shares of common stock at an
aggregate cost of approximately $4.6 million. All of these shares were retired.

In
July 2004, the Company's Board of Directors authorized a $20.0 million share repurchase program. The new program, which authorizes the repurchase of up to
$5 million of common stock per quarter, became effective in August 2004, terminating and replacing the $10.0 million share repurchase program authorized by the Company's Board of
Directors in fiscal 2002. The share repurchase program will expire in August 2005.

In
the third quarter of 2004, as part of the new share repurchase program, the Company's Board of Directors increased the per quarter repurchase cap and authorized the Company to
repurchase a total of 731,580 shares of common stock, inclusive of the 500,000 shares of common stock repurchased from one of Dr. Kapoor's family partnerships, at an aggregate cost of
approximately $13.4 million. These shares have been retired. In the fourth quarter of 2004, as part of the plan that became effective in August 2004, the Company repurchased 65,427
shares of common stock. These shares have been retired.

In
December 2004, the Company, with Board of Directors approval, purchased 1 million shares of common stock at an aggregate cost of approximately $23.2 million which was at
a fair market value equal to the December 10, 2004 closing price of the Company's common stock as reported by Nasdaq from certain executives and board members and a significant shareholder of
the Company. The Company acquired those shares in part, to establish a pool of authorized shares that will be available for contribution to the Company's Employee Stock Ownership Plan over time as the
Company in its discretion deems appropriate.

In
the first quarter of 2005, the company repurchased 127,169 shares of common stock at an average cost of $16.44 per share, or $2.1 million. These shares have been retired.

12.   Earnings Per Share

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

For the three months ended March 31,2005

2004Net income

$
7,588

$
5,047Add: Interest expense on contingent convertible debt, net of tax


478


106Adjusted net income

$
8,066

$
5,153Weighted average common shares outstanding-basic


35,066


35,745Diluted effect of stock options and convertible debt


7,439


2,887Weighted average common shares outstanding-diluted


42,505


38,632Basic earnings per common share:

$
0.22

$
0.14Diluted earnings per common share:

$
0.19

$
0.13


For
the three months ended March 31, 2005, there were 754,907 potential common shares outstanding that were excluded from the diluted net income per share calculation because
their effect would have been anti-dilutive.

10

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13.   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 31,2005

2004Cardiovascular

$
19,471

$
14,545Women's Health


12,624


3,282Non Promoted


8,862


14,191Net Revenues

$
40,957

$
32,018


14.   Commitments and Contingencies

First Horizon, certain former and current officers and directors are defendants in a consolidated securities lawsuit initiated on August 22, 2002 in the
United States District Court for the Northern District of Georgia. Plaintiffs in the class action alleged in general terms that the Company violated Sections 11 and 12(a)(a) of the Securities Act of
1933 and that the Company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In an amended complaint, Plaintiffs claim
that the Company issued a series of materially false and misleading statements to the market in connection with our public offering on April 24, 2002 and thereafter relating to alleged "channel
stuffing" activities. The amended complaint also alleged controlling person liability on behalf of certain of our officers under Section 15 of the Securities Act of 1933 and Section 20
of the Securities Exchange Act of 1934. Plaintiffs sought an unspecified amount of compensatory damages to be proven at trial.

On
September 29, 2004, the U.S. District Court for the Northern District of Georgia dismissed, without prejudice, the class action lawsuit. Although the class action lawsuit was
dismissed, the court granted the plaintiffs the right to refile their class action lawsuit provided that the plaintiffs pay all of the defendant's fees and costs associated with filing the motions to
dismiss the class action lawsuit. Plaintiffs failed to refile by the deadline, but have asked the Court to reconsider its dismissal. Should the Court reverse the dismissal, the Company will vigorously
defend against any claims made.

On
April 15, 2004, the Company 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. On July 20, 2004, this action was transferred to the U.S. District Court for
the Southern District of Florida.

The
Company intends to vigorously litigate its infringement action and defend Breckenridge's motion for declaratory judgment unless resolved otherwise. While the Company believes that
Breckenridge's product, Duotan, infringes the patent for Tanafed, the Company cannot be assured that it will prevail. If the Company loses its infringement action and Breckenridge is successful in
invalidating the Tanafed patent the Company could lose market share for Tanafed or the Company may have to decrease the price of Tanafed to keep its sales competitive, resulting in a loss of earnings
and profits from Tanafed sales.

The
Company is also involved with other various routine legal proceedings incident to the ordinary course of business. None of these proceedings are expected to have a material adverse
effect on the consolidated financial statements.

11

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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, 2004 (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, accelerating 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 categories that will allow us to leverage our existing sales force infrastructure. During the quarter ended March 31, 2005,
we promoted the following products:

Cardiology

Women's Health    Sular

    Prenate Elite    Nitrolingual

    OptiNate    Ponstel


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 delivered to the customer, the customer takes ownership and assumes the risk of loss. Our sales force targets high-prescribing primary care
physicians and select specialty physicians. These physicians write prescriptions for our products in order to treat their patients. Our sales force seeks to develop relationships with these physicians
and respond to the pharmaceutical needs of 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 revenue for the quarter ended March 31, 2005 increased $9.0 million or 27.8% to
$41.0 million, as compared to $32.0 million for the quarter ended March 31, 2004. Net revenue increased for the quarter as a result of growth in our promoted products as a result
of increased detailing resulting in increased revenue of $12.6 million, as well as continued success in the execution of our marketing strategy. The increase in revenue of our promoted products
was partially offset by a reduction in revenues of $4.8 million from our Tanafed and Robinul Lines as we ceased promotion of these products as a result of generic entries into the market.

12

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Product Overview

|                 |  | Change in total dispensed prescriptions
for the quarter ended March 31, 2005
compared to the quarter ended March 31, 2004(a) |   | Change in new dispensed prescriptions
for the quarter ended March 31, 2005
compared to the quarter ended March 31, 2004(a) |  
|---------------- |  | ---------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------- | -
|Sular            |  | 19.2                                                                                                                         | % | 24.5                                                                                                                       | %
|Nitrolingual(b)  |  | 3.2                                                                                                                          | % | 4.2                                                                                                                        | %
|Prenate Elite(c) |  | N/A                                                                                                                          |   | N/A                                                                                                                        |  
|Ponstel          |  | 3.9                                                                                                                          | % | 7.9                                                                                                                        | %
|OptiNate(d)      |  | N/A                                                                                                                          |   | N/A                                                                                                                        |  

---

Net
revenues of the Cardiology products (namely Sular and Nitrolingual) were $19.5 million for the quarter ended March 31, 2005, compared to $14.5 million for the
quarter ended March 31, 2004, respectively. The increase was primarily a result of total prescription growth of Sular and Nitrolingual. Sales of our new products, Altoprev and Fortamet, did not
commence until April 2005.

Net
revenues of the promoted Women's Health products (namely Prenate Elite, OptiNate and Ponstel), were $12.6 million for the quarter ended March 31, 2005 compared to
$3.3 million for the quarter ended March 31, 2004. The increase was due primarily to the successful launch of Prenate Elite in April 2004. Sales of Prenate Elite's predecessor,
Prenate GT, were lower in the quarter ended March 31, 2004 as we prepared for the launch of Prenate Elite.

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. Prenate Elite has captured a market share of 13.4% of new prescriptions and 13.2% of total prescriptions as of March 2005 (Source: IMS Health's National Prescription Audit
Plus data.)

Cost of Revenues.Cost of revenues for the quarter ended March 31, 2005 were $7.2 million compared to
$5.6 million for the quarter ended March 31, 2004. The increase in cost of revenues is directly related to the increase in net revenues for the quarter ended March 31, 2005 as
compared to the quarter ended March 31, 2004.

Gross Margin.Gross margin for the quarter ended March 31, 2005 was 82.5% compared to 82.6% for the quarter ended
March 31, 2004.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased $3.8 million, or
27.7%, to $17.7 million for the quarter ended March 31, 2005, compared to $13.9 million for the quarter ended March 31, 2005. This increase is primarily related to the
increase in sales force, as well as increased royalties and commissions related to the increased sales.

Depreciation and Amortization Expense.Depreciation and amortization expense increased $0.3 million to
$4.4 million for the quarter ended March 31, 2005, compared to $4.1 million for the

13

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quarter
ended March 31, 2004. This increase is primarily related to the acquisition of our new sales force automation system in the third quarter of 2004.

Research and Development Expense.Research and development expense increased $0.1 million to $0.3 million for
the quarter ended March 31, 2005, compared to $0.2 million for the quarter ended March 31, 2004.

Interest Expense.Interest expense was $1.0 million for the quarter ended March 31, 2005, compared to
$0.2 million for the quarter ended March 31, 2004. The increase is due to our issuance of a total of $150.0 million of our 1.75% senior subordinated contingent convertible notes
in March 2004. 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, which commenced
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.

The
holders of the convertible notes may 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 their 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 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.

Interest Income.Interest income was $1.0 million for the quarter ended March 31, 2005, compared to
$0.3 million for the quarter ended March 31, 2004. The increase in interest income for the quarter ended March 31, 2005 is primarily due to a higher average cash and marketable
securities balance as a result of the proceeds from the issuance of the contingent convertible senior subordinated notes in March 2004.

Provision for Income Taxes.Income taxes were provided for at a rate of 34.0% for the quarter ended March 31, 2005,
compared to 39.7% for the quarter ended March 31, 2004. This decrease in the effective rate is due to the change in the mix of tax jurisdictions, both domestic and international, as a result of
our implementation of international operations where our income was earned, as well as a change in the ratio of non-deductible expenses to pre-tax income.

14

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Liquidity and Capital Resources

Our liquidity requirements arise primarily from debt service, working capital requirements, product development activities and funding of acquisitions. We have
met these cash requirements through cash from operations, borrowings for product acquisitions and the issuance of common stock.

Our
cash and cash equivalents were $20.9 million on March 31, 2005. Net cash used by operating activities for the three months ended March 31, 2005 was
$4.3 million. This use of cash was primarily the result of (a) an increase of inventory on hand of $14.7 million; (b) a decrease in accrued expenses and other of
$7.7 million; (c) an increase in other current assets and other assets of $2.2 million; (d) an increase in accounts receivable of $0.4 million. Partially offsetting
the use of cash from operations was cash generated from net income of $7.6 million, an increase in accounts payable of $4.7 million, a decrease in the income tax receivable of
$3.0 million, non-cash expenses including depreciation and amortization expenses of $4.4 million and interest of $0.1 million, as well as $1.0 million in
non-cash tax transactions.

Our
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 of $5.0 million, as well as the decrease in accounts receivable of $4.4 million, non-cash
depreciation and amortization expense of $4.1 million, a decrease
in inventories of $2.2 million, a decrease in income tax receivable of $2.1 million, and non-cash tax transactions of $1.0 million, partially offset by the
$2.6 million increase in other current assets and other assets, the $2.1 million decrease in accrued expenses and other and the $1.1 million decrease in accounts payable.

We
maintain supply agreements with third party suppliers for most of our products. Some of these supply agreements contain minimum purchase requirements. For most of these supply
agreements, we believe that our inventory requirements and related purchases of inventory will exceed the minimum purchase requirement in 2005. In those cases in which we do not believe our purchases
will exceed the minimum purchase requirements, we are seeking to negotiate waivers or modifications of the minimum purchase requirements.

Net
cash used in investing activities for the three months ended March 31, 2005 was $8.9 million. The primary uses of this cash was for the purchases of product licenses of
$55.6 million, marketable securities of $3.9 million and the purchases of property and equipment of $0.6 million. Partially offsetting these uses of cash were the sales of
marketable securities of $51.1 million. This liquidation of marketable securities was directly related to the $50.6 million acquisition of product licenses for Fortamet and Altoprev and
the $5.0 million additional purchase price milestone payment for Sular.

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 purchase of marketable securities of
$37.5 million and the purchase of equipment of $0.3 million.

Net
cash used in financing activities was $1.8 million for the quarter ended March 31, 2005 primarily resulting from our repurchase of our common stock for
$2.1 million. Partially offsetting this net cash used was $0.3 million for the issuances of common stock related to option exercises.

Net
cash provided by financing activities was $148.5 million for the quarter ended March 31, 2004 primarily resulting from our issuance of $150 million in senior
subordinated contingent convertible debt in March 2004, offset by approximately $4.6 million in offering related expenses. We also generated $3.1 million in cash from the sale of
stock related to stock option exercises.

As
of March 31, 2005, there were no borrowings or repayments under our $20 million senior credit facility.

We
believe that our current balance of cash and cash equivalents and cash which we expect to generate from operations, as well as the availability of our credit facility, will be
adequate to fund our

15

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current
working capital requirements for at least the next 12 months. However, in the event that we make significant acquisitions in the future, we may be required to raise additional funds
through additional borrowings or the issuance of debt or equity securities.

In
March 2004, we issued a total of $150.0 million of our 1.75% contingent convertible senior subordinated notes.

On
February 11, 2003, we entered into 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 March 31, 2005,
we had no borrowings outstanding under this facility. In April 2005, the Company borrowed $20.0 million on the 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
credit facility 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.

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:



16

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17

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18

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Forward Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations as well as information contained elsewhere in this report contains
forward-looking statements that are subject to risks and uncertainties that could cause actual results to materially differ from those described. These forward looking statements are identified by
their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "plan", "predict", "will" and other similar terms and phrases, including references to
assumptions. 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:



19

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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 is exposed to certain market risks that arise in the ordinary course of business. A discussion of the Company's primary market risk exposure is
presented below.

Foreign Currency Exchange Risk

Our purchases of Nitrolingual under our agreement with Pohl-Boskamp and our purchases of Sular product inventory from Bayer are made in Euros.
Although we did not enter into any forward contracts in the first quarter of 2005, we may eliminate risks from 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. While the effect of foreign currency translations has not been material to our results of operations to date,
currency translations on export sales or import purchases could be adversely affected in the future by the relationship of the U.S. dollar with foreign currencies.

20

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Market Risk on Investments

The fair value of our investment portfolio would be negatively affected by an increase in interest rates. Since the majority of the Company's investments are
fixed rate interest-bearing securities and therefore subject to the market risk of loss in market value from an increase in rates or a change in the underlying risk of the issuers of the notes, the
Company's future earnings and cash flows could be affected adversely if the Company were to sell the securities prior to their maturity date. There were realized losses from the sale of investments
for the quarter ended March 31, 2005 of $0.3 million. At March 31, 2005, the Company had total net unrealized losses from marketable securities of $2.5 million.

Market Risk on Variable Rate Debt

In connection with borrowings incurred under the senior secured revolving credit facility arranged by LaSalle Bank, N.A., we could experience market risk with
respect to changes in the general level of the interest rates and its effect upon our interest expense. Borrowings under this facility bear interest at variable rates. Because such rates are variable,
an increase in interest rates will result in additional interest expense and a reduction in interest rates will result in reduced interest expense. Accordingly, our 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. On March 31, 2005 there was no debt outstanding
under this facility. In April 2005, the Company borrowed $20.0 million on the facility.

Market Risk on Fixed Rate Debt

The Company's long-term fixed interest rate senior subordinated contingent convertible notes are also subject to market risk. Fixed rate debt
outstanding at March 31, 2005 was $150 million with an interest rate of 1.75%. All other things being equal, the fair market value of the Company's fixed rate debt will increase as rates
decline and will decrease as rates rise. The fixed rate notes outstanding totaling $150.0 million at March 31, 2005 had a fair value of $145.9 million based on quoted market
rates.

ITEM 4. CONTROLS AND PROCEDURES



We maintain 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. We carried out an
evaluation under the supervision and with the participation of management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and
operation of First Horizon's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Our President and
Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures provide reasonable assurance as of the end of the period for which the report is being filed that (i) information required to be disclosed
in our 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 our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in First Horizon's primary internal controls over financial reporting during the first fiscal quarter of 2005, that has materially
affected, or is reasonably likely to materially affect First Horizon's internal controls over financial reporting.

21

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PART IIOTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

First Horizon, certain former and current officers and directors are defendants in a consolidated securities lawsuit initiated on August 22, 2002 in the
United States District Court for the Northern District of Georgia. Plaintiffs in the class action alleged in general terms that we violated Sections 11 and 12(a)(a) of the Securities Act of 1933 and
that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In an amended complaint, Plaintiffs claim that we issued a
series of materially false and misleading statements to the market in connection with our public offering on April 24, 2002 and thereafter relating to alleged "channel stuffing" activities. The
amended compliant also alleged controlling person liability on behalf of certain of our officers under Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange
Act of 1934. Plaintiffs seek an unspecified amount of compensatory damages to be proven at trial.

On
September 29, 2004, the U.S. District Court for the Northern District of Georgia dismissed, without prejudice, the class action lawsuit. Although the class action lawsuit was
dismissed, the court granted the plaintiffs the right to refile their class action lawsuit provided that the plaintiffs pay all of the defendant's fees and costs associated with filing the motions to
dismiss the class action lawsuit. Plaintiffs failed to refile by the deadline, but have asked the Court to reconsider its dismissal. Should the Court reverse the dismissal, we will vigorously defend
against any claims made.

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. On July 20, 2004, our action was transferred to the U.S. District Court for the Southern
District of Florida.

We
intend to vigorously litigate our infringement action and defend Breckenridge's motion for declaratory judgment unless resolved otherwise. 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: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents the total number of shares repurchased during the first quarter of fiscal 2005 and the average price paid per share:

|Fiscal Period                             |  | Plan |   | Total
Number of
Shares
Purchased |  | Average
Price Paid
Per Share |       | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans |         | Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans
|----------------------------------------- |  | ---- | - | -------------------------------- |  | ---------------------------- | ----- | -------------------------------------------------------------------- | ------- | ----------------------------------------------------------------------------
|January 1, 2005 through February 28, 2005 |  | N/A  |   |                                 |  |                              |      |                                                                      |        |                                                                             
|March 1, 2005 through March 31, 2005      |  | (1   | ) | 127,169                          |  | $                            | 16.44 |                                                                      | 127,169 |                                                                             
|                                          |  |      |   |                                  |  |                              |       |                                                                      |         |                                                                             
|Total Fiscal 2005 First Quarter           |  |      |   | 127,169                          |  |                              |       |                                                                      | 127,169 |                                                                             
|                                          |  |      |   |                                  |  |                              |       |                                                                      |         |                                                                             

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ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS

|10.1 | + | Agreement to License and Purchase, dated March 2, 2005, by and between Andrx Labs, LLC, the other seller entities listed therein and First Horizon Pharmaceutical Corporation.                       
|---- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2 | + | Manufacturing and Supply Agreement, dated March 28, 2005, by and between Andrx Pharmaceuticals, Inc. and First Horizon Pharmaceutical Corporation.                                                   
|10.3 |   | License Agreement, dated March 28, 2005, by and between Andrx Pharmaceuticals, Inc., Andrx Labs, LLC, Andrx Laboratories (NJ), Inc., Andrx EU, Ltd and First Horizon Pharmaceutical Corporation.     
|31.1 |   | Certifications of Chief Executive Officer and President pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.           
|31.2 |   | Certifications of Chief Financial Officer, Secretary and Treasurer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|32.1 |   | Certification of Chief Executive Officer and President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                     
|32.2 |   | Certification of Chief Financial Officer, Secretary and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          

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SIGNATURES

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 6, 2005 |  | By:                                                 
|Date: May 6, 2005 |  | By:                                                 

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