---

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

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FORM 10-Q

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

Commission File No. 000-30123

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

|Delaware(State of incorporation)                                              |  | 58-2004779(I.R.S. Employer Identification Number)
|----------------------------------------------------------------------------- |  | -------------------------------------------------
|6195 Shiloh Road, Alpharetta, Georgia(Address of principal executive offices) |  | 30005(Zip code)                                  
|(770) 442-9707(Registrant's telephone number, including area code):          

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

As
of October 31, 2003, there were 34,956,799 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 September 30, 2003 and December 31, 2002               |     
|                                 |         | Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and September 30, 2002 |                                                                                       | 2   
|                                 |         | Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002           |                                                                                       | 3   
|                                 |         | Notes to Consolidated Financial Statements                                                                          |                                                                                       | 4   
|                                 | Item 2. |                                                                                                                     | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                                 | Item 3. |                                                                                                                     | Quantitative and Qualitative Disclosures about Market Risk                            |     
|                                 | Item 4. |                                                                                                                     | Controls and Procedures                                                               |     
|PART II.    OTHER INFORMATION    |         |                                                                                                                    
|                                 | Item 1. |                                                                                                                     | Legal Proceedings                                                                     |     
|                                 | Item 2. |                                                                                                                     | Changes in Securities and Use of Proceeds                                             |     
|                                 | Item 3. |                                                                                                                     | Defaults Upon Senior Securities                                                       |     
|                                 | Item 4. |                                                                                                                     | Submission of Matters to a Vote of Security Holders                                   |     
|                                 | Item 5. |                                                                                                                     | Other Information                                                                     |     
|                                 | Item 6. |                                                                                                                     | Exhibits and Reports on Form 8-K                                                      |     
|                                 |         | Signatures                                                                                                          |                                                                                       | 23  
|                                 |         | 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)

|                                                                                                                                                                                 |                                                                                                                                                                               | September 30,
2003 |                                            | December 31,
2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------------------------------------------ | ----------------- | -
|
|ASSETS                                                                                                                                                                           |                                                                                                                                                                               |                    |                                            |                   |  
|Current assets:                                                                                                                                                                  |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 | Cash and cash equivalents                                                                                                                                                     |                    | $                                          | 30,022            |  
|                                                                                                                                                                                 | Accounts receivable, net of allowance for doubtful accounts, discounts and contractual adjustments of $646 and $767 at September 30, 2003 and December 31, 2002, respectively |                    |                                            | 14,047            |  
|                                                                                                                                                                                 | Inventories                                                                                                                                                                   |                    |                                            | 12,262            |  
|                                                                                                                                                                                 | Samples and other prepaid expenses                                                                                                                                            |                    |                                            | 4,222             |  
|                                                                                                                                                                                 | Income taxes receivable                                                                                                                                                       |                    |                                            | 7,952             |  
|                                                                                                                                                                                 | Current deferred tax assets                                                                                                                                                   |                    |                                            | 5,025             |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total current assets                       |                   |  
|Property and equipment, net                                                                                                                                                      |                                                                                                                                                                               |                    | 2,395                                      |                   |  
|Other assets:                                                                                                                                                                    |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 | Intangibles, net                                                                                                                                                              |                    |                                            | 244,306           |  
|                                                                                                                                                                                 | Other assets                                                                                                                                                                  |                    |                                            | 747               |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total other assets                         |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total assets                               |                   | $
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                             |                                                                                                                                                                               |                    |                                            |                   |  
|Current liabilities:                                                                                                                                                             |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 | Accounts payable                                                                                                                                                              |                    | $                                          | 3,841             |  
|                                                                                                                                                                                 | Accrued expenses                                                                                                                                                              |                    |                                            | 23,177            |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total current liabilities                  |                   |  
|Long-term liabilities:                                                                                                                                                           |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 | Deferred tax liabilities                                                                                                                                                      |                    |                                            | 508               |  
|                                                                                                                                                                                 | Other long-term liabilities                                                                                                                                                   |                    |                                            | 551               |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total liabilities                          |                   |  
|Stockholders' equity:                                                                                                                                                            |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 | Preferred stock, 1,000,000 shares authorized and none outstanding                                                                                                             |                    |                                            |                  |  
|Common stock, $0.001 par value; 100,000,000 shares authorized; 34,956,587 and 35,436,629 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively |                                                                                                                                                                               |                    | 35                                         |                   |  
|Additional paid-in capital                                                                                                                                                       |                                                                                                                                                                               |                    | 285,568                                    |                   |  
|Deferred compensation                                                                                                                                                            |                                                                                                                                                                               |                    |                                           |                   |  
|Retained earnings                                                                                                                                                                |                                                                                                                                                                               |                    | 7,156                                      |                   |  
|Accumulated other comprehensive income                                                                                                                                           |                                                                                                                                                                               |                    | 142                                        |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total stockholders' equity                 |                   |  
|                                                                                                                                                                                 |                                                                                                                                                                               |                    | Total liabilities and stockholders' equity |                   | $
|                                                                                                                                                                                 |                                                                                                                                                                               |                    |                                            |                   |  

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 September 30, |                                    | For The Nine Months Ended September 30, |  
|----------------------------------------------- | ---------------------------------------------------------- | ----------------------------------- | ---------------------------------- | --------------------------------------- | -
|
|Net Revenues                                    |                                                            | $                                   | 24,722                             |                                         | $
|Operating costs and expenses:                   |                                                            |                                     |                                    |                                         |  
|                                                | Cost of revenues (excluding amortization and depreciation) |                                     |                                    | 3,392                                   |  
|                                                | Selling, general and administrative expense                |                                     |                                    | 11,773                                  |  
|                                                | Depreciation and amortization                              |                                     |                                    | 4,067                                   |  
|                                                | Impairment charge                                          |                                     |                                    |                                        |  
|                                                | Research and development expense                           |                                     |                                    | 156                                     |  
|                                                |                                                            |                                     |                                    |                                         |  
|                                                |                                                            |                                     | Total operating costs and expenses |                                         | $
|                                                |                                                            |                                     |                                    |                                         |  
|Operating income (loss)                         |                                                            |                                     | 5,334                              |                                         |  
|                                                |                                                            |                                     |                                    |                                         |  
|Other (expense) income:                         |                                                            |                                     |                                    |                                         |  
|                                                | Interest expense                                           |                                     |                                    | (31                                     | )
|                                                | Interest income                                            |                                     |                                    | 76                                      |  
|                                                | Other                                                      |                                     |                                    |                                        |  
|                                                |                                                            |                                     |                                    |                                         |  
|                                                |                                                            |                                     | Total other (expense) income       |                                         | $
|                                                |                                                            |                                     |                                    |                                         |  
|Income (loss) before provision for income taxes |                                                            |                                     | 5,379                              |                                         |  
|Benefit (provision) for income taxes            |                                                            |                                     | (1,939                             | )                                       |  
|                                                |                                                            |                                     |                                    |                                         |  
|Net income (loss)                               |                                                            | $                                   | 3,440                              |                                         | $
|Other comprehensive income (loss)               |                                                            | $                                   | (74                                | )                                       | $
|                                                |                                                            |                                     |                                    |                                         |  
|Comprehensive income (loss)                     |                                                            | $                                   | 3,366                              |                                         | $
|                                                |                                                            |                                     |                                    |                                         |  
|Net income (loss) per common share:             |                                                            |                                     |                                    |                                         |  
|                                                | Basic earnings (loss) per common share                     |                                     | $                                  | 0.10                                    |  
|                                                |                                                            |                                     |                                    |                                         |  
|                                                | Diluted earnings (loss) per common share                   |                                     | $                                  | 0.10                                    |  
|                                                |                                                            |                                     |                                    |                                         |  
|Weighted average common shares outstanding:     |                                                            |                                     |                                    |                                         |  
|                                                | Basic                                                      |                                     |                                    | 34,953                                  |  
|                                                |                                                            |                                     |                                    |                                         |  
|                                                | Diluted                                                    |                                     |                                    | 35,491                                  |  
|                                                |                                                            |                                     |                                    |                                         |  

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 Nine Months Ended September 30,                                    |                                                    
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                                                              |                                                    |                                                                            |                                                    
|Net income (loss)                                                                                  |                                                    | $                                                                          | (11,343                                            
|Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    | Depreciation and amortization                                              |                                                    
|                                                                                                   |                                                    | Impairment charge                                                          |                                                    
|                                                                                                   |                                                    | Non-cash interest expense                                                  |                                                    
|                                                                                                   |                                                    | Deferred income tax benefit                                                |                                                    
|                                                                                                   |                                                    | Non-cash compensation expense                                              |                                                    
|                                                                                                   |                                                    | Reduction in taxes payablestock option exercises                          |                                                    
|                                                                                                   |                                                    | Changes in assets and liabilities, net of acquired assets and liabilities: |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            | Net cash (used in) provided by operating activities
|Cash flows from investing activities:                                                              |                                                    |                                                                            |                                                    
|                                                                                                   | Purchase of product licenses and other intangibles |                                                                            |                                                    
|                                                                                                   | Purchase of property and equipment                 |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            | Net cash used in investing activities              
|Cash flows from financing activities:                                                              |                                                    |                                                                            |                                                    
|                                                                                                   | Capitalized financing costs incurred               |                                                                            |                                                    
|                                                                                                   | Repurchase of common stock                         |                                                                            |                                                    
|                                                                                                   | Proceeds from long-term debt                       |                                                                            |                                                    
|                                                                                                   | Principal payments on long-term debt               |                                                                            |                                                    
|                                                                                                   | Net proceeds from issuance of common stock         |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            |                                                    
|                                                                                                   |                                                    |                                                                            | Net cash (used in) provided by financing activities
|Effect of foreign exchange rates on cash                                                           |                                                    |                                                                            | 92                                                 
|Net change in cash and cash equivalents                                                            |                                                    |                                                                            | (17,387                                            
|Cash and cash equivalents, beginning of period                                                     |                                                    |                                                                            | 47,409                                             
|                                                                                                   |                                                    |                                                                            |                                                    
|Cash and cash equivalents, end of period                                                           |                                                    | $                                                                          | 30,022                                             
|                                                                                                   |                                                    |                                                                            |                                                    
|Supplemental Cash Flow Information:                                                                |                                                    |                                                                            |                                                    
|Cash paid for taxes                                                                                |                                                    | $                                                                          | 4,836                                              
|                                                                                                   |                                                    |                                                                            |                                                    
|Cash paid for interest                                                                             |                                                    | $                                                                          | 101                                                
|                                                                                                   |                                                    |                                                                            |                                                    

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, 2002 (File
No. 000-30123).

2.    New Accounting Pronouncements

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

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

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

4

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In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes
how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As a result of concerns over implementation and measurement issues,
the FASB unanimously decided on October 29, 2003 to defer the application of SFAS No. 150 to certain non-controlling interests of limited-life entities that are
consolidated in the financial statements. The adoption of SFAS No. 150 did not have a material impact on the Company's financial condition or results of operations.

3.    Stock Options

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

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

|                                            |                                                                                                                              | For The Quarter Ended
September 30, |       | For The Nine Months Ended
September 30, |  
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ----- | --------------------------------------- | -
|
|Net income (loss) as reported               |                                                                                                                              | $                                   | 3,440 |                                         | $
|Deduct:                                     |                                                                                                                              |                                     |       |                                         |  
|                                            | Total stock-based employee compensation expense determined under fair value basis for all awards, net of related tax effects |                                     |       | (379                                    | )
|                                            |                                                                                                                              |                                     |       |                                         |  
|Pro forma                                   |                                                                                                                              | $                                   | 3,061 |                                         | $
|                                            |                                                                                                                              |                                     |       |                                         |  
|Net income (loss) per common share-basic:   |                                                                                                                              |                                     |       |                                         |  
|                                            | As reported                                                                                                                  |                                     | $     | 0.10                                    |  
|                                            | Pro forma                                                                                                                    |                                     | $     | 0.09                                    |  
|Net income (loss) per common share-diluted: |                                                                                                                              |                                     |       |                                         |  
|                                            | As reported                                                                                                                  |                                     | $     | 0.10                                    |  
|                                            | Pro-forma                                                                                                                    |                                     | $     | 0.09                                    |  

5

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The
weighted average fair value per share of options granted during the nine months ended September 30, 2003 and 2002 is estimated at $4.88 and $19.25, respectively. The value of
options is estimated on the date of the grant using the following weighted average assumptions:

|                        |  | 2003    |   | 2002    |  
|----------------------- |  | ------- | - | ------- | -
|Risk-free interest rate |  | 3.06    | % | 4.70    | %
|Expected dividend yield |  |        |   |        |  
|Expected lives          |  | 5 years |   | 7 years |  
|Expected volatility     |  | 134.61  | % | 99.00   | %

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

4.    Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. As a result of SFAS No. 145 "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," results for the nine months ending September 30, 2002 have been reclassified
to state what was previously reported as an extraordinary loss on debt extinguishment of $0.9 million net of taxes. To make this reclassification, interest expense for the nine months ended
September 30, 2002 has been increased by $1.4 million and the income tax benefit was increased by $0.5 million.

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. The
Company revised its sales forecast in the second quarter of 2003. As a result of the Company's revised forecast, at September 30, 2003, the Company had an allowance for excess and obsolete
inventory of $3.6 million compared to $2.8 million at December 31, 2002. Inventories at September 30, 2003 and December 31, 2002 consisted of (in thousands):

September 30,
2003

December 31,
2002Bulk product

$
5,808

$
7,543Finished product


6,454


9,901$
12,262

$
17,444


6

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6.    Samples

Samples primarily consist of product samples used in the sales and marketing efforts of the Company's products. Samples are expensed upon distribution, as a
selling expense. As a result of the Company's revised forecast, at September 30, 2003, the Company had an ending balance in its allowance for excess and obsolete sample inventory of
$0.4 million compared to $0.0 million at December 31, 2002. Sample inventories at September 30, 2003 and December 31, 2002 were $1.6 million and
$2.3 million, respectively.

7.    Accrued Expenses

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

September 30,
2003

December 31,
2002Employee compensation and benefits

$
2,808

$
2,125Product returns


6,723


12,216Sales deductions


10,148


10,671Assumed liabilitiesproduct acquisitions


1,120


3,665Income taxes payable





4,266Other


2,378


3,317$
23,177

$
36,260


Product returns

In September 2002, the Company launched Tanafed DP and Tanafed DMX, line extensions to the Company's Tanafed Suspension and Tanafed DM products. These line
extensions were launched in response to increasing competition by knock off products to Tanafed Suspension and Tanafed DM. Due to the launch of Tanafed DP and Tanafed DMX, the Company expected
increased returns of Tanafed Suspension, as prescriptions were expected to be filled with the line extensions. The Company estimated returns of approximately $3.8 million and provided for this
amount in September 2002. The Company decided to withdraw Tanafed Suspension in April 2003 which was earlier than planned. The Company also decided to withdraw Tanafed DM in
April 2003. As a result, the Company estimated that it would incur an additional $3.4 million in returns of Tanafed Suspension and Tanafed DM and provided for this amount in the results
of operations for the quarter ended March 31, 2003 as a deduction from revenue. For the quarter ended March 31, 2003, the Company also provided for an additional $0.6 million for
projected shipping cost related to the withdrawal of Tanafed Suspension and Tanafed DM recorded as a selling expense.

Assumed liabilitiesproduct acquisitions

In connection with the acquisition of rights for Robinul, Ponstel, Cognex, Prenate, Furadantin, and Sular the Company assumed certain liabilities for returns of
product shipped by the seller prior to the acquisition date. At the acquisition date, the Company estimated the amount of the assumed liabilities based on actual sales return data from the seller and
included that amount in the allocation of the total purchase price. The Company periodically reviews the estimated liability. Generally,

7

---

no
adjustment is made to the reserve until two or three years subsequent to the acquisition due to the lag time between when a product is sold and when it is returned. During the nine month period
ended September 30, 2003, the Company determined that the established reserves for Prenate and Cognex were in excess of the currently expected returns. As a result of the revised estimate, the
Company reduced the liability and increased net revenues by $1.0 million for the nine months ended September 30, 2003.

8.    Earnings Per Share

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

|                                                   |  | For The Quarter Ended September 30, |        | For The Nine Months Ended September 30,
|-------------------------------------------------- |  | ----------------------------------- | ------ | ---------------------------------------
|
|Net income (loss)                                  |  | $                                   | 3,440  |                                        
|Other comprehensive income                         |  |                                     | (74    | )                                      
|                                                   |  |                                     |        |                                        
|Comprehensive income (loss)                        |  | $                                   | 3,366  |                                        
|                                                   |  |                                     |        |                                        
|Weighted average common shares outstanding-basic   |  |                                     | 34,953 |                                        
|Diluted effect of Stock Options                    |  |                                     | 538    |                                        
|                                                   |  |                                     |        |                                        
|Weighted average common shares outstanding-diluted |  |                                     | 35,491 |                                        
|                                                   |  |                                     |        |                                        
|Basic earnings (loss) per common share:            |  | $                                   | 0.10   |                                        
|                                                   |  |                                     |        |                                        
|Diluted earnings (loss) per common share:          |  | $                                   | 0.10   |                                        
|                                                   |  |                                     |        |                                        

For
the quarter and nine months ended September 30, 2003, there were 1,479,533 and 1,634,906 potential common shares outstanding that were excluded from the diluted net income
(loss) per share calculation because their effect would have been anti-dilutive.

9.    Impairment Charge

In the second quarter of 2003, the Company revised its revenue forecast for all of its products. The Company also evaluated the remaining estimated useful lives
of its intangible assets and as a result changed the remaining estimated useful life of its Cognex intangible assets from 17 years to 10 years. An analysis of the projected undiscounted
cash flows for all intangibles was performed as required by SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The analysis of the projected undiscounted
cash flows for Cognex indicated that the carrying value of the asset was not recoverable over the revised remaining useful life of the asset. The Company estimated the fair market value of the Cognex
assets using (1) a market multiple methodology, (2) a comparable transaction methodology and (3) a discounted cash flow methodology. Based on the estimated fair market value, it
was determined that the carrying value of the Cognex licensing rights was in excess of the fair value and an impairment charge of $4.2 million was recorded in the second quarter of 2003.

8

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10.    Intangible Assets

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

|                               |  | Gross Amount |         | Accumulated
Amortization |   | Impairment
Charge |   | Net Amount |        | Weighted
Average Life
|------------------------------ |  | ------------ | ------- | ------------------------ | - | ----------------- | - | ---------- | ------ | ---------------------
|Licensing rights               |  | $            | 244,415 |                          | $ | (23,257           | ) | $          | (4,152 | )                    
|Trade names                    |  |              | 11,060  |                          |   | (1,046            | ) |            |       |                      
|Contracts                      |  |              | 8,300   |                          |   | (2,735            | ) |            |       |                      
|Supply/Distribution agreements |  |              | 11,490  |                          |   | (2,467            | ) |            |       |                      
|Other intangibles              |  |              | 3,082   |                          |   | (384              | ) |            |       |                      
|                               |  |              |         |                          |   |                   |   |            |        |                      
|Total                          |  | $            | 278,347 |                          | $ | (29,889           | ) | $          | (4,152 | )                    
|                               |  |              |         |                          |   |                   |   |            |        |                      

For
the three and nine months ended September 30, 2003, amortization expense related to the intangible assets was $3.9 million and $12.0 million, respectively.
Amortization is calculated on a straight-line basis over the estimated useful life of the intangible asset. Estimated annual amortization expense for each of the five succeeding fiscal
years is as follows (in thousands):

Fiscal year ended December 31:

Amount2003

$
15,9592004

$
15,7032005

$
15,5032006

$
15,3992007

$
14,186


11.    Segment Reporting

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

12.    Share Buyback Program

On July 8, 2002, the Company announced a share buyback program. This program authorized the repurchase of up to $8.0 million in common stock until
July 5, 2003. Through July 5, 2003, the Company
repurchased 823,400 shares of its common stock at an aggregate cost of approximately $2.1 million. On August 25, 2003, the Company authorized the repurchase of up to an additional
$7.9 million of common stock and extended the repurchase program to August 31, 2004. In September 2003, the Company repurchased an additional 162,225 shares of common stock at an
aggregate cost of approximately $1.0 million. Through September 30, 2003, the Company had repurchased a total of 985,625 shares of common stock at an aggregate cost of approximately
$3.1 million. These shares were retired.

9

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13.    Credit Agreement

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

10

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

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

Overview

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

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

Results of Operations

Net Revenue.Net revenues for the quarter ended September 30, 2003 decreased $2.4 million or 9% to
$24.7 million, as compared to $27.1 million for the quarter ended September 30, 2002. Net revenues for the nine months ended September 30, 2003 decreased
$22.0 million or 27% to $58.2 million, as compared to $80.2 million for the nine months ended September 30, 2002. Net revenues decreased for the quarter and nine month
period primarily as a result of (1) the effort to reduce the levels of trade inventories for a majority of the Company's promoted products (including Sular, Nitrolingual, Tanafed DP, Ponstel
and Robinul) and a few of the Company's non-promoted products, and (2) reduced sales of the Company's non-promoted products. The decrease was partially offset by a
one-time $0.9 million sale of Zebutal to certain customers in the quarter ended September 30, 2003. Net revenues for the nine months ended September 30, 2003, include
an increase in net revenues of $1.0 million for the reduction in the recorded liability for estimated future returns of Cognex and Prenate. Net revenues for the nine months ended
September 30, 2003, also include a decrease of $3.4 million for an accrual for estimated future returns of the Tanafed Suspension and Tanafed DM products.

11

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The
Company seeks to maintain 1.5 months of inventory on hand with its wholesalers. During the second and third quarters of 2003, the Company entered into agreements with its
three largest wholesale customers to provide to the Company data about the levels of inventory on hand with the wholesalers and incentivize wholesalers to maintain between 0.5 and 1.5 months of
inventory on hand. The Company believes that these agreements and the implementation of other measures will help the Company better manage the levels of trade inventories with wholesalers.

According
to IMS Health's National Prescription Audit Plus data, new prescriptions of Sular decreased 4.1% and total prescriptions decreased 0.1%, for the quarter ended
September 30, 2003, compared to the quarter ended June 30, 2003. Also based on that data, new prescriptions of Sular increased 3.1% and total prescriptions increased 3.2%, for the
quarter ended September 30, 2003, compared to the quarter ended September 30, 2002. Trade levels of Sular inventory decreased by 77.8% from December 2002 to September 2003
(Source: IMS Health Pipeline report). Months on hand (defined as units on hand divided by monthly demand at the wholesalers) of Sular were 1.1 months at September 30, 2003,
3.2 months at June 30, 2003, 3.0 months at March 31, 2003 and 4.1 months at December 31, 2002 (Source: IMS Health Pipeline report). Net revenues of Sular were
approximately $4.5 million and $14.2 million for the quarter and nine months ended September 30, 2003, respectively compared to $9.7 million and $21.3 million for
the quarter and nine months ended September 30, 2002, respectively. The Company acquired Sular in March 2002.

Net
revenues of the promoted pediatric and OB/GYN franchise products (namely the Prenate line, the Tanafed line, and Ponstel), were approximately $9.4 million for the quarter
ended September 30, 2003 compared to approximately $8.5 million for the quarter ended September 30, 2002.

Total
dispensed prescriptions of Prenate GT and Prenate Advance decreased 7.4% for the quarter ended September 30, 2003 as compared to the quarter ended June 30, 2003, and
decreased 7.2% for the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002, according to IMS Health's National Prescription Audit Plus data.
The substitution rates of Prenate GT, as measured by new dispensed prescriptions captured by Prenate GT and knock-off products, were 37.1% for the quarter ended March 31, 2003,
42.0% for the quarter ended June 30, 2003 and 44.4% for the quarter ended September 30, 2003. (Source: IMS Health's National Prescription Audit Plus data). Total dispensed
prescriptions and substitution rates were adversely affected during the third quarter of 2003 due to limited supplies of Prenate GT inventory which the Company encountered during the first nine months
of 2003.

Total
dispensed prescriptions of the Tanafed line increased 11.6% for the quarter ended September 30, 2003 compared to the quarter ended September 30, 2002 according to IMS
Health's National Prescription Audit Plus data. Also according to that data, total dispensed prescriptions of the Tanafed line decreased 16.5% for the quarter ended September 30,
2003 compared to the quarter ended June 30, 2003. The Company attributes this sequential decline to the seasonal nature of this product and the decline is consistent with past experience. Sales
of the Tanafed line are typically higher in the Company's fourth and first quarters which correspond to the cold season. Net revenues of the Tanafed line for the nine months ended September 30,
2003 include a decrease of $3.4 million for an accrual for estimated future returns of the Tanafed Suspension and Tanafed DM products recorded in the quarter ended March 31, 2003.

According
to IMS Health's National Prescription Audit Plus data, total prescriptions of Ponstel increased 2.0% for the quarter ended September 30, 2003 as compared to
the quarter ended June 30, 2003. Also based on that data, total prescriptions decreased 1.7% for the quarter ended September 30, 2003 as compared to the quarter ended
September 30, 2002.

12

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The
Company introduced the 60-dose version of Nitrolingual during the second quarter of 2003 which helped increase sales of the 200-dose version of Nitrolingual.
According to IMS Health's National Prescription Audit Plus data, total prescriptions of Nitrolingual decreased 1.3% for the quarter ended September 30, 2003 as compared to the
quarter ended September 30, 2002 and decreased 3.0% for the quarter ended September 30, 2003 as compared to the quarter ended June 30, 2003. The Company believes that IMS data
does not capture prescriptions of Nitrolingual from some of the non-retail channels and prescription trends in the non-retail channel.

According
to IMS Health's National Prescription Audit Plus data, total prescriptions of Robinul increased 4.4% for the quarter ended September 30, 2003 as compared to
the quarter ended June 30, 2003. Also based on that data, total prescriptions increased 7.3% for the quarter ended September 30, 2003 as compared to the quarter ended
September 30, 2002. Net revenues of Robinul increased 17.7% for the quarter ended September 30, 2003 as compared to the quarter ended September 30, 2002, primarily as a result of
increased unit sales.

Net
revenues of the Company's non-promoted products for the quarter ended September 30, 2003 decreased 10.2% to $3.5 million, as compared to $3.9 million
for the quarter ended September 30, 2002. Net revenues of the Company's non-promoted products for the nine months ended September 30, 2003 decreased 62.1% to
$5.2 million, as compared to $13.8 million for the nine months ended September 30, 2002. The decline was the result of lower unit sales for these brands and higher allowances for
returns. The Company recorded a one time $0.9 million sale of Zebutal to certain customers during the quarter ended September 30, 2003.

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

Cost of Revenues.Cost of revenues for the quarter ended September 30, 2003 were $3.4 million compared to
$7.4 million for the quarter ended September 30, 2002. Cost of revenues for the nine months ended September 30, 2003 were $13.4 million compared to $16.4 million for
the nine months ended September 30, 2002. The Company had a one-time $0.9 million sale of Zebutal, which had been fully reserved, to certain customers in the quarter ended
September 30, 2003. As a result of a change in the Company's sales forecast, the Company recorded an increased allowance for obsolete and excess inventory of $3.5 million in the six
months ended June 30, 2003. These charges were primarily for the Company's non-promoted products, excess Sular and Tanafed inventory and short dated Prenate GT inventory. Cost of
revenues for the third quarter of 2002 includes a write-off of Tanafed and Tanafed DM inventory of $1.2 million which was made obsolete by the launch of Tanafed DP and Tanafed DMX
and a $0.7 million write-off of short dated Prenate GT.

Gross Margin.Gross margin for the quarter ended September 30, 2003 was 86% compared to 73% for the quarter ended
September 30, 2002. Gross margin for the nine months ended September 30, 2003 was 77% compared to 80% for the nine months ended September 30, 2002. During the quarter ended
September 30, 2002, the Company recorded $1.9 million in obsolete and excess inventory charges related to its Tanafed and Prenate lines resulting in a decrease in gross margin of seven
percentage points. The decrease in gross margin percentage for the nine months ended September 30, 2003 primarily resulted
from the increased allowance for obsolete and excess inventory. Also affecting gross margin for the quarter and nine months ended September 30, 2003 was a change in product sales mix.

13

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Selling, General and Administrative Expenses.Selling, general and administrative expenses decreased $3.3 million, or
22%, to $11.8 million for the quarter ended September 30, 2003, compared to $15.1 million for the quarter ended September 30, 2002. Selling related expenses decreased due
to lower co-promotion expenses incurred for promotion of the Company's Sular product due to the termination of a co-promotion agreement in the second quarter of 2003, as well
as lower selling expense as a result of the Company's revised strategy and operating plan. Selling, general and administrative expenses decreased $1.7 million, or 4%, to $44.3 million
for the nine months ended September 30, 2003, compared to $46.0 million for the nine months ended September 30, 2002. Selling related expenses decreased due to lower
co-promotion expenses incurred for promotion of the Company's Sular product due to the termination of a co-promotion agreement in the second quarter of 2003, as well as lower
selling expense as a result of the Company's revised strategy and operating plan. The decrease was partially offset, by expenses totaling $2.7 million for an allowance for obsolete sample
inventory, shipping cost related to the withdrawal of Tanafed and Tanafed DM and severance for departing employees. Selling, general and administrative expenses for the nine months ended
September 30, 2002 do not include comparable expenses.

Depreciation and Amortization Expense.Depreciation and amortization expense was $4.1 million for the quarters ended
September 30, 2003 and September 30, 2002. Depreciation and amortization expense increased $1.9 million, or 18% to $12.4 million for the nine months ended
September 30, 2003 compared to $10.5 million for the nine months ended September 30, 2002. This increase resulted from higher amortization expense related to the acquisition of
Sular in March 2002.

Impairment Charge.In the second quarter of 2003, the Company revised its revenue forecast for all of its products and
evaluated the remaining estimated useful lives of its intangible assets. As a result, the Company changed the remaining estimated useful life of its Cognex intangible assets from 17 years to
10 years. An analysis of the projected undiscounted cash flows for all intangibles was performed as required by SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets". The analysis of the projected undiscounted cash flows for Cognex indicated that the carrying value of the asset was not recoverable over the revised remaining useful
life of the asset. The Company estimated the fair market value of the Cognex assets. Based on the estimated fair market value, it was determined that the carrying value of the Cognex licensing rights
was in excess of the fair value and an impairment charge of $4.2 million was recorded.

Research and Development Expense.Research and development expense was $0.2 million for the quarters ended
September 30, 2003 and September 30, 2002. Research and development expense increased $0.8 million to $1.6 million for the nine months ended September 30, 2003
compared to $0.8 million for the nine months ended September 30, 2002. The increase in expense is primarily a result of costs
associated with manufacturing transfers for the Company's Ponstel, Cognex and Furadantin products and development costs for the Prenate line.

In
late 2002, the FDA issued a notice about various cough and cold combination products, which requires that the Company obtain FDA approval of the Company's Tanafed products before
January 1, 2005 in order to be able to thereafter continue to market and sell these products as prescription products. In October 2003, the FDA issued a draft guidance document to
address their current approach to handling compliance issues for drugs marketed without FDA approval. The Company has not yet determined the estimated cost to obtain FDA approval. The Company expects
to perform early phase clinical trials that are required for FDA approval regardless of the eventual prescription versus over-the-counter status. Based on the findings of the
planned Phase 1 trial, the Company will finalize its development strategy and seek a pre-IND meeting with the FDA. The Company continues to evaluate its strategy for its Tanafed products,
which may include incurring significant developmental expenses to obtain FDA approval or may involve marketing Tanafed products as non-prescription products, which could have a material
adverse effect on net revenues and profit margins for the Tanafed product line.

14

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Interest Expense.Interest expense was $0.0 million and $0.2 million for the quarter and nine months ended
September 30, 2003, respectively, compared to $0.0 million and $4.2 million for the quarter and nine months ended September 30, 2002, respectively. For the quarter and nine
months ended September 30, 2003, the Company had no debt outstanding. As a result of SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" results for the nine months ended September 30, 2002 have been reclassified to state what was previously reported as an extraordinary loss on debt
extinguishment of $0.9 million net of taxes. To make this reclassification, interest expense for the nine months ended September 30, 2002 has been increased by $1.4 million and
the income tax benefit was increased by $0.5 million.

Interest Income.Interest income was $0.1 million and $0.3 million for the quarter and nine months ended
September 30, 2003, respectively, compared to $0.1 million and $0.4 million for the quarter and nine months ended September 30, 2002. The decrease in interest income for
the nine-month period ended September 30, 2003 is primarily due to a lower average cash balance.

Benefit (Provision) for Income Taxes.Income taxes were provided for at a rate of 36.0% for the quarter ended
September 30, 2003 and 35.3% for the nine months ended September 30, 2003, compared to 48.7% for the three months ended September 30, 2002 and 39.5% for the nine months ended
September 30, 2002. The decrease in the effective rate is due to the change in the ratio of non-deductible expenses to pre-tax income.

Liquidity and Capital Resources

The Company's liquidity requirements have in the past arisen primarily from debt service, working capital requirements, product development activities and funding
of acquisitions. The Company has in the past met these cash requirements through cash from operations, borrowings for product acquisitions and the issuance of common stock. The Company does not expect
its near term liquidity requirements to include debt service or funding of acquisitions.

The
Company's cash and cash equivalents were $30.0 million at September 30, 2003. Net cash used in operating activities for the nine months ended September 30, 2003
was $14.0 million. This use of cash was primarily the result of the net loss, the decrease in accrued expenses and accounts payable, and an increase in samples and other prepaid expenses and
other assets, offset by non-cash depreciation and amortization expense, non-cash impairment charge, non-cash compensation expense, non-cash interest
expense and decreases in accounts receivable and inventory.

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

Recent
regulatory developments affecting the Company's Tanafed line could affect the Company's liquidity requirements. In late 2002, the FDA issued a notice about various cough and cold
combination products, which requires that the Company obtain FDA approval of the Company's Tanafed products before January 1, 2005 in order to be able to thereafter continue to market and sell
these products as prescription products. In October 2003, the FDA issued a draft guidance document to address their current approach to handling compliance issues for drugs marketed without FDA
approval. The Company expects to perform early phase clinical trials that are required for FDA approval regardless of the eventual prescription versus over-the-counter status.
Based on the findings of the planned Phase 1 trial, the Company will finalize its development strategy and seek a pre-IND meeting with the FDA. The Company has not yet determined the
estimated cost to obtain FDA approval. The Company continues to evaluate its strategy for its Tanafed products, which may include incurring significant developmental expenses to obtain FDA approval or
may involve marketing Tanafed products as non-prescription products, which could have a material adverse effect on net revenues and profit margins for the Tanafed product line.

15

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Net cash used in investing activities for the nine months ended September 30, 2003 was $1.2 million. The use of this cash was primarily for purchases of software and
computer equipment.

Net
cash used in financing activities was $2.3 million for the nine months ended September 30, 2003. The primary use of this cash was to repurchase shares of the Company's
outstanding common stock under its share repurchase program and fees paid to obtain the credit facility through LaSalle Bank N.A., offset by proceeds from the sale of stock.

The
Company has no borrowing outstanding under the credit facility. For the quarter and nine months ended September 30, 2003, there were no borrowings or repayments under the
Credit Agreement. At September 30, 2003, the Company was not in compliance with certain financial covenants of this credit facility. The Company has renegotiated an amendment to the credit
agreement and is in the process of finalizing the documentation. Once the documentation is completed, the Company will not be in violation of any covenants as of September 30, 2003.

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

Critical Accounting Policies

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



16

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17

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Forward Looking Statements

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



18

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's operating results and cash flows are subject to fluctuations from changes in foreign currency exchange rates and interest rates. The Company's
purchases of Nitrolingual under its agreement with Pohl-Boskamp and its purchases

19

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

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

ITEM 4.    CONTROLS AND PROCEDURES

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

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

There
have not been any changes in the Company's internal controls over financial reporting identified in connection with the Evaluation that occurred during the Company's last quarter
ended September 30, 2003 that has materially affected or, to the knowledge of management, is reasonably likely to materially affect, the Company's internal controls over financial reporting.

20

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PART IIOTHER INFORMATION

ITEM 1:    LEGAL PROCEEDINGS

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

ITEM 2:    CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5.    OTHER INFORMATION

None

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ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K



| |  | 3.1(1) |  | Restated Certificate of Incorporation, as amended                                                                                          
| |  | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | 3.2(2) |  | Amended and Restated By-laws                                                                                                               
| |  | 4.1(3) |  | Form of Stock Certificate                                                                                                                  
| |  | 10.1*+ |  | Amendment to Exclusive Distribution Agreement dated July 9, 2003, between Unisource, Inc. and First Horizon Pharmaceutical Corporation     
| |  | 10.2*+ |  | First Amendment to Supply Agreement dated as of January 1, 2003 between Banner Pharmacaps Inc. and First Horizon Pharmaceutical Corporation
| |  | 10.3*  |  | Amended and Restated Employment Agreement, dated September 17, 2003, between First Horizon Pharmaceutical Corporation and Patrick Fourteau 
| |  | 10.4*  |  | Amended and Restated Employment Agreement, dated September 17, 2003, between First Horizon Pharmaceutical Corporation and Darrell Borne    
| |  | 10.5*  |  | Employment Agreement, dated September 25, 2003, between First Horizon Pharmaceutical Corporation and Brent Dixon                           
| |  | 10.6*  |  | Employment Agreement, dated September 25, 2003, between First Horizon Pharmaceutical Corporation and Robert D. Godfrey                     
| |  | 31.1*  |  | Certifications of President and Chief Operating Officer                                                                                    
| |  | 31.2*  |  | Certifications of Chief Financial Officer, Treasurer and Secretary                                                                         
| |  | 32.1*  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                    
| |  | 32.2*  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                    

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SIGNATURES

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

|                       |  | FIRST HORIZON PHARMACEUTICAL CORPORATION(Registrant)
|---------------------- |  | ----------------------------------------------------
|                       |  |                                                     
|Date: November 7, 2003 |  | By:                                                 
|                       |  |                                                     
|                       |  |                                                     
|Date: November 7, 2003 |  | By:                                                 

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