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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2003

Commission file number 0-17254

NOVEN PHARMACEUTICALS, INC.

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(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|STATE OF DELAWARE                                              |  | 59-2767632                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification Number)

11960 S.W. 144th Street, Miami, FL 33186

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(Address of principal executive offices) (Zip Code)


(305) 253-5099

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(Registrants telephone number, including area code)


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   x   No   
o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   Yes   x   No   
o

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the last practicable date.

|                              |  |                             
|----------------------------- |  | ----------------------------
|Class                         |  | Outstanding at July 31, 2003
|                              |  |                             
|Common stock $.0001 par value |  | 22,497,917                  



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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                  | PART I. FINANCIAL INFORMATION                                                                
|                                                  | Item 1. Financial Statements                                                                 
|Condensed Statements of Operations               
|Condensed Balance Sheets                         
|Condensed Statements of Cash Flows               
|Notes to Unaudited Condensed Financial Statements
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|                                                  | Item 4. Controls and Procedures                                                              
|                                                  | PART II. OTHER INFORMATION                                                                   
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|EX-31.1 CEO CERTIFICATION PURSUANT SECTION 302   
|EX-31.2 CFO CERTIFICATION PURSUANT SECTION 302   
|EX-32.1 CEO CERTIFICATION PURSUANT SECTION 906   
|EX-32.2 CFO CERTIFICATION PURSUANT SECTION 906   



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##### Table of Contents



NOVEN PHARMACEUTICALS, INC.

INDEX

|           |  |                                                                                              |  |         
|---------- |  | -------------------------------------------------------------------------------------------- |  | --------
|           |  |                                                                                              |  | Page No.
|           |  |                                                                                              |  |         
|PART I -   |  | FINANCIAL INFORMATION                                                                        |  |         
|           |  |                                                                                              |  |         
|Item 1 -   |  | Unaudited Condensed Financial Statements                                                     |  |         
|           |  |                                                                                              |  |         
|           |  | Condensed Statements of Operations for the Three and Six Months Ended
June 30, 2003 and 2002 |  | 3       
|           |  |                                                                                              |  |         
|           |  | Condensed Balance Sheets as of June 30, 2003 and December 31, 2002                           |  | 4       
|           |  |                                                                                              |  |         
|           |  | Condensed Statements of Cash Flows for the Six Months Ended
June 30, 2003 and 2002           |  | 5       
|           |  |                                                                                              |  |         
|           |  | Notes to Unaudited Condensed Financial Statements                                            |  | 6       
|           |  |                                                                                              |  |         
|Item 2 -   |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations        |  | 14      
|           |  |                                                                                              |  |         
|Item 3 -   |  | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 28      
|           |  |                                                                                              |  |         
|Item 4 -   |  | Controls and Procedures                                                                      |  | 28      
|           |  |                                                                                              |  |         
|PART II -  |  | OTHER INFORMATION                                                                            |  |         
|           |  |                                                                                              |  |         
|Item 1 -   |  | Legal Proceedings                                                                            |  | 30      
|           |  |                                                                                              |  |         
|Item 4 -   |  | Submission of Matters to a Vote of Security Holders                                          |  | 30      
|           |  |                                                                                              |  |         
|Item 6 -   |  | Exhibits and Reports on Form 8-K                                                             |  | 31      
|           |  |                                                                                              |  |         
|SIGNATURES |  |                                                                                              |  | 32      

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

NOVEN PHARMACEUTICALS, INC.




Condensed Statements of Operations


Three and Six Months Ended June 30,
(in thousands, except per share amounts)
(unaudited)


|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |        | 
|----------------------------------------------------- | ------------------------------------- | - | ------------ | ------ | ---------- | - | ------ | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ | 
|                                                      |                                       |   | Three Months |        | Six Months
|                                                      |                                       |   |              |        |           
|                                                      |                                       |   | 2003         |        | 2002       |   | 2003   |        | 2002
|                                                      |                                       |   |              |        |            |   |        |        |     
|Revenues:                                             |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                      | Product revenues  Novogyne           |   | $            | 7,054  |            |   | $      | 8,420  |      |   | $     | 11,215 |  |   | $      | 16,079 | 
|                                                      | Product revenues  third parties      |   |              | 3,786  |            |   |        | 6,058  |      |   |       | 8,743  |  |   |        | 9,835  | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                      | Total product revenues                |   |              | 10,840 |            |   |        | 14,478 |      |   |       | 19,958 |  |   |        | 25,914 | 
|                                                      | License and contract revenues         |   |              | 1,421  |            |   |        | 1,678  |      |   |       | 2,328  |  |   |        | 2,977  | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                      | Total revenues                        |   |              | 12,261 |            |   |        | 16,156 |      |   |       | 22,286 |  |   |        | 28,891 | 
|                                                     
|Expenses:                                             |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                      | Cost of products sold                 |   |              | 6,040  |            |   |        | 6,021  |      |   |       | 10,325 |  |   |        | 11,921 | 
|                                                      | Research and development              |   |              | 2,154  |            |   |        | 3,313  |      |   |       | 4,647  |  |   |        | 6,682  | 
|                                                      | Marketing, general and administrative |   |              | 3,293  |            |   |        | 3,679  |      |   |       | 7,474  |  |   |        | 6,612  | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|                                                      | Total expenses                        |   |              | 11,487 |            |   |        | 13,013 |      |   |       | 22,446 |  |   |        | 25,215 | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|Income (loss) from operations                         |                                       |   | 774          |        |            |   | 3,143  |        |      |   | (160  | )      |  |   | 3,676  |       
|Equity in earnings of Novogyne                        |                                       |   | 3,795        |        |            |   | 7,132  |        |      |   | 5,320 |        |  |   | 8,647  |       
|Interest income, net                                  |                                       |   | 198          |        |            |   | 195    |        |      |   | 346   |        |  |   | 402    |       
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|Income before income taxes                            |                                       |   | 4,767        |        |            |   | 10,470 |        |      |   | 5,506 |        |  |   | 12,725 |       
|                                                     
|Provision for income taxes                            |                                       |   | 1,717        |        |            |   | 3,827  |        |      |   | 1,983 |        |  |   | 4,629  |       
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|Net income                                            |                                       | $ | 3,050        |        |            | $ | 6,643  |        |      | $ | 3,523 |        |  | $ | 8,096  |       
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|Basic earnings per share                              |                                       | $ | 0.14         |        |            | $ | 0.29   |        |      | $ | 0.16  |        |  | $ | 0.36   |       
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|Diluted earnings per share                            |                                       | $ | 0.13         |        |            | $ | 0.28   |        |      | $ | 0.15  |        |  | $ | 0.34   |       
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|Weighted average number of common shares
outstanding: |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                      | Basic                                 |   |              | 22,493 |            |   |        | 22,528 |      |   |       | 22,536 |  |   |        | 22,510 | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       
|                                                     
|                                                      | Diluted                               |   |              | 22,937 |            |   |        | 23,687 |      |   |       | 22,928 |  |   |        | 23,571 | 
|                                                      |                                       |   |              |        |            |   |        |        |      |   |       |        |  |   |        |       

The accompanying notes are an integral part of these statements.

3



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##### Table of Contents



NOVEN PHARMACEUTICALS, INC.




Condensed Balance Sheets


(in thousands, except share data)
(unaudited)


|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |   |        |        | 
|--------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | - | ------------- | ------ | ----------------- | - | ------ | ------ | 
|                                        |  |                                                                                                                                                                        |                                                                                                   |   | June 30, 2003 |        | December 31, 2002
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                  
|Assets                                  |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|Current Assets:                         |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | Cash and cash equivalents                                                                         |   | $             | 83,789 |                   |   | $      | 58,684 | 
|                                        |  |                                                                                                                                                                        | Accounts receivable  trade (less allowance for
doubtful accounts of $54 in 2003 and $79 in 2002) |   |               | 4,172  |                   |   |        | 4,359  | 
|                                        |  |                                                                                                                                                                        | Accounts receivable  Novogyne                                                                    |   |               | 5,973  |                   |   |        | 2,581  | 
|                                        |  |                                                                                                                                                                        | Inventories                                                                                       |   |               | 4,251  |                   |   |        | 5,613  | 
|                                        |  |                                                                                                                                                                        | Net deferred income tax asset                                                                     |   |               | 2,000  |                   |   |        | 2,600  | 
|                                        |  |                                                                                                                                                                        | Prepaid and other current assets                                                                  |   |               | 1,951  |                   |   |        | 541    | 
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | 102,136                                                                                           |   |               |        | 74,378            |  
|Property, plant and equipment, net      |  |                                                                                                                                                                        | 18,195                                                                                            |   |               |        | 16,232            |  
|                                       
|Other Assets:                           |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | Investment in Novogyne                                                                            |   |               | 26,353 |                   |   |        | 34,684 | 
|                                        |  |                                                                                                                                                                        | Net deferred income tax asset                                                                     |   |               | 19,213 |                   |   |        | 9,831  | 
|                                        |  |                                                                                                                                                                        | Patent development costs, net                                                                     |   |               | 1,998  |                   |   |        | 1,996  | 
|                                        |  |                                                                                                                                                                        | Deposits and other assets                                                                         |   |               | 381    |                   |   |        | 581    | 
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | 47,945                                                                                            |   |               |        | 47,092            |  
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  | $                                                                                                                                                                      | 168,276                                                                                           |   |               | $      | 137,702           |  
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|Liabilities and Stockholders Equity    |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|Current Liabilities:                    |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  | Accounts payable                                                                                                                                                       |                                                                                                   | $ | 5,251         |        |                   | $ | 5,062  |       
|                                        |  | Notes payable  current portion                                                                                                                                        |                                                                                                   |   | 9             |        |                   |   | 8      |       
|                                        |  | Accrued compensation and related liabilities                                                                                                                           |                                                                                                   |   | 2,251         |        |                   |   | 3,549  |       
|                                        |  | Other accrued liabilities                                                                                                                                              |                                                                                                   |   | 1,405         |        |                   |   | 1,350  |       
|                                        |  | Current tax payable                                                                                                                                                    |                                                                                                   |   | 6,579         |        |                   |   | 713    |       
|                                        |  | Deferred contract revenues                                                                                                                                             |                                                                                                   |   | 1,429         |        |                   |   | 829    |       
|                                        |  | Deferred license revenues  current portion                                                                                                                            |                                                                                                   |   | 10,526        |        |                   |   | 3,525  |       
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | 27,450                                                                                            |   |               |        | 15,036            |  
|Long-Term Liabilities:                  |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  | Notes payable                                                                                                                                                          |                                                                                                   |   |              |        |                   |   | 5      |       
|                                        |  | Deferred license revenues                                                                                                                                              |                                                                                                   |   | 41,656        |        |                   |   | 25,920 |       
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | 69,106                                                                                            |   |               |        | 40,961            |  
|Commitments and Contingencies (Note 11) |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                       
|Stockholders Equity:                   |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  | Preferred stock  authorized 100,000 shares of $.01 par
value; no shares issued or outstanding                                                                         |                                                                                                   |   |              |        |                   |   |       |       
|                                        |  | Common stock  authorized 80,000,000 shares,
par value $.0001 per share; issued and
outstanding 22,495,942 shares at June 30, 2003 and
22,579,112 at December 31, 2002 |                                                                                                   |   | 2             |        |                   |   | 2      |       
|                                        |  | Additional paid-in capital                                                                                                                                             |                                                                                                   |   | 77,264        |        |                   |   | 78,358 |       
|                                        |  | Retained earnings                                                                                                                                                      |                                                                                                   |   | 21,904        |        |                   |   | 18,381 |       
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  |                                                                                                                                                                        | 99,170                                                                                            |   |               |        | 96,741            |  
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  
|                                        |  | $                                                                                                                                                                      | 168,276                                                                                           |   |               | $      | 137,702           |  
|                                        |  |                                                                                                                                                                        |                                                                                                   |   |               |        |                   |  

The accompanying notes are an integral part of these statements.

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##### Table of Contents



NOVEN PHARMACEUTICALS, INC.




Condensed Statements of Cash Flows


Six Months Ended June 30,
(in thousands)
(unaudited)


|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |       |        |        |       |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ------ | ------ | ----- | ------ | ------ | ----- | -
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        | 2003   |        | 2002 
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|Cash flows from operating activities:          |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               | Net income                                                                        |                                                                          | $                                                                   | 3,523                                                 |        |        | $      | 8,096 |       
|                                               | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                          |                                                                     |                                                       |        |        |        |       |       
|                                               |                                                                                   | Depreciation and amortization                                            |                                                                     |                                                       | 1,146  |        |        |       | 1,063  |       
|                                               |                                                                                   | Amortization of patent costs                                             |                                                                     |                                                       | 166    |        |        |       | 154    |       
|                                               |                                                                                   | Amortization of non-competition agreement                                |                                                                     |                                                       | 200    |        |        |       | 200    |       
|                                               |                                                                                   | Deferred income tax (benefit) expense                                    |                                                                     |                                                       | (8,782 | )      |        |       | 1,873  |       
|                                               |                                                                                   | Non-cash expense related to issuance of stock to charitable
organization |                                                                     |                                                       | 31     |        |        |       |       |       
|                                               |                                                                                   | Recognition of deferred contract revenues                                |                                                                     |                                                       | (65    | )      |        |       | (1,354 | )     
|                                               |                                                                                   | Amortization of deferred license revenues                                |                                                                     |                                                       | (2,263 | )      |        |       | (1,623 | )     
|                                               |                                                                                   | Distributed earnings in excess of equity in earnings of Novogyne         |                                                                     |                                                       | 6,660  |        |        |       | 3,080  |       
|                                               |                                                                                   | Changes in assets and liabilities:                                       |                                                                     |                                                       |        |        |        |       |        |       
|                                               |                                                                                   |                                                                          | Decrease (increase) in accounts receivable  trade, net             |                                                       |        | 187    |        |       |        | (4,555 | )    
|                                               |                                                                                   |                                                                          | Increase in accounts receivable  Novogyne                          |                                                       |        | (3,392 | )      |       |        | (4,323 | )    
|                                               |                                                                                   |                                                                          | Decrease (increase) in inventories                                  |                                                       |        | 1,362  |        |       |        | (1,340 | )    
|                                               |                                                                                   |                                                                          | Increase in prepaid and other current assets                        |                                                       |        | (1,410 | )      |       |        | (814   | )    
|                                               |                                                                                   |                                                                          | Decrease in deposits and other assets                               |                                                       |        |       |        |       |        | 26     |      
|                                               |                                                                                   |                                                                          | Increase in accounts payable                                        |                                                       |        | 189    |        |       |        | 1,602  |      
|                                               |                                                                                   |                                                                          | (Decrease) increase in accrued compensation and related liabilities |                                                       |        | (1,298 | )      |       |        | 1,394  |      
|                                               |                                                                                   |                                                                          | Increase in other accrued liabilities                               |                                                       |        | 55     |        |       |        | 936    |      
|                                               |                                                                                   |                                                                          | Increase in current tax payable                                     |                                                       |        | 7,554  |        |       |        | 161    |      
|                                               |                                                                                   |                                                                          | Increase in deferred contract revenues                              |                                                       |        | 665    |        |       |        | 58     |      
|                                               |                                                                                   |                                                                          | Increase in deferred license revenues                               |                                                       |        | 25,000 |        |       |        |       |      
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               |                                                                                   |                                                                          |                                                                     | Cash flows provided by operating activities           |        |        | 29,528 |       |        |        | 4,634 |  
|                                              
|Cash flows from investing activities:          |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               | Purchase of property, plant and equipment, net                                    |                                                                          |                                                                     | (3,109                                                | )      |        |        | (873  | )     
|                                               | Payments for patent development costs                                             |                                                                          |                                                                     | (168                                                  | )      |        |        | (93   | )     
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               |                                                                                   |                                                                          |                                                                     | Cash flows used in investing activities               |        |        | (3,277 | )     |        |        | (966  | )
|                                              
|Cash flows from financing activities:          |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               | Issuance of common stock                                                          |                                                                          |                                                                     | 147                                                   |        |        |        | 593   |       
|                                               | Purchase and retirement of common stock                                           |                                                                          |                                                                     | (1,289                                                | )      |        |        |      |       
|                                               | Repayments of notes payable                                                       |                                                                          |                                                                     | (4                                                    | )      |        |        | (249  | )     
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|                                               |                                                                                   |                                                                          |                                                                     | Cash flows (used in) provided by financing activities |        |        | (1,146 | )     |        |        | 344   |  
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|Net increase in cash and cash equivalents      |                                                                                   |                                                                          | 25,105                                                              |                                                       |        |        | 4,012  |      
|                                              
|Cash and cash equivalents, beginning of period |                                                                                   |                                                                          | 58,684                                                              |                                                       |        |        | 49,389 |      
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      
|Cash and cash equivalents, end of period       |                                                                                   | $                                                                        | 83,789                                                              |                                                       |        | $      | 53,401 |      
|                                               |                                                                                   |                                                                          |                                                                     |                                                       |        |        |        |      

The accompanying notes are an integral part of these statements.

5



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##### Table of Contents



NOVEN PHARMACEUTICALS, INC.




Notes to Unaudited Condensed Financial Statements

1. DESCRIPTION OF BUSINESS:



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven Pharmaceuticals, Inc. (Noven) was incorporated in Delaware in
1987 and is engaged in the research, development, manufacture and marketing
of advanced transdermal drug delivery technologies and prescription
transdermal products.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven and Novartis Pharmaceuticals Corporation (Novartis) entered
into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals)
(Novogyne), effective May 1, 1998, to market and sell womens prescription
healthcare products in the United States and Canada. These products include
Novens transdermal estrogen delivery systems marketed under the brand names
Vivelle® and Vivelle-Dot® and Novens transdermal combination
estrogen/progestin delivery system marketed under the brand name
CombiPatch®. Noven accounts for its 49% investment in Novogyne under the
equity method and reports its share of Novogynes earnings as Equity in
earnings of Novogyne on its Statements of Operations. Noven defers the
recognition of 49% of its profit on products sold to Novogyne until the
products are sold by Novogyne.

2. BASIS OF PRESENTATION:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In managements opinion, the accompanying unaudited condensed financial
statements of Noven contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly, in all material
respects, the financial position of Noven as of June 30, 2003, and the
results of its operations for the three and six months ended June 30, 2003
and 2002. Novens business is subject to numerous risks and uncertainties
including, but not limited to, those set forth in Novens Annual Report on
Form 10-K/A for the year ended December 31, 2002 (Form 10-K), as well as
the risk that the results of recent and ongoing studies on the adverse
health effects of certain forms of hormone replacement therapy (HRT) may
result in lower sales by Noven or Novogyne in future periods, the risk that
MethyPatch® may not be approved by the United States Food and Drug
Administration (FDA), particularly in light of Novens receipt of a not
approvable letter from the FDA in April 2003, and the risk that Shire
Pharmaceuticals Group plc. (Shire) may elect to require Noven to
repurchase the MethyPatch® rights for $5 million. Accordingly, the results
of operations and cash flows for the three and six months ended June 30,
2003 and 2002 are not, and should not be construed as, necessarily
indicative of the results of operations or cash flows which may be reported
for the remainder of 2003.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and
regulations, certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. The unaudited condensed financial statements should be read in
conjunction with the financial statements and the notes to the financial
statements included in Novens Form 10-K.



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accounting policies followed for interim financial reporting are
the same as those disclosed in Note 2 of the notes to the financial
statements included in Novens Form 10-K.

6



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##### Table of Contents



3. RECLASSIFICATIONS:



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Certain
reclassifications have been made to prior period financial statements
to conform to the current years presentation.

4. INVENTORIES:



| |                                                                   
| | ------------------------------------------------------------------
| | The following are the major classes of inventories (in thousands):

|                |  |          |       |              |  |   |       | 
|--------------- |  | -------- | ----- | ------------ |  | - | ----- | 
|                |  | June 30, |       | December 31,
|                |  | 2003     |       | 2002        
|                |  |          |       |             
|Finished goods  |  | $        | 224   |              |  | $ | 830   | 
|Work in process |  |          | 1,746 |              |  |   | 1,390 | 
|Raw materials   |  |          | 2,281 |              |  |   | 3,393 | 
|                |  |          |       |              |  |   |       | 
|Total           |  | $        | 4,251 |              |  | $ | 5,613 | 
|                |  |          |       |              |  |   |       | 

5. REVENUE RECOGNITION:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Substantially all of Novens product revenues were to its licensees,
Novogyne, Novartis Pharma AG (Novartis AG) and Aventis
Pharma AG. Revenues from product sales are
recognized at the time of shipment when both title and the risks and rewards
of ownership have been transferred to the buyer. Certain of our license
agreements provide that the ultimate supply price is based on a percentage
of the licensees net selling price. Each of those agreements also
establishes a fixed minimum supply price per unit that represents the lowest
price Noven would receive on sales to the licensee. Noven receives the
minimum price at the time of shipment with the possibility of an upward
adjustment later when the licensees net selling price is known. Revenues
under these agreements are recorded at the minimum price. Noven records any
upward adjustments to revenues at the time that the information necessary to
make the determination is received from the licensee. If the upward
adjustments are not determinable, Noven records the adjustments (which
historically have not been significant) on a cash basis. These fees are
included in product revenues.



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Royalty
revenues consist of royalties payable by Novogyne and Novartis AG
from sales of Vivelle® and Vivelle-Dot®/Estradot® in the United States and
Canada. Noven accrues royalties from Novogynes and Novartis
AGs product sales
each quarter based on Novogynes and Novartis AGs net sales for that quarter.
Royalties are included in product revenues.



| |                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | License revenues consist of up-front, milestone and similar payments
under license agreements and are recognized when earned under the terms of
the applicable agreements. In most cases, license revenues are deferred and
recognized over the estimated product life cycle or the length of relevant
patents, whichever is shorter.



| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contract revenues consist of contract payments related to research and
development projects performed for third parties. The work performed by
Noven includes feasibility studies to determine if a specific drug is
amenable to transdermal drug delivery, the actual formulation of a

7



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| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | specific drug into a transdermal drug delivery system, studies to
address the ongoing stability of the drug in a transdermal drug delivery
system, and manufacturing of batches of product that can be used in human
clinical trials. Noven receives contract payments for the work it performs
in the following forms:



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| |  Nonrefundable up-front payments prior to commencing the work
(or certain phases of the work).



| |                                                            
| | -----------------------------------------------------------
| |  Additional payments upon completion of additional phases.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| |  In some cases, success milestone payments based
on achievement of specified performance criteria.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As prescribed by EITF 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables, Noven analyzes each contract in order to separate
each deliverable into separate units of accounting and then recognizes
revenues for those separated units at their fair value, as delivered, based
on the proportionate share of the work performed by Noven as it performs the
specified acts under the contract. The difference between the amount of the
payments received and the amount recognized is recorded as deferred revenues
until that amount is earned in accordance with Staff Accounting Bulletin
101, Revenue Recognition in Financial Statements (SAB 101).



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Milestone payments are recorded when the specified performance criteria
are achieved, as determined by the customer. Each contract may have
different payment terms. Therefore, the revenues recognized may vary from
contract to contract.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Novens revenue recognition policy is in compliance with the
requirements of SAB 101.

6. EMPLOYEE STOCK PLANS:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123),
as amended by Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation
-Transition and Disclosure (SFAS
148),
Noven may elect to continue to apply the provisions of the Accounting
Principles Boards Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) and related interpretations in accounting for its employee
stock option plans, or adopt the fair value method of accounting prescribed
by SFAS 123. Noven has elected to continue to account for its stock plans
using APB 25, and therefore no stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on
the date of grant.

8



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| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table illustrates the effect on net income and earnings
per share for the three and six months ended June 30, 2003 and 2002 if Noven
had applied the fair value recognition provisions of SFAS 123, as amended by
SFAS 148 (in thousands, except per share amounts):

|                                                                                                                                                   |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----- | ---------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                                   |  | Three Months |       | Six Months
|                                                                                                                                                   |  |              |       |           
|                                                                                                                                                   |  | 2003         |       | 2002       |  | 2003 |        | 2002
|                                                                                                                                                   |  |              |       |            |  |      |        |     
|Net income:                                                                                                                                        |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                                        |  | $            | 3,050 |            |  | $    | 6,643  |      |  | $ | 3,523  |   |  | $ | 8,096  |  
|Total stock-based employee
compensation expense        determined
under fair value based method for all
        awards, net of related tax effects |  |              | (997  | )          |  |      | (1,138 | )    |  |   | (2,109 | ) |  |   | (2,229 | )
|                                                                                                                                                   |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma                                                                                                                                          |  | $            | 2,053 |            |  | $    | 5,505  |      |  | $ | 1,414  |   |  | $ | 5,867  |  
|                                                                                                                                                   |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share:                                                                                                                          |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                                        |  | $            | 0.14  |            |  | $    | 0.29   |      |  | $ | 0.16   |   |  | $ | 0.36   |  
|Pro forma                                                                                                                                          |  | $            | 0.09  |            |  | $    | 0.24   |      |  | $ | 0.06   |   |  | $ | 0.26   |  
|Diluted earnings per share:                                                                                                                        |  |              |       |            |  |      |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                                        |  | $            | 0.13  |            |  | $    | 0.28   |      |  | $ | 0.15   |   |  | $ | 0.34   |  
|Pro forma                                                                                                                                          |  | $            | 0.09  |            |  | $    | 0.23   |      |  | $ | 0.06   |   |  | $ | 0.25   |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS 123 requires the use of option valuation models that require the
input of highly subjective assumptions, including expected stock price
volatility. Because Novens stock options have characteristics
significantly different from traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not necessarily provide a
reliable measure of the fair value of its employee stock options.



| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The effect of applying the fair value method of accounting for stock
options on reported net income and earnings per share for the three and six
months ending June 30, 2003 and 2002, respectively, may not be
representative of the effects for future years because outstanding options
vest over a period of several years and additional awards are generally made
during each year.

7. CASH FLOW INFORMATION:



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash payments for income taxes were $3.2 million and $2.6 million for
the six months ended June 30, 2003 and 2002, respectively. Cash payments
for interest were not material for the six months ended June 30, 2003 and
2002.

Non-cash Operating Activities



| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the CombiPatch® transaction consummated in March
2001, the final $10.0 million quarterly installment of the purchase price
was paid by Novogyne on Novens behalf directly to Aventis in March 2002.



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 2002, the State of New Jersey enacted legislation that requires
Novogyne to remit estimated state tax payments on behalf of its owners,
Noven and Novartis. In April 2003,

9



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| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novogyne paid $1.7 million to the New Jersey Department of Revenue,
representing Novens portion of Novogynes estimated state tax payment. This
payment was deemed a distribution to Noven.



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven recorded $17,000 and $165,000 in income tax benefits to
additional paid-in capital for the six months ended June 30, 2003 and 2002,
respectively, which were derived from the exercise of non-qualified stock
options and disqualifying dispositions of incentive stock options.

8. LICENSE AGREEMENTS:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the first quarter of 2003, Noven signed an agreement to license the
exclusive global rights to market MethyPatch® to Shire for payments of up to
$150 million and ongoing manufacturing revenues. Consideration for the
transaction is as follows: (a) $25 million was paid upon closing of the
transaction in April 2003; (b) $50 million is payable upon receipt of final
marketing approval for MethyPatch® by the FDA; and (c) three installments of
$25 million each are payable upon Shires achievement of $25 million, $50
million and $75 million in annual net sales of MethyPatch®, respectively.
Shires annual net sales will be measured quarterly on a trailing 12-month
basis, with each milestone payment due 45 days after the end of the first
quarter during which trailing 12-month sales exceed the applicable
threshold. Shire has agreed that it will not sell any other product
containing methylphenidate as an active ingredient until the earlier of (a)
five years from the closing date or (b) payment of all of the sales
milestones.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the terms of the transaction, Noven remains responsible for
securing final regulatory approval for MethyPatch®. On April 25, 2003,
Noven received a not approvable letter from the FDA relating to its
MethyPatch® New Drug Application (NDA). A not approvable letter is issued
if the FDA does not consider the application approvable because one
or more deficiencies in the application preclude the FDA from
approving it. The letter cited clinical
and other issues as the basis for non-approval. Pursuant to the agreement,
under certain circumstances Shire has the right to require Noven to
repurchase the product rights for $5 million. For accounting purposes, $20
million of the initial $25 million payment has been deferred and is being
recognized as revenues over 10 years beginning in the second quarter of
2003. The remaining $5 million has been deferred and is expected to be
recognized as revenues beginning at the time Shires right to require us to
repurchase the product rights expires. However, this accounting treatment
would be expected to change if Shire were to exercise its right to require
Noven to repurchase the product rights and Noven had no further obligations
to Shire.



| |                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On the closing date, Noven entered into a long-term supply agreement
under which it will manufacture and supply MethyPatch® to Shire. The
agreement gives Shire the right to qualify a second manufacturing source and
purchase a portion of its requirements from the second source.

9. INVESTMENT IN NOVOGYNE:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven shares in the earnings of Novogyne, after satisfaction of an
annual preferred return of $6.1 million to Novartis, according to an
established formula. Novens share of Novogynes earnings increases as
Novogynes product sales increase, subject to a cap of 49%. Novogyne
produced sufficient income in the first quarter of 2003 and 2002 to meet
Novartis annual preferred return for those years and for Noven to recognize
earnings from Novogyne under the formula.

10



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | During the three and six months ended June 30, 2003 and 2002, Noven had
the following transactions with Novogyne (in thousands):

|                    |  |              |       |            |  |      |       |      |  |   |        |  |  |   |        | 
|------------------- |  | ------------ | ----- | ---------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                    |  | Three Months |       | Six Months
|                    |  |              |       |           
|                    |  | 2003         |       | 2002       |  | 2003 |       | 2002
|                    |  |              |       |            |  |      |       |     
|Revenues:           |  |              |       |            |  |      |       |      |  |   |        |  |  |   |        | 
|Product sales       |  | $            | 6,086 |            |  | $    | 6,920 |      |  | $ | 9,016  |  |  | $ | 13,297 | 
|Royalties           |  |              | 968   |            |  |      | 1,500 |      |  |   | 2,199  |  |  |   | 2,782  | 
|                    |  |              |       |            |  |      |       |      |  |   |        |  |  |   |        | 
|                    |  | $            | 7,054 |            |  | $    | 8,420 |      |  | $ | 11,215 |  |  | $ | 16,079 | 
|                    |  |              |       |            |  |      |       |      |  |   |        |  |  |   |        | 
|                   
|Reimbursed expenses |  | $            | 6,358 |            |  | $    | 5,946 |      |  | $ | 12,541 |  |  | $ | 13,628 | 
|                    |  |              |       |            |  |      |       |      |  |   |        |  |  |   |        | 



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of June 30, 2003 and December 31, 2002, Noven had amounts due from
Novogyne of $6.0 million and $2.6 million, respectively, for products sold
to, and marketing expenses reimbursable by, Novogyne.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The unaudited condensed Statements of Operations of Novogyne for the
three and six months ended June 30, 2003 and 2002 are as follows (in
thousands):

|                                             |  |              |        |            |  |      |        |      |  |   |        |  |  |   |        | 
|-------------------------------------------- |  | ------------ | ------ | ---------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                             |  | Three Months |        | Six Months
|                                             |  |              |        |           
|                                             |  | 2003         |        | 2002       |  | 2003 |        | 2002
|                                             |  |              |        |            |  |      |        |     
|Net revenues                                 |  | $            | 22,249 |            |  | $    | 32,972 |      |  | $ | 46,713 |  |  | $ | 60,429 | 
|Cost of sales                                |  |              | 4,460  |            |  |      | 7,769  |      |  |   | 10,225 |  |  |   | 14,245 | 
|Selling, general and
administrative expenses |  |              | 8,061  |            |  |      | 8,220  |      |  |   | 15,944 |  |  |   | 18,157 | 
|Amortization of intangible assets            |  |              | 1,545  |            |  |      | 1,545  |      |  |   | 3,090  |  |  |   | 3,090  | 
|                                             |  |              |        |            |  |      |        |      |  |   |        |  |  |   |        | 
|                                            
|Income from operations                       |  |              | 8,183  |            |  |      | 15,438 |      |  |   | 17,454 |  |  |   | 24,937 | 
|Interest income                              |  |              | 17     |            |  |      | 94     |      |  |   | 102    |  |  |   | 164    | 
|                                             |  |              |        |            |  |      |        |      |  |   |        |  |  |   |        | 
|Net income                                   |  | $            | 8,200  |            |  | $    | 15,532 |      |  | $ | 17,556 |  |  | $ | 25,101 | 
|                                             |  |              |        |            |  |      |        |      |  |   |        |  |  |   |        | 
|                                            
|Novens equity in earnings of
Novogyne       |  | $            | 3,795  |            |  | $    | 7,132  |      |  | $ | 5,320  |  |  | $ | 8,647  | 
|                                             |  |              |        |            |  |      |        |      |  |   |        |  |  |   |        | 



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Royalties due to Noven on sales of Vivelle® and Vivelle-Dot® for 2002
have been reclassified from selling, general and administrative expenses to
cost of sales to conform to the current years presentation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Subject to the approval of Novogynes management committee, cash may be
distributed to Novartis and Noven based upon a contractual formula. For the
three and six months ended June 30, 2003, Noven received distributions of
$1.3 million and $12.0 million from Novogyne, respectively. For the three and six months
ended June 30, 2002, Noven received a distribution of $11.7 million from
Novogyne. In addition, as discussed in Note 6, a $1.7 million tax payment
to the New Jersey Department of Revenue made by Novogyne on Novens behalf
in April 2003 was deemed a distribution from Novogyne to Noven. These
amounts were recorded as reductions in the investment in Novogyne when
deemed received.

11



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10. SHARE REPURCHASE PROGRAM:



| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the first quarter of 2003, Novens Board of Directors authorized a
share repurchase program under which Noven may acquire up to $25 million of
its common stock. As of June 30, 2003, Noven had repurchased 105,000 shares
of its common stock at an aggregate price of approximately $1.3 million.
These shares were retired on March 31, 2003.

11. COMMITMENTS AND CONTINGENCIES:

HRT Studies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In July 2002, the National Institutes of Health released data on
studies concerning the risks and benefits associated with use of oral
hormone replacement therapy. The study revealed an increase in the risk of
developing breast cancer and increased risk of stroke, heart attacks and
blood clots. Also in July 2002, results of an observational study sponsored
by the National Cancer Institute on the effects of estrogen replacement
therapy were announced. The main finding of the study was that
postmenopausal women who used estrogen replacement therapy for 10 or more
years had a higher risk of developing ovarian cancer than women who never
used hormone replacement therapy. In June 2003, a new analysis of study
data indicated that use of combination HRT may increase the frequency of
abnormal mammograms beginning in the first year of therapy and/or may cause
tumors at the time of diagnosis to be more advanced. In August 2003,
further WHI data analysis suggested that the use of combination therapy
increased the risk of heart disease beginning in the first year of therapy,
and a large U.K. study suggested that the use of both estrogen-only and
combination therapy increased the risk of breast cancer, and the risk of
death from breast cancer, whether administered orally, transdermally or via
implant. These studies and others have caused the hormone replacement
therapy market, and the market for Novens products, to significantly
decline. Management can not predict whether the studies or other studies
will have additional adverse effects on Novens results of operations, or
Novogynes ability to recover the value of the CombiPatch® intangible asset.

Supply Agreement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Novens supply agreement with Novogyne for Vivelle® and Vivelle-Dot®
expired in January 2003. The parties are negotiating an extension to the
agreement. Since expiration, the parties have continued to operate in
accordance with the supply agreements commercial terms. Failure to extend
the agreement could have a material adverse effect on Novens financial
statements. Noven expects that the agreement will be extended on
satisfactory terms.

Litigation, Claims and Assessments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On August 7, 2003, a law firm issued a press release announcing that it
had filed a complaint on behalf of Miller Donovan (Plaintiff), who, the law
firm claimed, represents a purported class of purchasers of Novens common
stock during the period from October 29, 2001 through April 28, 2003. Noven
has not been served with a complaint in this matter. According to the law
firms press release, the complaint alleges that, during the subject period,
Noven and its officers named as defendants violated the Securities Exchange
Act of 1934 by making false

12



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| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | and misleading statements regarding Novens rationale and marketing
strategies for approval of its MethyPatch® product. The press release
states that Plaintiff is seeking to recover damages on behalf of all
purchasers of Noven common stock during the subject period.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If served in the above-referenced matter, Noven intends to vigorously
defend it, but its outcome cannot be predicted. Novens ultimate liability
with respect to the foregoing matter, if any, is not presently determinable.



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven is involved in certain litigation and claims incidental to its
business. Noven does not believe, based on currently available information,
that these matters will have a material adverse effect on the accompanying
condensed financial statements.

13



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with
the financial statements, the related notes and managements discussion and
analysis of financial condition and results of operations included in our Form
10-K for the year ended December 31, 2002 and the condensed financial
statements and related notes included in Item 1 of this Quarterly Report on
Form 10-Q. Except for historical information contained herein, the matters
discussed in this report are forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, but are not limited to, statements
about our and our licensees respective plans, objectives, expectations,
estimates, strategies, prospects, product approvals and development plans, and
anticipated financial results. These statements are typically identified by
the use of terms such as anticipates, believes, estimates, expects,
intends, may, plans, could, should, will, would and similar
words. These statements are based on our current expectations and beliefs
concerning future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed herein. We do
not undertake to update any of these forward-looking statements or to announce
the results of any revisions to these forward-looking statements except as
required by law.

In addition to the important factors described in our Form 10-K, the
following important factors, among others, could cause our actual results to
differ materially from those expressed in any forward-looking statements:
uncertainties associated with the impact on the HRT market of published studies
regarding the adverse health effects of certain forms of HRT; uncertainties
associated with future prescription trends for CombiPatch®, Vivelle® family
products, Estalis® and Estradot®, including risks relating to declining
physician or patient preference for HRT as a result of the published studies
and label changes mandated by the FDA; uncertainties related to the FDAs
willingness to permit us, Novogyne and trade participants to deplete HRT
product inventory bearing the old labels; risks associated with the
commercialization of Novens products; risks and uncertainties associated with
the potential impact on our business of the effectiveness as of April 2003 of
the privacy regulations issued by the Department of Health and Human Services
under the Health Insurance Portability and Accountability Act of 1996
(HIPAA); risks and uncertainties associated with the impact of a Novogyne
competitors strategy of increasing market share by heavily discounting product
sales to managed care organizations; risks associated with the expected
launches in 2003 and 2004 of estrogen cream and gel products, which are new
dosage forms in this category; risks associated with higher than desired
Vivelle® returns to Novogyne; risks and uncertainties relating to our
dependence on Novartis to monitor trade inventory levels for Novogyne and to
perform Novogynes financial, accounting, inventory and sales deductions
functions; the risk that Novogynes revenues could fluctuate based on trade
customer buying patterns, which may not coincide with prescription trends;
uncertainties concerning the timing and extent of Estradot® regulatory
approvals and launch orders and Estalis® orders and commercialization efforts
by Novartis AG, particularly in light of the significant
pricing and reimbursement issues faced by Novartis AG in Europe; our limited
ability to accurately forecast international product orders from Novartis AG;
the risk that MethyPatch® may not be approved by the FDA, particularly in light
of the FDAs issuance of a not approvable letter; uncertainties associated with
the timing, cost and outcomes of clinical trials, product development and
product launch, including the regulatory review process for MethyPatch®
(together with any additional clinical trials that may be required or advisable
in connection with that review process) and any future generations of our
combination estrogen/progestin patch; risks and uncertainties associated with
product liability claims that may be brought against us as a result of
published studies regarding the adverse health effects of HRT; our dependence
on strategic alliances and our relationships with our

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licensees, and our vulnerability to the risks and uncertainties of our
licensees businesses, inventory requirements and marketing strategies; the
risk that our licensees may favor their own competitive products over the
products licensed from us; the risk that Shire may seek to exercise its right
to require us to repurchase the rights to MethyPatch® for $5 million, and the
risk that such an exercise would change our method of accounting for the
initial amount received from Shire; risks associated with the availability of a
non-stimulant therapy to treat children with Attention Deficit Hyperactivity
Disorder (ADHD); risks associated with our ability to meet Shires
manufacturing requirements for MethyPatch®; expected fluctuations in quarterly
revenues and research and development expenses, including fluctuations in
revenues resulting from factors not within our control and the timing of
royalty reconciliations and payments under our license agreements; risks and
uncertainties relating to the fact that a majority of our cash flow is
dependent upon Novogynes ability to pay distributions to us; our reliance on
Shires marketing efforts and success to achieve the MethyPatch® sales levels
necessary to trigger our milestone payments; the effect of changes in taxation
or accounting principles generally accepted in the United States (including
changes in accounting principles relating to the accounting treatment for
employee stock options); and economic, competitive, governmental and
technological factors affecting our operations, markets, products, prices and
prospects.

Our supply agreement with Novogyne for Vivelle® and Vivelle-Dot® expired
in January 2003. The parties are negotiating an extension to the agreement.
Since the expiration of the Vivelle® and Vivelle-Dot® supply agreement, the
parties have continued to operate in accordance with the supply agreements
commercial terms, and we expect that the supply agreement will be extended on
satisfactory terms. However, we cannot assure that the agreement will be
extended on satisfactory terms or at all. Failure to extend the supply
agreement could have a material adverse effect on our business, results of
operations, financial conditions and prospects. Designation of a new supplier
and approval of a new supply agreement would require the affirmative vote of 4
of the 5 members of Novogynes Management Committee. Accordingly, both
Novartis and Noven must agree on Novogynes supplier.

In November 2000, we entered into an exclusive license agreement with
Novartis AG pursuant to which we granted Novartis AG the right to market
Vivelle-Dot® under the name Estradot® in all countries other than the United
States, Canada and Japan. Under the terms of the agreement, Novartis AG is
responsible for seeking approval to market Estradot® in its
territories. Novartis AG has launched the product in Germany and a number of
smaller countries. However, Novartis AG has informed us that pricing,
reimbursement and post-WHI regulatory issues are adversely impacting its launch plans in many
countries, including the United Kingdom, France, and Italy. Accordingly,
we cannot assure that Novartis AG will launch Estradot® in any
particular country within its territory. Novartis AG markets several other transdermal HRT products
in addition to our products, which may limit the efforts Novartis AG devotes to
our products. In some countries, including the United Kingdom and France,
Novartis AG is seeking a marketing partner to launch the product, but to date
has been unsuccessful. We cannot assure that Novartis AG will be successful in
securing a marketing partner or in launching Estradot® in those
countries, and we do not expect additional major market launches of
Estradot® in the remainder of 2003.

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HRT Studies

In July 2002, the National Institutes of Health (NIH) released data from
its Womens Health Initiative (WHI) study on the risks and benefits
associated with long-term use of oral HRT by healthy women. The NIH announced
that it was discontinuing the arm of the study investigating the use of oral
estrogen/progestin combination HRT products after an average follow-up period
of 5.2 years because the oral HRT product used in the study was shown to cause
an increase in the risk of invasive breast cancer. The study also found an
increased risk of stroke, heart attacks and blood clots and concluded that
overall health risks exceeded benefits from use of the orally delivered
combined estrogen plus progestin product among healthy postmenopausal women.
Also in July 2002, results of an observational study sponsored by the National
Cancer Institute (NCI) on the effects of estrogen replacement therapy (ERT)
were announced. The main finding of the NCI study was that postmenopausal
women who used ERT for 10 or more years had a higher risk of developing ovarian
cancer than women who never used HRT. In June 2003, a further analysis of data
from the discontinued combination therapy arm of the WHI study indicated that
use of combination HRT may also increase the frequency of abnormal mammograms
beginning in the first year of therapy and/or may cause tumors to be more
advanced at the time of diagnosis. In August 2003, further WHI data analysis
suggested that the use of combination therapy increased the risk of heart
disease beginning in the first year of therapy, and a large U.K. study
suggested that the use of both estrogen-only and combination therapy increased
the risk of breast cancer, and the risk of death from breast cancer, whether
administered orally, transdermally or via implant. The data from the WHI and
other studies continue to be analyzed and we cannot predict what further
findings, if any, those analyses may yield.

Although the range of consequences of these studies cannot be predicted,
they have to date significantly and adversely impacted our results of
operations. It is possible that these studies could result in a significant
permanent decrease in the market for our HRT products, either as physicians
withdraw their patients from HRT or as women elect to discontinue HRT on their
own. In addition, the market growth that would have been expected if HRT had
been found safe and effective for additional indications, such as heart
disease, is now unlikely to materialize. In January 2003, the FDA announced
that marketers of HRT products, including Novogyne, are required to modify
their HRT product labels to include additional safety information and warnings.
Among other things, the labels must indicate that HRT should be used for
short-term therapy only and that, in the absence of clinical studies
demonstrating that HRT products other than the oral product studied in the WHI
study are safe, physicians should assume that all HRT products carry the same
risks. Novartis has informed us that it has submitted proposed revised
labeling to the FDA and will begin using the revised label after reaching
agreement with the FDA on label language. Based on industry practice, we
expect that Noven, Novogyne and trade participants will be permitted to deplete
product inventory bearing the old label concurrently with the introduction of
product with revised labeling. If depletion of inventory with old labeling is
not permitted or does not otherwise occur, revised labeling could cause an
increase in sales returns to Novogyne, and could have a material adverse impact
on the financial results of Noven and Novogyne. Healthcare regulators also
could delay the approval of new HRT products, such as those presently under
development by Novartis AG and us, or require that any new HRT products be
subject to more extensive or more rigorous study and testing prior to being
approved. Further, because these studies show that certain uses of certain HRT
products may result in a higher likelihood of certain adverse health effects, it is
possible that we could be named as a defendant in product liability lawsuits
relating to our HRT products.

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Other studies evaluating HRT are currently underway or in the planning
stages. In particular, the estrogen-only arm of the WHI study is ongoing. We
are unable to predict the effect of new study results, once available, on the
short and long-term prospects for the HRT market or on the market for our
transdermal HRT products. Since publication of the WHI and NCI study data,
United States prescriptions have declined for substantially all HRT products,
including our products, although Vivelle® family total monthly prescriptions
have returned to approximately pre-WHI levels. Demand for our products in
Europe has declined as well. Any increase in returns of products to Novogyne
(including any such changes resulting from the results of the recent or ongoing
HRT studies or the pending product label changes) would have a material adverse
effect on our results of operations and financial condition.

The WHI safety board re-evaluates the risk/benefit profile of the
estrogen-only arm as frequently as twice per year. In addition, researchers
continue to analyze data from the discontinued arm of the WHI study and other
studies. If the estrogen-only study or any other currently ongoing HRT study
is halted, or if ongoing analyses yield additional safety concerns, the market
for HRT products, including ours, both in the United States and abroad, could
be further adversely impacted. The HRT label changes mandated by the FDA may
also negatively impact our products, particularly with physicians and patients
who may believe that transdermal HRT products are safer than orally delivered
HRT products. Currently, our results of operations and business prospects are
dependent on sales, license royalties and fees associated with transdermal HRT
products. Accordingly, any further adverse change in the market for HRT
products (including any adverse changes resulting from the foregoing studies)
could have a material adverse impact on our liquidity, results of operations
and business prospects.

MethyPatch®

We have developed a once-daily transdermal methylphenidate delivery system
for the treatment of ADHD, which is intended to be marketed under the trade
name MethyPatch®. We filed an NDA with the FDA in June 2002.

In the first quarter of 2003, we signed an agreement to license the
exclusive global rights to market MethyPatch® to Shire for payments of up to
$150 million and ongoing manufacturing revenues. Consideration for the
transaction is as follows: (a) $25 million was paid upon closing of the
transaction in April 2003; (b) $50 million is payable upon receipt of final
marketing approval for MethyPatch® by the FDA; and (c) three installments of
$25 million each are payable upon Shires achievement of $25 million, $50
million and $75 million in annual net sales of MethyPatch®, respectively.
Shires annual net sales will be measured quarterly on a trailing 12-month
basis, with each milestone payment due 45 days after the end of the first
quarter during which trailing 12-month sales exceed the applicable threshold.
Shire has agreed that it will not sell any other product containing
methylphenidate as an active ingredient until the earlier of (a) five years
from the closing date or (b) payment of all of the sales
milestones. On the closing date, we entered into a long-term supply agreement under
which we will manufacture and supply MethyPatch® to Shire. The agreement gives
Shire the right to qualify a second manufacturing source and purchase a portion
of its requirements from the second source.

Under the terms of the transaction, we remain responsible for securing
final regulatory approval for MethyPatch®. On April 25, 2003, we received a
not approvable letter from the FDA relating to our MethyPatch® NDA. A not
approvable letter is issued if the FDA does not consider the
application approvable because one or more deficiencies in the
application preclude the FDA from approving it.

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Pursuant to the agreement, under certain circumstances Shire has the right to
require us to repurchase the product rights for $5 million. For accounting
purposes, $20 million of the initial $25 million payment has been deferred and
is being recognized as revenues over 10 years beginning in the second quarter
of 2003. The remaining $5 million has been deferred and is expected to be
recognized as revenues beginning at the time Shires right to require us to
repurchase the product rights expires. However, this accounting treatment would
be expected to change if Shire were to exercise its right to require Noven to
repurchase the product rights.

The FDA cited clinical and other issues as the basis for non-approval. We
are working with the FDA to clarify its concerns and to determine what
additional studies, analyses or other actions would resolve the issues raised
in the letter. We are presently conducting additional analyses of data from
MethyPatch® clinical studies in an effort to address the FDAs clinical issues
regarding the MethyPatch® NDA without undertaking an additional Phase III
clinical study. In parallel with that analysis, we also expect to begin a
large-scale clinical trial before year-end, reflecting our belief that an
additional pre-approval study will likely be required. We cannot assure that
we will develop a strategy for approval that will be acceptable to the FDA,
that we will successfully execute any strategy we develop or that successfully
executing any strategy will result in approval. We also cannot assure that any
additional requirements imposed by the FDA will not be cost-prohibitive, impair
the commercial value of MethyPatch®, or otherwise cause us and/or Shire to
elect not to pursue commercialization of the product. Therefore, we cannot
assure that MethyPatch® will ever be approved by the FDA or ultimately
commercialized.

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Results of Operations

Three and six months ended June 30, 2003 compared to three and six months ended
June 30, 2002

Revenues:

Total revenues for the three and six months ended June 30, 2003 and 2002
are summarized as follows (dollar amounts in thousands):

|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |     |   
|--------------------------------- | ------------- | - | ------------ | ----- | ---------- | - | -------- | ----- | ---- |  | ---- | --- | -------- | - | ------ | ----- |  | - | ------ | ------ |  |  | --- | --- | --
|                                  |               |   | Three Months |       | Six Months
|                                  |               |   |              |       |           
|                                  |               |   | 2003         |       | 2002       |   | % Change |       | 2003 |  | 2002 |     | % Change
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |         
|Product revenues  Novogyne:      |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  | Product sales |   | $            | 6,086 |            |   | $        | 6,920 |      |  |      | (12 | %)       |   | $      | 9,016 |  |   | $      | 13,297 |  |  |     | (32 | %)
|                                  | Royalties     |   |              | 968   |            |   |          | 1,500 |      |  |      | (35 | %)       |   |        | 2,199 |  |   |        | 2,782  |  |  |     | (21 | %)
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  |               |   | 7,054        |       |            |   | 8,420    |       |      |  | (16  | %)  |          |   | 11,215 |       |  |   | 16,079 |        |  |  | (30 | %) 
|Product revenues  third parties: |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  | Product sales |   |              | 3,753 |            |   |          | 6,029 |      |  |      | (38 | %)       |   |        | 8,713 |  |   |        | 9,806  |  |  |     | (11 | %)
|                                  | Royalties     |   |              | 33    |            |   |          | 29    |      |  |      | 14  | %        |   |        | 30    |  |   |        | 29     |  |  |     | 3   | % 
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  |               |   | 3,786        |       |            |   | 6,058    |       |      |  | (38  | %)  |          |   | 8,743  |       |  |   | 9,835  |        |  |  | (11 | %) 
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|Total product revenues            |               |   | 10,840       |       |            |   | 14,478   |       |      |  | (25  | %)  |          |   | 19,958 |       |  |   | 25,914 |        |  |  | (23 | %) 
|                                 
|License and contract revenues:    |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  | Contract      |   |              | 39    |            |   |          | 799   |      |  |      | (95 | %)       |   |        | 65    |  |   |        | 1,354  |  |  |     | (95 | %)
|                                  | License       |   |              | 1,382 |            |   |          | 879   |      |  |      | 57  | %        |   |        | 2,263 |  |   |        | 1,623  |  |  |     | 39  | % 
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                  |               |   | 1,421        |       |            |   | 1,678    |       |      |  | (15  | %)  |          |   | 2,328  |       |  |   | 2,977  |        |  |  | (22 | %) 
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    
|                                 
|Total revenues                    |               | $ | 12,261       |       |            | $ | 16,156   |       |      |  | (24  | %)  |          | $ | 22,286 |       |  | $ | 28,891 |        |  |  | (23 | %) 
|                                  |               |   |              |       |            |   |          |       |      |  |      |     |          |   |        |       |  |   |        |        |  |  |     |    

Total Revenues

The decline in total revenues for the three and six months ended June 30,
2003 as compared to the same periods in 2002 was primarily attributable to
lower unit sales for both our U.S. and international products, and lower
royalties due to lower Novogyne sales of Vivelle® family products.

A further decline in prescriptions of Novogynes HRT products, or an
increase in returns, whether as a result of the HRT studies, related product
label changes, or otherwise, would adversely impact our future revenues. We
are unable to predict the timing or impact of any further decline in future
sales on our results of operations.

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Product Revenues  Novogyne

The decline in revenues from Novogyne for the three months ended June 30,
2003 as compared to the prior year primarily relates to a volume decline for
Vivelle®, which reflects lower prescription trends due to product maturity and
the impact of inventory reduction initiatives intended to align inventories
with post-WHI demand. Since the 1999 launch of Vivelle-Dot®, which is a newer,
improved version of Vivelle®, Vivelle® prescriptions and sales have been
steadily declining. In addition, royalty revenues declined due to lower unit
sales by Novogyne of Vivelle® family products. These declines were partially
offset by an increase in volume of CombiPatch® sold to Novogyne. In the first
three months of 2003, a production issue relating to material supplied by one
vendor caused us to temporarily suspend shipments of CombiPatch® to Novogyne.
We believe we have resolved this production issue, and we resumed shipments of
CombiPatch® late in the second quarter of 2003.

The decline in revenues from Novogyne for the six months ended June 30,
2003 as compared to the prior year primarily relates to volume declines of all
products sold to Novogyne and lower royalty payments from Novogyne, which
reflects lower prescription trends following the publication of the HRT
studies.

Product Revenues  Third Parties

The decline in revenues from third parties for the three and six months
ended June 30, 2003 as compared to the prior year primarily related to lower
unit sales of Menorest® and, to a lesser extent, Estradot®. The decline in
sales of Estradot® compared to the prior year is primarily a result of the
effect of the sale to Novartis AG of launch quantities for Germany in 2002.
Germany remains the only major European country in which Novartis AG has
launched Estradot®.

License and Contract Revenues

The increase in license revenues for the three and six months ended June
30, 2003 as compared to the prior year is due to the closing of the MethyPatch®
license transaction with Shire and Novens receipt of $25 million, of which $20
million is being recognized as revenues over 10 years beginning in the second quarter of
2003. The reduction in contract revenues is primarily attributable to the
attainment of certain milestones and the completion of certain contracts in the
prior year.

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Gross Margin:

|                                                           |  |              |        |            |  |          |        |      |  |      |     |          |  |   |        |   |  |   |        |   |  |  |     |   
|---------------------------------------------------------- |  | ------------ | ------ | ---------- |  | -------- | ------ | ---- |  | ---- | --- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | --- | --
|                                                           |  | Three Months |        | Six Months
|                                                           |  |              |        |           
|                                                           |  | 2003         |        | 2002       |  | % Change |        | 2003 |  | 2002 |     | % Change
|                                                           |  |              |        |            |  |          |        |      |  |      |     |         
|Total product revenues                                     |  | $            | 10,840 |            |  | $        | 14,478 |      |  |      | (25 | %)       |  | $ | 19,958 |   |  | $ | 25,914 |   |  |  | (23 | %)
|Gross profit (product
revenues less cost of
products sold) |  |              | 4,800  |            |  |          | 8,457  |      |  |      | (43 | %)       |  |   | 9,633  |   |  |   | 13,993 |   |  |  | (31 | %)
|Gross margin (as a
percentage of product
revenues)         |  |              | 44     | %          |  |          | 58     | %    |  |      |     |          |  |   | 48     | % |  |   | 54     | % |  |  |     |   

The declines in gross margin for the three and six months ended June 30,
2003 were primarily due to (i) lower overhead absorption due to lower
production volumes, (ii) lower royalty revenues from Novogyne, and (iii) an
increase in deferred profit on sales to Novogyne. Novogyne had higher
end-of-period inventories as a result of lower sales for the three and six
months ended June 30, 2003. We defer 49% of the profit on product we sell to
Novogyne until that product is sold by Novogyne to trade customers. We did not ship
CombiPatch to Novogyne in the 2003 first quarter due to a production issue.
Shipping resumed late in the second quarter. Because much of this product did
not sell through to trade customers in the second quarter, our deferred profit
increased, contributing to the decline in Novens quarterly gross margin.

Operating Expenses:

Operating expenses for the three and six months ended June 30, 2003 and
2002 are summarized as follows (dollar amounts in thousands):

|                                      |  |              |       |            |  |          |       |      |  |      |     |          |  |   |       |  |  |   |       |  |  |  |     |   
|------------------------------------- |  | ------------ | ----- | ---------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ----- |  |  | - | ----- |  |  |  | --- | --
|                                      |  | Three Months |       | Six Months
|                                      |  |              |       |           
|                                      |  | 2003         |       | 2002       |  | % Change |       | 2003 |  | 2002 |     | % Change
|                                      |  |              |       |            |  |          |       |      |  |      |     |         
|Research and development              |  | $            | 2,154 |            |  | $        | 3,313 |      |  |      | (35 | %)       |  | $ | 4,647 |  |  | $ | 6,682 |  |  |  | (30 | %)
|Marketing, general and
administrative |  |              | 3,293 |            |  |          | 3,679 |      |  |      | (10 | %)       |  |   | 7,474 |  |  |   | 6,612 |  |  |  | 13  | % 

Research and Development

The declines in research and development expenses for the three and six
months ended June 30, 2003, as compared to the same periods in 2002, were
primarily attributable to lower research and development expenses for
MethyPatch® due to the completion of Phase III clinical trials in the prior
year, partially offset by increases in research and development expenses
associated with our fentanyl transdermal delivery system.

Marketing, General and Administrative

The decline in marketing, general and administrative expenses for the
three months ended June 30, 2003 as compared to the same period in 2002 was
primarily attributable to lower pre-launch marketing expenses for MethyPatch®,
which ceased as a result of the Shire transaction.

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The increase in marketing, general and administrative expenses for the six
months ended June 30, 2003 as compared to the same period in 2002 was primarily
attributable to pre-launch marketing expenses incurred during the first quarter
of 2003 for MethyPatch®, and increased legal fees incurred in connection with
the Shire transaction.

Interest Income:

Interest income, net, increased $3,000, or 2%, for the three months ended
June 30, 2003 as compared to the same period in 2002 as a result of an increase
in our overall cash balance due to the $25 million received in April 2003 in
connection with the Shire transaction, partially offset by lower interest
rates.

Interest income, net, decreased $56,000, or 14%, for the six months ended
June 30, 2003 as compared to the same period in 2002 primarily due to lower
interest rates in 2003, partially offset by an increased cash balance as noted
above.

Income Taxes:

Our effective tax rate decreased to 36.0% for the three months ended June
30, 2003 from 36.6% for the three months ended June 30, 2002, and 36.0% for the
six months ended June 30, 2003 from 36.4% for the six months ended June 30,
2002. The provision for income taxes is based on the Federal statutory and
state income tax rates. Net deferred income tax assets are measured using the
average graduated tax rate for the estimated amount of annual taxable income in
the years that the liability is expected to be settled or the asset recovered.
The effect of adjusting the expected tax rate related to the net deferred
income tax assets is included in the provision for income taxes. As of June
30, 2003, we had a net deferred tax asset of $21.2 million. Realization of
this deferred tax asset depends upon the generation of sufficient future
taxable income. Although realization is not assured, we believe it is more
likely than not that the deferred income tax asset will be realized based upon
estimated future taxable income.

Equity in Earnings of Novogyne:

We share in the earnings of Novogyne, after satisfaction of an annual
preferred return of $6.1 million to Novartis, according to an established
formula. Novogyne produced sufficient income in the first quarters of 2003 and
2002 to meet Novartis annual preferred return for those years and for us to
recognize earnings from Novogyne under the formula. We report our share of
Novogynes earnings as Equity in earnings of Novogyne on our Condensed
Statements of Operations.

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The financial results of Novogyne for the three and six months ended June
30, 2003 and 2002 are summarized as follows (dollar amounts in thousands):

|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |    |     |     |    | 
|-------------------------------------- |  | -------------------------------------------- | ----------------------- | - | ------ | ------------ | ----- | ---------- | ------ | -------- | --- | ---- | --- | ---- | ----- | -------- | ------ | ------ | ----- | - | ------ | ------ | --- | -- | --- | --- | -- | 
|                                       |  |                                              |                         |   |        | Three Months |       | Six Months
|                                       |  |                                              |                         |   |        |              |       |           
|                                       |  |                                              |                         |   |        | 2003         |       | 2002       |        | % Change |     | 2003 |     | 2002 |       | % Change
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |         
|Novogynes Summary Results:            |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                       |  | Gross revenues                               |                         | $ | 22,586 |              |       | $          | 38,742 |          |     |      | (42 | %)   |       | $        | 53,178 |        |       | $ | 71,395 |        |     |    | (26 | %) 
|                                       |  | Sales allowances and returns                 |                         |   | 337    |              |       |            | 5,770  |          |     |      | (94 | %)   |       |          | 6,465  |        |       |   | 10,966 |        |     |    | (41 | %) 
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                       |  | Net revenues                                 |                         |   | 22,249 |              |       |            | 32,972 |          |     |      | (33 | %)   |       |          | 46,713 |        |       |   | 60,429 |        |     |    | (23 | %) 
|                                       |  | Cost of sales                                |                         |   | 4,460  |              |       |            | 7,769  |          |     |      | (43 | %)   |       |          | 10,225 |        |       |   | 14,245 |        |     |    | (28 | %) 
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                       |  |                                              | Gross profit            |   |        | 17,789       |       |            |        | 25,203   |     |      |     | (29  | %)    |          |        | 36,488 |       |   |        | 46,184 |     |    |     | (21 | %)
|                                       |  |                                              | Gross margin percentage |   |        | 80           | %     |            |        | 76       | %   |      |     |      |       |          |        | 78     | %     |   |        | 76     | %   |    |     |     |   
|                                      
|                                       |  | Selling, general and administrative
expenses |                         |   | 8,061  |              |       |            | 8,220  |          |     |      | (2  | %)   |       |          | 15,944 |        |       |   | 18,157 |        |     |    | (12 | %) 
|                                       |  | Amortization of intangible assets            |                         |   | 1,545  |              |       |            | 1,545  |          |     |      |    |      |       |          | 3,090  |        |       |   | 3,090  |        |     |    |    |    
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                       |  | Income from operations                       |                         |   | 8,183  |              |       |            | 15,438 |          |     |      | (47 | %)   |       |          | 17,454 |        |       |   | 24,937 |        |     |    | (30 | %) 
|                                       |  | Interest income                              |                         |   | 17     |              |       |            | 94     |          |     |      | (82 | %)   |       |          | 102    |        |       |   | 164    |        |     |    | (38 | %) 
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                      
|                                       |  |                                              | Net income              |   | $      | 8,200        |       |            | $      | 15,532   |     |      |     | (47  | %)    |          | $      | 17,556 |       |   | $      | 25,101 |     |    |     | (30 | %)
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   
|                                      
|Novens equity in earnings of Novogyne |  | $                                            | 3,795                   |   |        | $            | 7,132 |            |        |          | (47 | %)   |     | $    | 5,320 |          |        | $      | 8,647 |   |        |        | (38 | %)
|                                       |  |                                              |                         |   |        |              |       |            |        |          |     |      |     |      |       |          |        |        |       |   |        |        |     |   

Royalties due to us on sales of Vivelle® and Vivelle-Dot® for 2002 have
been reclassified from selling, general and administrative expenses to cost of
sales to conform to the current years presentation.

Revenues

The declines in gross revenues were primarily due to lower unit sales of
each of Novogynes products. Vivelle® family total monthly prescriptions have
returned to approximately pre-WHI levels. Based on prescription data for
recent periods demonstrating increased demand for Vivelle-Dot®, we believe that
the declines in Vivelle-Dot® sales were primarily due to the timing of orders
from trade customers, partially offset by a price increase. The declines in
volume of Vivelle® during the relevant periods were the result of lower
prescription trends due to product maturity and the inventory initiatives
intended to align inventories with post-WHI demand. The lower volume sales of
CombiPatch® were due to the continuing effect of the HRT studies described
above.

The declines in sales allowances and returns were primarily attributable
to lower unit sales of all products, lower returns for Vivelle®, and lower
overall trade inventory levels. These factors caused Novogyne to reduce its
estimate of future returns and correspondingly reduce its reserve for sales
allowances and returns.

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Gross Margin

The increase in gross margin for the three and six months ended June 30,
2003 as compared to the prior periods was primarily due to lower sales
allowances and returns, which increased net sales without affecting cost of
goods sold.

Selling, General and Administrative

Novogynes selling, general and administrative expenses declined for the
three and six months ended June 30, 2003 as compared to the same periods in the
prior year, primarily due to lower CombiPatch® promotion expenses and lower
sample expenses in 2003. This decline was partially offset by higher sales
force expenses due to the addition of sales personnel.

Amortization of Intangible Asset

Novogyne amortized $1.5 million related to the CombiPatch® acquisition
cost for each of the three month periods ended June 30, 2003 and 2002 and $3.1
million for each of the six month periods ended June 30, 2003 and 2002.
CombiPatch® was licensed by Novogyne in March 2001.

Liquidity and Capital Resources

As of June 30, 2003 and December 31, 2002, we had $83.8 million and $58.7
million in cash and cash equivalents, and working capital of $74.7 million and
$59.3 million, respectively.

Cash provided by (used in) operating, investing and financing activities
for the six months ended June 30, 2003 and 2002 is summarized as follows
(amounts in thousands):

|            |                      |  |      |        |      |  |   |       |  
|----------- | -------------------- |  | ---- | ------ | ---- |  | - | ----- | -
|            |                      |  | 2003 |        | 2002
|            |                      |  |      |        |     
|Cash flows: |                      |  |      |        |      |  |   |      
|            | Operating activities |  | $    | 29,528 |      |  | $ | 4,634 |  
|            | Investing activities |  |      | (3,277 | )    |  |   | (966  | )
|            | Financing activities |  |      | (1,146 | )    |  |   | 344   |  

Operating Activities:

Net cash provided by operating activities for the six months ended June
30, 2003 primarily resulted from the receipt of a $25.0 million license payment
upon the closing of the Shire transaction in April 2003 and a $12.0 million distribution from Novogyne. The increase was partially offset
by changes in working capital due to the timing and amount of product
shipments, payment of Directors and Officers insurance premiums and payment
of income taxes.

Net cash provided by operating activities for the six months ended June
30, 2002 primarily resulted from an $11.7 million distribution
from Novogyne. This was partially offset by changes in working capital due to
the timing and amount of product shipments and payments for inventory and
income taxes.

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Investing Activities:

Net cash used in investing activities for the six months ended June 30,
2003 and 2002 was primarily attributable to the purchase of fixed assets to
expand production capacity for future products and payment of patent
development costs.

Financing Activities:

Net cash used in
financing activities for the six months ended June 30,
2003 was primarily attributable to the repurchase of 105,000 shares of our
common stock, partially offset by cash received in connection with the issuance
of common stock from the exercise of stock options.

Net cash provided by financing activities for the six months ended June
30, 2002 was primarily attributable to cash received in connection with the
issuance of common stock from the exercise of stock options, partially offset
by the payoff of all borrowings under a master lease facility in March 2002.

Short-Term and Long-Term Liquidity:

Our principal sources of short-term liquidity are existing cash, cash
generated from product sales, fees and royalties under development and license
agreements and distributions from Novogyne. In April 2003, Shire paid us $25
million upon closing of the MethyPatch® transaction. For the six months ended
June 30, 2003, all of our income before income taxes was comprised of equity in
earnings of Novogyne, a non-cash item. Our short-term cash flow is dependent
on sales, royalties and license fees associated with transdermal HRT products.
Any decrease in sales of those products by us or our licensees or any increase
in returns of products to Novogyne (including any such changes resulting from
the results of the recent or ongoing HRT studies or the pending product label
changes), the failure of the transdermal HRT market to resume its prior growth
trends, or the inability or failure of Novogyne to pay distributions would have
a material adverse effect on our short-term cash flow and require us to rely
more heavily on our existing cash reserves or on borrowings to support our
operations and business. Although we expect to receive distributions from
Novogyne, there can be no assurance that Novogyne will have sufficient profits
or cash flow to pay distributions or that Novogynes Management Committee will
authorize such distributions. We cannot assure that MethyPatch® will be
approved by the FDA, particularly in light of the not approvable letter we
received from the FDA in April 2003, or that Shire will generate MethyPatch®
sales at levels that would trigger our milestone payments; therefore, we cannot
assure that we will receive any further payments from Shire.

In the first quarter of 2003, our Board of Directors authorized a share
repurchase program under which we may acquire up to $25 million of our common
stock. As of June 30, 2003, we had repurchased 105,000 shares of our common
stock at an aggregate price of approximately $1.3 million. Any repurchases of
common stock under our share repurchase program could adversely affect our
short-term liquidity.

We believe that we will have sufficient cash available to meet our
operating needs and anticipated short-term capital requirements. For our
long-term operating needs, we intend to utilize funds derived from the above
sources, as well as funds generated through sales of products under development
or products that we may license or acquire from others. We expect that such
funds will be comprised of payments received pursuant to future development and
licensing arrangements, as well as direct sales of our own products. We expect
that our cash requirements will continue to increase, primarily to fund
clinical studies for products under development and for plant and

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equipment to expand production capacity. We cannot assure that we will successfully
complete the development of such products, that we will obtain regulatory
approval for any such products, that any approved product may be produced in
commercial quantities, at reasonable costs, and be successfully marketed, or
that we will successfully negotiate future licensing or product acquisition
arrangements. Because much of the cost associated with product development is
incurred prior to product launch, if we are unable to launch additional
commercially viable products that we develop or that we license or acquire from
others, we will have incurred the up-front costs associated with product
development or acquisition without the benefit of the liquidity generated by
sales of those products, which could adversely affect our long-term liquidity
needs.

We are unable to predict the effects of the discontinued and ongoing HRT
studies discussed above on the short and long-term prospects for the HRT market
or for the market for our transdermal HRT products. Accordingly, we are not
able to predict the effect that those studies may have on our short-term or
long-term liquidity, results of operations and business prospects.

To the extent that capital requirements exceed available capital, we will
seek alternative sources of financing to fund our operations. We did not
extend our credit facility, which expired in April 2003. No assurance can be
given that alternative financing will be available, if at all, in a timely
manner, or on favorable terms. If we are unable to obtain satisfactory
alternative financing, we may be required to delay or reduce our proposed
expenditures, including expenditures for research and development and plant and
equipment, in order to meet our future cash requirements.

Critical Accounting Policies

For a discussion of our critical accounting policies, see Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies, which is included in our Form 10-K. In addition
to the matters discussed in the Form 10-K, the following items should be added
to the Revenue Recognition policy: (i) Noven accrues royalties from
Novogynes product sales each quarter based on Novogynes net sales for that
quarter; and (ii) contract revenues are now being included in License and
contract revenues instead of product sales. Also, the following item should
be added to the Investment in Novogyne policy: The methodology used by Novogyne to estimate product returns is based on (i) the
historical experience of actual product returns and (ii) the estimated lag time
between when an actual sale takes place in relation to when the products are
physically returned by a customer. The historical actual returns rate is then
applied to product sales during the estimated lag period to develop the returns
estimate. However, because Novogynes return history includes periods of
higher and lower trade inventory levels and varying levels of demand, in making
its final estimations of expected product return, Novogyne also considers
trends and expectations for future demand and trade inventory levels. Novogyne
does not accept returns due to short-dating until the product has less than a
certain amount of shelf-life remaining. Also, Novogyne does not accept returns
due to expiration later than a certain period after the product has expired.
These policies cause a significant lag time between when a product is sold and
the latest date on which a return could occur. Novogyne
believes this is a reasonable basis on which to estimate returns
exposure and incorporates the key factors that contribute to returns.

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Outlook

A discussion of the factors that could impact our 2003 financial results
is provided below, elsewhere in this Form 10-Q, and under the caption
Cautionary Factors that May Have an Impact on Future Results included in Item
7 of our Form 10-K. Other factors, trends, risks and uncertainties unknown to
us could also influence our financial results.

U.S. HRT

During the fourth quarter of 2002 and first half of 2003, we undertook
inventory reduction initiatives intended to align inventories for our U.S. HRT
products with the reduced demand that followed the early termination of the
combination therapy arm of the WHI study. Based on information received from
Novartis, we now believe that inventories at Novogyne and in the trade channel
have reached desired levels, subject to normal fluctuations.

International HRT

We do not expect
international sales to grow in 2003 unless Estradot® is launched in additional major markets. Estradot® has been launched in
Germany and in several other countries, but, according to Novartis AG,
significant pricing, reimbursement and post-WHI regulatory issues are
adversely impacting further launch plans in many countries, including the United Kingdom, France, and Italy. Due to these issues and
Novartis failure to date in securing a marketing partner in the United Kingdom
and France for Estradot®, we do not expect additional major market launches of
Estradot® in the remainder of 2003.

MethyPatch®

In light of our April 2003 receipt of a not approvable letter from the
FDA for MethyPatch®, we are unable to assure either product approval or launch,
nor can we predict when, if ever, we will receive additional milestone payments
or manufacturing revenues from Shire.

We are conducting additional analyses of data from MethyPatch® clinical
studies in an effort to address the FDAs clinical issues regarding the
MethyPatch® NDA without undertaking an additional Phase III clinical study. In
parallel with that analysis, we also expect to begin a large-scale clinical
trial before year-end, reflecting our belief that an additional pre-approval
study will likely be required. Noven expects to fund the cost of the study,
which we expect will cost $5-8 million, and associated expenses are expected to
be reflected in our financial results beginning in the second half of 2003 and
extending into 2004. Depending on final study design, the number of subjects
and other factors, the actual cost may be greater and the trial may commence
later and/or last longer than we anticipate. The FDA could require additional
studies and/or activities as a condition of approval, and the total cost may
exceed our estimate. In light of the expected MethyPatch® clinical trial, we
have postponed clinical studies of our developmental dextroamphetamine patch
for ADHD.

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Financial Guidance

For full-year 2003, we expect to report revenues in the low $40 million
range. The expected decline in 2003 revenues compared to 2002 reflects: (i)
the continuing impact of WHI; (ii) inventory reduction efforts; (iii) strong
U.S. HRT sales in the first half of 2002; and (iv) lower international HRT
sales in 2003 due to launch delays for Estradot® and declines in volume of our
other products. Depending on the cost and timing of expected MethyPatch®
clinical trials, our diluted earnings per share for 2003 could be as low as
$0.30. This earnings forecast incorporates (i) our internal estimates of
MethyPatch and other clinical spending in the 2003 second half, and (ii) our
belief that Novogyne sales will re-align with prescription trends, permitting
Novogyne to report results for 2003 that approach 2002 results.




Item 3. Quantitative and Qualitative Disclosure About Market Risk

Noven had no variable rate debt outstanding during the six months ended
June 30, 2003. Therefore, changes in interest rates did not affect interest
expense, earnings or cash flows in 2003. We cannot predict market fluctuations
in interest rates and their impact on any variable rate debt that we may have
outstanding from time to time, nor can there be any assurance that fixed rate
long-term debt will be available at favorable rates, if at all.




Item 4. Controls and Procedures

Pursuant to Exchange Act Rule 13a-15, as of the end of the quarterly
period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. In addition, we reviewed our internal
controls, and there have been no significant changes in our internal controls
or in other factors that could significantly affect those controls subsequent
to the date of the last evaluation. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relating to Noven required to be included in our periodic
Securities and Exchange Commission filings. However, that conclusion should be
considered in light of the various limitations described below on the
effectiveness of those controls and procedures, some of which pertain to most
if not all business enterprises, and some of which arise as a result of the
nature of our business. Our management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that our disclosure controls and
procedures will prevent all error and all improper conduct. 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.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of improper conduct, if any, have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of 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. Further, the design of any system of controls also is based in part
upon 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

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procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected. Furthermore, our level of historical and current equity
participation in Novogyne may substantially impact the effectiveness of our
disclosure controls and procedures. Because we do not control Novogyne, and
Novogynes financial, accounting, inventory and sales deductions functions are
performed by Novartis, our disclosure controls and procedures with respect to
Novogyne are necessarily more limited than those we maintain with respect to
ourselves. No significant changes were made in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the Chief Executive Officers and Chief Financial Officers evaluation.

Provided with this quarterly report on Form 10-Q are certificates of our
Chief Executive Officer and Chief Financial Officer. We are required to
provide those certifications by Section 302 of the Sarbanes-Oxley Act of 2002
and the Securities and Exchange Commissions implementing regulations. This
Item 4 of this quarterly report is the information concerning the evaluation
referred to in those certifications, and you should read this information in
conjunction with those certifications for a more complete understanding of the
topics presented.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Miller Donovan v. Noven Pharmaceuticals, Inc., Robert C. Strauss, James B.
Messiry, and Juan A. Mantelle, United States District Court, Southern District
of Florida; August 7, 2003.

On August 7, 2003, a law firm issued a press release in which it announced
that it filed a complaint in the above-referenced matter on behalf of
Plaintiff, who, the law firm claimed, represents a purported class of
purchasers of Novens common stock during the period from October 29, 2001
through April 28, 2003. Noven has not been served with a complaint in this
matter. According to the law firms press release, the complaint alleges that
during the subject period Noven and its officers named as defendants violated
the Securities Exchange Act of 1934 by making false and misleading statements
regarding Novens rationale and marketing strategies for approval of its
MethyPatch® product. The press release states that Plaintiff is seeking to
recover damages on behalf of all purchasers of Noven common stock during the
subject period.

If served in the above-referenced matter, Noven intends to vigorously
defend it, but its outcome cannot be predicted. Novens ultimate liability
with respect to the foregoing matter, if any, is not presently determinable.




Item 4. Submission of Matters to a Vote of Security Holders

Annual Meeting of Stockholders held on May 14, 2003.

(i)  Election of Directors

|                       |  |     |            |          |  |  |         | 
|---------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|                       |  | For |            | Withheld
|                       |  |     |            |         
|Sidney Braginsky       |  |     | 21,160,196 |          |  |  | 82,371  | 
|John G. Clarkson, M.D. |  |     | 21,160,296 |          |  |  | 82,271  | 
|Lawrence J. DuBow      |  |     | 21,160,296 |          |  |  | 82,271  | 
|Regina E. Herzlinger   |  |     | 21,160,346 |          |  |  | 82,221  | 
|Robert C. Strauss      |  |     | 20,762,779 |          |  |  | 479,788 | 
|Wayne P. Yetter        |  |     | 21,160,246 |          |  |  | 82,321  | 

(ii)  The ratification of the appointment of Deloitte & Touche
LLP as Novens independent certified public accountants for 2003
was
                 approved by an affirmative vote of 20,245,354 shares to a
negative vote of 974,877 shares, with 22,336 shares abstaining.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|     |  |                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Robert C. Strauss, President, Chief
Executive Officer and Chairman of the Board pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 
|    
|31.2 |  | Certification of Diane M. Barrett, Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   
|    
|32.1 |  | Certification of Robert C. Strauss, President, Chief
Executive Officer and Chairman of the Board, pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|    
|32.2 |  | Certification of Diane M. Barrett, Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                   

(b) Reports on Form 8-K



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 25, 2003, Noven filed a current report on Form 8-K
relating to the receipt of a not approvable letter received from the
FDA relating to the NDA for its methylphenidate transdermal system.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 30, 2003, Noven furnished a current report on Form 8-K
relating to the issuance of a press release announcing its financial
results for the three months ended March 31, 2003.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 31, 2003, Noven furnished a current report on Form 8-K
relating to the issuance of a press release announcing its financial
results for the three and six months ended June 30, 2003.

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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.

|                      |  |                            
|--------------------- |  | ---------------------------
|                      |  | NOVEN PHARMACEUTICALS, INC.
|                      |  |                            
|                      |  |                            
|Date: August 14, 2003 |  | By: /s/ Diane M. Barrett   
|                      |  |                            
|                      |  | Diane M. Barrett           
|                      |  | Vice President and         
|                      |  | Chief Financial Officer    

32