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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 March 31, 2009
 Commission file number 0-17254
 NOVEN PHARMACEUTICALS, INC.
  STATE OF DELAWARE
    
    59-2767632(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 (Address of principal
executive offices) (Zip Code)
 (Registrants telephone number, including area code)
 o þ
 o o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    Outstanding at April 30, 2009Common stock $.0001 par value
    
    24,914,418




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##### 



NOVEN PHARMACEUTICALS, INC.
  Page No.PART I  FINANCIAL INFORMATIONItem 1  Unaudited Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2009 and
December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2009 and 2008
    
    
    4Condensed Consolidated Statement of Changes in Stockholders Equity for the
Three Months Ended March 31, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2009 and 2008
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4  Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    41Item 1A  Risk Factors
    
    
    41Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 5  Other Information
    
    
    42Item 6  Exhibits
    
    
    42SIGNATURES
    
    
    43EX-31.1EX-31.2EX-32.1EX-32.2
  Cautionary Factors
 Trademark Information ® ® ®  ® ® ® ® ® ®
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
   March 31,
    
    
    December 31,2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    72,174
    
    
    $
    62,875Investments in auction rate securities, current portion
    
    
    
    
    
    
    3,650Accounts receivable (less allowances of $217 at 2009
and $509 at 2008)
    
    
    6,729
    
    
    
    8,577Accounts receivable  Novogyne, net
    
    
    6,737
    
    
    
    6,510Inventories
    
    
    14,673
    
    
    
    13,924Net deferred income tax asset, current portion
    
    
    7,235
    
    
    
    7,026Prepaid income taxes
    
    
    3,356
    
    
    
    8,178Prepaid and other current assets
    
    
    2,990
    
    
    
    2,898113,894
    
    
    
    113,638Non-current Assets:Property, plant and equipment, net
    
    
    34,809
    
    
    
    34,886Investments in auction rate securities, non-current portion
    
    
    11,810
    
    
    
    11,810Investment in Novogyne
    
    
    19,175
    
    
    
    24,319Net deferred income tax asset, non-current portion
    
    
    64,766
    
    
    
    65,159Intangible assets, net
    
    
    35,546
    
    
    
    36,508Goodwill
    
    
    14,407
    
    
    
    14,407Deposits and other non-current assets
    
    
    623
    
    
    
    839181,136
    
    
    
    187,928$
    295,030
    
    
    $
    301,566Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    7,153
    
    
    $
    7,384Accrued compensation and related liabilities
    
    
    5,355
    
    
    
    7,958Other accrued liabilities
    
    
    17,147
    
    
    
    17,260Current portion of long-term obligations
    
    
    101
    
    
    
    3,396Deferred product revenue  Stavzor®
    
    
    1,639
    
    
    
    1,537Deferred license and contract revenues, current portion
    
    
    25,390
    
    
    
    25,45956,785
    
    
    
    62,994Non-current Liabilities:Long-term obligations, less current portion
    
    
    26
    
    
    
    27Deferred license and contract revenues, non-current portion
    
    
    70,892
    
    
    
    77,112Other non-current liabilities
    
    
    887
    
    
    
    99771,805
    
    
    
    78,136Total Liabilities
    
    
    128,590
    
    
    
    141,130Commitments and Contingencies (Note 14)Stockholders Equity:Preferred stock  authorized 100,000 shares par
value $.01 per share; no shares issued or outstanding
    
    
    
    
    
    
    Common stock  authorized 80,000,000 shares,
par value $.0001 per share; 25,235,763 issued at
March 31, 2009 and December 31, 2008
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    124,797
    
    
    
    123,290Retained earnings
    
    
    46,764
    
    
    
    42,267Treasury stock, at cost - 322,345 shares at March 31, 2009
and December 31, 2008
    
    
    (5,124
    )
    
    
    (5,124
    )Common stock held in trust
    
    
    (1,725
    )
    
    
    (1,569
    )Deferred compensation obligation
    
    
    1,725
    
    
    
    1,569166,440
    
    
    
    160,436$
    295,030
    
    
    $
    301,566
 The accompanying notes to unaudited condensed consolidated financial statements are an integral
part of these financial statements.
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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    Three Months Ended March 31,2009
    
    
    2008Revenues:Product revenues  Novogyne:Product sales, net
    
    $
    5,480
    
    
    $
    2,431Royalties
    
    
    2,222
    
    
    
    2,180Total net product revenues  Novogyne
    
    
    7,702
    
    
    
    4,611Product revenues, net  third parties
    
    
    13,649
    
    
    
    11,585Total net product revenues
    
    
    21,351
    
    
    
    16,196License and contract revenues
    
    
    6,289
    
    
    
    5,286Total net revenues
    
    
    27,640
    
    
    
    21,482Costs and Expenses:Cost of products sold  Novogyne
    
    
    3,648
    
    
    
    3,326Cost of products sold  third parties
    
    
    7,768
    
    
    
    7,983Total cost of products sold
    
    
    11,416
    
    
    
    11,309Research and development
    
    
    4,653
    
    
    
    3,319Selling and marketing
    
    
    5,013
    
    
    
    4,823General and administrative
    
    
    7,048
    
    
    
    7,022Total costs and expenses
    
    
    28,130
    
    
    
    26,473Loss from operations
    
    
    (490
    )
    
    
    (4,991
    )Equity in earnings of Novogyne
    
    
    7,545
    
    
    
    8,267Interest and other income, net
    
    
    89
    
    
    
    622Income before income taxes
    
    
    7,144
    
    
    
    3,898Provision for income taxes
    
    
    2,647
    
    
    
    1,306Net income
    
    $
    4,497
    
    
    $
    2,592Basic earnings per share
    
    $
    0.18
    
    
    $
    0.11Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.11Weighted average number of common shares outstanding:Basic
    
    
    24,692
    
    
    
    24,560Diluted
    
    
    24,769
    
    
    
    24,665
 The accompanying notes to unaudited condensed consolidated financial statements are an integral
part of these
financial statements.
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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    AdditionalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Other
    
    
    TotalBalance at December 31, 2008
    
    
    24,913
    
    
    $
    3
    
    
    $
    123,290
    
    
    $
    42,267
    
    
    $
    (5,124
    )
    
    $
    
    
    
    $
    160,436Stock-based compensation expense and issuance
of shares to outside directors
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,298Issuance of SSAR in settlement of executive bonus
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219Tax benefit adjustments
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Common stock held in trust
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    (156
    )Deferred compensation obligation
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    156Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,497
    
    
    
    
    
    
    
    
    
    
    
    4,497Balance at March 31, 2009
    
    
    24,913
    
    
    $
    3
    
    
    $
    124,797
    
    
    $
    46,764
    
    
    $
    (5,124
    )
    
    $
    
    
    
    $
    166,440
 The accompanying notes to unaudited condensed consolidated financial statements are an integral
part of these financial statements.
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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    Three Months Ended March 31,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    4,497
    
    
    $
    2,592Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:Depreciation and amortization
    
    
    2,057
    
    
    
    2,272Loss on disposal of property, plant and equipment
    
    
    
    
    
    
    11Inventory write-offs
    
    
    916
    
    
    
    3,050Stock based compensation expense
    
    
    1,298
    
    
    
    858Income tax benefits on stock-based awards/SSARs
    
    
    
    
    
    
    37Deferred income tax benefit
    
    
    184
    
    
    
    (2,380
    )Recognition of deferred license and contract revenues
    
    
    (6,289
    )
    
    
    (5,286
    )Equity in earnings of Novogyne
    
    
    (7,545
    )
    
    
    (8,267
    )Distributions from Novogyne
    
    
    12,689
    
    
    
    10,916Other noncash items
    
    
    271
    
    
    
    39Changes in operating assets and liabilities:Decrease (increase) in accounts receivable  trade, net
    
    
    1,848
    
    
    
    (1,782
    )(Increase) decrease in accounts receivable  Novogyne, net
    
    
    (227
    )
    
    
    2,753Increase in inventories
    
    
    (1,665
    )
    
    
    (6,202
    )Decrease in prepaid income taxes
    
    
    4,822
    
    
    
    2,802Decrease (increase) in prepaid and other current assets
    
    
    (92
    )
    
    
    (462
    )Increase in deposits and other assets
    
    
    (94
    )
    
    
    (176
    )(Decrease) increase in accounts payable and accrued expenses
    
    
    (240
    )
    
    
    732Decrease in accrued compensation and related liabilities
    
    
    (2,384
    )
    
    
    (5,165
    )Decrease in other accrued liabilities
    
    
    (101
    )
    
    
    (110
    )Increase in deferred license and contract revenues
    
    
    
    
    
    
    346Increase in deferred product revenue  Stavzor®
    
    
    102
    
    
    
    Increase in other liabilities
    
    
    (93
    )
    
    
    (654
    )Cash flows provided by (used in) operating activities
    
    
    9,954
    
    
    
    (4,076
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (798
    )
    
    
    (341
    )Payments for intangible assets
    
    
    (211
    )
    
    
    (96
    )Purchases of investments
    
    
    
    
    
    
    (550
    )Proceeds from sale of investments
    
    
    3,650
    
    
    
    18,800Cash flows provided by investing activities
    
    
    2,641
    
    
    
    17,813Cash flows from financing activities:Issuance of common stock from exercise of stock options/SSARs
    
    
    
    
    
    
    10Payments of long-term obligations
    
    
    (3,296
    )
    
    
    (55
    )Cash flows used in financing activities
    
    
    (3,296
    )
    
    
    (45
    )Net increase in cash and cash equivalents
    
    
    9,299
    
    
    
    13,692Cash and cash equivalents, beginning of period
    
    
    62,875
    
    
    
    13,973Cash and cash equivalents, end of period
    
    $
    72,174
    
    
    $
    27,665
 The accompanying notes to unaudited condensed consolidated financial statements are an integral
part of these financial statements.
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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
      7




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® ® ® ® ® ® ® ® ® ®
  2. RECENT ACCOUNTING PRONOUNCEMENTS:
    8




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3. CASH FLOW INFORMATION:
 Income Tax and Interest Payments
  Non-cash Operating Activities
  Non-cash Investing Activities
  Non-cash Financing Activities
  4. INVESTMENTS AVAILABLE-FOR-SALE:
  10




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5. FAIR VALUE MEASUREMENTS:
   Balance at December 31, 2008
    
    $
    15,460Redemptions of investments at par value
    
    
    (3,650
    )Balance at March 31, 2009
    
    $
    11,810
 6. INVENTORIES:
  March 31,
    
    
    December 31,2009
    
    
    2008Finished goods
    
    $
    3,431
    
    
    $
    3,200Work in process
    
    
    3,239
    
    
    
    2,510Raw materials
    
    
    8,003
    
    
    
    8,214$
    14,673
    
    
    $
    13,924
 ®
 ® ®
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7. GOODWILL AND INTANGIBLE ASSETS:
   Weighted-Net
    
    
    AverageGross Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    RemainingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Life (years)As of March 31, 2009Patent development costs
    
    $
    5,140
    
    
    $
    (3,183
    )
    
    $
    1,957
    
    
    
    8.1Acquired product intangibles
    
    
    39,290
    
    
    
    (6,234
    )
    
    
    33,056
    
    
    
    8.8Non-competition agreements
    
    
    530
    
    
    
    (359
    )
    
    
    171
    
    
    
    1.1Favorable lease
    
    
    790
    
    
    
    (428
    )
    
    
    362
    
    
    
    1.5$
    45,750
    
    
    $
    (10,204
    )
    
    $
    35,546
    
    
    
    8.6As of December 31, 2008Patent development costs
    
    $
    4,929
    
    
    $
    (3,070
    )
    
    $
    1,859
    
    
    
    7.2Acquired product intangibles
    
    
    39,290
    
    
    
    (5,289
    )
    
    
    34,001
    
    
    
    9.0Non-competition agreements
    
    
    530
    
    
    
    (304
    )
    
    
    226
    
    
    
    1.6Favorable lease
    
    
    790
    
    
    
    (368
    )
    
    
    422
    
    
    
    2.0$
    45,539
    
    
    $
    (9,031
    )
    
    $
    36,508
    
    
    
    8.8
  12




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Remainder
    
    
    Years Ending December 31,of 2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014Cost of goods sold:Intellectual property
    
    $
    3,174
    
    
    $
    4,174
    
    
    $
    4,109
    
    
    $
    4,096
    
    
    $
    4,042
    
    
    $
    3,961General and administrative:Non-compete and
favorable
lease agreements
    
    
    297
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,471
    
    
    $
    4,410
    
    
    $
    4,109
    
    
    $
    4,096
    
    
    $
    4,042
    
    
    $
    3,961
 8. OTHER ACCRUED LIABILITIES:
  March 31,
    
    
    December 31,2009
    
    
    2008Income taxes payable
    
    $
    2,463
    
    
    $
    2,197Accrued medicaid and other rebates
    
    
    3,417
    
    
    
    2,726Accrued market withdrawal costs
    
    
    3,758
    
    
    
    3,598Allowance for product returns
    
    
    3,034
    
    
    
    3,070Other accrued liabilities
    
    
    4,475
    
    
    
    5,669Total other accrued liabilities
    
    $
    17,147
    
    
    $
    17,260
 9. EQUITY PLANS:
   2009
    
    2008Volatility
    
    
    52.2
    %
    
    
    45.5
    %Risk free interest rate
    
    
    1.75
    %
    
    
    2.63
    %Expected life (years)
    
    
    3.9
    
    
    
    4.8Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
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2009
    
    
    2008Selling and marketing
    
    $
    166
    
    
    $
    154General and administrative
    
    
    859
    
    
    
    469Research and development
    
    
    145
    
    
    
    90Total cost of products sold
    
    
    128
    
    
    
    145$
    1,298
    
    
    $
    858Tax benefit recognized related to
compensation expense
    
    $
    491
    
    
    $
    293
    Weighted
    
    
    Weighted AverageStock
    
    
    Average
    
    
    Remaining
    
    
    AggregateOptions/
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicSSARs
    
    
    Price
    
    
    Life (years)
    
    
    ValueOutstanding at
beginning of period
    
    
    4,093
    
    
    $
    14.31Granted
    
    
    102
    
    
    
    9.62Exercised
    
    
    
    
    
    
    Canceled or expired
    
    
    (33
    )
    
    
    16.04Outstanding at end
of period
    
    
    4,162
    
    
    $
    14.18
    
    
    
    4.6
    
    
    $
    128Exercisable at end
of period
    
    
    1,806
    
    
    $
    16.56
    
    
    
    2.6
    
    
    $
    1Shares of common
stock reserved
    
    
    4,332
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Weighted AverageShares
    
    
    Grant-Date Fair ValueNonvested at
December 31, 2008
    
    
    221
    
    
    $
    9.43Granted
    
    
    
    
    
    
    Vested
    
    
    (19
    )
    
    
    12.41Nonvested at
March 31, 2009
    
    
    202
    
    
    $
    9.16
 10. INCOME TAXES:
    15




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11. CONTRACT AND LICENSE AGREEMENTS:
  ® ® ®
  ® ® ®
 ® ® ® ® ® ® ® ® ®
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12. INVESTMENT IN VIVELLE VENTURES LLC (d/b/a NOVOGYNE):
   2009
    
    
    2008Revenues:Product sales
    
    $
    5,480
    
    
    $
    2,431Royalties
    
    
    2,222
    
    
    
    2,180$
    7,702
    
    
    $
    4,611Reimbursed expenses
    
    $
    8,146
    
    
    $
    7,272
  17




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2009
    
    
    2008Gross revenues
    
    $
    48,230
    
    
    $
    45,294Sales allowances
    
    
    6,666
    
    
    
    5,853Sales return allowances
    
    
    1,373
    
    
    
    (85
    )Sales allowances and returns
    
    
    8,039
    
    
    
    5,768Net revenues
    
    
    40,191
    
    
    
    39,526Cost of sales
    
    
    8,077
    
    
    
    7,808Selling, general and
administrative expenses
    
    
    10,711
    
    
    
    9,012Income from operations
    
    
    21,403
    
    
    
    22,706Interest income
    
    
    94
    
    
    
    267Net income
    
    $
    21,497
    
    
    $
    22,973Novens equity in earnings of
Novogyne
    
    $
    7,545
    
    
    $
    8,267
  Investment in Novogyne, beginning of period
    
    $
    24,319Equity in earnings of Novogyne
    
    
    7,545Cash distributions from Novogyne
    
    
    (12,689
    )Investment in Novogyne, end of period
    
    $
    19,175
  13. SHARE REPURCHASE PROGRAM:
  14. COMMITMENTS AND CONTINGENCIES:
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15. SEGMENT DATA:
  22




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Three Months Ended March 31,2009
    
    
    2008Net Revenues:Noven TransdermalsProduct revenues
    
    $
    14,777
    
    
    $
    10,491License and contract revenues
    
    
    6,289
    
    
    
    5,28621,066
    
    
    
    15,777Noven TherapeuticsProduct revenues
    
    $
    6,574
    
    
    $
    5,705Net revenues
    
    $
    27,640
    
    
    $
    21,482Segment profit (loss):Noven Transdermals
    
    $
    11,681
    
    
    $
    6,310Noven Therapeutics
    
    
    (470
    )
    
    
    (960
    )Equity in earnings of Novogyne
    
    
    7,545
    
    
    
    8,267Total segment profit
    
    $
    18,756
    
    
    $
    13,617Reconciliation of segment profit to income
before income taxes:Segment profit
    
    $
    18,756
    
    
    $
    13,617Research and development
    
    
    (4,653
    )
    
    
    (3,319
    )General and administrative
    
    
    (7,048
    )
    
    
    (7,022
    )Interest and other income, net
    
    
    89
    
    
    
    622Income before income taxes
    
    $
    7,144
    
    
    $
    3,898
  March 31,
    
    
    December 31,2009
    
    
    2008Noven Transdermals
    
    $
    56,018
    
    
    $
    56,362Noven Therapeutics
    
    
    54,489
    
    
    
    55,902Novogyne
    
    
    19,175
    
    
    
    24,319Assets not allocated to segments1
    
    
    165,348
    
    
    
    164,983Total Assets
    
    $
    295,030
    
    
    $
    301,566
 
 1
    
    Assets not allocated to segments consist primarily of cash and cash
equivalents, investments
in auction rate securities and deferred income taxes. 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  
    
    An executive summary of our consolidated results of operations for the 2009 Quarter;
    
    A review of certain items that may affect the historical or future comparability of
our consolidated results of operations;
    
    An analysis of our consolidated results of operations and our liquidity and capital
resources; and
    
    An outlook that includes our current financial guidance for 2009.
  Executive Summary
 The following Executive Summary is qualified in its entirety by the more detailed discussion
and analysis of our financial condition and results of operations appearing in this Item 2 as well
as in our Unaudited Condensed Consolidated Financial Statements and related notes included in this
Form 10-Q.
 ® ®
 ®
 
 ® ® ®
 24




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##### Table of Contents



® ® ® ®
 Certain Items that May Affect Historical or Future Comparability
  Daytrana ®
 ® ® ® ®
 ®
 ® ®
 ® ®
 25




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##### Table of Contents



® ® ®
 ® ® ® ® ® ® ®
 ® ®
 ®
  ® ®
 26




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##### Table of Contents



Results of Operations
  2009 Quarter compared to the 2008 Quarter
 Revenues
  Three Months Ended March 31,2009
    
    
    2008
    
    
    % ChangeNoven TransdermalsNovogyne:Product sales
    
    $
    5,480
    
    
    $
    2,431
    
    
    
    125
    %Royalties
    
    
    2,222
    
    
    
    2,180
    
    
    
    2
    %Product revenues  Novogyne
    
    
    7,702
    
    
    
    4,611
    
    
    
    67
    %Third Parties:Product sales
    
    
    7,004
    
    
    
    5,801
    
    
    
    21
    %Royalties
    
    
    71
    
    
    
    79
    
    
    
    -10
    %Product revenues  third parties
    
    
    7,075
    
    
    
    5,880
    
    
    
    20
    %Total product revenues
    
    
    14,777
    
    
    
    10,491
    
    
    
    41
    %License and contract revenues
    
    
    6,289
    
    
    
    5,286
    
    
    
    19
    %Total Transdermals
    
    
    21,066
    
    
    
    15,777
    
    
    
    34
    %Noven TherapeuticsThird Parties:Product sales
    
    
    6,574
    
    
    
    5,705
    
    
    
    15
    %Net Revenues
    
    $
    27,640
    
    
    $
    21,482
    
    
    
    29
    %
 Net Revenues
 ®
 Product Revenues  Novogyne
 ® ® ® ®
 27




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##### Table of Contents



® ®
 Product Revenues  Third Parties
 ® ® ® ® ® ® ®
  ®  ® ® ® ® ® ® ®
 ® ® ® ® ® ® ® ® ®
 License and Contract Revenues
  28




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##### Table of Contents



®
 Gross to Net Revenues
  Three Months Ended March 31,% of
    
    
    
    
    
    % ofgross
    
    
    
    
    
    gross2009
    
    
    revenues
    
    2008
    
    
    revenuesNoven Transdermals:Gross revenues
    
    $
    21,135
    
    
    
    100
    %
    
    $
    16,013
    
    
    
    100
    %Sales returns allowances
    
    
    (69
    )
    
    
    0
    %
    
    
    (236
    )
    
    
    1
    %Net revenues
    
    $
    21,066
    
    
    
    100
    %
    
    $
    15,777
    
    
    
    99
    %Noven Therapeutics:Gross revenues
    
    $
    9,531
    
    
    
    100
    %
    
    $
    9,508
    
    
    
    100
    %Cash discounts
    
    
    (172
    )
    
    
    2
    %
    
    
    (192
    )
    
    
    2
    %Medicaid, Medicare & State
program rebates and credits including
redemption offers
    
    
    (2,038
    )
    
    
    21
    %
    
    
    (2,289
    )
    
    
    24
    %Chargebacks
    
    
    (163
    )
    
    
    2
    %
    
    
    (267
    )
    
    
    3
    %Wholesaler fees
    
    
    (389
    )
    
    
    4
    %
    
    
    (594
    )
    
    
    6
    %Sales returns allowances
    
    
    (195
    )
    
    
    2
    %
    
    
    (461
    )
    
    
    5
    %Sales and returns allowances
    
    
    (2,957
    )
    
    
    31
    %
    
    
    (3,803
    )
    
    
    40
    %Net revenues
    
    $
    6,574
    
    
    
    69
    %
    
    $
    5,705
    
    
    
    60
    %
 ®
 Gross Margin
  29




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Noven TransdermalsNovogyne:Product revenues
    
    $
    7,702
    
    
    
    
    
    
    $
    4,611Cost of products sold
    
    
    3,648
    
    
    
    
    
    
    
    3,326Gross profit
    
    
    4,054
    
    
    
    53
    %
    
    
    1,285
    
    
    
    28
    %Third parties:Product revenues
    
    
    7,075
    
    
    
    
    
    
    
    5,880Cost of products sold
    
    
    5,737
    
    
    
    
    
    
    
    5,947Gross profit (loss)
    
    
    1,338
    
    
    
    19
    %
    
    
    (67
    )
    
    
    -1
    %Total Noven Transdermals:Product revenues
    
    
    14,777
    
    
    
    
    
    
    
    10,491Cost of products sold
    
    
    9,385
    
    
    
    
    
    
    
    9,273Gross profit
    
    
    5,392
    
    
    
    36
    %
    
    
    1,218
    
    
    
    12
    %Noven TherapeuticsProduct revenues
    
    
    6,574
    
    
    
    
    
    
    
    5,705Cost of products sold
    
    
    2,031
    
    
    
    
    
    
    
    2,036Gross profit
    
    
    4,543
    
    
    
    69
    %
    
    
    3,669
    
    
    
    64
    %Total CompanyProduct revenues
    
    
    21,351
    
    
    
    
    
    
    
    16,196Cost of products sold
    
    
    11,416
    
    
    
    
    
    
    
    11,309Gross profit
    
    $
    9,935
    
    
    
    47
    %
    
    $
    4,887
    
    
    
    30
    %
 ®
 30




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##### Table of Contents



®
 ® ® ® ® ® ® ® ®
 ®
  Operating Expenses
  Three MonthsEnded March 31,2009
    
    2008
    
    % ChangeResearch and development
    
    $
    4,653
    
    
    $
    3,319
    
    
    
    40
    %Selling and marketing
    
    
    5,013
    
    
    
    4,823
    
    
    
    4
    %General and administrative
    
    
    7,048
    
    
    
    7,022
    
    
    
    0
    %
 Research and Development
  31




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##### Table of Contents



Selling and Marketing
  General and Administrative
  Other Income and Expenses
 Interest and Other Income
  Income Taxes
  Equity in Earnings of Novogyne
  32




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008
    
    
    % ChangeGross revenues
    
    $
    48,230
    
    
    $
    45,294
    
    
    
    6
    %Sales allowances
    
    
    6,666
    
    
    
    5,853
    
    
    
    14
    %Sales returns allowances
    
    
    1,373
    
    
    
    (85
    )
    
    
    N/MSales allowances and returns
    
    
    8,039
    
    
    
    5,768
    
    
    
    39
    %Net revenues
    
    
    40,191
    
    
    
    39,526
    
    
    
    2
    %Cost of sales
    
    
    8,077
    
    
    
    7,808
    
    
    
    3
    %Selling, general and
administrative expenses
    
    
    10,711
    
    
    
    9,012
    
    
    
    19
    %Income from operations
    
    
    21,403
    
    
    
    22,706
    
    
    
    -6
    %Interest income
    
    
    94
    
    
    
    267
    
    
    
    -65
    %Net income
    
    $
    21,497
    
    
    $
    22,973
    
    
    
    -6
    %Novens equity in earnings of
Novogyne
    
    $
    7,545
    
    
    $
    8,267
    
    
    
    -9
    %
 
  Novogyne Net Revenues
  ® ® ® ® ®
  33




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Sales returns allowances included in net revenues
    
    $
    1,373
    
    
    $
    (85
    )Actual returns primarily for expiring product
    
    
    (1,106
    )
    
    
    (610
    )Change in allowances for returns primarily for
expiring product
    
    $
    267
    
    
    $
    (695
    )
 ®
 Novogyne Gross Margin
  Novogyne Selling, General and Administrative Expenses
  34




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##### Table of Contents



Liquidity and Capital Resources
  March 31,
    
    December 31,2009
    
    2008Cash and cash equivalents
    
    $
    72,174
    
    
    $
    62,875Short-term investments
    
    
    
    
    
    
    3,650Working capital
    
    
    57,109
    
    
    
    50,644
  March 31,
    
    
    December 31,2009
    
    
    2008Cash and cash equivalents
    
    $
    72,174
    
    
    $
    62,875Investments in auction rate securities:Current
    
    
    
    
    
    
    3,650Non-current
    
    
    11,810
    
    
    
    11,810Total cash and cash equivalents and investments
    
    $
    83,984
    
    
    $
    78,335
  2009
    
    
    2008Cash flows:Operating activities
    
    $
    9,954
    
    
    $
    (4,076
    )Investing activities
    
    
    2,641
    
    
    
    17,813Financing activities
    
    
    (3,296
    )
    
    
    (45
    )Net Cash Flows
    
    $
    9,299
    
    
    $
    13,692
 Operating Activities
  ®
 35




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##### Table of Contents



Investing Activities
    Financing Activities
   Short-Term and Long-Term Liquidity
  ®
  ® ® ® ®
 ® ®
 36




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##### Table of Contents



® ®
   Balance at December 31, 2008
    
    $
    15,460Redemptions of investments at par value
    
    
    (3,650
    )Balance at March 31, 2009
    
    $
    11,810
     37




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##### Table of Contents



Aggregate Contractual Obligations
  Critical Accounting Estimates
  Recent Accounting Pronouncements
  Outlook
  38




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##### Table of Contents




    
    acquisitions of products, companies, or technologies or other transactions;
    
    changes in Novens or Novogynes accounting or accounting principles or any of the
estimates or judgments underlying our critical accounting policies;
    
    regulatory or technological developments;
    
    changes in the supply of, demand for, or distribution of our products (including any
changes resulting from competitive products, product recalls/withdrawals for which we have
not already established a reserve, or new study results);
    
    negative actions with respect to our applications for methylphenidate quota or other
disruptions in supplies of raw materials;
    
    adverse actions by the FDA in connection with the observations on Form 483, the January
2008 warning letter or otherwise;
    
    changes in our business relationships/collaborations; or
    
    changes in the economy, health care reimbursement policies or the health care sector
generally.
   Net Revenues.
 Gross Margin.
 Research and Development Expense.
 Selling, General and Administrative Expense.
 Noven Therapeutics.
 Equity in Earnings of Novogyne.
 Interest Income.
 Effective Tax Rate.
 39




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##### Table of Contents



Earnings Per Share
 Cash.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  40




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##### Table of Contents



Certifications
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  ®
  
 Item 1A. Risk Factors
  41




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number ofShares
    
    ApproximatePurchased as
    
    Dollar ValuePart of
    
    That May YetTotal Number of
    
    Average Price
    
    Publicly
    
    be PurchasedShares
    
    Paid
    
    Announced
    
    under thePurchased
    
    Per Share
    
    Program
    
    Program1January 1, 2009 to January 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,876,238February 1, 2009 to February 28, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,876,238March 1, 2009 to March 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,876,238Totals
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,876,238
 
 1
    
    In September 2007, we established a stock repurchase program authorizing the repurchase
of up to $25.0 million of our common stock. During the third quarter of 2007, Noven
repurchased 322,345 shares of its common stock at an aggregate price of approximately $5.1
million. There is no expiration date specified for this program. 
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Certification of Peter Brandt, President and Chief Executive Officer,
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 Michael D. Price, 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 Peter Brandt, President and Chief Executive Officer,
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 Michael D. Price, 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.*
 
 *
    
    Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished rather than filed with
this Form 10-Q. 42




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##### Table of Contents



Signatures
  NOVEN PHARMACEUTICALS, INC.Date: May 11, 2009
    By:
    /s/ Michael D. PriceMichael D. PriceVice President and

Chief Financial Officer 43