##### Table of Contents



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, 2008
 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)
 þ o
  o þ o o
  o þ
  Class
    
    Outstanding at April 30, 2008Common stock $.0001 par value
    
    24,824,338




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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, 2008 and
December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2008 and 2007
    
    
    4Condensed
Consolidated Statement of Changes in Stockholders Equity and
Comprehensive Income for
the Three Months Ended March 31, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2008 and 2007
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    26Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4 - Controls and Procedures
    
    
    45PART II  OTHER INFORMATIONItem 1 - Legal Proceedings
    
    
    46Item 1A - Risk Factors
    
    
    47Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 5 - Other Information
    
    
    47Item 6 - Exhibits
    
    
    48SIGNATURES
    
    
    49EX-31.1 Certification of Peter BrandtEX-31.2 Certification of Michael D. PriceEX-32.1 Certification of Peter BrandtEX-32.2 Certification of Michael D. Price
  Cautionary Factors
 Trademark Information ® ®   ® ® ® ® ® 
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
   March 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    27,665
    
    
    $
    13,973Short-term investments available-for-sale, at fair value
    
    
    12,725
    
    
    
    21,565Accounts receivable (less allowances of $225 at 2008
and $252 at 2007)
    
    
    8,738
    
    
    
    6,956Accounts receivable  Novogyne, net
    
    
    5,930
    
    
    
    8,683Inventories
    
    
    15,288
    
    
    
    12,136Net deferred income tax asset, current portion
    
    
    7,878
    
    
    
    7,614Prepaid income taxes
    
    
    2,123
    
    
    
    4,925Prepaid and other current assets
    
    
    5,713
    
    
    
    5,25186,060
    
    
    
    81,103Non-current Assets:Property, plant and equipment, net
    
    
    35,493
    
    
    
    36,213Investments in auction rate securities
    
    
    22,910
    
    
    
    32,835Investment in Novogyne
    
    
    21,661
    
    
    
    24,310Net deferred income tax asset, non-current portion
    
    
    60,169
    
    
    
    58,053Intangible assets, net
    
    
    37,720
    
    
    
    38,773Goodwill
    
    
    14,908
    
    
    
    14,734Deposits and other non-current assets
    
    
    616
    
    
    
    677193,477
    
    
    
    205,595$
    279,537
    
    
    $
    286,698Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    9,204
    
    
    $
    8,399Accrued compensation and related liabilities
    
    
    4,636
    
    
    
    9,801Other accrued liabilities
    
    
    15,160
    
    
    
    15,270Current portion of long-term obligations
    
    
    6,662
    
    
    
    3,421Deferred license and contract revenues, current portion
    
    
    20,083
    
    
    
    20,18855,745
    
    
    
    57,079Non-current Liabilities:Long-term obligations, less current portion
    
    
    5,142
    
    
    
    8,438Deferred license and contract revenues, non-current portion
    
    
    80,221
    
    
    
    85,056Other non-current liabilities
    
    
    1,153
    
    
    
    1,83186,516
    
    
    
    95,325Total Liabilities
    
    
    142,261
    
    
    
    152,404Commitments and Contingencies (Note 15)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; 24,896,683 and 24,881,867
issued at March 31, 2008 and December 31, 2007
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    119,466
    
    
    
    118,561Retained earnings
    
    
    23,447
    
    
    
    20,855Accumulated other comprehensive loss
    
    
    (515
    )
    
    
    Treasury stock, at cost - 322,345 shares at March 31, 2008
and December 31, 2007
    
    
    (5,124
    )
    
    
    (5,124
    )Common stock held in trust
    
    
    (1,100
    )
    
    
    (950
    )Deferred compensation obligation
    
    
    1,100
    
    
    
    950137,276
    
    
    
    134,294$
    279,537
    
    
    $
    286,698
 The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
 3




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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    Three Months Ended March 31,2008
    
    
    2007Revenues:Product revenues  Novogyne:Product sales, net
    
    $
    2,431
    
    
    $
    5,369Royalties
    
    
    2,180
    
    
    
    1,765Total net product revenues  Novogyne
    
    
    4,611
    
    
    
    7,134Product revenues, net  third parties
    
    
    11,585
    
    
    
    8,472Total net product revenues
    
    
    16,196
    
    
    
    15,606License and
contract revenues
    
    
    5,286
    
    
    
    3,709Total net revenues
    
    
    21,482
    
    
    
    19,315Costs and Expenses:Cost of products sold  Novogyne
    
    
    3,326
    
    
    
    2,959Cost of products sold  third parties
    
    
    7,983
    
    
    
    5,968Total cost of products sold
    
    
    11,309
    
    
    
    8,927Research and development
    
    
    3,319
    
    
    
    3,466Selling and marketing
    
    
    4,823
    
    
    
    240General and adminstrative
    
    
    7,022
    
    
    
    5,181Total costs and expenses
    
    
    26,473
    
    
    
    17,814Income (loss) from operations
    
    
    (4,991
    )
    
    
    1,501Equity in earnings of Novogyne
    
    
    8,267
    
    
    
    4,903Interest income, net
    
    
    622
    
    
    
    1,632Income before income taxes
    
    
    3,898
    
    
    
    8,036Provision for income taxes
    
    
    1,306
    
    
    
    3,000Net income
    
    $
    2,592
    
    
    $
    5,036Basic earnings per share
    
    $
    0.11
    
    
    $
    0.20Diluted earnings per share
    
    $
    0.11
    
    
    $
    0.20Weighted average number of common shares
outstanding:Basic
    
    
    24,560
    
    
    
    24,738Diluted
    
    
    24,665
    
    
    
    25,384
 The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
 4




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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    Other
    
    
    TotalBalance at December 31, 2007
    
    
    24,560
    
    
    $
    2
    
    
    $
    118,561
    
    
    $
    20,855
    
    
    $
    
    
    
    $
    (5,124
    )
    
    $
    
    
    
    $
    134,294Issuance of shares pursuant to employee
equity plan
    
    
    1
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Stock-based compensation expense and
issuance of shares to officers and
outside directors
    
    
    13
    
    
    
    
    
    
    
    858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858Common stock held in trust
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    (150
    )Deferred compensation obligation
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    150Tax benefit from exercise of employee
equity grants
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,592Other comprehensive income:Unrealized
loss on investments in auction
rate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (515
    )
    
    
    
    
    
    
    
    
    
    
    (515
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,077Balance at March 31, 2008
    
    
    24,574
    
    
    $
    2
    
    
    $
    119,466
    
    
    $
    23,447
    
    
    $
    (515
    )
    
    $
    (5,124
    )
    
    $
    
    
    
    $
    137,276
 The
accompanying notes to condensed consolidated financial statements are an integral part of this financial statement.
 5




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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
    Three Months ended March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    2,592
    
    
    $
    5,036Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:Depreciation, amortization and certain other noncash items
    
    
    2,322
    
    
    
    1,301Inventory write-offs
    
    
    3,050
    
    
    
    250Stock-based compensation expense
    
    
    858
    
    
    
    988Income tax benefits on exercise of stock options
    
    
    37
    
    
    
    253Excess tax benefit from exercise of stock options
    
    
    
    
    
    
    (195
    )Deferred income tax benefit
    
    
    (2,380
    )
    
    
    (3,387
    )Recognition of deferred license and contract revenues
    
    
    (5,286
    )
    
    
    (3,709
    )Equity in earnings of Novogyne
    
    
    (8,267
    )
    
    
    (4,903
    )Distributions from Novogyne
    
    
    10,916
    
    
    
    9,760Changes in operating assets and liabilities:(Increase) decrease in accounts receivable  trade, net
    
    
    (1,782
    )
    
    
    345Decrease in milestone payment receivable  Shire
    
    
    
    
    
    
    25,000Decrease (increase) in accounts receivable  Novogyne, net
    
    
    2,753
    
    
    
    (416
    )Increase in inventories
    
    
    (6,202
    )
    
    
    (1,259
    )Decrease in prepaid income taxes
    
    
    2,802
    
    
    
    3,405Increase in prepaid and other current assets
    
    
    (462
    )
    
    
    (374
    )Increase in deposits and other assets
    
    
    (176
    )
    
    
    (1
    )Increase (decrease) in accounts payable and accrued expenses
    
    
    732
    
    
    
    (612
    )Decrease in accrued compensation and related liabilities
    
    
    (5,165
    )
    
    
    (2,413
    )(Decrease) increase in other accrued liabilities
    
    
    (110
    )
    
    
    1,284Increase (decrease) in deferred license and contract revenues
    
    
    346
    
    
    
    (180
    )(Decrease) increase in other liabilities
    
    
    (654
    )
    
    
    252Cash flows (used in) provided by operating activities
    
    
    (4,076
    )
    
    
    30,425Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (341
    )
    
    
    (689
    )Payments for intangible assets
    
    
    (96
    )
    
    
    (66
    )Purchase of company-owned life insurance
    
    
    
    
    
    
    (260
    )Purchases of investments
    
    
    (550
    )
    
    
    (226,470
    )Proceeds from sale of investments
    
    
    18,800
    
    
    
    220,953Cash flows provided by (used in) investing activities
    
    
    17,813
    
    
    
    (6,532
    )Cash flows from financing activities:Issuance of common stock from exercise of stock options
    
    
    10
    
    
    
    1,412Excess tax benefit from exercise of stock options
    
    
    
    
    
    
    195Payments of long-term obligations
    
    
    (55
    )
    
    
    (19
    )Cash flows (used in) provided by financing activities
    
    
    (45
    )
    
    
    1,588Net increase in cash and cash equivalents
    
    
    13,692
    
    
    
    25,481Cash and cash equivalents, beginning of period
    
    
    13,973
    
    
    
    9,144Cash and cash equivalents, end of period
    
    $
    27,665
    
    
    $
    34,625
 The accompanying notes to condensed consolidated financial statements are an integral part of these financial statements.
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NOVEN PHARMACEUTICALS, INC.
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
  ® ®
    2. RECLASSIFICATIONS:
  7




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3. RECENT ACCOUNTING PRONOUNCEMENTS:
     8




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4. CASH FLOW INFORMATION:
 Income Tax and Interest Payments
  Non-cash Operating Activities
  Non-cash Investing Activities
  9




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5. INVESTMENTS AVAILABLE-FOR-SALE:
    6. FAIR VALUE MEASUREMENTS:
  (i)
    
    Level 1  observable inputs such as quoted prices in active markets;(ii)
    
    Level 2  inputs, other than the quoted prices in active markets, that
are observable either directly or indirectly; and(iii)
    
    Level 3  Unobservable inputs for which there is little or no market
data, which require the reporting entity to develop its own assumptions.
  10




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Balance at December 31, 2007
    
    $
    54,400Purchases of investments
    
    
    550Sales of investments at par
    
    
    (18,800
    )Unrealized losses recorded to other comprehensive loss
    
    
    (515
    )Balance at March 31, 2008
    
    $
    35,635
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7. INVENTORIES:
  March 31,
    
    
    December 31,2008
    
    
    2007Finished goods
    
    $
    3,968
    
    
    $
    3,171Work in process
    
    
    1,901
    
    
    
    1,532Raw materials
    
    
    9,419
    
    
    
    7,433Total
    
    $
    15,288
    
    
    $
    12,136
   
 8. GOODWILL AND INTANGIBLE ASSETS
  12




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Net
    
    
    AmortizationGross Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    PeriodAmount
    
    
    Amortization
    
    
    Amount
    
    
    (years)As of March 31, 2008Product
intangibles
    
    $
    42,430
    
    
    $
    (5,148
    )
    
    $
    37,282
    
    
    6 - 14Non-competition agreements
    
    
    530
    
    
    
    (138
    )
    
    
    392
    
    
    2 - 3Favorable lease
    
    
    227
    
    
    
    (181
    )
    
    
    46
    
    
    10 months$
    43,187
    
    
    $
    (5,467
    )
    
    $
    37,720As of December 31, 2007Product
intangibles
    
    $
    42,332
    
    
    $
    (4,122
    )
    
    $
    38,210
    
    
    6 - 14Non-competition agreements
    
    
    530
    
    
    
    (82
    )
    
    
    448
    
    
    2 - 3Favorable lease
    
    
    227
    
    
    
    (112
    )
    
    
    115
    
    
    10 months$
    43,089
    
    
    $
    (4,316
    )
    
    $
    38,773
   Remainder
    
    
    Years Ending December 31,of 2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013Cost of goods sold:Intellectual
property
    
    $
    3,076
    
    
    $
    4,024
    
    
    $
    3,978
    
    
    $
    3,917
    
    
    $
    3,901
    
    
    $
    3,840General and administrative:Non-compete and favorable
lease agreements
    
    
    212
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,288
    
    
    $
    4,195
    
    
    $
    4,033
    
    
    $
    3,917
    
    
    $
    3,901
    
    
    $
    3,840
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9. OTHER ACCRUED LIABILITIES:
  March 31,
    
    
    December 31,2008
    
    
    2007Income taxes payable
    
    $
    4,783
    
    
    $
    2,414Accrued medicaid and other rebates
    
    
    3,628
    
    
    
    4,065Accrued market withdrawal costs
    
    
    
    
    
    
    3,300Allowance for product returns
    
    
    2,016
    
    
    
    1,875Other accrued liabilities
    
    
    4,733
    
    
    
    3,616Total other accrued liabilities
    
    $
    15,160
    
    
    $
    15,270
 10. EQUITY PLANS:
     14




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WeightedAverageGrant-DateShares
    
    Fair ValueNonvested at
December 31, 2007
    
    
    6
    
    
    $
    22.86Granted
    
    
    7
    
    
    
    13.62Vested
    
    
    (7
    )
    
    
    21.73Nonvested at
March 31, 2008
    
    
    6
    
    
    $
    13.62
  2008
    
    2007Volatility
    
    
    45.5
    %
    
    
    52.2
    %Risk free interest rate
    
    
    2.63
    %
    
    
    4.94
    %Expected life (years)
    
    
    4.8
    
    
    
    5.0Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
  2008
    
    
    2007Selling and marketing
    
    $
    154
    
    
    $
    111General and administrative
    
    
    469
    
    
    
    628Research and development
    
    
    90
    
    
    
    127Total cost of products sold
    
    
    145
    
    
    
    122$
    858
    
    
    $
    988Tax benefit recognized related to
compensation expense
    
    $
    293
    
    
    $
    309
   15




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WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingOptions/
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualSSARs
    
    
    Price
    
    
    Value
    
    
    TermOutstanding at
beginning of the period
    
    
    3,511
    
    
    $
    16.83Granted
    
    
    29
    
    
    
    12.15Exercised
    
    
    (1
    )
    
    
    10.89
    
    
    $
    3Canceled and expired
    
    
    (255
    )
    
    
    18.87Outstanding at end
of the period
    
    
    3,284
    
    
    $
    16.76
    
    
    $
    
    
    
    
    4.0Outstanding and exercisable
at end of the period
    
    
    2,017
    
    
    $
    17.77
    
    
    $
    
    
    
    
    2.8
  11. INCOME TAXES:
   16




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17




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12. CONTRACT AND LICENSE AGREEMENTS:
     
 
  ® ® ®
 18




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13. INVESTMENT IN VIVELLE VENTURES LLC (d/b/a NOVOGYNE):
   2008
    
    
    2007Revenues:Product sales
    
    $
    2,431
    
    
    $
    5,369Royalties
    
    
    2,180
    
    
    
    1,765$
    4,611
    
    
    $
    7,134Reimbursed expenses
    
    $
    7,272
    
    
    $
    7,085
   2008
    
    
    2007Gross revenues
    
    $
    45,294
    
    
    $
    37,293Sales allowances
    
    
    5,853
    
    
    
    4,162Sales return allowances
    
    
    (85
    )
    
    
    51Sales allowances and returns
    
    
    5,768
    
    
    
    4,213Net revenues
    
    
    39,526
    
    
    
    33,080Cost of sales
    
    
    7,808
    
    
    
    7,047Selling, general and
administrative expenses
    
    
    9,012
    
    
    
    10,133Income from operations
    
    
    22,706
    
    
    
    15,900Interest income
    
    
    267
    
    
    
    332Net income
    
    $
    22,973
    
    
    $
    16,232Novens equity in earnings of Novogyne
    
    $
    8,267
    
    
    $
    4,903
 19




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Investment in Novogyne, beginning of period
    
    $
    24,310Equity in earnings of Novogyne
    
    
    8,267Cash distributions from Novogyne
    
    
    (10,916
    )Investment in Novogyne, end of period
    
    $
    21,661
  14. SHARE REPURCHASE PROGRAM:
  15. COMMITMENTS AND CONTINGENCIES:
    ® ® ® ®
 20




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  
  ®
 ®
 ® ®
 ® ® ®
 
 21




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##### Table of Contents



   
 
  
   
   22




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##### Table of Contents



16. SEGMENT AND CUSTOMER DATA:
  23




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##### Table of Contents



Three MonthsEnded March 31,2008
    
    
    2007Transdermals Segment:Net product revenues
    
    $
    10,491
    
    
    $
    15,606License and contract revenues
    
    
    5,286
    
    
    
    3,709Net revenues
    
    
    15,777
    
    
    
    19,315Direct costs and expenses
    
    
    (11,845
    )
    
    
    (12,633
    )Equity in earnings of Novogyne
    
    
    8,267
    
    
    
    4,903Transdermals contribution
    
    
    12,199
    
    
    
    11,585Therapeutics Segment:Net product revenues
    
    
    5,705
    
    
    
    Direct costs and expenses
    
    
    (7,606
    )
    
    
    Therapeutics contribution
    
    
    (1,901
    )
    
    
    Total Contribution
    
    
    10,298
    
    
    
    11,585Unallocated
income (expense):General and administrative
    
    
    (7,022
    )
    
    
    (5,181
    )Interest income, net
    
    
    622
    
    
    
    1,632Income before income taxes
    
    $
    3,898
    
    
    $
    8,036
  March 31,
    
    
    December 31,2008
    
    
    2007Transdermals
    
    $
    83,072
    
    
    $
    83,912Therapeutics
    
    
    56,666
    
    
    
    57,893Assets not allocated to segments
    
    
    139,799
    
    
    
    144,893Total Assets
    
    $
    279,537
    
    
    $
    286,698
 17. SUBSEQUENT EVENT  APPOINTMENT OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
   24




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25




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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 2008 Quarter;
    
    An overview of Noven and our Novogyne joint venture;
    
    An overview of Noven Therapeutics;
    
    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;
    
    An outlook that includes our current financial guidance;
    
    A discussion of how we apply our critical accounting estimates; and
    
    A discussion of recently-issued accounting standards.
  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 consolidated financial statements and related notes included in this Form 10-Q .
   ® ® 
 
  26




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®
  ®  ® ®
 Overview of Noven and our Novogyne Joint Venture
  ® ®
 27




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##### Table of Contents



Overview of Noven Therapeutics
 ® ® 
 Certain Items that May Affect Historical or Future Comparability
  Acquisition of JDS Pharmaceuticals, LLC in 2007
   28




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##### Table of Contents



Remainder
    
    
    Years Ending December 31,of 2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013Cost of goods sold:Intellectual
property
    
    $
    3,076
    
    
    $
    4,024
    
    
    $
    3,978
    
    
    $
    3,917
    
    
    $
    3,901
    
    
    $
    3,840General and administrative:Non-compete and favorable
lease agreements
    
    
    212
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,288
    
    
    $
    4,195
    
    
    $
    4,033
    
    
    $
    3,917
    
    
    $
    3,901
    
    
    $
    3,840
  Daytrana 
    
 
  
   
 29




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##### Table of Contents



Results of Operations
   
 30




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##### Table of Contents



Three MonthsEnded March 31,2008
    
    
    2007(in thousands of dollars):Noven Transdermals:Product revenues
    
    $
    10,491
    
    
    $
    15,606License and contract revenues
    
    
    5,286
    
    
    
    3,709Net revenues
    
    
    15,777
    
    
    
    19,315Cost of products sold
    
    
    (9,273
    )
    
    
    (8,927
    )Research and development
    
    
    (2,378
    )
    
    
    (3,466
    )Selling and marketing
    
    
    (194
    )
    
    
    (240
    )Equity in earnings of Novogyne
    
    
    8,267
    
    
    
    4,903Segment contribution
    
    
    12,199
    
    
    
    11,585Noven Therapeutics:Product revenues
    
    
    5,705
    
    
    
    Cost of products sold
    
    
    (2,036
    )
    
    
    Research and development
    
    
    (941
    )
    
    
    Selling and marketing
    
    
    (4,629
    )
    
    
    Segment Contribution
    
    
    (1,901
    )
    
    
    Unallocated income (expense):General and administrative
    
    
    (7,022
    )
    
    
    (5,181
    )Interest income, net
    
    
    622
    
    
    
    1,632Income before income taxes
    
    $
    3,898
    
    
    $
    8,036
 31




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##### Table of Contents



2008 Quarter compared to the 2007 Quarter
 Revenues
  Three MonthsEnded March 31,2008
    
    
    2007
    
    
    % ChangeNoven TransdermalsNovygyne:Product sales
    
    $
    2,431
    
    
    $
    5,369
    
    
    
    (55
    %)Royalties
    
    
    2,180
    
    
    
    1,765
    
    
    
    24
    %4,611
    
    
    
    7,134
    
    
    
    (35
    %)Third Parties:Product sales
    
    
    5,801
    
    
    
    8,413
    
    
    
    (31
    %)Royalties
    
    
    79
    
    
    
    59
    
    
    
    34
    %5,880
    
    
    
    8,472
    
    
    
    (31
    %)Total product revenues
    
    
    10,491
    
    
    
    15,606
    
    
    
    (33
    %)License and contract revenues
    
    
    5,286
    
    
    
    3,709
    
    
    
    43
    %Total Transdermals
    
    
    15,777
    
    
    
    19,315
    
    
    
    (18
    %)Noven TherapeuticsThird Parties:Product sales
    
    
    5,705
    
    
    
    
    
    
    
    N/ANet Revenues
    
    $
    21,482
    
    
    $
    19,315
    
    
    
    11
    %
 Net Revenues
 ® ®
 Product Revenues  Novogyne
 ® ® ® ®
  32




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Product Revenues  Third Parties
 ® ® ®  ® ®
  
 ® ®
 License and Contract Revenues
  
 33




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##### Table of Contents



Gross to Net Revenues
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % ofgross
    
    
    
    
    
    
    gross2008
    
    
    revenues
    
    
    2007
    
    
    revenuesNoven Transdermals:Gross revenues
    
    $
    16,013
    
    
    
    100
    %
    
    $
    19,315
    
    
    
    100
    %Sales returns allowances
    
    
    236
    
    
    
    1
    %
    
    
    
    
    
    
    0
    %Net revenues
    
    $
    15,777
    
    
    
    99
    %
    
    $
    19,315
    
    
    
    100
    %Noven Therapeutics:Gross revenues
    
    $
    9,508
    
    
    
    100
    %Cash discounts
    
    
    192
    
    
    
    2
    %Medicaid, Medicare & State
program rebates and
credits including
redemption offers
    
    
    2,289
    
    
    
    24
    %Chargebacks
    
    
    267
    
    
    
    3
    %Wholesaler Fees
    
    
    594
    
    
    
    6
    %Sales returns
    
    
    461
    
    
    
    5
    %Sales and returns allowances
    
    
    3,803
    
    
    
    40
    %Net revenues
    
    $
    5,705
    
    
    
    60
    %
 Gross Margin:
  ® ®
  34




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##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007Noven TransdermalsNovogyne:Product revenues
    
    $
    4,611
    
    
    
    
    
    
    $
    7,134Cost of products sold
    
    
    3,326
    
    
    
    
    
    
    
    2,959Gross profit
    
    
    1,285
    
    
    
    28
    %
    
    
    4,175
    
    
    
    59
    %Third parties:Product revenues
    
    
    5,880
    
    
    
    
    
    
    
    8,472Cost of products sold
    
    
    5,947
    
    
    
    
    
    
    
    5,968Gross profit
    
    
    (67
    )
    
    
    -1
    %
    
    
    2,504
    
    
    
    30
    %Total Noven Transdermals:Product revenues
    
    
    10,491
    
    
    
    
    
    
    
    15,606Cost of products sold
    
    
    9,273
    
    
    
    
    
    
    
    8,927Gross profit
    
    
    1,218
    
    
    
    12
    %
    
    
    6,679
    
    
    
    43
    %Noven TherapeuticsProduct revenues
    
    
    5,705
    
    
    
    
    
    
    
    Cost of products sold
    
    
    2,036
    
    
    
    
    
    
    
    Gross profit
    
    
    3,669
    
    
    
    64
    %
    
    
    
    
    
    
    Total CompanyProduct revenues
    
    
    16,196
    
    
    
    
    
    
    
    15,606Cost of products sold
    
    
    11,309
    
    
    
    
    
    
    
    8,927Gross profit
    
    $
    4,887
    
    
    
    30
    %
    
    $
    6,679
    
    
    
    43
    %
  35




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® ®
     
 
  Operating Expenses
  Three MonthsEnded March 31,2008
    
    2007
    
    % ChangeResearch and development
    
    
    3,319
    
    
    
    3,466
    
    
    
    -4
    %Selling and marketing
    
    
    4,823
    
    
    
    240
    
    
    
    N/MGeneral and administrative
    
    
    7,022
    
    
    
    5,181
    
    
    
    36
    %
 Research and Development
  Selling and Marketing
  36




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##### Table of Contents



General and Administrative
  Other Income and Expenses
 Interest Income
  Income Taxes
   Equity in Earnings of Novogyne
  37




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##### Table of Contents



2008
    
    
    2007
    
    
    % ChangeGross revenues1
    
    $
    45,294
    
    
    $
    37,293
    
    
    
    21
    %Sales allowances
    
    
    5,853
    
    
    
    4,162
    
    
    
    41
    %Sales returns allowances
    
    
    (85
    )
    
    
    51
    
    
    
    (267
    %)Sales and returns allowances
    
    
    5,768
    
    
    
    4,213
    
    
    
    37
    %Net revenues
    
    
    39,526
    
    
    
    33,080
    
    
    
    19
    %Cost of sales
    
    
    7,808
    
    
    
    7,047
    
    
    
    11
    %Gross profit
    
    
    31,718
    
    
    
    26,033
    
    
    
    22
    %Gross margin percentage
    
    
    80
    %
    
    
    79
    %Selling, general and
administrative expenses
    
    
    9,012
    
    
    
    10,133
    
    
    
    (11
    %)Income from operations
    
    
    22,706
    
    
    
    15,900
    
    
    
    43
    %Interest income
    
    
    267
    
    
    
    332
    
    
    
    (20
    %)Net income
    
    $
    22,973
    
    
    $
    16,232
    
    
    
    42
    %Novens equity in earnings of Novogyne
    
    $
    8,267
    
    
    $
    4,903
    
    
    
    69
    %
 
 1
    
    Novogynes gross revenues, which are calculated by adding sales allowances and sales
returns allowances to net revenues, are discussed in this section because Novens management
believes it is a useful measure to evaluate and compare Novogynes sales period to period. Novogyne Net Revenues
  ® ® ® ® ® ®
  ® ®
 38




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##### Table of Contents



Novogyne Gross Margin
 ®
 Novogyne Selling, General and Administrative Expenses
  Liquidity and Capital Resources
  March 31,
    
    December 31,2008
    
    2007Cash and cash equivalents
    
    $
    27,665
    
    
    $
    13,973Short-term investments
    
    
    12,725
    
    
    
    21,565Working capital
    
    
    30,315
    
    
    
    24,024
  2008
    
    
    2007Cash flows:Operating activities
    
    $
    (4,076
    )
    
    $
    30,425Investing activities
    
    
    17,813
    
    
    
    (6,532
    )Financing activities
    
    
    (45
    )
    
    
    1,588Net cash flow
    
    $
    13,692
    
    
    $
    25,481
 Operating Activities
 
 
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##### Table of Contents



Investing Activities
    Financing Activities
  Short-Term and Long-Term Liquidity
      
 
 40




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##### Table of Contents



 
   Balance at December 31, 2007
    
    $
    54,400Purchases of investments
    
    
    550Sales of investments at par
    
    
    (18,800
    )Unrealized losses recorded to other comprehensive loss
    
    
    (515
    )Balance at March 31, 2008
    
    $
    35,635
    41




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Aggregate Contractual Obligations
  42




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##### Table of Contents



Critical Accounting Estimates
  Recent Accounting Pronouncements
  Outlook
  
    
    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, 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 January 2008 warning letter or
otherwise;
    
    changes in our business relationships/collaborations; or
    
    changes in the economy or the health care sector generally.
   Net Revenues. ® ®    
 43




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##### Table of Contents



Gross Margin. 
 Research and Development Expense.
 Selling, General and Administrative Expense.
 Equity in Earnings of Novogyne.
 Interest Income.
 
 Item 3. Quantitative and Qualitative Disclosure About Market Risk
  44




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Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Certificates
  45




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  46




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##### Table of Contents



Item 1A. Risk Factors
  
 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
    
    Program(1)January 1, 2008 to
January 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,876,238February 1, 2008 to
February
29, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,876,238March 1, 2008 to
March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,876,238Totals
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,876,238
 
 (1)
    
    In September 2007, we announced a stock repurchase program authorizing the repurchase
of up to $25.0 million of our common stock. During the third quarter of 2007, we
repurchased 322,345 shares of our common stock at an aggregate price of approximately $5.1
million. There is no expiration date specified for this program. 
 Item 5. Other Information
  47




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Item 6. Exhibits
 4.1
    
    Amendment No. 1, dated as of March 18, 2008, to the Rights Agreement, dated
November 6, 2001, between Noven Pharmaceuticals, Inc. and American Stock Transfer &
Trust Company as Rights Agent (incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on March 21, 2008).10.1
    
    Separation Agreement between Robert C. Strauss and Noven Pharmaceuticals,
Inc., dated January 2, 2008 (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on January 3, 2008).10.2
    
    Form of Restricted Stock Unit Agreement (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed
on January 3, 2008).10.3
    
    Letter Agreement between Jeffrey F. Eisenberg and Noven Pharmaceuticals,
Inc., dated January 2, 2008 (incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on January 3, 2008).10.4
    
    Restricted Stock Agreement between Jeffrey F. Eisenberg and Noven
Pharmaceuticals, Inc. dated January 2, 2008 (incorporated by reference to Exhibit
10.4 to the Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on
January 3, 2008).10.5
    
    Manufacturing and Supply Agreement between ANI Pharmaceuticals, Inc. and
Noven Therapeutics, LLC (f/k/a JDS Pharmaceuticals, LLC) dated January 2, 2008 (with
certain provisions omitted pursuant to Rule 24b-2) (incorporated by reference to
Exhibit 10.47 to the Annual Report on Form 10-K of Noven Pharmaceuticals, Inc. filed
on April 1, 2008).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. 48




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Signatures
  NOVEN PHARMACEUTICALS, INC.Date: May 12, 2008
    By:
    /s/ Michael D. PriceMichael D. PriceVice President and
Chief Financial Officer 49