##### 



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, 2003

Commission file number 0-17254

NOVEN PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


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

|                                                                                            
|--------------------------------------------------------------------------------------------
|11960 S.W. 144th Street, Miami, FL 33186
(Address of principal executive offices) (Zip Code)

|                                                                   
|-------------------------------------------------------------------
|(305) 253-5099
(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 [  ].

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

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 April 30, 2003
|                              |  |                              
|Common stock $.0001 par value |  | 22,492,340                   





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##### 



NOVEN PHARMACEUTICALS, INC.

INDEX

|                               |                                                                                                |                                                                                       |    |         
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -- | --------
|                               |                                                                                                |                                                                                       |    | Page No.
|                               |                                                                                                |                                                                                       |    |         
|PART I - FINANCIAL INFORMATION |                                                                                                |                                                                                      
|                               | Item 1 - Unaudited Condensed Financial Statements                                              |                                                                                       |   
|                               |                                                                                                | Condensed Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 |    | 3       
|                               |                                                                                                | Condensed Balance Sheets as of March 31, 2003 and December 31, 2002                   |    | 4       
|                               |                                                                                                | Condensed Statements of Cash Flows for the Three Months Ended
March 31, 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 |                                                                                       | 12
|                               | Item 3 - Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                       | 23
|                               | Item 4 - Controls and Procedures                                                               |                                                                                       | 23
|PART II - OTHER INFORMATION    |                                                                                                |                                                                                      
|                               | Item 6 - Exhibits and Reports on Form 8-K                                                      |                                                                                       | 24
|SIGNATURES                     |                                                                                                | 25                                                                                   
|CERTIFICATIONS                 |                                                                                                | 26                                                                                   

2



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##### 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOVEN PHARMACEUTICALS, INC.
Condensed Statements of Operations
Three Months Ended March 31,
(in thousands, except per share amounts)
(unaudited)

|                                                      |  |                                       |       |      |        |      |       |   |        | 
|----------------------------------------------------- |  | ------------------------------------- | ----- | ---- | ------ | ---- | ----- | - | ------ | 
|                                                      |  |                                       |       | 2003 |        | 2002
|                                                      |  |                                       |       |      |        |     
|Revenues:                                             |  |                                       |       |      |        |      |       |  
|                                                      |  | Product sales                         |       | $    | 9,144  |      |       | $ | 11,991 | 
|                                                      |  | License revenue                       |       |      | 881    |      |       |   | 744    | 
|                                                      |  |                                       |       |      |        |      |       |  
|                                                      |  | Total revenues                        |       |      | 10,025 |      |       |   | 12,735 | 
|Expenses:                                             |  |                                       |       |      |        |      |       |  
|                                                      |  | Cost of products sold                 |       |      | 4,285  |      |       |   | 5,900  | 
|                                                      |  | Research and development              |       |      | 2,493  |      |       |   | 3,369  | 
|                                                      |  | Marketing, general and administrative |       |      | 4,181  |      |       |   | 2,933  | 
|                                                      |  |                                       |       |      |        |      |       |  
|                                                      |  | Total expenses                        |       |      | 10,959 |      |       |   | 12,202 | 
|                                                      |  |                                       |       |      |        |      |       |  
|Income (loss) from operations                         |  |                                       | (934  | )    |        |      | 533   |  
|Equity in earnings of Novogyne                        |  |                                       | 1,525 |      |        |      | 1,515 |  
|Interest income, net                                  |  |                                       | 148   |      |        |      | 207   |  
|                                                      |  |                                       |       |      |        |      |       |  
|Income before income taxes                            |  |                                       | 739   |      |        |      | 2,255 |  
|Provision for income taxes                            |  |                                       | 266   |      |        |      | 802   |  
|                                                      |  |                                       |       |      |        |      |       |  
|Net income                                            |  | $                                     | 473   |      |        | $    | 1,453 |  
|                                                      |  |                                       |       |      |        |      |       |  
|Basic earnings per share                              |  | $                                     | .02   |      |        | $    | .06   |  
|                                                      |  |                                       |       |      |        |      |       |  
|Diluted earnings per share                            |  | $                                     | .02   |      |        | $    | .06   |  
|                                                      |  |                                       |       |      |        |      |       |  
|Weighted average number of common shares outstanding: |  |                                       |       |      |        |      |       |  
|                                                      |  | Basic                                 |       |      | 22,581 |      |       |   | 22,491 | 
|                                                      |  |                                       |       |      |        |      |       |  
|                                                      |  | Diluted                               |       |      | 22,920 |      |       |   | 23,456 | 
|                                                      |  |                                       |       |      |        |      |       |  

The accompanying notes are an integral part of these statements.

3



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##### 



NOVEN PHARMACEUTICALS, INC.
Condensed Balance Sheets
(in thousands, except share data)
(unaudited)

|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|--------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | -------------- | ------ | ----------------- | ------- | - | ------ | 
|                                        |  |                                                                                                                                                                         |         | March 31, 2003 |        | December 31, 2002
|                                        |  |                                                                                                                                                                         |         |                |        |                  
|Assets                                  |  |                                                                                                                                                                         |         |                |        |                   |         |  
|Current Assets:                         |  |                                                                                                                                                                         |         |                |        |                   |         |  
|                                        |  | Cash and cash equivalents                                                                                                                                               |         | $              | 65,404 |                   |         | $ | 58,684 | 
|                                        |  | Accounts receivable - trade (less allowance for
doubtful accounts of $64 in 2003 and $79 in 2002)                                                                       |         |                | 3,559  |                   |         |   | 4,359  | 
|                                        |  | Accounts receivable - Novogyne                                                                                                                                          |         |                | 3,794  |                   |         |   | 2,581  | 
|                                        |  | Inventories                                                                                                                                                             |         |                | 4,141  |                   |         |   | 5,613  | 
|                                        |  | Net deferred income tax asset                                                                                                                                           |         |                | 1,700  |                   |         |   | 2,600  | 
|                                        |  | Prepaid and other current assets                                                                                                                                        |         |                | 898    |                   |         |   | 541    | 
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  |                                                                                                                                                                         | 79,496  |                |        |                   | 74,378  |  
|Property, plant and equipment, net      |  |                                                                                                                                                                         | 17,130  |                |        |                   | 16,232  |  
|Other Assets:                           |  |                                                                                                                                                                         |         |                |        |                   |         |  
|                                        |  | Investment in Novogyne                                                                                                                                                  |         |                | 25,561 |                   |         |   | 34,684 | 
|                                        |  | Net deferred income tax asset                                                                                                                                           |         |                | 10,654 |                   |         |   | 9,831  | 
|                                        |  | Patent development costs, net                                                                                                                                           |         |                | 2,023  |                   |         |   | 1,996  | 
|                                        |  | Deposits and other assets                                                                                                                                               |         |                | 481    |                   |         |   | 581    | 
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  |                                                                                                                                                                         | 38,719  |                |        |                   | 47,092  |  
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  | $                                                                                                                                                                       | 135,345 |                |        | $                 | 137,702 |  
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|Liabilities and Stockholders Equity    |  |                                                                                                                                                                         |         |                |        |                   |         |  
|Current Liabilities:                    |  |                                                                                                                                                                         |         |                |        |                   |         |  
|                                        |  | Accounts payable                                                                                                                                                        |         | $              | 6,774  |                   |         | $ | 5,062  | 
|                                        |  | Notes payable, current portion                                                                                                                                          |         |                | 9      |                   |         |   | 8      | 
|                                        |  | Accrued compensation and related liabilities                                                                                                                            |         |                | 2,200  |                   |         |   | 3,549  | 
|                                        |  | Other accrued liabilities                                                                                                                                               |         |                | 780    |                   |         |   | 2,063  | 
|                                        |  | Deferred contract revenue                                                                                                                                               |         |                | 968    |                   |         |   | 829    | 
|                                        |  | Deferred license revenue, current portion                                                                                                                               |         |                | 3,526  |                   |         |   | 3,525  | 
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  |                                                                                                                                                                         | 14,257  |                |        |                   | 15,036  |  
|Long-Term Liabilities:                  |  |                                                                                                                                                                         |         |                |        |                   |         |  
|                                        |  | Notes payable                                                                                                                                                           |         |                | 2      |                   |         |   | 5      | 
|                                        |  | Deferred license revenue                                                                                                                                                |         |                | 25,038 |                   |         |   | 25,920 | 
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  |                                                                                                                                                                         | 39,297  |                |        |                   | 40,961  |  
|Commitments and Contingencies (Note 10) |  |                                                                                                                                                                         |         |                |        |                   |         |  
|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 22,488,137 shares at March 31, 2003 and
22,579,112 at December 31, 2002 |         |                | 2      |                   |         |   | 2      | 
|                                        |  | Additional paid-in capital                                                                                                                                              |         |                | 77,192 |                   |         |   | 78,358 | 
|                                        |  | Retained earnings                                                                                                                                                       |         |                | 18,854 |                   |         |   | 18,381 | 
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  |                                                                                                                                                                         | 96,048  |                |        |                   | 96,741  |  
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 
|                                        |  | $                                                                                                                                                                       | 135,345 |                |        | $                 | 137,702 |  
|                                        |  |                                                                                                                                                                         |         |                |        |                   |         |   |        | 

The accompanying notes are an integral part of these statements.

4



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##### 



NOVEN PHARMACEUTICALS, INC.
Condensed Statements of Cash Flows
Three Months Ended March 31,
(in thousands)
(unaudited)

|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |        |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ------ | ------ | ------ | ----- | ------ | ------ | -
|                                                     |                                                                                             |                                                                     |                                                       |        | 2003   |        | 2002  
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |       
|Cash flows from operating activities:                |                                                                                             |                                                                     |                                                       |        |        |        |        |      
|                                                     | Net income                                                                                  |                                                                     | $                                                     | 473    |        |        | $      | 1,453 |       
|                                                     | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                                     |                                                       |        |        |        |        |       |       
|                                                     |                                                                                             | Depreciation and amortization                                       |                                                       |        | 577    |        |        |       | 530    |       
|                                                     |                                                                                             | Amortization of patent costs                                        |                                                       |        | 82     |        |        |       | 71     |       
|                                                     |                                                                                             | Amortization of non-competition agreement                           |                                                       |        | 100    |        |        |       | 100    |       
|                                                     |                                                                                             | Deferred income tax expense                                         |                                                       |        | 77     |        |        |       | 374    |       
|                                                     |                                                                                             | Recognition of deferred contract revenue                            |                                                       |        | (26    | )      |        |       | (574   | )     
|                                                     |                                                                                             | Recognition of deferred license revenue                             |                                                       |        | (881   | )      |        |       | (744   | )     
|                                                     |                                                                                             | Distributed (undistributed) earnings of Novogyne                    |                                                       |        | 9,123  |        |        |       | (1,515 | )     
|                                                     |                                                                                             | Decrease
(increase) in accounts receivable - trade, net             |                                                       |        | 800    |        |        |       | (2,548 | )     
|                                                     |                                                                                             | Increase
in accounts receivable - Novogyne                          |                                                       |        | (1,213 | )      |        |       | (1,524 | )     
|                                                     |                                                                                             | Decrease in inventories                                             |                                                       |        | 1,472  |        |        |       | 414    |       
|                                                     |                                                                                             | Increase in prepaid and other current assets                        |                                                       |        | (357   | )      |        |       | (174   | )     
|                                                     |                                                                                             | Decrease in deposits and other assets                               |                                                       |        |       |        |        |       | 2      |       
|                                                     |                                                                                             | Increase in accounts payable                                        |                                                       |        | 1,712  |        |        |       | 2,641  |       
|                                                     |                                                                                             | (Decrease) increase in accrued compensation and related
liabilities |                                                       |        | (1,349 | )      |        |       | 769    |       
|                                                     |                                                                                             | Decrease in other accrued liabilities                               |                                                       |        | (1,277 | )      |        |       | (1,195 | )     
|                                                     |                                                                                             | Increase in deferred contract revenue                               |                                                       |        | 165    |        |        |       | 95     |       
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       
|                                                     |                                                                                             |                                                                     | Cash flows provided by (used in) operating activities |        |        | 9,478  |        |       |        | (1,825 | )
|Cash flows from investing activities:                |                                                                                             |                                                                     |                                                       |        |        |        |        |      
|                                                     | Purchase of property, plant and equipment, net                                              |                                                                     |                                                       | (1,475 | )      |        |        | (182  | )     
|                                                     | Payments for patent development costs                                                       |                                                                     |                                                       | (109   | )      |        |        | (48   | )     
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       
|                                                     |                                                                                             |                                                                     | Cash flows used in investing activities               |        |        | (1,584 | )      |       |        | (230   | )
|Cash flows from financing activities:                |                                                                                             |                                                                     |                                                       |        |        |        |        |      
|                                                     | Issuance of common stock                                                                    |                                                                     |                                                       | 117    |        |        |        | 183   |       
|                                                     | Purchase and retirement of common stock                                                     |                                                                     |                                                       | (1,289 | )      |        |        |      |       
|                                                     | Repayments of notes payable                                                                 |                                                                     |                                                       | (2     | )      |        |        | (247  | )     
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       
|                                                     |                                                                                             |                                                                     | Cash flows used in financing activities               |        |        | (1,174 | )      |       |        | (64    | )
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       
|Net increase (decrease) in cash and cash equivalents |                                                                                             |                                                                     | 6,720                                                 |        |        |        | (2,119 | )    
|Cash and cash equivalents, beginning of period       |                                                                                             |                                                                     | 58,684                                                |        |        |        | 49,389 |      
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       
|Cash and cash equivalents, end of period             |                                                                                             | $                                                                   | 65,404                                                |        |        | $      | 47,270 |      
|                                                     |                                                                                             |                                                                     |                                                       |        |        |        |        |       |       

The accompanying notes are an integral part of these statements.

5



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##### 



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 March 31, 2003, and the
results of its operations for the three months ended March 31, 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 may elect to require Noven to repurchase the
MethyPatch® rights for $5 million. Accordingly, the results of
operations and cash flows for the three months ended March 31, 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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##### 





|3. |  | RECLASSIFICATION:
|-- |  | -----------------



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



|4. |  | INVENTORIES:
|-- |  | ------------



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

|                |  |           |       |              |  |   |       | 
|--------------- |  | --------- | ----- | ------------ |  | - | ----- | 
|                |  | March 31, |       | December 31,
|                |  | 2003      |       | 2002        
|                |  |           |       |             
|Finished goods  |  | $         | 299   |              |  | $ | 830   | 
|Work in process |  |           | 1,453 |              |  |   | 1,390 | 
|Raw materials   |  |           | 2,389 |              |  |   | 3,393 | 
|                |  |           |       |              |  |   |       | 
|Total           |  | $         | 4,141 |              |  | $ | 5,613 | 
|                |  |           |       |              |  |   |       | 



|5. |  | EMPLOYEE STOCK PLANS:
|-- |  | ---------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, as
amended by Statement of Financial Accounting Standards No. 148
(SFAS 148),
Accounting for Stock-Based Compensation - Transition and
Disclosure, Noven
may elect to continue to apply the provisions of the Accounting Principles
Boards Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees
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.

7



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##### 





| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table illustrates the effect on net income and earnings
per share for the three months ended March 31, 2003 and 2002 if the company
had applied the fair value recognition provisions of SFAS 123, as amended by
SFAS 148 (in thousands, except per share amounts):

|                            |                                                                                                                                      |  |      |        |      |  |   |        |  
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | - | ------ | -
|                            |                                                                                                                                      |  | 2003 |        | 2002
|                            |                                                                                                                                      |  |      |        |     
|Net income:                 |                                                                                                                                      |  |      |        |      |  |   |       
|                            | As reported                                                                                                                          |  | $    | 473    |      |  | $ | 1,453  |  
|                            | Total stock-based
employee
compensation

expense determined
under fair value
based method for
all awards, net of
related tax effects |  |      | (1,176 | )    |  |   | (1,091 | )
|                            |                                                                                                                                      |  |      |        |      |  |   |        |  
|                            | Pro forma                                                                                                                            |  | $    | (703   | )    |  | $ | 362    |  
|                            |                                                                                                                                      |  |      |        |      |  |   |        |  
|Basic earnings per share:   |                                                                                                                                      |  |      |        |      |  |   |       
|                            | As reported                                                                                                                          |  | $    | 0.02   |      |  | $ | 0.06   |  
|                            | Pro forma                                                                                                                            |  | $    | (0.03  | )    |  | $ | 0.02   |  
|                           
|Diluted earnings per share: |                                                                                                                                      |  |      |        |      |  |   |       
|                            | As reported                                                                                                                          |  | $    | 0.02   |      |  | $ | 0.06   |  
|                            | Pro forma                                                                                                                            |  | $    | (0.03  | )    |  | $ | 0.02   |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 months
ending March 31, 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.



|6. |  | CASH FLOW INFORMATION:
|-- |  | ----------------------



| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash payments for income taxes were $1.3 million and $1.7 million for
the three months ended March 31, 2003 and 2002, respectively. Cash payments
for interest were not material for the three months ended March 31, 2003 and
2002.



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 directly to Aventis in March 2002.



| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Noven recorded $6,000 and $51,000 in income tax benefits to additional
paid-in capital for the three months ended March 31, 2003 and 2002,
respectively, which were derived from the exercise of non-qualified stock
options and disqualifying dispositions of incentive stock options.

8



---



##### 





|7. |  | LICENSE AGREEMENTS:
|-- |  | -------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the first quarter of 2003, Noven signed an agreement to license the
exclusive global rights to market MethyPatch® to Shire Pharmaceuticals Group
plc (Shire) for payments of up
to $150 million and ongoing manufacturing revenue. 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 believes that the application contains insufficient information
for an approval action at the time of issuance. The letter cited clinical
and other issues as the basis for non-approval. Under the agreement,
receipt of the not approvable letter gives Shire the right to require Noven
to repurchase the product rights for $5 million, but to date Shire has not
exercised this right. For accounting purposes, $20 million of the initial $25
million payment is expected to be deferred and recognized as revenue
over approximately 10 years beginning with the second quarter of
2003. The remaining $5 million has been deferred and
is expected to be recognized as revenue 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.



| |                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



|8. |  | 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.

9



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##### 





| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | During the three months ended March 31, 2003 and 2002, Noven had the
following transactions with Novogyne (in thousands):

|                     |                            |   |       |       |      |   |       |       | 
|-------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- | 
|                     |                            |   | 2003  |       | 2002
|                     |                            |   |       |       |     
|Revenue:             |                            |   |       |       |      |   |       |      
|                     | Trade product              |   | $     | 2,045 |      |   | $     | 5,117 | 
|                     | Sample product and other   |   |       | 885   |      |   |       | 1,260 | 
|                     | Royalty                    |   |       | 1,231 |      |   |       | 1,282 | 
|                     |                            |   |       |       |      |   |       |      
|                     |                            | $ | 4,161 |       |      | $ | 7,659 |      
|                     |                            |   |       |       |      |   |       |      
|Reimbursed Expenses: |                            |   |       |       |      |   |       |      
|                     | Services                   |   | $     | 4,782 |      |   | $     | 4,853 | 
|                     | Product specific marketing |   |       | 1,401 |      |   |       | 2,829 | 
|                     |                            |   |       |       |      |   |       |      
|                     |                            | $ | 6,183 |       |      | $ | 7,682 |      
|                     |                            |   |       |       |      |   |       |      



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of March 31, 2003 and December 31, 2002, Noven had amounts due from
Novogyne of $3.8 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 months ended March 31, 2003 and 2002 are as follows (in thousands):

|                                             |  |      |        |      |  |   |        | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                             |  | 2003 |        | 2002
|                                             |  |      |        |     
|Revenues                                     |  | $    | 24,464 |      |  | $ | 27,457 | 
|Cost of sales                                |  |      | 5,765  |      |  |   | 6,476  | 
|Selling, general and administrative
expenses |  |      | 7,883  |      |  |   | 9,937  | 
|Amortization of intangible assets            |  |      | 1,545  |      |  |   | 1,545  | 
|                                             |  |      |        |      |  |   |        | 
|Income from operations                       |  |      | 9,271  |      |  |   | 9,499  | 
|Interest income                              |  |      | 85     |      |  |   | 70     | 
|                                             |  |      |        |      |  |   |        | 
|Net income                                   |  | $    | 9,356  |      |  | $ | 9,569  | 
|                                             |  |      |        |      |  |   |        | 
|Novens equity in earnings of Novogyne       |  | $    | 1,525  |      |  | $ | 1,515  | 
|                                             |  |      |        |      |  |   |        | 



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. In
March 2003, Noven received a distribution of $10.6 million from Novogyne.
This amount was recorded as a reduction in the investment in Novogyne in the
first quarter of 2003.

10



---



##### 





|9. |  | 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 March 31, 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.



|10. |  | COMMITMENTS AND CONTINGENCIES:
|--- |  | ------------------------------



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

11



---



##### 



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 for the
year ended December 31, 2002, 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 and resulting label changes mandated by the FDA; 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 referred to above; 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 and trade customer inventory levels of Vivelle®;
risks and uncertainties relating to our dependence on Novartis to monitor trade
inventory levels for Novogyne; 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
and product development, including the regulatory review process for
MethyPatch® 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 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

12



---



##### 



Disorder (ADHD); risks associated with our ability to meet Shires
manufacturing requirements for MethyPatch®; expected fluctuations in
quarterly revenue 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; the effect of a
recent change in New Jersey State tax law, which may increase Novens tax
liability in future years; 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.

Based on information that we have received from Novartis, we believe that
trade inventory levels of Vivelle® are modestly higher than desired in light of
current and expected demand. We believe that Novogynes inventories are at
acceptable levels, primarily due to recent inventory management initiatives. We
expect that sales of Vivelle® in future periods may be impacted as trade
customers are expected to reduce their Vivelle® inventories.

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. The
product has been approved for marketing in over 30 foreign countries and the
regulatory authorities of other countries are reviewing Novartis registration
applications. Novartis AG has launched the product in Germany and a number of
smaller countries. However, Novartis AG has informed us that pricing and
reimbursement issues are adversely impacting its launch plans in many
countries, including the United Kingdom, France, Spain and Italy. Accordingly,
we cannot assure that Novartis AG will be successful in effecting additional
registrations of Estradot® or that Novartis AG will launch Estradot® in any
particular country. 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.
13HRT StudiesIn July 2002, the National Institute 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 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 October 2002, a
significant HRT study being conducted in the United Kingdom was also halted.
Our transdermal HRT products differ from the products used in the WHI study and
the primary products observed in the NCI and United Kingdom studies. There
are, however, no studies comparing the safety of our products against other HRT
therapies.Although the range of consequences of these studies cannot be predicted,
it is possible that they 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 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 at the time it reaches agreement with the FDA on the language.
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.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, and prescriptions in Europe have also declined. In
the first quarter of 2003, total prescriptions for Novogynes HRT products (in
the aggregate) were lower than in the fourth quarter of 2002. The WHI safety
board re-evaluates the risk/benefit profile of the estrogen-only arm as
frequently as twice per year. If the estrogen-only study or any other
currently ongoing HRT study is halted, 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 now 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.14MethyPatch®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 revenue. 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 believes that the application contains
insufficient information for an approval action at the time of issuance. Under
the agreement, receipt of the not approvable letter gives Shire the right to
require us to repurchase the product rights for $5 million, but to date Shire
has not exercised this right. For accounting purposes,
$20 million of the initial
$25 million payment is expected to be deferred and recognized as
revenue over approximately 10 years beginning with the second
quarter of 2003. The remaining $5 million has been deferred and
is expected to be recognized as revenue 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 developing a strategy for approval, and plan to meet with the FDA to
clarify its concerns and to determine what additional studies, analysis or
other actions would resolve the issues raised in the letter. 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.15Results of OperationsThree months ended March 31, 2003 compared to three months ended March 31, 2002Revenues:Total revenues for the three months ended March 31, 2003 and 2002 are
summarized as follows (dollar amounts in thousands):

|                                                        |  |      |        |      |  |        |        |   |  |            |     |   
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ------ | ------ | - |  | ---------- | --- | --
|                                                        |  |      |        |      |  |        |        |   |  | Percentage
|                                                        |  | 2003 |        | 2002 |  | Change
|                                                        |  |      |        |      |  |       
|Product revenue                                         |  | $    | 7,890  |      |  | $      | 10,135 |   |  |            | (22 | %)
|Contract revenue                                        |  |      | 26     |      |  |        | 574    |   |  |            | (95 | %)
|Royalties                                               |  |      | 1,228  |      |  |        | 1,282  |   |  |            | (4  | %)
|                                                        |  |      |        |      |  |        |        |   |  |            |     |   
|Product sales                                           |  |      | 9,144  |      |  |        | 11,991 |   |  |            | (24 | %)
|License revenue                                         |  |      | 881    |      |  |        | 744    |   |  |            | 18  | % 
|                                                        |  |      |        |      |  |        |        |   |  |            |     |   
|Total revenue                                           |  | $    | 10,025 |      |  | $      | 12,735 |   |  |            | (21 | %)
|                                                        |  |      |        |      |  |        |        |   |  |            |     |   
|Gross profit (product sales less cost of
products sold) |  | $    | 4,859  |      |  | $      | 6,091  |   |  |            | (20 | %)
|                                                        |  |      |        |      |  |        |        |   |  |            |     |   
|Gross margin (as a percentage of product sales)         |  |      | 53     | %    |  |        | 51     | % |  |            |     |   
|                                                        |  |      |        |      |  |        |        |   |  |            |     |   

The decrease in total revenues for the three months ended March 31, 2003
as compared to the same period in 2002 was primarily attributable to lower
sales of Vivelle-Dot® and CombiPatch® to Novogyne and, to a lesser extent,
lower sales of Menorest® and Estradot®, partially offset by higher sales of
Estalis® to Novartis AG. This decline in revenues reflects the impact of
inventory reduction initiatives intended to align inventories for our products
with current demand and to a lesser extent, a production issue relating to
material supplied by one vendor that caused us to suspend shipments of
CombiPatch® to Novogyne. We believe we have resolved
this production issue, and
have re-commenced shipments of CombiPatch® in the second quarter of 2003.

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

Gross Margin:

Our gross margin was 53% (or gross profit of $4.9 million) for the three
months ended March 31, 2003 versus 51% (or gross profit of $6.1 million) for
the three months ended March 31, 2002. The increase in gross margin was
primarily due to a decrease in the deferred profit related to sales of product
to Novogyne. The decrease in deferred profit on sales to Novogyne
resulted from lower inventories at Novogyne as a result of our inventory
reduction initiatives and the CombiPatch® production issue.
The increase in gross margin was partially offset by lower overhead absorption due to lower
production volumes.

16



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##### 



Operating Expenses:

Operating expenses for the three months ended March 31, 2003 and 2002 are
summarized as follows (dollar amounts in thousands):

|                                      |  |      |       |      |  |        |       |  |  |            |     |   
|------------------------------------- |  | ---- | ----- | ---- |  | ------ | ----- |  |  | ---------- | --- | --
|                                      |  |      |       |      |  |        |       |  |  | Percentage
|                                      |  | 2003 |       | 2002 |  | Change
|                                      |  |      |       |      |  |       
|Research and development              |  | $    | 2,493 |      |  | $      | 3,369 |  |  |            | (26 | %)
|Marketing, general and administrative |  |      | 4,181 |      |  |        | 2,933 |  |  |            | 43  | % 

Research and Development

The $0.9 million, or 26%, decrease in research and development expenses
for the three months ended March 31, 2003 as compared to the same period in
2002 was primarily attributable to a decrease in clinical study expenses for
MethyPatch® due to the completion of Phase III clinical trials, partially
offset by increases in research and development expenditures for our fentanyl
transdermal delivery system.

Marketing, General and Administrative

The $1.2 million, or 43%, increase in marketing, general and
administrative expenses for the three months ended March 31, 2003 as compared
to the same period in 2002 was primarily attributable to an increase in
pre-launch marketing expenses for MethyPatch®, increased insurance costs, and
legal fees incurred in connection with the Shire transaction.

Interest Income:

Interest income, net, decreased approximately $0.1 million, or 29%, for
the three months ended March 31, 2003 as compared to the same period in 2002,
primarily due to lower interest rates.

Income Taxes:

Our effective tax rate increased to 36.0% for the three months ended March
31, 2003 from 35.6% for the three months ended March 31, 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 March 31, 2003, we had a
net deferred tax asset of $12.4 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.

17



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##### 



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 Statements of
Operations.

The financial results of Novogyne for the three months ended March 31,
2003 and 2002 are summarized as follows (dollar amounts in thousands):

|                                       |  |                                              |       |      |        |      |       |        |        |   |   |            |     |   
|-------------------------------------- |  | -------------------------------------------- | ----- | ---- | ------ | ---- | ----- | ------ | ------ | - | - | ---------- | --- | --
|                                       |  |                                              |       |      |        |      |       |        |        |   |   | Percentage
|                                       |  |                                              |       | 2003 |        | 2002 |       | Change
|                                       |  |                                              |       |      |        |      |       |       
|Novogynes Summary Results:            |  |                                              |       |      |        |      |       |        |        |   |   |           
|                                       |  | Revenues                                     |       | $    | 24,464 |      |       | $      | 27,457 |   |   |            | (11 | %)
|                                       |  | Cost of sales                                |       |      | 5,765  |      |       |        | 6,476  |   |   |            | (11 | %)
|                                       |  |                                              |       |      |        |      |       |        |        |   |   |           
|                                       |  | Gross profit                                 |       |      | 18,699 |      |       |        | 20,981 |   |   |            | (11 | %)
|                                       |  | Gross margin percentage                      |       |      | 76     | %    |       |        | 76     | % |   |            |     |   
|                                       |  | Selling, general and administrative
expenses |       |      | 7,883  |      |       |        | 9,937  |   |   |            | (21 | %)
|                                       |  | Amortization of intangible assets            |       |      | 1,545  |      |       |        | 1,545  |   |   |            |    |   
|                                       |  |                                              |       |      |        |      |       |        |        |   |   |           
|                                       |  | Income from operations                       |       |      | 9,271  |      |       |        | 9,499  |   |   |            | (2  | %)
|                                       |  | Interest income                              |       |      | 85     |      |       |        | 70     |   |   |            | 21  | % 
|                                       |  |                                              |       |      |        |      |       |        |        |   |   |            |     |   
|                                       |  | Net income                                   |       | $    | 9,356  |      |       | $      | 9,569  |   |   |            | (2  | %)
|                                       |  |                                              |       |      |        |      |       |        |        |   |   |           
|Novens equity in earnings of Novogyne |  | $                                            | 1,525 |      |        | $    | 1,515 |        |        |   | 1 | %         
|                                       |  |                                              |       |      |        |      |       |        |        |   |   |           

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.

The decrease in Novogynes revenues of $3.0 million, or 11%, for the three
months ended March 31, 2003 as compared to the same period in 2002 is primarily
attributable to decreased sales of Vivelle®. Revenues for the first quarter of
2003 reflect the impact of inventory reduction initiatives intended to align
inventories for Novogynes products with current demand. CombiPatch® sales
also decreased due to the continuing effect of the HRT studies described above
and, to a lesser extent, the CombiPatch® production issue that we believe has been resolved. The decrease in revenues was
partially offset by higher sales of Vivelle-Dot®. Revenues for March 31, 2003
and 2002 are net of sales allowances and returns of $6.1 million and $5.2
million, respectively.

Novogynes gross margin was 76% (or gross profit of $18.7 million) for the
three months ended March 31, 2003 versus 76% (or gross profit of $21.0 million)
for the three months ended March 31, 2002.

Novogynes selling, general and administrative expenses decreased to $7.9
million for the three months ended March 31, 2003 from $9.9 million in 2002,
primarily due to lower expenses relating to the promotion of CombiPatch® and
lower sample expense in 2003.

Novogyne amortized $1.5 million related to the CombiPatch® acquisition
cost during the three months ended March 31, 2003 and 2002.

18



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Liquidity and Capital Resources

As of March 31, 2003 and December 31, 2002, we had $65.4 million and $58.7
million in cash and cash equivalents, and working capital of $65.2 million and
$59.3 million, respectively.

Cash provided by (used in) operating, investing and financing activities
for the three months ended March 31, 2003 and 2002 is summarized as follows
(amounts in thousands):

|            |                      |  |      |        |      |  |   |        |  
|----------- | -------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|            |                      |  | 2003 |        | 2002
|            |                      |  |      |        |     
|Cash flows: |                      |  |      |        |      |  |   |       
|            | Operating activities |  | $    | 9,478  |      |  | $ | (1,825 | )
|            | Investing activities |  |      | (1,584 | )    |  |   | (230   | )
|            | Financing activities |  |      | (1,174 | )    |  |   | (64    | )

Operating Activities:

Net cash provided by operating activities for the three months ended March
31, 2003 primarily resulted from a $10.6 million distribution from Novogyne,
partially offset by changes in working capital due to the timing of product
shipments and payments for inventory and income taxes.

Net cash provided by operating activities for the three months ended March
31, 2002 primarily resulted from changes in working capital due to the timing
of product shipments and payments for inventory and income taxes.

Investing Activities:

Net cash used in investing activities for the three months ended March 31,
2003 and 2002 was primarily attributable to the purchase of fixed assets to
expand production capacity and payment of patent development costs.

Financing Activities:

Net cash used in financing activities for the three months ended March 31,
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 used in financing activities for the three months ended March 31,
2002 was primarily attributable to the payoff of all borrowings under a master
lease facility in March 2002, partially offset by cash received in connection
with the issuance of common stock from the exercise of stock
options.

19



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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 license agreements and
distributions from Novogyne. In April 2003, Shire paid us $25 million upon
closing of the MethyPatch® transaction. For the three months ended
March 31, 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. Under the agreement, the not approvable letter gives Shire the
right to require us to repurchase the rights to
MethyPatch® for $5 million but to date Shire has
not exercised that right.

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 March 31, 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 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 effect of the results 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.

20



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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 Novens Form 10-K for the
year ended December 31, 2002.

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

We have inventory management initiatives underway intended to align U.S.
HRT inventory with the reduced demand that followed the early termination of
the WHI study. We now believe that inventories at Novogyne have been reduced
to acceptable levels, and that Vivelle inventories at the trade level remain
modestly higher than desired. We expect to conclude our inventory reduction
initiatives in the 2003 second quarter.

21



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International HRT

We do not expect international sales to contribute to our growth in 2003
unless Novartis AG launches Estradot® in additional major markets. Estradot®
has been launched in Germany and in several other countries, but, according to
Novartis AG, significant pricing and reimbursement issues in the remaining
major markets, including the United Kingdom, France, Spain and Italy, have to
date prevented Novartis AG from launching in those countries. Because of these
significant reimbursement and pricing issues and Novartis lack of success to
date in securing a marketing partner in the United Kingdom and France for
Estradot®, we do not expect any additional major market launches of Estradot®
in the remainder of 2003.

MethyPatch®

In light of our receipt of the FDA not approvable letter for MethyPatch®,
we are unable to assure or predict the timing of either product
approval or launch, nor can we predict when, if ever, we will receive additional milestone
payments or manufacturing revenues from Shire. In addition, we may be required
or elect to undertake additional clinical studies or other initiatives,
the cost of which could have a material adverse impact on our results of
operations.

Summary

For the second quarter of 2003, we expect to report revenues in the $12.0
million range and earnings per share of $0.13 to $0.16, subject to any material
changes to our results associated with receipt of the FDA not approvable
letter and our response to it.

For the full year, we expect Novogynes revenues, selling, general and
administrative expense and net income to approximate 2002 levels.

We expect Novens overall HRT business to decline significantly compared
to 2002, reflecting (i) the impact of WHI; (ii) our inventory reduction
initiatives, which did not affect Noven until 2003; (iii) strong U.S. HRT sales
in the first half of 2002, and (iv) lower international sales in 2003 due to
launch delays for Estradot® and declines in volume of our other products. We
believe Novens revenues in the second half of 2003 may be lower than the 2003
first half, principally due to expected lower sales of our international
products and CombiPatch®.

22



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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Noven had no variable rate debt outstanding during the three months ended
March 31, 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

Within ninety days prior to the date of 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 the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. 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
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.

23



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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

|    |  |                     |  |                                                                                                                                                                                                                                                                                                                                          
|--- |  | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits           
|    |  |                     |  |                                                                                                                                                                                                                                                                                                                                          
|    |  | 10.1                |  | License Agreement, dated as of April 7, 2003, by and
between Noven Pharmaceuticals, Inc. and Shire Pharmaceuticals
Ireland Limited (with certain provisions omitted pursuant to Rule
24b-2) (incorporated by reference to Exhibit 10.25 of Novens Form
10-K for the year ended December 31, 2002) (File No. 0-17254).                   
|    |  |                     |  |                                                                                                                                                                                                                                                                                                                                          
|    |  | 10.2                |  | Toll Conversion and Supply Agreement, dated as of April 7,
2003, by and between Noven Pharmaceuticals, Inc. and Shire
Pharmaceuticals Ireland Limited (with certain provisions omitted
pursuant to Rule 24b-2) (incorporated by reference to Exhibit 10.25
of Novens Form 10-K for the year ended December 31, 2002) (File
No. 0-17254).
|    |  |                     |  |                                                                                                                                                                                                                                                                                                                                          
|    |  | 99.1                |  | 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                                                                                                                               
|    |  |                     |  |                                                                                                                                                                                                                                                                                                                                          
|    |  | 99.2                |  | Certification of James B. Messiry, 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 February 28, 2003, Noven filed a current report on Form 8-K
relating to the MethyPatch® transaction with Shire Pharmaceuticals Group
plc.

24



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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: May 14, 2003 |  | By:                         |  | /s/ James B. Messiry

James B. Messiry
Vice President and
Chief Financial Officer

25



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##### 



Certifications

Certification of Principal Executive Officer

I, Robert C. Strauss, President, Chief Executive Officer and Chairman of the
Board of Noven Pharmaceuticals, Inc., certify that:

1) I have reviewed this quarterly report on Form 10-Q of Noven Pharmaceuticals,
Inc.;

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4) The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5) The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6) The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                      |  |                                                             
|--------------------- |  | ------------------------------------------------------------
|/s/ Robert C. Strauss
|Name:                 |  | Robert C. Strauss                                           
|Title:                |  | President, Chief Executive Officer and Chairman of the Board
|Date:                 |  | May 14, 2003                                                

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##### 



Certifications

Certification of Principal Financial Officer

I, James B. Messiry, Vice President and Chief Financial Officer of Noven
Pharmaceuticals, Inc., certify that:

1) I have reviewed this quarterly report on Form 10-Q of Noven Pharmaceuticals,
Inc.;

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4) The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5) The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6) The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                     |  |                                           
|-------------------- |  | ------------------------------------------
|/s/ James B. Messiry
|Name:                |  | James B. Messiry                          
|Title:               |  | Vice President and Chief Financial Officer
|Date:                |  | May 14, 2003                              

27