##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
    NOVEN PHARMACEUTICALS, INC.
  STATE OF DELAWARE
    
    59-2767632(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 
  
  x o
  Large accelerated filer o
    
    Accelerated filer x
    
    Non-accelerated filer o
 o x
  Class
    
    Outstanding at October 31, 2007Common stock $.0001 par value
    
    24,552,198




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##### 



NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
  Page No.PART I  FINANCIAL INFORMATIONItem 1 - Unaudited Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4 - Controls and Procedures
    
    
    50PART II  OTHER INFORMATIONItem 1 - Legal Proceedings
    
    
    51Item 1A - Risk Factors
    
    
    51Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57Item 5 - Other Information
    
    
    57Item 6 - Exhibits
    
    
    58SIGNATURES
    
    
    59EX-10.3 Asset Purchase AgreementEX-10.4 Development, License and Supply AgreementEX-10.5 Contract Manufacturing AgreementEX-10.6 Manufacturing and Supply AgreementEX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO CertificationEX-32.2 Section 906 CFO Certification
  Cautionary Factors
 Trademark Information ® ® ® ® ®  ® ® ®
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##### Table of Contents



Item 1. Financial Statements
 
 NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product revenues  Novogyne:Product sales
    
    $
    5,801
    
    
    $
    5,273
    
    
    $
    15,974
    
    
    $
    13,990Royalties
    
    
    2,100
    
    
    
    1,791
    
    
    
    5,764
    
    
    
    5,138Total product revenues  Novogyne
    
    
    7,901
    
    
    
    7,064
    
    
    
    21,738
    
    
    
    19,128Product revenues  third parties
    
    
    8,789
    
    
    
    5,761
    
    
    
    25,620
    
    
    
    15,648Total product revenues
    
    
    16,690
    
    
    
    12,825
    
    
    
    47,358
    
    
    
    34,776Contract and license revenues:Contract
    
    
    280
    
    
    
    44
    
    
    
    179
    
    
    
    1,112License
    
    
    4,845
    
    
    
    2,839
    
    
    
    12,432
    
    
    
    7,559Contract and license revenues
    
    
    5,125
    
    
    
    2,883
    
    
    
    12,611
    
    
    
    8,671Net revenues
    
    
    21,815
    
    
    
    15,708
    
    
    
    59,969
    
    
    
    43,447Expenses:Cost of products sold  Novogyne
    
    
    4,286
    
    
    
    3,702
    
    
    
    10,530
    
    
    
    10,304Cost of products sold  third parties
    
    
    5,525
    
    
    
    5,339
    
    
    
    17,522
    
    
    
    16,764Total cost of products sold
    
    
    9,811
    
    
    
    9,041
    
    
    
    28,052
    
    
    
    27,068Acquired in-process research and
development
    
    
    100,150
    
    
    
    
    
    
    
    100,150
    
    
    
    Research and development
    
    
    3,649
    
    
    
    2,527
    
    
    
    10,300
    
    
    
    8,899Selling, general and administrative
    
    
    11,873
    
    
    
    6,010
    
    
    
    23,003
    
    
    
    16,386Total expenses
    
    
    125,483
    
    
    
    17,578
    
    
    
    161,505
    
    
    
    52,353Loss from operations
    
    
    (103,668
    )
    
    
    (1,870
    )
    
    
    (101,536
    )
    
    
    (8,906
    )Equity in earnings of Novogyne
    
    
    10,948
    
    
    
    8,234
    
    
    
    25,025
    
    
    
    19,323Interest income, net
    
    
    1,306
    
    
    
    1,168
    
    
    
    4,751
    
    
    
    2,890Income (loss) before income taxes
    
    
    (91,414
    )
    
    
    7,532
    
    
    
    (71,760
    )
    
    
    13,307Provision (benefit) for income taxes
    
    
    (32,377
    )
    
    
    2,501
    
    
    
    (25,335
    )
    
    
    4,439Net income (loss)
    
    $
    (59,037
    )
    
    $
    5,031
    
    
    $
    (46,425
    )
    
    $
    8,868Basic earnings (loss) per share
    
    $
    (2.38
    )
    
    $
    0.21
    
    
    $
    (1.87
    )
    
    $
    0.37Diluted earnings (loss) per share
    
    $
    (2.38
    )
    
    $
    0.20
    
    
    $
    (1.87
    )
    
    $
    0.37Weighted average number of common shares
outstanding:Basic
    
    
    24,792
    
    
    
    23,954
    
    
    
    24,787
    
    
    
    23,768Diluted
    
    
    24,792
    
    
    
    24,574
    
    
    
    24,787
    
    
    
    24,142
 The accompanying notes are an integral part of these statements.
 3




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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES
 September 30,
    
    
    December 31,2007
    
    
    2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    11,253
    
    
    $
    9,144Short-term investments available-for-sale, at fair value
    
    
    61,100
    
    
    
    144,455Accounts receivable, net of allowances
    
    
    9,818
    
    
    
    5,038Milestone payment receivable  Shire
    
    
    
    
    
    
    25,000Accounts receivable  Novogyne, net
    
    
    6,903
    
    
    
    7,693Inventories
    
    
    12,717
    
    
    
    8,651Net deferred income tax asset, current portion
    
    
    9,000
    
    
    
    4,400Prepaid income taxes
    
    
    4,103
    
    
    
    3,416Prepaid and other current assets
    
    
    3,066
    
    
    
    1,919117,960
    
    
    
    209,716Property, plant and equipment, net
    
    
    36,827
    
    
    
    37,501Other Assets:Investment in Novogyne
    
    
    24,664
    
    
    
    23,296Net deferred income tax asset
    
    
    53,172
    
    
    
    8,308Intangible assets, net
    
    
    40,326
    
    
    
    2,317Goodwill
    
    
    14,359
    
    
    
    Deposits and other assets
    
    
    697
    
    
    
    227133,218
    
    
    
    34,148$
    288,005
    
    
    $
    281,365Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable and accrued expenses
    
    $
    7,159
    
    
    $
    5,184Accrued compensation and related liabilities
    
    
    6,271
    
    
    
    5,308Other accrued liabilities
    
    
    20,508
    
    
    
    2,085Current portion of long-term obligations
    
    
    3,502
    
    
    
    109Deferred rent credit
    
    
    88
    
    
    
    89Deferred contract revenues
    
    
    567
    
    
    
    1,527Deferred license revenues  current portion
    
    
    19,349
    
    
    
    15,08457,444
    
    
    
    29,386Long-Term Liabilities:Long-term obligations, less current portion
    
    
    8,471
    
    
    
    279Deferred license revenues
    
    
    82,536
    
    
    
    74,188Deferred contract revenues
    
    
    7,356
    
    
    
    Other liabilities
    
    
    1,227
    
    
    
    837157,034
    
    
    
    104,690Commitments and Contingencies (Note 16)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 24,873,943
at September 30, 2007 and 24,661,169 at December
31, 2006
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    116,287
    
    
    
    109,912Retained earnings
    
    
    19,806
    
    
    
    66,761Treasury stock, at cost - 322,345 shares at September 30, 2007
    
    
    (5,124
    )
    
    
    Common stock held in trust
    
    
    (800
    )
    
    
    Deferred compensation obligation
    
    
    800
    
    
    
    130,971
    
    
    
    176,675$
    288,005
    
    
    $
    281,365
 The accompanying notes are an integral part of these statements.
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NOVEN PHARMACEUTICALS, INC.
 2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    (46,425
    )
    
    $
    8,868Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:Depreciation, amortization and certain other noncash items
    
    
    4,468
    
    
    
    3,173Stock-based compensation expense
    
    
    3,118
    
    
    
    2,358Acquired in-process research and development expense
    
    
    100,150
    
    
    
    Income tax benefits on exercise of stock options
    
    
    461
    
    
    
    2,401Excess tax deduction from exercise of stock options
    
    
    (390
    )
    
    
    (1,639
    )Deferred income tax benefit
    
    
    (49,464
    )
    
    
    (52
    )Recognition of deferred license revenues
    
    
    (12,432
    )
    
    
    (7,559
    )Equity in earnings of Novogyne
    
    
    (25,025
    )
    
    
    (19,323
    )Distributions from Novogyne
    
    
    18,465
    
    
    
    17,644Changes in operating assets and liabilities, net of acquisition:Increase in accounts receivable, net
    
    
    (375
    )
    
    
    (3,172
    )Decrease in milestone payment receivable  Shire
    
    
    25,000
    
    
    
    Decrease in accounts receivable  Novogyne, net
    
    
    790
    
    
    
    1,129Increase in inventories
    
    
    (1,745
    )
    
    
    (273
    )Decrease in prepaid income taxes
    
    
    4,505
    
    
    
    3,902Increase in prepaid and other current assets
    
    
    (910
    )
    
    
    (1,124
    )Increase in deposits and other assets
    
    
    (2
    )
    
    
    (15
    )Decrease in accounts payable and accrued expenses
    
    
    (4,564
    )
    
    
    (988
    )Decrease in accrued liability  Shire
    
    
    (419
    )
    
    
    (5,069
    )Decrease in accrued compensation and related liabilities
    
    
    (509
    )
    
    
    (1,042
    )Increase in other accrued liabilities
    
    
    11,244
    
    
    
    555Increase in deferred contract revenue, net
    
    
    6,396
    
    
    
    277Increase in deferred license revenue
    
    
    25,000
    
    
    
    51,000Increase in other liabilities
    
    
    419
    
    
    
    134Amounts recoverable from Shire and offset against
deferred license
revenue related to
Daytrana approval
    
    
    45
    
    
    
    14Cash flows provided by operating activities
    
    
    57,801
    
    
    
    51,199Cash flows from investing activities:Purchases of property, plant and equipment, net
    
    
    (2,257
    )
    
    
    (5,823
    )Payments for intangible assets, net
    
    
    (256
    )
    
    
    (539
    )Acquisition of JDS, net of cash acquired
    
    
    (130,353
    )
    
    
    Purchase of company-owned life insurance
    
    
    (260
    )
    
    
    (185
    )Purchases of short-term investments
    
    
    (1,276,473
    )
    
    
    (1,012,385
    )Proceeds from sale of short-term investments
    
    
    1,359,828
    
    
    
    899,775Cash flows used in investing activities
    
    
    (49,771
    )
    
    
    (119,157
    )Cash flows from financing activities:Issuance of common stock from exercise of stock options
    
    
    2,531
    
    
    
    8,080Purchase of treasury stock
    
    
    (5,124
    )
    
    
    Excess tax benefit from exercise of stock options
    
    
    390
    
    
    
    1,639Payments under long-term obligations
    
    
    (3,718
    )
    
    
    (49
    )Cash flows provided by (used in) financing activities
    
    
    (5,921
    )
    
    
    9,670Net increase (decrease) in cash and cash equivalents
    
    
    2,109
    
    
    
    (58,288
    )Cash and cash equivalents, beginning of period
    
    
    9,144
    
    
    
    66,964Cash and cash equivalents, end of period
    
    $
    11,253
    
    
    $
    8,676
 The accompanying notes are an integral part of these statements.
 5




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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
    ® ® ®
    6




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Disclosures about Segments of an Enterprise and Related Information
  ® ®
    7




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September 30,
    
    
    December 31,2007
    
    
    2006Accounts receivable, netGross receivable
    
    $
    10,130
    
    
    $
    5,105Sales allowances and
allowances for doubtful
accounts
    
    
    (312
    )
    
    
    (67
    )$
    9,818
    
    
    $
    5,038Other accrued liabilitiesSales allowances
    
    $
    8,372
    
    
    $
    Other accrued liabilities
    
    
    12,136
    
    
    
    2,085$
    20,508
    
    
    $
    2,085
     8




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9




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##### Table of Contents



Current
assets, including cash of $0.6 million
    
    $
    7,893Property and equipment
    
    
    362Intangible assetsAcquired in-process research and development expenses
    
    
    100,150Identifiable intangible assets
    
    
    38,547Goodwill
    
    
    14,359Other assets
    
    
    163Accrued expenses and other current liabilities
    
    
    (15,344
    )Long-term obligations assumed
    
    
    (3,711
    )Contingent milestones assumed
    
    
    (11,500
    )Total purchase price
    
    $
    130,919
 Acquired
In-Process Research and Development (IPR&D) Intellectual Property
 Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
Method
 Assets Acquired in a Business
Combination to Be Used In Research and Development Activities: A Focus on Software, Electronic
Devices and Pharmaceutical Industries
  10




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##### Table of Contents




    
    revenue that is likely to result from IPR&D projects, including estimated
number of units to be sold, estimated selling prices, estimated market
penetration, estimated market share, estimated year-over-year growth rates over
the product life cycles and estimated sales allowances;
    
    cost of sales for the potential product using historical data, industry data
or other sources of market data;
    
    sales and marketing expenses using historical data, industry data or other
market data;
    
    general and administrative expenses; and
    
    research and development expenses.
  
    
    the projects stage of completion;
    
    the costs incurred to date;
    
    the projected costs to complete the IPR&D projects;
    
    the contribution, if any, of the acquired identifiable intangible assets;
    
    the projected launch date of the products under development;
    
    the estimated life of the products under development; and
    
    the probability of success of launching a commercially viable product.
  Identifiable Intangible Assets
  Asset lifeFair Value
    
    
    years(1)Intellectual Property  approved
productsPexeva®
    
    $
    33,040
    
    
    10Lithobid®
    
    
    4,750
    
    
    637,790Non-competition agreements
    
    
    530
    
    
    2 - 3Favorable lease
    
    
    227
    
    
    10 months$
    38,547
 
 (1)
    
    Asset lives represent the economic period of benefit over which
management believes the asset will contribute to the future cash flows of Noven. Intellectual Property  approved products
  11




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Non-competition agreements
  Favorable Lease
  Long-term liabilities assumed
  ®
 
    
    $1.0 million milestone payable when annual net sales of Pexeva®
equal or exceed $7.0 million but are less than $8.0 million in each of 2007 or
2008, which
milestone is increased to $2.0 million if annual net sales exceed $8.0 million
in each of 2007 or 2008.
Pexeva®
net sales exceeded the $8 million threshold
for the 2007 Period.
    
    $1.25 million milestone payable for each of the first two years when annual
net sales of Pexeva® equal or exceed $10.0 million from 2007 to
2017.
Pexeva®
net sales exceeded this threshold for the 2007 Period.
    
    $5.0 million milestone payable in the first year that annual net sales of
Pexeva® (or any paroxetine mesylate product) equal or exceed $30.0
million from 2007 through 2017.
 12




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Supplemental disclosure of pro forma information
  Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006(amounts in thousands, except per share data)Net revenue
    
    $
    25,247
    
    
    $
    19,820
    
    
    $
    74,699
    
    
    $
    56,191Net income (loss)
    
    
    4,835
    
    
    
    2,281
    
    
    
    7,197
    
    
    
    (64,574
    )Net earnings (loss) per share (Basic)
    
    
    0.20
    
    
    
    0.10
    
    
    
    0.29
    
    
    
    (2.72
    )Net earnings (loss) per share (Diluted)
    
    
    0.19
    
    
    
    0.09
    
    
    
    0.28
    
    
    
    (2.72
    )
    Income Tax and Interest Payments
  Non-cash Operating Activities
   Non-cash Investing Activities
  13




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September 30,
    
    
    December 31,2007
    
    
    2006Finished goods
    
    $
    4,187
    
    
    $
    893Work in process
    
    
    2,263
    
    
    
    2,851Raw materials
    
    
    6,267
    
    
    
    4,907Total
    
    $
    12,717
    
    
    $
    8,651
   
 14




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Gross
    
    
    
    
    
    
    
    
    
    
    Amortizationcarrying
    
    
    Accumulated
    
    
    
    
    
    
    period (inamount
    
    
    amortization
    
    
    Net
    
    
    years)Intellectual Property:Pexeva®
    
    $
    33,040
    
    
    $
    (156
    )
    
    $
    32,884
    
    
    10Lithobid®
    
    
    4,750
    
    
    
    (173
    )
    
    
    4,577
    
    
    6Noven patent development costs
    
    
    4,620
    
    
    
    (2,446
    )
    
    
    2,174
    
    
    8-1042,410
    
    
    
    (2,775
    )
    
    
    39,635Non-competition agreements
    
    
    530
    
    
    
    (28
    )
    
    
    502
    
    
    2-3Favorable lease
    
    
    227
    
    
    
    (38
    )
    
    
    189
    
    
    10 months$
    43,167
    
    
    $
    (2,841
    )
    
    $
    40,326
  
    
    Intellectual property is based on the pattern in which the economic benefit is
expected to be realized and is included in cost of products sold.
    
    Non-competition agreements are amortized on a straight-line basis and are
included in selling, general and administrative expenses.
    
    Favorable lease is based on escalating lease payments being amortized on a
straight-lined basis and is included in selling, general and administrative
expenses.
 15




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Remainder of2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Cost of goods sold:Intellectual property
    
    $
    792
    
    
    $
    3,335
    
    
    $
    3,297
    
    
    $
    3,452
    
    
    $
    3,670
    
    
    $
    3,983Selling, general and
administrative:Non-competition agreements
    
    
    55
    
    
    
    221
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    Favorable lease
    
    
    74
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    336
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    Total
    
    $
    921
    
    
    $
    3,671
    
    
    $
    3,468
    
    
    $
    3,507
    
    
    $
    3,670
    
    
    $
    3,983
   September 30,
    
    
    December 31,2007
    
    
    2006Income taxes payable
    
    $
    5,900
    
    
    $
    204Accrued
medicaid and other rebates
    
    
    3,399
    
    
    
    Accrued market withdrawal costs
    
    
    3,258
    
    
    
    Accrued research and development
costs
    
    
    2,731
    
    
    
    Allowance for product returns
    
    
    1,655
    
    
    
    Other accrued liabilities
    
    
    3,565
    
    
    
    1,881Total other accrued liabilities
    
    $
    20,508
    
    
    $
    2,085
    16




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WeightedAverageGrant-DateShares
    
    
    Fair ValueNonvested at
December 31, 2006
    
    
    8
    
    
    $
    17.47Granted
    
    
    35
    
    
    
    21.28Vested
    
    
    (30
    )
    
    
    19.54Forfeited
    
    
    
    
    
    
    Nonvested at
September 30, 2007
    
    
    13
    
    
    $
    22.86
  2007
    
    
    2006Volatility
    
    
    41.8
    %
    
    
    52.8
    %Risk free interest rate
    
    
    4.50
    %
    
    
    5.17
    %Expected life (years)
    
    
    4
    
    
    
    5
  Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Selling, general and administrative
    
    $
    894
    
    
    $
    649
    
    
    $
    2,372
    
    
    $
    1,791Research and development
    
    
    127
    
    
    
    109
    
    
    
    381
    
    
    
    333Total cost of products sold
    
    
    121
    
    
    
    71
    
    
    
    365
    
    
    
    234$
    1,142
    
    
    $
    829
    
    
    $
    3,118
    
    
    $
    2,358Tax benefit recognized related to
compensation expense
    
    $
    359
    
    
    $
    198
    
    
    $
    1,020
    
    
    $
    556
   17




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##### Table of Contents



WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingOptions/
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualSSARs
    
    
    Price
    
    
    Value
    
    
    TermOutstanding at
beginning of the period
    
    
    3,275
    
    
    $
    19.26Granted
    
    
    49
    
    
    
    17.23Exercised
    
    
    (162
    )
    
    
    15.64
    
    
    $
    1,581Canceled and expired
    
    
    (47
    )
    
    
    25.41Outstanding at end
of the period
    
    
    3,115
    
    
    $
    19.32
    
    
    $
    4,057
    
    
    
    3.4Outstanding and exercisable
at end of the period
    
    
    2,110
    
    
    $
    20.69
    
    
    $
    1,887
    
    
    
    2.6Vested or expected to vest
at end of the period
    
    
    2,728
    
    
    $
    19.51
    
    
    $
    3,275
    
    
    
    3.4
     18




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##### Table of Contents



Daytrana 
   
 Amphetamine Transdermal System
 
 19




---



##### Table of Contents



Pexeva ®
 ® ® ®
  Lithobid ®
 ® ® ® ®
 Lithium QD
  Stavzor
  20




---



##### Table of Contents



Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Product sales
    
    $
    5,801
    
    
    $
    5,273
    
    
    $
    15,974
    
    
    $
    13,990Royalties
    
    
    2,100
    
    
    
    1,791
    
    
    
    5,764
    
    
    
    5,138$
    7,901
    
    
    $
    7,064
    
    
    $
    21,738
    
    
    $
    19,128Reimbursed expenses
    
    $
    6,940
    
    
    $
    7,125
    
    
    $
    21,046
    
    
    $
    21,043
   Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Gross revenues
    
    $
    45,224
    
    
    $
    39,204
    
    
    $
    125,432
    
    
    $
    112,138Sales allowances
    
    
    5,770
    
    
    
    4,283
    
    
    
    16,769
    
    
    
    11,622Sales return allowances
    
    
    781
    
    
    
    1,193
    
    
    
    772
    
    
    
    4,576Sales allowances and returns
    
    
    6,551
    
    
    
    5,476
    
    
    
    17,541
    
    
    
    16,198Net revenues
    
    
    38,673
    
    
    
    33,728
    
    
    
    107,891
    
    
    
    95,940Cost of sales
    
    
    8,152
    
    
    
    7,529
    
    
    
    22,994
    
    
    
    22,212Selling, general and
administrative expenses
    
    
    8,278
    
    
    
    9,419
    
    
    
    27,990
    
    
    
    28,172Income from operations
    
    
    22,243
    
    
    
    16,780
    
    
    
    56,907
    
    
    
    45,556Interest income
    
    
    286
    
    
    
    250
    
    
    
    783
    
    
    
    564Net income
    
    $
    22,529
    
    
    $
    17,030
    
    
    $
    57,690
    
    
    $
    46,120Novens equity in earnings of Novogyne
    
    $
    10,948
    
    
    $
    8,234
    
    
    $
    25,025
    
    
    $
    19,323
 21




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##### Table of Contents



Investment in Novogyne, beginning of period
    
    $
    23,296Equity in earnings of Novogyne
    
    
    25,025Cash distributions from Novogyne
    
    
    (18,465
    )Non-cash distribution from Novogyne (Note 4)
    
    
    (5,192
    )Investment in Novogyne, end of period
    
    $
    24,664
       22




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##### Table of Contents



For the three months ended September 30, 2007(amounts in thousands)Noven
    
    
    
    
    
    
    CorporateTransdermal
    
    
    JDS (1)
    
    
    Other
    
    
    ConsolidatedNet revenues
    
    $
    18,490
    
    
    $
    3,325
    
    
    $
    
    
    
    $
    21,815Acquired in-process
research
and development
    
    
    
    
    
    
    100,150
    
    
    
    
    
    
    
    100,150Income (loss) from
operations
    
    
    6,328
    
    
    
    (101,650
    )
    
    
    (8,346
    )
    
    
    (103,668
    )Equity in earnings of
Novogyne
    
    
    10,948
    
    
    
    
    
    
    
    
    
    
    
    10,948
 For the nine months ended September 30, 2007(amounts in thousands)Noven
    
    
    
    
    
    
    CorporateTransdermal
    
    
    JDS(1)
    
    
    / Other
    
    
    ConsolidatedNet revenues
    
    $
    56,644
    
    
    $
    3,325
    
    
    $
    
    
    
    $
    59,969Acquired in-process
research
and development
    
    
    
    
    
    
    100,150
    
    
    
    
    
    
    
    100,150Income (loss) from
operations
    
    
    19,590
    
    
    
    (101,650
    )
    
    
    (19,476
    )
    
    
    (101,536
    )Equity in earnings of
Novogyne
    
    
    25,025
    
    
    
    
    
    
    
    
    
    
    
    25,025
 
 (1)
    
    Includes JDSs results from the Closing Date through September 30,
2007.  HT Studies
   ®
 23




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##### Table of Contents



® ® ® ®
 Production Issues
  
  
  
 Novogyne Supply Agreement
 ® ®
 Litigation, Claims and Assessments
 ®
 24




---



##### Table of Contents



®
 ® ®
 ® ® ®
    JDS Segment commitments
  25




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    An executive summary of our results of operations for the 2007 Quarter;
    
    An overview of our transdermal business and our Novogyne joint venture;
    
    An overview of our JDS Segment;
    
    A review of certain items that may affect the historical or future comparability
of our results of operations;
    
    An analysis of our results of operations and our liquidity and capital resources;
    
    A discussion of how we apply our critical accounting estimates;
    
    A discussion of recently-issued accounting standards; and
    
    An outlook that includes our current financial guidance.
  Executive Summary
 The following Executive Summary is qualified in its entirety by the more detailed discussion
and analysis of our financial condition and results of operations appearing in this Item 2 as well
as in our financial statements and related notes included in this Form 10-Q .
  
  ® ® ® 
 26




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##### Table of Contents




 ®
 
 ®  ® ®
 Overview of Novens Transdermal Business and Our Novogyne Joint Venture
   27




---



##### Table of Contents



® ® ® ® ®
 ® ® ®
 
 ® ® ® ® ® ® ® ®
 ® ® ®
 28




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##### Table of Contents



Overview of Novens JDS Segment
   
    
    Pexeva®, a selective serotonin re-uptake inhibitor (SSRI) antidepressant
indicated for major depressive disorder, panic disorder, obsessive compulsive disorder and
generalized anxiety disorder. It is one of only two remaining patented brands without a
generic equivalent in the over $6.0 billion U.S. SSRI market. Pexeva® is
subject to a composition of matter patent that extends to 2017 and other patents extending
to 2022.
    
    Lithobid®, an extended release lithium product, is the only branded lithium
product sold in the U.S. Lithobid® is indicated for the maintenance of bipolar
disorder and the treatment of related manic episodes, and participates in an estimated
annual market for lithium therapies that exceeds $400 million (calculated at branded
prices).
    
    Lithium QD, a developmental once-daily form of lithium carbonate, is in clinical
development. It is subject to U.S. patents that extend to 2022 and may benefit from three
years of exclusivity under the Hatch-Waxman Act. Currently there are no once-daily lithium
products on the market. A once-daily lithium product has the potential to improve
compliance and reduce high serum level peaks common with products prescribed in multiple
doses per day. In October 2007, a Phase 3 clinical trial of Lithium QD did not achieve its
primary endpoint with statistical significance. Clinical data from that trial is currently
under analysis. We believe that additional clinical studies will be required to complete
development of this product, at substantial additional cost, and with no assurance that
development will be completed or that the product will ultimately be approved.
    
    Stavzor & Stavzor ER. Through JDS, we hold marketing rights to
Stavzor (valproic acid delayed release) and Stavzor ER (valproic
acid extended release) in a proprietary enteric-coated soft gelatin capsule delivery system
pursuant to a license with Banner Pharmacaps. If approved, these products are expected to
be indicated for bipolar disorder, migraine therapy and epilepsy, and would compete with
Abbott Laboratories Depakote® and Depakote® ER products. In October
2007, an NDA for Stavzor received an approvable letter from the FDA, and
although there can be no assurance, the product is expected to be launched in mid-2008.
Stavzor
ER is in pre-clinical development by Banner. There can be no assurance
that Stavzor ER will be successfully formulated, developed, approved or
commercialized.
    
    Mesafem. The pipeline that we acquired in the JDS transaction also includes
a womens health product called Mesafem that, if approved, would complement our
expertise in the womens health area. Mesafem is a low-dose paroxetine
mesylate capsule under development for the treatment of vasomotor symptoms associated with
menopause, including hot flashes and night sweats. Published clinical data has
demonstrated the efficacy of paroxetine for this indication. Mesafem is
subject to the same patents as Pexeva®, as well as other pending patent
applications, and may benefit from three years of exclusivity under the Hatch-Waxman Act.
Although there can be no assurance, we expect that Mesafem will enter Phase 3
studies in the first half of 2008.Our expectations for future JDS Segment results are addressed under Outlook below.
 29




---



##### Table of Contents



Certain Items that May Affect Historical or Future Comparability
  JDS Pharmaceuticals, LLC
  Current
assets, including cash of $0.6 million
    
    $
    7,893Property and equipment
    
    
    362Intangible assetsAcquired in-process research and development expenses
    
    
    100,150Identifiable intangible assets
    
    
    38,547Goodwill
    
    
    14,359Other assets
    
    
    163Accrued expenses and other current liabilities
    
    
    (15,344
    )Long-term obligations assumed
    
    
    (3,711
    )Contingent milestones assumed
    
    
    (11,500
    )Total purchase price
    
    $
    130,919
   30




---



##### Table of Contents



Remainder of2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012Cost of goods sold:Intellectual property
    
    $
    792
    
    
    $
    3,335
    
    
    $
    3,297
    
    
    $
    3,452
    
    
    $
    3,670
    
    
    $
    3,983Selling, general and
administrative:Non-competition agreements
    
    
    55
    
    
    
    221
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    Favorable lease
    
    
    74
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    336
    
    
    
    171
    
    
    
    55
    
    
    
    
    
    
    
    Total
    
    $
    921
    
    
    $
    3,671
    
    
    $
    3,468
    
    
    $
    3,507
    
    
    $
    3,670
    
    
    $
    3,983
  ®
 Daytrana 
   
   
  
   
 31




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##### Table of Contents



Results of Operations
 Three and nine months ended September 30, 2007 compared to the three and nine months ended
September 30, 2006.
 Revenues
  Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeProduct revenues  Novogyne:Product sales
    
    $
    5,801
    
    
    $
    5,273
    
    
    
    10
    %
    
    $
    15,974
    
    
    $
    13,990
    
    
    
    14
    %Royalties
    
    
    2,100
    
    
    
    1,791
    
    
    
    17
    %
    
    
    5,764
    
    
    
    5,138
    
    
    
    12
    %7,901
    
    
    
    7,064
    
    
    
    12
    %
    
    
    21,738
    
    
    
    19,128
    
    
    
    14
    %Product revenues  third parties:Product sales
    
    
    8,697
    
    
    
    5,671
    
    
    
    53
    %
    
    
    25,381
    
    
    
    15,402
    
    
    
    65
    %Royalties
    
    
    92
    
    
    
    90
    
    
    
    2
    %
    
    
    239
    
    
    
    246
    
    
    
    (3
    %)8,789
    
    
    
    5,761
    
    
    
    53
    %
    
    
    25,620
    
    
    
    15,648
    
    
    
    64
    %Total product revenues
    
    
    16,690
    
    
    
    12,825
    
    
    
    30
    %
    
    
    47,358
    
    
    
    34,776
    
    
    
    36
    %Contract and license revenues:Contract
    
    
    280
    
    
    
    44
    
    
    
    536
    %
    
    
    179
    
    
    
    1,112
    
    
    
    (84
    %)License
    
    
    4,845
    
    
    
    2,839
    
    
    
    71
    %
    
    
    12,432
    
    
    
    7,559
    
    
    
    64
    %5,125
    
    
    
    2,883
    
    
    
    78
    %
    
    
    12,611
    
    
    
    8,671
    
    
    
    45
    %Net revenues
    
    $
    21,815
    
    
    $
    15,708
    
    
    
    39
    %
    
    $
    59,969
    
    
    $
    43,447
    
    
    
    38
    %
 Net Revenues
 ® ®  ®
  ® ® ®
 Product Revenues  Novogyne
 ® ® ® ® ® ®
 ® ®
 32




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##### Table of Contents



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




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##### Table of Contents




 Gross to Net Revenues
  Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeNoven transdermalGross revenues
    
    $
    19,332
    
    
    $
    15,708
    
    
    
    23
    %
    
    $
    57,486
    
    
    $
    43,447
    
    
    
    32
    %Sales returns allowances
    
    
    (842
    )
    
    
    
    
    
    
    N/M
    
    
    
    (842
    )
    
    
    
    
    
    
    N/MNet revenues
    
    
    18,490
    
    
    
    15,708
    
    
    
    18
    %
    
    
    56,644
    
    
    
    43,447
    
    
    
    30
    %JDSGross revenues
    
    
    5,066
    
    
    
    
    
    
    
    N/M
    
    
    
    5,066
    
    
    
    
    
    
    
    N/MSales allowances
    
    
    (1,550
    )
    
    
    
    
    
    
    N/M
    
    
    
    (1,550
    )
    
    
    
    
    
    
    N/MSales returns allowances
    
    
    (191
    )
    
    
    
    
    
    
    N/M
    
    
    
    (191
    )
    
    
    
    
    
    
    N/MNet revenues
    
    
    3,325
    
    
    
    
    
    
    
    N/M
    
    
    
    3,325
    
    
    
    
    
    
    
    N/MTotal net revenues
    
    $
    21,815
    
    
    $
    15,708
    
    
    
    39
    %
    
    $
    59,969
    
    
    $
    43,447
    
    
    
    38
    %
 Gross Margin
  ® ®
  34




---



##### Table of Contents



Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Overall Gross Margin:Product revenues
    
    $
    16,690
    
    
    $
    12,825
    
    
    $
    47,358
    
    
    $
    34,776Cost of products sold
    
    
    9,811
    
    
    
    9,041
    
    
    
    28,052
    
    
    
    27,068Gross profit (product revenues
less cost of products sold)
    
    
    6,879
    
    
    
    3,784
    
    
    
    19,306
    
    
    
    7,708Gross margin (gross profit as a
percentage of product revenues)
    
    
    41
    %
    
    
    30
    %
    
    
    41
    %
    
    
    22
    %
 Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Gross Margin Novogyne:Product revenues
    
    $
    7,901
    
    
    $
    7,064
    
    
    $
    21,738
    
    
    $
    19,128Cost of products sold
    
    
    4,286
    
    
    
    3,702
    
    
    
    10,530
    
    
    
    10,304Gross profit (product revenues
less cost of products sold)
    
    
    3,615
    
    
    
    3,362
    
    
    
    11,208
    
    
    
    8,824Gross margin (gross profit as a
percentage of product revenues)
    
    
    46
    %
    
    
    48
    %
    
    
    52
    %
    
    
    46
    %
 Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Gross Margin Third Parties:Product revenues
    
    $
    8,789
    
    
    $
    5,761
    
    
    $
    25,620
    
    
    $
    15,648Cost of products sold
    
    
    5,525
    
    
    
    5,339
    
    
    
    17,522
    
    
    
    16,764Gross profit/(loss) (product revenues
less cost of products sold)
    
    
    3,264
    
    
    
    422
    
    
    
    8,098
    
    
    
    (1,116
    )Gross margin/(loss) (gross profit
(loss) as a
percentage of product revenues)
    
    
    37
    %
    
    
    7
    %
    
    
    32
    %
    
    
    (7
    %)
 ® ®
 
 35




---



##### Table of Contents



® ®
      
  Operating Expenses
  Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeResearch and development
    
    $
    3,649
    
    
    $
    2,527
    
    
    
    44
    %
    
    $
    10,300
    
    
    $
    8,899
    
    
    
    16
    %Acquired in-process
research and
development
    
    
    100,150
    
    
    
    
    
    
    
    N/M
    
    
    
    100,150
    
    
    
    
    
    
    
    N/MSelling, general and
administrative
    
    
    11,873
    
    
    
    6,010
    
    
    
    98
    %
    
    
    23,003
    
    
    
    16,386
    
    
    
    40
    %
 Research and Development
 
 36




---



##### Table of Contents




 Acquired In-Process Research and Development
  Selling, General and Administrative
 
 
 Other Income and Expenses
 Interest Income
  Income Taxes
   37




---



##### Table of Contents



Equity in Earnings of Novogyne
   Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    % Change
    
    
    2007
    
    
    2006
    
    
    % ChangeGross revenues1
    
    $
    45,224
    
    
    $
    39,204
    
    
    
    15
    %
    
    $
    125,432
    
    
    $
    112,138
    
    
    
    12
    %Sales allowances
    
    
    5,770
    
    
    
    4,283
    
    
    
    35
    %
    
    
    16,769
    
    
    
    11,622
    
    
    
    44
    %Sales returns allowances
    
    
    781
    
    
    
    1,193
    
    
    
    (35
    %)
    
    
    772
    
    
    
    4,576
    
    
    
    (83
    %)Sales and returns allowances
    
    
    6,551
    
    
    
    5,476
    
    
    
    20
    %
    
    
    17,541
    
    
    
    16,198
    
    
    
    8
    %Net revenues
    
    
    38,673
    
    
    
    33,728
    
    
    
    15
    %
    
    
    107,891
    
    
    
    95,940
    
    
    
    12
    %Cost of sales
    
    
    8,152
    
    
    
    7,529
    
    
    
    8
    %
    
    
    22,994
    
    
    
    22,212
    
    
    
    4
    %Gross profit
    
    
    30,521
    
    
    
    26,199
    
    
    
    16
    %
    
    
    84,897
    
    
    
    73,728
    
    
    
    15
    %Gross margin percentage
    
    
    79
    %
    
    
    78
    %
    
    
    
    
    
    
    79
    %
    
    
    77
    %Selling, general and
administrative expenses
    
    
    8,278
    
    
    
    9,419
    
    
    
    (12
    %)
    
    
    27,990
    
    
    
    28,172
    
    
    
    (1
    %)Income from operations
    
    
    22,243
    
    
    
    16,780
    
    
    
    33
    %
    
    
    56,907
    
    
    
    45,556
    
    
    
    25
    %Interest income
    
    
    286
    
    
    
    250
    
    
    
    14
    %
    
    
    783
    
    
    
    564
    
    
    
    39
    %Net income
    
    $
    22,529
    
    
    $
    17,030
    
    
    
    32
    %
    
    $
    57,690
    
    
    $
    46,120
    
    
    
    25
    %Novens equity in earnings of Novogyne
    
    $
    10,948
    
    
    $
    8,234
    
    
    
    33
    %
    
    $
    25,025
    
    
    $
    19,323
    
    
    
    30
    %
 
 1
    
    Novogynes gross revenues, which are calculated by adding sales allowances and sales
returns allowances to net revenues, are discussed in this section because Novens management
believes it is a useful measure to evaluate and compare Novogynes sales period to period in light
of the significant historic fluctuations in Novogynes sales allowances and returns. Novogyne Net Revenues
  38




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® ® ® ® ® ®
 ® ® ® ® ® ® ®
   Three Months
    
    
    Nine Months2007
    
    
    2006
    
    
    2007
    
    
    2006Increases in allowances for returns
primarily of expiring product
    
    $
    781
    
    
    $
    1,193
    
    
    $
    772
    
    
    $
    4,576Actual returns primarily for expiring product
    
    $
    (880
    )
    
    $
    (862
    )
    
    $
    (2,354
    )
    
    $
    (3,135
    )
 ® ®
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Novogyne Gross Margin
  ®
 Novogyne Selling, General and Administrative Expenses
   Liquidity and Capital Resources
  September 30, 2007
    
    
    December 31, 2006Cash and cash equivalents
    
    $
    11,253
    
    
    $
    9,144Short-term investments
    
    
    61,100
    
    
    
    144,455Working capital
    
    
    60,516
    
    
    
    180,330
  Nine Months2007
    
    
    2006Cash flows:Operating activities
    
    $
    57,801
    
    
    $
    51,199Investing activities
    
    
    (49,771
    )
    
    
    (119,157
    )Financing activities
    
    
    (5,921
    )
    
    
    9,670
 Operating Activities
  40




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 
 Investing Activities
    Financing Activities
   Short-Term and Long-Term Liquidity
    41




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    
  
  
   
  42




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43




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Outlook
  
    
    acquisitions of products, companies, or technologies or other transactions;
    
    changes in Novens or Novogynes accounting or accounting principles or any of the
estimates or judgments underlying our critical accounting policies;
    
    regulatory or technological developments;
    
    changes in the supply of, demand for, or distribution of our products (including any
changes resulting from competitive products, product recalls/withdrawals, or new study
results);
    
    negative actions with respect to our applications for methylphenidate quota or other
disruptions in supplies of raw materials;
    
    changes in our business relationships/collaborations; or
    
    changes in the economy or the health care sector generally.
  Daytrana   
 HT Product Sales ®
 JDS Product Sales. ® ®
 Gross Margin.
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Research
and Development Expense.
 Selling, General and Administrative Expense.   
 Novogyne.
 Interest Income.
 Effective Tax Rate.
 Aggregate Contractual Obligations
  
    
    Pexeva® Sales Milestones  $11.5 million in contingent sales milestones,
which amount was recorded as a liability on our balance sheet upon closing of the JDS
acquisition, may be payable to Synthon Pharmaceuticals upon Pexeva®s
achievement of the following sales thresholds:
 
    
    $2.0 million milestone payable when annual net sales exceed $8.0 million in
each of 2007 and 2008. Pexeva® net sales exceeded this threshold
for the 2007 Period.
    
    $1.25 million milestone payable for each of the first two years in which
annual net sales of Pexeva® equal or exceed $10.0 million from 2007
to 2017. Pexeva® net sales exceeded this threshold for the 2007
Period.
    
    $5.0 million milestone payable in the first year that annual net sales of
Pexeva® (or any paroxetine mesylate product) exceed $30.0 million
from 2007 through 2017.
 
    
    Lithium QD Development Milestones  $4.0 million in contingent development and sales
milestones may be payable to a third party related to the Lithium QD product, and
an additional $2.0 million in contingent payments may be payable to the manufacturer under
the Lithium QD supply agreement, in each case depending on future
product development and other events.
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##### Table of Contents




    
    Stavzor and StavzorER Development Milestones  $6.0 million in
contingent development and sales milestones may be payable to Banner over the course of
development
of Stavzor and StavzorER, depending on the achievement of specified
development and sales milestones.
  Critical Accounting Estimates
  Revenue Recognition
 ® ®
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® ®
   Goodwill
  Deferred Income Taxes
  
    
    revenue that is likely to result from the approved products or IPR&D
projects, including estimated number of units to be sold, estimated selling
prices, estimated market penetration, estimated market share, year-over-year
growth rates over the product life cycles and estimated sales allowances;
    
    contract and license revenues generated by approved products or IPR&D
projects;
    
    cost of sales for the potential product using historical data, industry data
or other sources of market data;
    
    sales and marketing expenses using historical data, industry data or other
market data;
    
    general and administrative expenses;
    
    research and development expenses; and
    
    future equity in earnings of Novogyne.
  
    
    the projects stage of completion;
    
    the costs incurred to date;
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##### Table of Contents




    
    the projected costs to complete IPR&D projects;
    
    the contribution, if any, of the acquired identifiable intangible assets;
    
    the projected launch date of the products under development;
    
    the estimated life of the products under development; and
    
    the probability of success of launching a commercially viable product.
  Accounting for Uncertainty in Income Taxes
  Recent Accounting Pronouncements
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   50




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Certificates
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  ® ® ®
    
 Item 1A. Risk Factors
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We may not realize the expected benefits of our acquisition of JDS.
  
    
    the failure of ongoing and planned clinical trials and the risk that results
from early-stage clinical trials may not be indicative of results in later-stage trials;
    
    the unproven safety and efficacy of products under development;
    
    the difficulty of predicting FDA approvals, including the timing of approval
and that approval may not be granted at all;
    
    while FDA approval may be granted, the possibility that any expected period
of exclusivity may not be realized and that we may not be able to produce commercially
viable quantities;
    
    the difficulty of predicting acceptance and demand for new pharmaceutical
products;
    
    the impact of competitive products, pricing and managed care and formulary
status;
    
    the possibility that any product launch may be delayed or that product
acceptance may be less than anticipated;
    
    the possibility that patent applications may not result in issued patents,
and that issued patents may not be enforceable or could be invalidated;
    
    the commercial markets that we intend to enter with new products may not
develop in the manner or to the extent that we anticipate; and
    
    the potential negative impact of competitive responses to our sales,
marketing and strategic efforts.
  Our acquisition of JDS is expected to dilute our earnings for an undetermined period of time.
  Our acquisition of JDS may expose us to unexpected costs and liabilities.
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Our acquisition of JDS has resulted in a substantial increase in our intangible assets, which will
subject us to the risk of impairment charges.
  We may not successfully integrate JDS into our existing business, or such integration may be more
costly or more difficult than expected.
  
    
    retaining key customer and vendor relationships;
    
    the necessity of coordinating geographically disparate organizations,
systems and facilities;
    
    consolidating corporate and administrative functions and eliminating
redundancies;
    
    limiting the diversion of management resources necessary to facilitate the
integration;
    
    implementing compatible information and communication systems, as well as
common operating procedures;
    
    creating compatible financial controls and comparable human resource
management practices;
    
    expenses of any undisclosed or potential legal liabilities;
    
    preserving, and preventing disruption of, the important contractual and
other relationships of each company; and
    
    assimilating and retaining employees with diverse business backgrounds.
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The
voluntary market withdrawal of certain
Daytrana  product could have a material
adverse effect on our results of operations and/or financial position.
   
 There are inherent uncertainties involved in the estimates, judgments and assumptions used in the
preparation of our financial statements, and any changes in those estimates, judgments and
assumptions could have a material adverse effect on our financial position and results of
operations.
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We are subject to chargebacks and rebates when our products are resold to or reimbursed by
governmental agencies and managed care buying groups, which may reduce our net revenues and impact
our operating results.
  If our estimates for returned products are incorrect, there may be a materially adverse impact on
our net sales as well as an impact on our operating results.
  Because we rely on independent manufacturers for some of our products, any production or regulatory
problems these third parties experience could be disruptive to our inventory supply.
 ® ®
 State pharmaceutical marketing compliance and reporting requirements may expose us to regulatory
and legal action by state governments or other government authorities.
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If we market products in a manner that violates health care fraud and abuse laws, we may be subject
to civil or criminal penalties.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number ofShares
    
    
    ApproximatePurchased as
    
    
    Dollar ValuePart of
    
    
    That May YetTotal Number of
    
    
    Average Price
    
    
    Publicly
    
    
    be PurchasedShares
    
    
    Paid
    
    
    Announced
    
    
    under thePurchased
    
    
    Per Share
    
    
    Program
    
    
    Program(1)July 1, 2007 to
July 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2007 to
August 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2007 to
September 30, 2007
    
    
    322,345
    
    
    $
    15.90
    
    
    
    322,345
    
    
    $
    19,876,238Totals
    
    
    322,345
    
    
    $
    15.90
    
    
    
    322,345
    
    
    $
    19,876,238
 
 (1)
    
    In September 2007, we announced a stock repurchase program authorizing the repurchase
of up to $25.0 million of our common stock. There is no expiration date specified for this
program. 
 Item 5. Other Information
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Item 6. Exhibits
 2.1
    
    Agreement and Plan of Merger, dated as of July 9, 2007, by and among
Noven Pharmaceuticals, Inc., Noven Acquisition, LLC, JDS Pharmaceuticals, LLC, and
Satow Associates, LLC (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on July 10, 2007).*10.1
    
    Non-Competition Agreement between Noven Pharmaceuticals, Inc. and Phillip
Satow, dated as of August 14, 2007 (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on August 20, 2007).10.2
    
    Consulting Agreement between JDS Pharmaceuticals, LLC and Phillip Satow,
dated as of August 14, 2007 (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on August 20, 2007).10.3
    
    Asset Purchase Agreement by and between Synthon Pharmaceuticals, Inc. and
JDS Pharmaceuticals, LLC dated October 17, 2005 (with certain provisions omitted
pursuant to Rule 24b-2).*10.4
    
    Development, License and Supply Agreement by and between Banner
Pharmacaps Inc. and JDS Pharmaceuticals, LLC dated April 26, 2007 (with certain
provisions omitted pursuant to Rule 24b-2).*10.5
    
    Contract Manufacturing Agreement between OSG Norwich Pharmaceuticals,
Inc. and JDS Pharmaceuticals, LLC dated November 1, 2005 (with certain provisions
omitted pursuant to Rule 24b-2).*10.6
    
    Manufacturing and Supply Agreement between Solvay Pharmaceuticals, Inc.
and JDS Pharmaceuticals, LLC dated August 25, 2004 (with certain provisions omitted
pursuant to Rule 24b-2).*31.1
    
    Certification of Robert C. Strauss, President, Chief Executive Officer
and Chairman of the Board, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Diane M. Barrett, Vice President and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Robert C. Strauss, President, Chief Executive Officer
and Chairman of the Board, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.**32.2
    
    Certification of Diane M. Barrett, Vice President and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.**
 
 *
    
    Certain exhibits and schedules to this document have not been filed. The Registrant
agrees to furnish a copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.**
    
    Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished rather than
filed with this Form 10-Q. 58




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Signatures
  NOVEN PHARMACEUTICALS, INC.Date: November 9, 2007
    By:
    /s/ Diane M. BarrettDiane M. BarrettVice President and
Chief Financial Officer 59