<PAGE>

                     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     DECEMBER 31, 2004
                                            -------------------------



                     COMMISSION FILE NUMBER      1-9601
                                            ----------------



                         K-V PHARMACEUTICAL COMPANY
-------------------------------------------------------------------------------
           (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



          DELAWARE                                    43-0618919
--------------------------------          ------------------------------------
(STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)



              2503 SOUTH HANLEY ROAD, ST. LOUIS, MISSOURI 63144
-------------------------------------------------------------------------------
                  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                 (ZIP CODE)



                               (314) 645-6600
-------------------------------------------------------------------------------
            (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 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 EXCHANGE ACT RULE 12B-2).  YES   X      NO
                                          -----      -----


<TABLE>
<CAPTION>
             TITLE OF CLASS OF                              NUMBER OF SHARES
               COMMON STOCK                        OUTSTANDING AS OF FEBRUARY 3, 2005
             -----------------                     ----------------------------------
<S>                                                             <C>
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE                  35,877,686
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE                  13,371,589
</TABLE>





                                     1

PART I. - FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS


<TABLE>
                                    K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF INCOME
                             (Unaudited; dollars in thousands, except per share data)



<CAPTION>
                                                            THREE MONTHS ENDED              NINE MONTHS ENDED
                                                               DECEMBER 31,                    DECEMBER 31,
                                                        --------------------------      --------------------------
                                                           2004             2003           2004             2003
                                                        ---------        ---------      ---------        ---------
<S>                                                     <C>              <C>            <C>              <C>
Net revenues.....................................       $  86,857        $  69,598      $ 232,266        $ 199,996
Cost of sales....................................          29,935           22,761         80,525           67,891
                                                        ---------        ---------      ---------        ---------
Gross profit.....................................          56,922           46,837        151,741          132,105
                                                        ---------        ---------      ---------        ---------

Operating expenses:
    Research and development.....................           5,988            5,239         16,813           14,808
    Selling and administrative...................          29,176           21,536         79,009           62,429
    Amortization of intangible assets............           1,172            1,112          3,441            3,336
    Litigation...................................              --               --           (843)          (1,700)
                                                        ---------        ---------      ---------        ---------
Total operating expenses.........................          36,336           27,887         98,420           78,873
                                                        ---------        ---------      ---------        ---------

Operating income.................................          20,586           18,950         53,321           53,232
                                                        ---------        ---------      ---------        ---------

Other expense (income):
    Interest expense.............................           1,242            1,826          4,276            4,611
    Interest and other income....................            (718)            (750)        (2,151)          (1,523)
                                                        ---------        ---------      ---------        ---------
Total other expense, net.........................             524            1,076          2,125            3,088
                                                        ---------        ---------      ---------        ---------

Income before income taxes.......................          20,062           17,874         51,196           50,144
Provision for income taxes.......................           6,510            6,345         17,407           17,801
                                                        ---------        ---------      ---------        ---------

Net income.......................................       $  13,552        $  11,529      $  33,789        $  32,343
                                                        =========        =========      =========        =========


Earnings per common share:
    Basic - Class A common.......................       $    0.29        $    0.25      $    0.72        $    0.69
    Basic - Class B common.......................       $    0.24        $    0.21      $    0.60        $    0.57

    Diluted......................................       $    0.25        $    0.21      $    0.62        $    0.60
                                                        =========        =========      =========        =========





SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     2

<TABLE>
                                    K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                              (Dollars in thousands)

<CAPTION>
                                                                                          DECEMBER 31,     MARCH 31,
                                                                                             2004            2004
                                                                                             ----            ----
                                                                                          (Unaudited)

                                            ASSETS
                                            ------
<S>                                                                                       <C>             <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................     $  169,954      $  201,581
Marketable securities................................................................         35,516          25,330
Receivables, less allowance for doubtful accounts of $528 and $402
   at December 31, 2004 and March 31, 2004, respectively.............................         78,174          65,872
Inventories, net.....................................................................         49,278          50,697
Prepaid and other assets.............................................................          7,317           6,591
Deferred tax assets..................................................................             --           8,037
                                                                                          ----------      ----------
   Total Current Assets..............................................................        340,239         358,108
Property and equipment, less accumulated depreciation................................        119,473          75,777
Intangible assets and goodwill, net..................................................         78,319          80,809
Other assets.........................................................................         13,160          13,744
                                                                                          ----------      ----------
TOTAL ASSETS.........................................................................     $  551,191      $  528,438
                                                                                          ==========      ==========

                                         LIABILITIES
                                         -----------

CURRENT LIABILITIES:
Accounts payable.....................................................................     $   17,921      $   12,650
Accrued liabilities..................................................................         10,588          30,917
Deferred tax liabilities.............................................................          1,763              --
Current maturities of long-term debt.................................................          7,906           7,909
                                                                                          ----------      ----------
   Total Current Liabilities.........................................................         38,178          51,476
Long-term debt.......................................................................        210,011         210,741
Other long-term liabilities..........................................................          3,752           3,122
Deferred tax liabilities.............................................................          6,502           5,350
                                                                                          ----------      ----------
TOTAL LIABILITIES....................................................................        258,443         270,689
                                                                                          ----------      ----------

COMMITMENTS AND CONTINGENCIES

                                     SHAREHOLDERS' EQUITY
                                     --------------------

7% cumulative convertible Preferred Stock, $.01 par value; $25.00 stated and
   liquidation value; 840,000 shares authorized; issued and outstanding --
   40,000 shares at December 31, 2004 and March 31,
   2004 (convertible into Class A shares at a ratio of  8.4375 to one)...............             --              --
Class A and Class B Common Stock, $.01 par value; 150,000,000 and
   75,000,000 shares authorized, respectively;
     Class A - issued 38,976,556 and 36,080,583 at December 31, 2004
       and March 31, 2004, respectively..............................................            390             362
     Class B - issued 13,473,791 and 16,148,739 at December 31, 2004 and March 31,
       2004, respectively (convertible into Class A shares on a one-for-one basis)...            135             162
Additional paid-in capital...........................................................        127,669         123,828
Retained earnings....................................................................        218,317         184,580
Accumulated other comprehensive loss.................................................           (119)             --
Less: Treasury stock, 3,110,647 shares of Class A and 92,902 shares of Class B Common
   Stock at December 31, 2004, respectively, and 3,035,948 shares of Class A and
   80,142 shares of Class B Common Stock at March 31, 2004, respectively, at cost....        (53,644)        (51,183)
                                                                                          ----------      ----------
TOTAL SHAREHOLDERS' EQUITY...........................................................        292,748         257,749
                                                                                          ----------      ----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...........................................     $  551,191      $  528,438
                                                                                          ==========      ==========

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     3

<TABLE>
                                  K-V PHARMACEUTICAL COMPANY AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (Unaudited; dollars in thousands)

<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                          DECEMBER 31,
                                                                                  ----------------------------
                                                                                     2004              2003
                                                                                  ----------        ----------
<S>                                                                               <C>               <C>
OPERATING ACTIVITIES:
Net income.............................................................           $   33,789        $   32,343
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation, amortization and other non-cash charges...............               10,230             9,327
   Deferred income tax provision.......................................               11,013             5,304
   Deferred compensation...............................................                  630               225
   Litigation..........................................................                 (843)            1,825
Changes in operating assets and liabilities:
   (Increase) decrease in receivables, net.............................              (12,302)              672
   Decrease (increase) in inventories, net.............................                1,419           (13,561)
   Increase in prepaid and other assets................................               (1,752)           (7,809)
   Decrease in accounts payable and accrued liabilities................              (14,215)          (16,841)
                                                                                  ----------        ----------
Net cash provided by operating activities..............................               27,969            11,485
                                                                                  ----------        ----------

INVESTING ACTIVITIES:
   Purchase of property and equipment, net.............................              (49,387)          (13,709)
   Purchase of marketable securities...................................              (10,366)               --
   Product acquisition.................................................                   --           (14,300)
                                                                                  ----------        ----------
Net cash used in investing activities..................................              (59,753)          (28,009)
                                                                                  ----------        ----------

FINANCING ACTIVITIES:
   Principal payments on long-term debt................................                 (935)           (1,140)
   Dividends paid on preferred stock...................................                  (52)             (418)
   Proceeds from issuance of convertible notes.........................                   --           194,180
   Purchase of common stock for treasury...............................               (2,461)          (50,941)
   Exercise of common stock options....................................                3,605             1,726
                                                                                  ----------        ----------
Net cash provided by financing activities..............................                  157           143,407
                                                                                  ----------        ----------
(Decrease) increase in cash and cash equivalents.......................              (31,627)          126,883
Cash and cash equivalents:
   Beginning of year...................................................              201,581            96,288
                                                                                  ----------        ----------
   End of period.......................................................           $  169,954        $  223,171
                                                                                  ==========        ==========


SUPPLEMENTAL INFORMATION:
   Interest paid, net of portion capitalized...........................           $    4,524        $    3,041
   Income taxes paid...................................................                5,070            19,161

NON-CASH FINANCING ACTIVITY:
    Term loan to finance building purchase.............................           $       --        $    8,800
    Issuance of common stock under product development
        agreement......................................................                  238               505



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                     4

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                (Dollars in thousands, except per share data)


1.   BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of K-V
Pharmaceutical Company ("KV" or the "Company") have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. However, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. The results of
operations and cash flows for the three- and nine-month periods ended
December 31, 2004 are not necessarily indicative of the results of
operations and cash flows that may be expected for the fiscal year ending
March 31, 2005. The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2004. The balance sheet information as of March 31,
2004 has been derived from the Company's audited consolidated balance sheet
as of that date.

2.   STOCK-BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees
with an exercise price greater than or equal to the fair value of the shares
at the date of grant. As permissible under Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the
Company elected to continue to account for stock option grants to employees
in accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations. APB 25
requires that compensation cost related to fixed stock option plans be
recognized only to the extent that the fair value of the shares at the grant
date exceeds the exercise price. Accordingly, no compensation expense is
recognized for stock option awards granted to employees at or above fair
value. Had the Company determined compensation expense using the fair value
method prescribed by SFAS 123, the Company's net income and earnings per
share would have been as follows:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                  DECEMBER 31,                   DECEMBER 31,
                                                            -----------------------       ------------------------
                                                              2004           2003           2004            2003
                                                              ----           ----           ----            ----
<S>                                                         <C>            <C>            <C>             <C>
   Net income, as reported........................          $ 13,552       $ 11,529       $ 33,789        $ 32,343
   Deduct:  Stock based employee
     compensation expense, net of
     related tax effects..........................              (157)          (172)          (470)           (512)
                                                            --------       --------       --------        --------
   Pro forma net income...........................          $ 13,395       $ 11,357       $ 33,319        $ 31,831
                                                            ========       ========       ========        ========


   Earnings per share:
     Basic Class A common - as reported...........          $   0.29       $   0.25       $   0.72        $   0.69
     Basic Class A common - pro forma.............              0.29           0.25           0.71            0.68
     Basic Class B common - as reported...........              0.24           0.21           0.60            0.57
     Basic Class B common - pro forma.............              0.24           0.21           0.59            0.56
     Diluted - as reported........................              0.25           0.21           0.62            0.60
     Diluted - pro forma..........................              0.24           0.21           0.61            0.59
</TABLE>

The weighted average fair value of the options has been estimated on the
date of grant using the following weighted average assumptions for grants
during the three and nine months ended December 31, 2004 and 2003,
respectively: no dividend yield; expected volatility of 35% and 42% for
Class A common stock; expected volatility of 32% and 38% for Class B common
stock; risk-free interest rate of 3.49% and 3.25% per annum; and expected
option terms ranging from 3 to 10 years for both periods. Weighted averages
are used because of varying assumed exercise dates.

                                     5

3.   EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                   DECEMBER 31,                 DECEMBER 31,
                                                           -------------------------     --------------------------
                                                              2004            2003           2004           2003
                                                              ----            ----           ----           ----
<S>                                                         <C>            <C>            <C>             <C>
Undistributed earnings:
     Net income......................................       $  13,552      $  11,529      $  33,789       $  32,343
     Less - preferred stock dividends................             (17)           (17)           (52)           (418)
                                                            ---------      ---------      ---------       ---------
     Undistributed earnings - basic EPS..............          13,535         11,512         33,737          31,925
     Add - preferred stock dividends.................              17             17             52             418
     Add - interest expense on convertible
       notes, net of tax.............................           1,041            984          3,051           2,459
                                                            ---------      ---------      ---------       ---------
     Net income - diluted EPS........................       $  14,593      $  12,513      $  36,840       $  34,802
                                                            =========      =========      =========       =========
Allocation of undistributed earnings - basic EPS:
     Class A common stock............................       $  10,058      $   8,178      $  24,365       $  22,781
     Class B common stock............................           3,477          3,334          9,372           9,144
                                                            ---------      ---------      ---------       ---------
       Total allocated earnings - basic EPS..........       $  13,535      $  11,512      $  33,737       $  31,925
                                                            =========      =========      =========       =========
Weighted average shares outstanding - basic:
     Class A common stock............................          34,833         32,749         33,667          33,085
     Class B common stock............................          14,449         16,020         15,539          15,935
                                                            ---------      ---------      ---------       ---------
       Total weighted average shares
          outstanding - basic........................          49,282         48,769         49,206          49,020
                                                            ---------      ---------      ---------       ---------
Effect of dilutive securities:
     Employee stock options..........................           1,165          1,870          1,212           1,783
     Convertible preferred stock.....................             338            338            338             338
     Convertible notes...............................           8,692          8,692          8,692           7,269
                                                            ---------      ---------      ---------       ---------
       Dilutive potential common shares..............          10,195         10,900         10,242           9,390
                                                            ---------      ---------      ---------       ---------
       Total weighted average shares
         outstanding - diluted.......................          59,477         59,669         59,448          58,410
                                                            =========      =========      =========       =========
Basic earnings per share:
     Class A common stock............................       $    0.29      $    0.25      $    0.72       $    0.69
     Class B common stock............................            0.24           0.21           0.60            0.57
Diluted earnings per share(1)........................       $    0.25      $    0.21      $    0.62       $    0.60
                                                            =========      =========      =========       =========

<FN>
     (1) Excluded from the computation of diluted earnings per share are
         outstanding stock options whose exercise prices are greater than
         the average market price of the common shares for the period
         reported. For the three months ended December 31, 2004, excluded
         from the computation were options to purchase 684,897 Class A and
         Class B common shares. There were no outstanding stock options with
         exercise prices greater than the average market price of the common
         shares for the three months ended December 31, 2003. For the
         nine-month periods ended December 31, 2004 and 2003, excluded from
         the computation were options to purchase 687,987 and 140,282 Class
         A and Class B common shares, respectively.
</TABLE>


                                     6

In June 2004, the Company adopted the guidance in Emerging Issues Task Force
(EITF) No. 03-06, Participating Securities and the Two-Class Method under
FASB Statement No. 128, Earnings per Share. The pronouncement required the
use of the two-class method in the calculation and disclosure of basic
earnings per share and provided guidance on the allocation of earnings and
losses for purposes of calculating basic earnings per share. Accordingly,
all periods presented have been retroactively adjusted to give effect to
such guidance. For purposes of calculating basic earnings per share,
undistributed earnings are allocated to each class of common stock based on
the contractual participation rights of each class of security. Holders of
Class A common stock are entitled to receive dividends per share equal to
120% of the dividends per share paid on the Class B common stock.

In December 2004, the Company adopted the guidance in EITF 04-08, The Effect
of Contingently Convertible Debt on Diluted Earnings per Share, in this
report on Form 10-Q. The EITF consensus required that the impact of
contingently convertible debt instruments be included in diluted earnings
per share computations (if dilutive) regardless of whether the market price
trigger (or other contingent feature) had been met. Additionally, the EITF
stated that prior period earnings per share amounts presented for
comparative purposes should be restated to conform to this consensus.

Consistent with the guidance in EITF 03-06 and EITF 04-08, the following
table sets forth basic and diluted earnings per share for prior periods:

<TABLE>
<CAPTION>
                                                    Quarter Ended                                  Quarter Ended
                                            -------------------------------      ------------------------------------------------
                                            12/31/04    9/30/04    6/30/04       3/31/04        12/31/03     9/30/03      6/30/03
                                            -------------------------------      ------------------------------------------------
<S>                                         <C>         <C>         <C>          <C>            <C>          <C>          <C>
Undistributed Earnings:
  Net income                                $13,552     $12,676    $  7,561      $13,505        $11,529      $12,241      $ 8,573
  Less - preferred stock dividends              (17)        (18)        (17)         (18)           (17)         (18)        (384)
                                            -------     -------    --------      -------        -------      -------      -------
  Undistributed earnings - basic
    EPS                                      13,535      12,658       7,544       13,487         11,512       12,223        8,189
  Add - preferred stock dividends                17          18          17           18             17           18          384
  Add - interest expense on
     convertible notes, net of tax            1,041         997       1,009        1,044            984          984          492
                                            -------     -------    --------      -------        -------      -------      -------
  Net income - diluted EPS                  $14,593     $13,673    $  8,570      $14,549        $12,513      $13,225      $ 9,065
                                            =======     =======    ========      =======        =======      =======      =======

Allocation of undistributed -
  earnings - basic EPS:
     Class A common stock                   $10,058     $ 9,007    $  5,368      $ 9,607        $ 8,178      $ 8,680      $ 5,896
     Class B common stock                     3,477       3,651       2,176        3,880          3,334        3,543        2,293
                                            -------     -------    --------      -------        -------      -------      -------
       Total allocated earnings -
        basic EPS                           $13,535     $12,658    $  7,544      $13,487        $11,512      $12,223      $ 8,189
                                            =======     =======    ========      =======        =======      =======      =======
Weighted average shares
  outstanding - basic:
     Class A common stock                    34,833      33,114      33,048       32,929         32,749       32,557       33,958
     Class B common stock                    14,449      16,106      16,068       15,960         16,020       15,944       15,840
                                            -------     -------    --------      -------        -------      -------      -------
       Total weighted  average
        shares outstanding - basic           49,282      49,220      49,116       48,889         48,769       48,501       49,798
                                            -------     -------    --------      -------        -------      -------      -------

  Effect of dilutive securities:
     Employee stock options                   1,165         994       1,495        1,691          1,870        1,816        1,664
     Convertible preferred stock                338         338         338          338            338          338          338
     Convertible notes                        8,692       8,692       8,692        8,692          8,692        8,692        4,346
                                            -------     -------    --------      -------        -------      -------      -------
        Dilutive potential common
         shares                              10,195      10,024      10,525       10,721         10,900       10,846        6,348
                                            -------     -------    --------      -------        -------      -------      -------
         Total weighted average
         shares outstanding - diluted        59,477      59,244      59,641       59,610         59,669       59,347       56,146
                                            =======     =======    ========      =======        =======      =======      =======

Basic earnings per share:
     Class A common stock                   $  0.29     $  0.27    $   0.16      $  0.29        $  0.25      $  0.27      $  0.17
     Class B common stock                   $  0.24     $  0.23    $   0.14      $  0.24        $  0.21      $  0.22      $  0.14
Diluted earnings per share                  $  0.25     $  0.23    $   0.14      $  0.24        $  0.21      $  0.22      $  0.16
                                            =======     =======    ========      =======        =======      =======     ========
</TABLE>


                                     7

4.   REVENUE RECOGNITION

The Company generally recognizes revenue from product sales when the
merchandise is shipped to an unrelated third party pursuant to Staff
Accounting Bulletin No. 104, Revenue Recognition in Financial Statements.
Accordingly, the Company recognizes revenue when all of the following occur:
a purchase order is received from a customer; title and risk of loss pass to
the Company's customer upon shipment of the merchandise under the terms of
FOB shipping point; prices and estimated sales provisions for product
returns, sales rebates, payment discounts, chargebacks, and other
promotional allowances are reasonably determinable; and the customer's
payment ability has been reasonably assured.

Concurrently with the recognition of revenue, the Company records estimated
sales provisions for product returns, sales rebates, payment discounts,
chargebacks, and other sales allowances. Sales provisions are established
based upon consideration of a variety of factors, including but not limited
to, historical relationship to revenues, historical payment and return
experience, estimated customer inventory levels, customer rebate
arrangements, and current contract sales terms with wholesale and indirect
customers.

Actual product returns, chargebacks and other sales allowances incurred are,
however, dependent upon future events and may be different than the
Company's estimates. The Company continually monitors the factors that
influence sales allowance estimates and makes adjustments to these
provisions when management believes that actual product returns, chargebacks
and other sales allowances may differ from established allowances.

Accruals for sales provisions are presented in the consolidated financial
statements as reductions to net revenues and accounts receivable. Sales
provisions totaled $37,498 and $24,720 for the three months ended December
31, 2004 and 2003, respectively, and $96,043and $68,736 for the nine months
ended December 31, 2004 and 2003, respectively. The reserve balances related
to the sales provisions totaled $22,929 and $20,648 at December 31, 2004 and
March 31, 2004, respectively, and are deducted from "Receivables, less
allowance for doubtful accounts" in the accompanying consolidated balance
sheets.

5.   INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2004    MARCH 31, 2004
                                                                -----------------    --------------

                  <S>                                                <C>                <C>
                  Finished goods.....................                $ 28,559           $ 31,028
                  Work-in-process....................                   6,484              5,142
                  Raw materials......................                  15,776             15,529
                                                                     --------           --------
                                                                       50,819             51,699
                  Reserves for obsolescence..........                  (1,541)            (1,002)
                                                                     --------           --------
                                                                     $ 49,278           $ 50,697
                                                                     ========           ========
</TABLE>

Management establishes reserves for potentially obsolete or slow-moving
inventory based on an evaluation of inventory levels, forecasted demand, and
market conditions.

                                     8

6.   INTANGIBLE ASSETS AND GOODWILL

<TABLE>
<CAPTION>
                                                       DECEMBER 31, 2004                   MARCH 31, 2004
                                                 ---------------------------       ----------------------------
                                                   GROSS                            GROSS
                                                  CARRYING      ACCUMULATED        CARRYING        ACCUMULATED
                                                   AMOUNT       AMORTIZATION        AMOUNT         AMORTIZATION
                                                   ------       ------------        ------         ------------
<S>                                              <C>              <C>               <C>              <C>
Product rights - Micro-K(R)..................    $  36,140        $(10,452)         $  36,140        $ (9,099)
Product rights - PreCare(R)..................        8,433          (2,284)             8,433          (1,968)
Trademarks acquired:
   Niferex(R)................................       14,834          (1,298)            14,834            (742)
   Chromagen(R)/Strongstart(R).................     27,642          (2,419)            27,642          (1,382)
License agreements.........................          4,668             (75)             3,825               -
Trademarks and patents.....................          2,999            (426)             2,980            (411)
                                                 ---------        --------          ---------        --------
  Total intangible assets..................         94,716         (16,954)            93,854         (13,602)
Goodwill...................................            557               -                557               -
                                                 ---------        --------          ---------        --------
                                                 $  95,273        $(16,954)         $  94,411        $(13,602)
                                                 =========        ========          =========        ========
</TABLE>

As of December 31, 2004, the Company's intangible assets have a weighted
average useful life of approximately 20 years. Amortization expense for
intangible assets was $1,172 and $1,112 for the three months ended December
31, 2004 and 2003, respectively, and $3,442 and $3,336 for the nine months
ended December 31, 2004 and 2003, respectively.

Assuming no additions, disposals or adjustments are made to the carrying
values and/or useful lives of the intangible assets, amortization expense on
product rights, trademarks acquired and other intangible assets is estimated
to be approximately $1,173 for the remainder of fiscal 2005 and
approximately $4,690 in each of the four succeeding fiscal years.

7.   REVOLVING CREDIT AGREEMENT

Effective as of December 2004, the Company increased its available credit
facilities to $140,000. The revised agreement provides for an increase from
$40,000 to $80,000 in the Company's revolving line of credit along with an
increase from $25,000 to $60,000 in the supplemental credit line that is
available for financing acquisitions. These credit facilities expire in
October 2006 and December 2005, respectively. The revolving and supplemental
credit lines are unsecured and interest is charged at the lower of the prime
rate or the one-month LIBOR rate plus 175 basis points. At December 31,
2004, the Company had no cash borrowings outstanding under either credit
facility. The revised agreement contains substantially identical financial
and other covenants, representations, warranties, conditions and default
provisions as the replaced facility. The financial covenants impose minimum
levels of earnings before interest, taxes, depreciation and amortization, a
maximum funded debt ratio, a limit on capital expenditures and dividend
payments, a minimum fixed charge coverage ratio and a maximum senior
leverage ratio. As of December 31, 2004, the Company was in compliance with
all of its covenants.

8.   LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31, 2004     MARCH 31, 2004
                                                                   -----------------     --------------
                  <S>                                                <C>                   <C>
                  Industrial revenue bonds....................       $        --           $      205
                  Notes payable...............................             6,933                6,731
                  Building mortgages..........................            10,984               11,714
                  Convertible notes...........................           200,000              200,000
                                                                     -----------           ----------
                                                                         217,917              218,650
                  Less current portion........................            (7,906)              (7,909)
                                                                     -----------           ----------
                                                                     $   210,011           $  210,741
                                                                     ===========           ==========
</TABLE>

                                     9

On May 16, 2003, the Company issued $200,000 principal amount of Convertible
Subordinated Notes (the "Notes") that are convertible, under certain
circumstances, into shares of Class A common stock at an initial conversion
price of $23.01 per share. The Notes, which are due May 16, 2033, bear
interest that is payable on May 16 and November 16 of each year at a rate of
2.50% per annum. The Company also is obligated to pay contingent interest at
a rate equal to 0.5% per annum during any six-month period from May 16 to
November 15 and from November 16 to May 15, with the initial six-month
period commencing May 16, 2006, if the average trading price of the Notes
per $1,000 principal amount for the five-trading day period ending on the
third trading day immediately preceding the first day of the applicable
six-month period equals $1,200 or more.

The Company may redeem some or all of the Notes at any time on or after May
21, 2006, at a redemption price, payable in cash, of 100% of the principal
amount of the Notes, plus accrued and unpaid interest, including contingent
interest, if any. Holders may require the Company to repurchase all or a
portion of their Notes on May 16, 2008, 2013, 2018, 2023 and 2028 or upon a
change in control, as defined in the indenture governing the Notes, at a
purchase price, payable in cash, of 100% of the principal amount of the
Notes, plus accrued and unpaid interest, including contingent interest, if
any. The Notes are subordinate to all of our existing and future senior
obligations.

The Notes are convertible, at the holders' option, into shares of the
Company's Class A common stock prior to the maturity date under the
following circumstances:

                  o    during any quarter commencing after June 30, 2003, if
                       the closing sale price of the Company's Class A
                       common stock over a specified number of trading days
                       during the previous quarter is more than 120% of the
                       conversion price of the Notes on the last trading day
                       of the previous quarter. The Notes are initially
                       convertible at a conversion price of $23.01 per
                       share, which is equal to a conversion rate of
                       approximately 43.4594 shares per $1,000 principal
                       amount of Notes;
                  o    if the Company has called the Notes for redemption;
                  o    during the five-trading day period immediately
                       following any nine consecutive-trading day period in
                       which the trading price of the Notes per $1,000
                       principal amount for each day of such period was less
                       than 95% of the product of the closing sale price of
                       our Class A common stock on that day multiplied by
                       the number of shares of our Class A common stock
                       issuable upon conversion of $1,000 principal amount
                       of the Notes; or
                  o    upon the occurrence of specified corporate
                       transactions.

The Company has reserved 8,691,880 shares of Class A Common Stock for
issuance in the event the Notes are converted into the Company's common
shares.

The Notes, which are unsecured, do not contain any restrictions on the
payment of dividends, the incurrence of additional indebtedness or the
repurchase of the Company's securities, and do not contain any financial
covenants.

9.   COMPREHENSIVE INCOME

Comprehensive income includes all changes in equity during a period except
those that resulted from investments by or distributions to the Company's
shareholders. Other comprehensive income refers to revenues, expenses, gains
and losses that, under generally accepted accounting principles, are
included in comprehensive income, but excluded from net income as these
amounts are recorded directly as an adjustment to shareholders' equity. For
the Company, comprehensive income is comprised of net income and the net
changes in unrealized gains and losses on available for sale marketable
securities, net of applicable income taxes. Total comprehensive income
totaled $13,433 and $11,529 for the three months ended December 31, 2004 and
2003, respectively, and $33,670 and $32,343 for the nine months ended
December 31, 2004 and 2003, respectively.

10.   SEGMENT REPORTING

The reportable operating segments of the Company are branded products,
specialty generics and specialty materials. The operating segments are
distinguished by differences in products, marketing and regulatory

                                     10

approval. Segment profits are measured based on income before taxes and are
determined based on each segment's direct revenues and expenses. The
majority of research and development expense, corporate general and
administrative expenses, amortization and interest expense, as well as
interest and other income, are not allocated to segments, but are included
in the "all other" classification. Identifiable assets for the three
reportable operating segments primarily include receivables, inventory, and
property and equipment. For the "all other" classification, identifiable
assets consist of cash and cash equivalents, corporate property and
equipment, intangible and other assets and all income tax related assets.
Accounting policies of the segments are the same as the Company's
consolidated accounting policies.

The following represents information for the Company's reportable operating
segments for the three and nine months ended December 31, 2004 and 2003.

<TABLE>
<CAPTION>
                                THREE MONTHS
                                   ENDED          BRANDED      SPECIALTY    SPECIALTY     ALL
                                DECEMBER 31,      PRODUCTS     GENERICS     MATERIALS    OTHER     ELIMINATIONS   CONSOLIDATED
                                ------------      --------     --------     ---------    -----     ------------   ------------
<S>                                 <C>           <C>          <C>            <C>      <C>          <C>            <C>
   Net revenues                     2004          $26,180      $55,113        $4,671   $    893     $      -       $  86,857
                                    2003           20,928       44,071         3,905        694            -          69,598

   Segment profit (loss)            2004            9,851       30,191         1,097    (21,077)           -          20,062
                                    2003            8,009       24,518           654    (15,307)           -          17,874

   Identifiable assets              2004           22,034       78,609         7,742    443,964       (1,158)        551,191
                                    2003           16,348       70,247         8,871    419,690       (1,158)        513,998

   Property and                     2004              651           33             -     16,177            -          16,861
       equipment additions          2003                -            -             -      5,629            -           5,629

   Depreciation and                 2004               66           65            35      3,311            -           3,477
       Amortization                 2003               78           13            34      3,120            -           3,245


<CAPTION>
                                NINE MONTHS
                                   ENDED          BRANDED     SPECIALTY     SPECIALTY     ALL
                                DECEMBER 31,      PRODUCTS    GENERICS      MATERIALS    OTHER     ELIMINATIONS   CONSOLIDATED
                                ------------      --------    --------      ---------    -----     ------------   ------------
<S>                                 <C>           <C>          <C>            <C>      <C>          <C>            <C>
   Net revenues                     2004          $64,477     $151,686       $13,790   $  2,313     $      -       $ 232,266
                                    2003           52,588      132,311        12,085      3,012            -         199,996

   Segment profit (loss)            2004           18,639       84,536         2,606    (54,585)           -          51,196
                                    2003           17,244       74,839         1,527    (43,466)           -          50,144

   Property and                     2004            1,956           33            15     47,383            -          49,387
       equipment additions          2003              123            -            35     13,551            -          13,709

   Depreciation and                 2004              239          161           106      9,724            -          10,230
       Amortization                 2003              240           41           102      8,944            -           9,327
</TABLE>

     Consolidated revenues are principally derived from customers in North
     America and substantially all property and equipment is located in the
     St. Louis, Missouri metropolitan area.

11. CONTINGENCIES - RESERVE FOR POTENTIAL LEGAL DAMAGES

ETHEX Corporation (ETHEX), a subsidiary of the Company, was a defendant in a
lawsuit styled Healthpoint, Ltd. v. ETHEX Corporation, filed in federal
court in San Antonio, Texas. The Company and ETHEX were also named

                                     11

as defendants in a second lawsuit brought by Healthpoint and others styled
Healthpoint Ltd. v. ETHEX Corporation, filed in federal court in San
Antonio, Texas. In September 2004, the Company made a settlement payment in
the amount of $16,500 to resolve all previously pending claims between KV
and Healthpoint without the admission of any liability. The settlement was
fully reserved by the Company in September 2002 and therefore had no impact
on KV's earnings for the nine months ended December 31, 2004. The $843 of
income reflected in "Litigation" on the Company's consolidated income
statement for the nine months ended December 31, 2004 represents reversal of
the portion of the Healthpoint litigation reserve that remained after
payment of the settlement amount and related litigation costs.

The Company and ETHEX are named as defendants in a case brought by CIMA
LABS, Inc. and Schwarz Pharma, Inc. and styled CIMA LABS, Inc. et. al. v. KV
Pharmaceutical Company et. al. filed in federal court in Minnesota. It is
alleged that the Company and ETHEX infringed on a CIMA patent in connection
with the manufacture and sale of Hyoscyamine Sulfate Orally Dissolvable
Tablets, 0.125 mg. The court has denied the plaintiff's motion for a
preliminary injunction, which allows ETHEX to continue marketing the product
during the pendancy of the subject lawsuit and calls into question CIMA's
and Schwarz's ability to prevail in the lawsuit. The Company has filed
several motions for summary judgment that have yet to be decided, requesting
that the court rule that the relevant patent is unenforceable, invalid or
not infringed. CIMA and Schwarz have opposed these motions and filed a
summary judgment motion seeking the court to rule that the patent is valid.
The Company intends to vigorously defend its interests; however, it cannot
give any assurances it will prevail.

The Company and ETHEX are named as defendants in a case brought by Solvay
Pharmaceuticals, Inc. and styled Solvay Pharmaceuticals, Inc. v. ETHEX
Corporation, filed in federal court in Minnesota. In general, Solvay alleges
that ETHEX's comparative promotion of its Pangestyme(TM) CN 10 and
Pangestyme(TM) CN 20 products to Solvay's Creon(R) 10 and Creon(R) 20
products resulted in false advertising and misleading statements under
various federal and state laws, and constituted unfair and deceptive trade
practices. Discovery is active and trial has been set for November 2005. The
Company intends to vigorously defend its interests; however, it cannot give
any assurances it will prevail.

KV previously distributed several pharmaceutical products that contained
phenylpropanolamine, or PPA, and that were discontinued in 2000 and 2001.
The Company is presently named a defendant in a product liability lawsuit in
federal court in Mississippi involving PPA. The suit originated out of a
case, Virginia Madison, et al. v. Bayer Corporation, et al. The original
suit was filed on December 23, 2002, but was not served on KV until February
2003. The case was originally filed in the Circuit Court of Hinds County,
Mississippi, and was removed to the United States District Court for the
Southern District of Mississippi by then co-defendant Bayer Corporation. The
case has been transferred to a Judicial Panel on Multi-District Litigation
for PPA claims sitting in the Western District of Washington. The claims
against the Company have now been segregated into a lawsuit brought by
Johnny Fulcher individually and on behalf of the wrongful death
beneficiaries of Linda Fulcher, deceased, against KV. It alleges bodily
injury, wrongful death, economic injury, punitive damages, loss of
consortium and/or loss of services from the use of the Company's distributed
pharmaceuticals containing PPA that have since been discontinued and/or
reformulated to exclude PPA. In May 2004, the case was dismissed with
prejudice by the U.S. District Court for the Western District of Washington
for a failure to timely file an individual complaint as required by certain
court orders. The plaintiff filed a request for reconsideration which was
opposed and subsequently denied by the court in June 2004. In July 2004, the
plaintiffs filed a notice of appeal of the dismissal. The Company intends to
oppose this appeal. The Company intends to vigorously defend its interests;
however, it cannot give any assurances it will prevail.

KV's product liability coverage for PPA claims expired for claims made after
June 15, 2002. Although the Company renewed its product liability coverage
for coverage after June 15, 2002, that policy excludes future PPA claims in
accordance with the standard industry exclusion. Consequently, as of June
15, 2002, the Company will provide for legal defense costs and indemnity
payments involving PPA claims on a going forward basis as incurred,
including the Mississippi lawsuit that was filed after June 15, 2002.
Moreover, the Company may not be able to obtain product liability insurance
in the future for PPA claims with adequate coverage limits at commercially
reasonable prices for subsequent periods. From time to time in the future,
KV may be subject to further litigation resulting from products containing
PPA that it formerly distributed. The Company intends to vigorously defend
its interests; however, it cannot give any assurances it will prevail.

                                     12

The Company has been advised that one of its former distributor customers is
being sued in Florida state court captioned Darrian Kelly v. K-Mart et. al.
for personal injury allegedly caused by ingestion of K-Mart diet caplets
that are alleged to have been manufactured by the Company and to contain
PPA. The distributor has tendered defense of the case to the Company and has
asserted a right to indemnification for any financial judgment it must pay.
The Company previously notified its product liability insurer of this claim
in 1999, and the Company recently sent a letter to the insurer formally
demanding that it assume the Company's defense. The Company intends to
vigorously defend its interests; however, it cannot give any assurances it
will prevail.

After the Company filed Abbreviated New Drug Applications (ANDA) with the
Food and Drug Administration (FDA) seeking permission to market a generic
version of the 50 mg, 100 mg, and 200 mg strengths of Toprol(R) XL in
extended release capsule form, AstraZeneca filed lawsuits against KV for
patent infringement under the provisions of the Hatch-Waxman Act (the Act).
In the Company's Paragraph IV certification, KV contended that its proposed
generic versions do not infringe AstraZeneca's patents. Pursuant to the Act,
the filing date of the suit against the Company instituted an automatic stay
of FDA approval of the Company's ANDA until the earlier of a judgment, or 30
months from the date of the suit. The Company has filed a motion for summary
judgment with the federal district court in Missouri alleging, among other
things, that AstraZeneca's patent is invalid. The trial is currently
scheduled to begin in April 2005, but it may be delayed. The Company intends
to vigorously defend its interests; however, it cannot give any assurances
it will prevail.

In September 2003, the Commonwealth of Massachusetts filed Commonwealth of
Massachusetts v. Mylan Laboratories, Inc. et al in Massachusetts federal
court, against ETHEX Corp. and 12 other manufacturers of generic
pharmaceutical products. The complaint generally alleges certain claims
based upon the pricing and price reporting practices of the defendants
relative to the Medicaid Drug Rebate Program in Massachusetts. The case is
in its early stages, and fact discovery has not yet begun. In August 2004,
the City of New York filed a lawsuit in U.S. District Court for the Southern
District of New York against 44 manufacturers of pharmaceuticals, including
ETHEX. The complaint also makes allegations regarding pricing and price
reporting relative to Medicaid reimbursements. The case is in its early
stages and fact discovery has not yet begun. In addition, the Company has
been named in actions brought by several smaller governmental entities
against a large number of branded and generic manufacturers. The Company
intends to vigorously defend its interests in the actions described above;
however, it cannot give any assurances it will prevail.

The Company believes that various other governmental entities have commenced
investigations into the generic and branded pharmaceutical industry, at
large, regarding pricing and price reporting practices. Although the Company
believes its pricing and reporting practices have complied in all material
respects with its legal obligations, it cannot give any assurances that it
would prevail if legal actions are instituted by these governmental
entities.

From time to time, the Company is involved in various other legal
proceedings in the ordinary course of its business. These legal proceedings
include various patent infringement actions brought by potential competitors
with respect to products the Company proposes to market and for which it has
submitted ANDA filings and provided notice of certification required under
the provisions of the Act. While it is not feasible to predict the ultimate
outcome of such other proceedings, the Company believes that the ultimate
outcome of such other proceedings will not have a material adverse effect on
its results of operations or financial position. For additional information
regarding legal proceedings in which the Company or its subsidiaries are a
party, see Item 1 of Part II of this report.

There are uncertainties and risks associated with all litigation and there
can be no assurances that the Company will prevail in any particular
litigation.

12.  RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. The primary objectives of FIN 46 are to
provide guidance on the identification of entities which the Company may
control through means other than through voting rights ("variable interest
entities") and to determine when and which business enterprise ("primary
beneficiary") should consolidate the variable interest entity. FIN 46
requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among the parties involved. Variable interest
entities that effectively disperse risks will not be consolidated unless

                                     13

a single party holds an interest or combination of interests that
effectively recombines risks that were previously dispersed. In addition,
FIN 46 requires that the primary beneficiary, as well as all other
enterprises with a significant variable interest in a variable interest
entity, make additional disclosures. Certain disclosure requirements of FIN
46 were effective for financial statements issued after January 31, 2003. In
December 2003, the FASB revised FIN 46 (FIN 46R) to address certain FIN 46
implementation issues. The revised provisions were applicable no later than
the first reporting period ending after March 15, 2004. The Company adopted
FIN 46 and FIN 46R on March 31, 2004 and, based upon the evaluation
performed of all interests, has determined that the Company does not have
any variable interest entities that require consolidation.

In March 2004, the EITF completed its discussion of and provided consensus
guidance on Issue No. 03-06, Participating Securities and the Two-Class
Method under FASB Statement No. 128, Earnings per Share. The consensus
interpreted the definition of a "participating security", required the use
of the two-class method in the calculation and disclosure of basic earnings
per share for companies with participating securities or more than one class
of common stock, and provided guidance on the allocation of earnings and
losses for purposes of calculating basic earnings per share. Since the
Company has two classes of common stock, this consensus has been applied in
the calculation of basic earnings per share for all periods presented. There
was no impact on diluted earnings per share as reported.

In April 2004, the FASB issued FASB Staff Position No. 129-1 (FSP 129-1),
Disclosure Requirements under FASB Statement No. 129, Disclosure of
Information about Capital Structure, Relating to Contingently Convertible
Securities. This FSP requires the disclosure provisions of Statement 129 to
apply to all existing and newly created contingently convertible securities
and to their potentially dilutive effects on earnings per share. The
adoption of the disclosure provisions of FSP 129-1 did not have a material
impact on the Company's financial condition or results of operations.

In September 2004, the EITF reached a consensus that contingently
convertible debt instruments should be included in diluted earnings per
share computations (if dilutive) regardless of whether the market price
trigger (or other contingent feature) has been met. Additionally, the EITF
stated that prior period earnings per share amounts presented for
comparative purposes should be restated to conform to this consensus, which
is effective for reporting periods ending after December 15, 2004. The
conclusion adopted by the EITF required the addition of approximately 8.7
million shares associated with the conversion of the Company's $200,000
principal amount Convertible Subordinated Notes to the number of shares
outstanding for the calculation of diluted earnings per share for all
reported periods since the issuance of the Notes.

In November 2004, the FASB issued Statement SFAS No. 151, Inventory Costs,
an Amendment to ARB No. 43, Chapter 4 which requires that abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage) costs be recognized as current-period charges. In addition, this
statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The Company is currently
determining the impact, if any, the adoption of this statement will have on
its financial condition and results of operations.

In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based
Payment (SFAS 123R) which is effective for the first reporting period
beginning after June 15, 2005. This statement requires that any share-based
payment made to an employee, including stock options, be recognized in the
financial statements based on their fair value. Under the terms of SFAS
123R, the fair value of any equity award will be estimated at the grant date
and this fair value will be recognized as compensation cost over the period
during which the employee is required to provide service in exchange for the
award. The Company currently accounts for its stock option plans under the
recognition and measurement principles of APB 25 which requires that
compensation cost related to fixed stock option plans be recognized only to
the extent that the fair value of the shares at the grant date exceeds the
exercise price. Since all option awards granted under the Company's stock
option plans have had an exercise price equal to or greater than the market
value of the underlying common stock, no compensation costs related to these
stock option grants have been reflected in net income. In Note 2 above, the
Company presents pro forma information as if it had determined compensation
expense using the fair value method prescribed by the previously issued SFAS
123. SFAS 123R will be effective for the Company on July 1, 2005. The
Company is currently evaluating the requirements of this statement to
determine the impact on its consolidated financial position and results of
operations.


                                     14

         CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Form 10-Q, including the documents that we incorporate herein by
reference, contains various forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995
("PSLRA"), which may be based on or include assumptions, concerning our
operations, future results and prospects. Such statements may be identified
by the use of words like "plans", "expect", "aim", "believe", "projects",
"anticipate", "commit", "intend", "estimate", "will", "should", "could", and
other expressions that indicate future events and trends.

All statements that address expectations or projections about the future,
including without limitation, statements about our strategy for growth,
product development, regulatory approvals, market position, expenditures and
financial results, are forward-looking statements.

All forward-looking statements are based on current expectations and are
subject to risk and uncertainties. In connection with the "safe harbor"
provisions, we provide the following cautionary statements identifying
important economic, political and technology factors which, among others,
could cause the actual results or events to differ materially from those set
forth or implied by the forward-looking statements and related assumptions.

Such factors include (but are not limited to) the following: (1) changes in
the current and future business environment, including interest rates and
capital and consumer spending; (2) the difficulty of predicting local
approvals, including the timing; (3) acceptance and demand for new
pharmaceutical products; (4) the impact of competitive products and pricing;
(5) new product development and launch, including the possibility that any
product launch may be delayed or that product acceptance may be less than
anticipated; (6) reliance on key strategic alliances; (7) the availability
of raw materials; (8) the regulatory environment; (9) the risk that market
size estimates may be more or less than estimated; (10) fluctuations in
operating results; (11) the difficulty of predicting the pattern of
inventory movements by our customers; (12) the impact of competitive
response to our sales, marketing and strategic efforts; (13) risks that we
may not ultimately prevail in our litigation; and (14) the risks detailed
from time to time in our filings with the Securities and Exchange
Commission.

This discussion is by no means exhaustive, but is designed to highlight
important factors that may impact the Company's outlook.




                                     15

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
           AND FINANCIAL CONDITION

Except for the historical information contained herein, the following
discussion contains forward-looking statements that are subject to known and
unknown risks, uncertainties, and other factors that may cause our actual
results to differ materially from those expressed or implied by those
forward-looking statements. These risks, uncertainties and other factors are
discussed above under the caption "Cautionary Statement Regarding
Forward-Looking Information." In addition, the following discussion and
analysis of financial condition and results of operations should be read in
conjunction with the consolidated financial statements, the related notes to
consolidated financial statements and "Management's Discussion and Analysis
of Results of Operations and Financial Condition" included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2004, and the
unaudited interim consolidated financial statements and related notes to
unaudited interim consolidated financial statements included in Item 1 of
this Quarterly Report on Form 10-Q.

BACKGROUND

We are a fully integrated specialty pharmaceutical company that develops,
acquires, manufactures and markets technologically distinguished branded and
generic prescription pharmaceutical products. We have a broad range of
dosage form capabilities, including tablets, capsules, creams, liquids and
ointments. We conduct our branded pharmaceutical operations through Ther-Rx
Corporation and our generic pharmaceutical operations through ETHEX
Corporation, which focuses principally on technologically distinguished
generic products. Through Particle Dynamics, Inc., we develop, manufacture
and market technologically advanced, value-added raw material products for
the pharmaceutical, nutritional, personal care, food and other markets.

We have a broad portfolio of drug delivery technologies which we leverage to
create technologically distinguished brand name and specialty generic
products. We have developed and patented 15 drug delivery and formulation
technologies primarily in four principal areas: SITE RELEASE(R)
bioadhesives, oral controlled release, tastemasking and quick dissolving
tablets. We incorporate these technologies in the products we market to
control and improve the absorption and utilization of active pharmaceutical
compounds. These technologies provide a number of benefits, including
reduced frequency of administration, reduced side effects, improved drug
efficacy, enhanced patient compliance and improved taste.

Our drug delivery technologies allow us to differentiate our products in the
marketplace, both in the branded and generic pharmaceutical areas. We
believe that this differentiation provides substantial competitive
advantages for our products, allowing us to establish a strong record of
growth and profitability and a leadership position in certain segments of
our industry.

RESULTS OF OPERATIONS

During the three- and nine-month periods, net revenues increased 24.8% and
16.1%, respectively, as we experienced sales growth in all three of our
operating segments: branded products, specialty generics and specialty
materials. The $10.1 million and $19.6 million increases in gross profit for
the three- and nine-month periods, respectively, were partially offset by
increases in operating expenses of $8.4 million and $19.5 million,
respectively. The increases in operating expenses were primarily due to:
greater personnel expenses associated with an increase in management
personnel and expansion of the branded sales force; an increase in branded
marketing expense commensurate with the growth of the segment, and to
support better-than-expected performance of our technology-improved anemia
product line; and increases in research and development expense reflective
of increased spending on bioequivalency studies for products in our internal
development pipeline. Net income increased $2.0 million, or 17.6%, to $13.6
million for the three months ended December 31, 2004 and $1.4 million, or
4.5%, to $33.8 million for the nine months ended December 31, 2004 compared
to the corresponding periods of fiscal 2004.


                                     16

Net Revenues by Segment
-----------------------
   ($ IN THOUSANDS)
-----------------------

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                      DECEMBER 31,                                DECEMBER 31,
                                      ------------------------------------------  ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------  ------------  -------------
<S>                                   <C>            <C>                    <C>   <C>            <C>                    <C>
   Branded products                   $      26,180  $     20,928           25.1% $      64,477  $     52,588           22.6%
     as % of total net revenues                30.1%         30.1%                         27.8%         26.3%
   Specialty generics                        55,113        44,071           25.1%       151,686       132,311           14.6%
     as % of total net revenues                63.5%         63.3%                         65.3%         66.2%
   Specialty materials                        4,671         3,905           19.6%        13,790        12,085           14.1%
     as % of total net revenues                 5.4%          5.6%                          5.9%          6.0%
    Other                                       893           694           28.7%         2,313         3,012          (23.2)%
       Total net revenues             $      86,857  $     69,598           24.8% $     232,266  $    199,996           16.1%
</TABLE>

The increases in branded product sales of $5.3 million and $11.9 million for
the three- and nine-month periods, respectively, were due primarily to
continued growth of Gynazole-1(R), our vaginal antifungal cream product, and
our two anemia product lines. Sales of Gynazole-1(R) increased $4.7 million,
or 90.2%, in the third quarter and $6.9 million, or 58.0%, for the
nine-month period compared to the corresponding prior year periods.
Gynazole-1(R) continued to experience sales growth as our share of the
prescription vaginal antifungal cream market increased to 31.1% at the end
of the third quarter, from 24.9% at the end of the third quarter of the
prior year. The sales increase in Gynazole-1(R) was also impacted by
larger-than-normal customer purchases during the quarter in anticipation of
a December price increase, which accounted for approximately half of the
increase in sales for the quarter. Sales from our two anemia product lines,
Chromagen(R) and Niferex(R), increased 30.8% to $6.6 million and 58.2% to
$18.2 million during the three- and nine-month periods, respectively, as
both product lines experienced growth in total prescriptions filled. During
the quarter, prescription growth for Chromagen(R) and Niferex(R) was 58.4%
and 44.4%, respectively, compared to the corresponding prior year quarter.
Also included in branded product sales was the PreCare(R) product line which
contributed $7.0 million and $21.1 million of sales during the three- and
nine-month periods, respectively. The PreCare(R) family of products
continued to be the leading branded line of prescription prenatal
nutritional supplements in the United States as our market share for new
prescriptions grew to 41.1% at the end of the third quarter of fiscal 2005
compared to 37.0% at the end of the third quarter of the prior year. Early
in the fourth quarter of fiscal 2005, we introduced Clindesse(TM), our
recent NDA approved single-dose therapy indicated to treat bacterial
vaginosis.

The growth in specialty generic sales of $11.0 million and $19.4 million for
the three- and nine-month periods, respectively, resulted primarily from
$7.9 million and $19.4 million, respectively, of increased sales volume from
existing products principally in our cardiovascular and pain management
product lines. Specialty generic sales were further supplemented by $5.8
million and $9.2 million, respectively, of incremental sales volume from new
product introductions primarily in our cough/cold product line. These
increases were offset in part by product price erosion of $2.7 million and
$9.2 million, respectively, that resulted from normal and expected pricing
pressures on certain products in the cardiovascular and pain management
product lines.

The increases in specialty material product sales for the three- and
nine-month periods were primarily due to successful new product launches
into the over-the-counter marketplace.


                                     17

Gross Profit by Segment
-----------------------
  ($ IN THOUSANDS)
-----------------------

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                           NINE MONTHS ENDED
                                                     DECEMBER 31,                                 DECEMBER 31,
                                      ------------------------------------------  ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------  ------------  -------------
<S>                                   <C>            <C>                    <C>   <C>            <C>                    <C>
   Branded products                   $      22,644  $     18,316           23.6% $      56,158  $     45,719           22.8%
     as % of  net revenues                     86.5%         87.5%                         87.1%         86.9%
   Specialty generics                        32,635        26,829           21.6%        91,905        81,580           12.7%
     as % of net revenues                      59.2%         60.9%                         60.6%         61.7%
   Specialty materials                        1,894         1,459           29.8%         5,013         4,047           23.9%
     as % of net revenues                      40.5%         37.4%                         36.4%         33.5%
    Other                                      (251)          233             NM         (1,335)          759             NM
     Total gross profit               $      56,922  $     46,837           21.5% $     151,741  $    132,105           14.9%
       as % of total net revenues              65.5%         67.3%                         65.3%         66.1%
</TABLE>

The increases in gross profit of $10.1 million and $19.6 million for the
three- and nine-month periods, respectively, were primarily attributable to
the sales growth experienced by all three of our segments: branded products,
specialty generics, and specialty materials. The lower gross profit
percentages for both the three- and nine-month periods primarily reflected
the impact of price erosion on certain specialty generic products that
principally occurred during the second and third quarters, partially offset
by certain selective price increases. The lower gross profit percentage for
the quarter was also impacted by a short-term shift in the mix of branded
prenatal product sales toward lower margin products.

Research and Development
------------------------
  ($ IN THOUSANDS)
------------------------
<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                      DECEMBER 31,                                DECEMBER 31,
                                      ------------------------------------------  ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------  ------------  -------------
<S>                                   <C>            <C>                    <C>   <C>            <C>                    <C>
    Research and development          $       5,988  $      5,239           14.3% $      16,813  $     14,808           13.5%
        as % of total net revenues              6.9%          7.5%                          7.2%          7.4%
</TABLE>

The increases in research and development expense of $0.7 million and $2.0
million for the three- and nine-month periods, respectively, primarily
resulted from increased spending on bioequivalency studies for products in
our internal development pipeline.

Selling and Administrative
--------------------------
    ($ IN THOUSANDS)
--------------------------

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                           NINE MONTHS ENDED
                                                     DECEMBER 31,                                 DECEMBER 31,
                                      ------------------------------------------  ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------  ------------  -------------
<S>                                   <C>            <C>                    <C>   <C>            <C>                    <C>
    Selling and administrative        $      29,176  $     21,536           35.5% $      79,009  $     62,429           26.6%
        as % of total net revenues             33.6%         30.9%                         34.0%         31.2%
</TABLE>

The increases in selling and administrative expense of $7.6 million and
$16.6 million for the three- and nine-month periods, respectively, were due
primarily to: greater personnel expenses resulting from an increase in
management personnel and expansion of the branded sales force; an increase
in branded marketing expense commensurate with the growth of the segment, as
well as to support better-than-expected performance of our
technology-improved anemia product line; and an increase in professional
fees associated with implementation of the internal control provisions of
the Sarbanes-Oxley Act of 2002. We also experienced an increase in legal
expense due to an increase in litigation activity, which included various
patent infringement actions brought by potential competitors with respect to
products we propose to market and for which we have submitted ANDA filings
and provided notice of certification required under the provisions of the
Hatch-Waxman Act.


                                     18

Litigation
----------
    ($ IN THOUSANDS)
--------------------------

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                     DECEMBER 31,                                DECEMBER 31,
                                      ------------------------------------------  -------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------   ------------  -------------
<S>                                   <C>            <C>                 <C>      <C>             <C>                   <C>
Litigation                            $     -        $     -             -      % $        (843)  $     (1,700)         (50.4)%
    as % of total net revenues              -      %       -      %                        (0.4)%         (0.9)%
</TABLE>

In the second quarter of fiscal 2005, we made a settlement payment in the
amount of $16.5 million to resolve all previously pending claims between KV
and Healthpoint without the admission of any liability (see Note 11 in the
accompanying Notes to Consolidated Financial Statements). The settlement was
fully reserved by us in September 2002 and therefore had no impact on our
earnings for the nine months ended December 31, 2004. The $0.8 million of
income reflected in "Litigation" for the nine-month period represents a
reversal of the portion of the Healthpoint litigation reserve that remained
after payment of the settlement amount and related litigation costs.

In the second quarter of the prior year, we received $3.5 million for
settlement with a branded company of our claim that the branded company
interfered with our right to a timely introduction of a generic product in a
previous fiscal year. The impact of this payment was offset in part by an
additional litigation reserve of $1.8 million related to attorneys' fees
awarded in the Healthpoint matter, which subsequently was settled.

Interest Expense
----------------
    ($ IN THOUSANDS)
----------------------------

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED                          NINE MONTHS ENDED
                                                      DECEMBER 31,                                DECEMBER 31,
                                      ------------------------------------------   ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------   -------------  ------------  -------------
<S>                                   <C>            <C>                   <C>     <C>            <C>                    <C>
Interest expense                      $       1,242  $      1,826          (32.0)% $       4,276  $      4,611           (7.3)%
     as % of total net revenues                 1.4%          2.6%                           1.8%          2.3%
</TABLE>

The declines in interest expense for the three- and nine-month periods were
primarily due to increases in the levels of capitalized interest recorded on
capital projects that we have in process.

Interest and Other Income
-------------------------
   ($ IN THOUSANDS)
-------------------------

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED                           NINE MONTHS ENDED
                                                     DECEMBER 31,                                 DECEMBER 31,
                                      ------------------------------------------   ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------   -------------  ------------  -------------
<S>                                   <C>            <C>                    <C>    <C>            <C>                    <C>
Interest and other income             $         718  $        750           (4.3)%  $      2,151  $      1,523           41.2%
     as % of total net revenues                 0.8%          1.1%                           0.9%          0.8%
</TABLE>

The increase in interest and other income for the nine-month period was
primarily due to income generated from the purchase of income tax credits
coupled with the impact of recording a payment received by us from another
pharmaceutical company in connection with our agreement to change the
trademark of one of our generic products.

Provision for Income Taxes
--------------------------
    ($ IN THOUSANDS)
--------------------------

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED                           NINE MONTHS ENDED
                                                   DECEMBER 31,                                DECEMBER 31,
                                      ------------------------------------------  ------------------------------------------
                                                                         %                                           %
                                          2004           2003          CHANGE          2004           2003         CHANGE
                                      -------------  ------------  -------------  -------------  ------------  -------------

<S>                                   <C>            <C>                    <C>   <C>            <C>                    <C>
Provision for income taxes            $       6,510  $      6,345            2.6% $      17,407  $     17,801           (2.2)%
   Effective tax rate                          32.4%         35.5%                         34.0%         35.5%
</TABLE>

The declines in the effective tax rate for the three- and nine-month periods
were due to the impact of various tax planning initiatives, coupled with the
generation of income tax credits at both the Federal and state levels.

                                     19

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and working capital were $170.0 million and $302.1
million, respectively, at December 31, 2004, compared to $201.6 million and
$306.6 million, respectively, at March 31, 2004. Internally generated funds
from product sales continued to be the primary source of operating capital
used in the funding of our businesses. Net cash flow from operating
activities was $28.0 million for the nine months ended December 31, 2004.
Cash flow from operations was favorably impacted by net income adjusted for
non-cash items and an increase in accounts payable related to the timing of
payments, offset in part by a reduction in the $18.3 million reserve
attributable to settlement of the Healthpoint litigation and an increase in
receivables associated with a greater concentration of sales for specialty
generics occurring in the final month of the quarter.

Net cash flow used in investing activities primarily consisted of capital
expenditures of $49.4 million for the nine months ended December 31, 2004
compared to $13.7 million for the corresponding prior year period, which
excluded the $8.8 million cost of a building we purchased in April 2003 with
proceeds from a term loan. Capital expenditures during the first nine months
of fiscal 2005 were primarily for building renovation projects and for
purchasing machinery and equipment to upgrade and expand our pharmaceutical
manufacturing and distribution capabilities. Also, other investing
activities for the nine months ended December 31, 2004 included $10.4
million in purchases of marketable securities that are classified as
available for sale. For the corresponding prior year period, we made a cash
payment of $14.3 million in April 2003 to complete the acquisition of the
Niferex(R) product line.

Our debt balance was $217.9 million at December 31, 2004 compared to $218.7
million at March 31, 2004. In May 2003, we issued $200.0 million principal
amount of Convertible Subordinated Notes that are convertible, under certain
circumstances, into shares of our Class A Common Stock at an initial
conversion price of $23.01 per share. The Convertible Subordinated Notes
bear interest at a rate of 2.50% and mature on May 16, 2033. We are also
obligated to pay contingent interest at a rate equal to 0.5% per annum
during any six-month period commencing May 16, 2006, if the average trading
price of the Notes per $1,000 principal amount for the five-trading day
period ending on the third trading day immediately preceding the first day
of the applicable six-month period equals $1,200 or more. We may redeem some
or all of the Convertible Subordinated Notes at any time on or after May 21,
2006, at a redemption price, payable in cash, of 100% of the principal
amount of the Convertible Subordinated Notes, plus accrued and unpaid
interest (including contingent interest, if any) to the date of redemption.
Holders may require us to repurchase all or a portion of their Convertible
Subordinated Notes on May 16, 2008, 2013, 2018, 2023 and 2028, or upon a
change in control, as defined in the indenture governing the Convertible
Subordinated Notes, at 100% of the principal amount of the Convertible
Subordinated Notes, plus accrued and unpaid interest (including contingent
interest, if any) to the date of repurchase, payable in cash. The
Convertible Subordinated Notes are subordinate to all of our existing and
future senior obligations.

Effective as of December 2004, we increased our available credit facilities
to $140.0 million. The revised agreement provides for an increase from
$40,000 to $80,000 in our revolving line of credit along with an increase
from $25,000 to $60,000 in the supplemental credit line that is available
for financing acquisitions. These credit facilities expire in October 2006
and December 2005, respectively. The revolving and supplemental credit lines
are unsecured and interest is charged at the lower of the prime rate or the
one-month LIBOR rate plus 175 basis points. At December 31, 2004, we had no
cash borrowings outstanding under either credit facility. The revised
agreement contains substantially identical financial and other covenants,
representations, warranties, conditions and default provisions as the
replaced facility. The financial covenants impose minimum levels of earnings
before interest, taxes, depreciation and amortization, a maximum funded debt
ratio, a limit on capital expenditures and dividend payments, a minimum
fixed charge coverage ratio and a maximum senior leverage ratio. As of
December 31, 2004, we were in compliance with all of our covenants.

We believe our cash and cash equivalents balance, cash flows from operations
and funds available under our credit facilities, will be adequate to fund
operating activities for the presently foreseeable future, including the
payment of short-term and long-term debt obligations, capital improvements,
research and development expenditures, product development activities and
expansion of marketing capabilities for the branded pharmaceutical business.
In addition, we continue to examine opportunities to expand our business
through the acquisition of or investment in companies, technologies, product
rights, research and development and other investments that are compatible
with our existing businesses. We intend to use our available cash to help in
funding any acquisitions or investments. As such, cash has been invested in
short-term, highly liquid instruments. We also may use funds available under
our credit facility, or financing sources that subsequently become
available, including the future

                                     20

issuances of additional debt or equity securities, to fund these
acquisitions or investments. If we were to fund one or more such
acquisitions or investments, our capital resources, financial condition and
results of operations could be materially impacted in future periods.

INFLATION

Inflation may apply upward pressure on the cost of goods and services used
by us in the future. However, we believe that the net effect of inflation on
our operations during the past three years has been minimal. In addition,
changes in the mix of products sold and the effect of competition has made a
comparison of changes in selling prices less meaningful relative to changes
in the overall rate of inflation over the past three years.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are presented on the basis of U.S.
generally accepted accounting principles. Certain of our accounting policies
are particularly important to the portrayal of our financial position and
results of operations and require the application of significant judgment by
our management. As a result, these policies are subject to an inherent
degree of uncertainty. In applying these policies, we make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosures. We base our estimates and judgments on
historical experience, the terms of existing contracts, observance of trends
in the industry, information that is obtained from customers and outside
sources, and on various other assumptions that are believed to be reasonable
and appropriate under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Although we believe that
our estimates and assumptions are reasonable, actual results may differ
significantly from our estimates. Changes in estimates and assumptions based
upon actual results may have a material impact on our results of operations
and/or financial condition. Our critical accounting estimates are described
below.

Revenue and Provision for Sales Returns and Allowances. When we sell our
------------------------------------------------------
products, we reduce the amount of revenue we recognize from such sales by an
estimate of future product returns and sales allowances. Sales allowances
include cash discounts, rebates, chargebacks, and other similar expected
future payments relating to products sold in the current period. Factors
that are considered in our estimates of future product returns and sales
allowances include historical payment experience in relationship to
revenues, estimated customer inventory levels, and current contract prices
and terms with both direct and indirect customers. If actual future payments
for product returns and sales allowances exceed the estimates we made at the
time of sale, our financial position, results of operations and cash flows
would be negatively impacted.

The provision for chargebacks is the most significant and complex estimate
used in the recognition of revenue. We establish contract prices for
indirect customers who are supplied by our wholesale customers. A chargeback
represents the difference between our invoice price to the wholesaler and
the indirect customer's contract price, which is lower. We credit the
wholesaler for purchases by indirect customers at the lower price.
Accordingly, we record these chargebacks at the time we recognize revenue in
connection with our sales to wholesalers. Provisions for estimating
chargebacks are calculated primarily using historical chargeback experience,
actual contract pricing and estimated wholesaler inventory levels. We
continually monitor our assumptions, giving consideration to estimated
wholesaler inventory levels and current pricing trends, and make adjustments
to these estimates when we believe that the actual chargeback amounts
payable in the future will differ from our original estimates.

Allowance for Inventories. Inventories consist of finished goods held for
-------------------------
distribution, raw materials and work in process. Our inventories are stated
at the lower of cost or market, with cost determined on the first-in,
first-out basis. In evaluating whether inventory is to be stated at the
lower of cost or market, we consider such factors as the amount of inventory
on hand and in the distribution channel, estimated time required to sell
existing inventory, remaining shelf life and current and expected market
conditions, including levels of competition. We establish reserves, when
necessary, for slow-moving and obsolete inventories based upon our
historical experience and management's assessment of current product demand.

Intangible Assets and Goodwill. Our intangible assets consist of product
------------------------------
rights, license agreements and trademarks resulting from product
acquisitions and legal fees and similar costs relating to the development of
patents and

                                     21

trademarks. Intangible assets that are acquired are stated at cost, less
accumulated amortization, and are amortized on a straight-line basis over
their estimated useful lives. Upon approval, costs associated with the
development of patents and trademarks are amortized on a straight-line basis
over estimated useful lives ranging from five to 17 years. We determine
amortization periods for intangible assets that are acquired based on our
assessment of various factors impacting estimated useful lives and cash
flows of the acquired products. Such factors include the product's position
in its life cycle, the existence or absence of like products in the market,
various other competitive and regulatory issues, and contractual terms.
Significant changes to any of these factors may result in a reduction in the
intangible asset's useful life and an acceleration of related amortization
expense.

We assess the impairment of intangible assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Some
factors we consider important which could trigger an impairment review
include the following: (1) significant underperformance relative to expected
historical or projected future operating results; (2) significant changes in
the manner of our use of the acquired assets or the strategy for our overall
business; and (3) significant negative industry or economic trends.

When we determine that the carrying value of an intangible asset may not be
recoverable based upon the existence of one or more of the above indicators
of impairment, we first perform an assessment of the asset's recoverability.
Recoverability is determined by comparing the carrying amount of an
intangible asset against an estimate of the undiscounted future cash flows
expected to result from its use and eventual disposition. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of
the intangible asset, an impairment loss is recognized based on the excess
of the carrying amount over the estimated fair value of the intangible asset.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is limited to fluctuating interest rates
associated with variable rate indebtedness that is subject to interest rate
changes.

Effective as of December 2004, we increased our available credit facilities
to $140.0 million. Advances to us under our credit facilities bear interest
at a rate that varies consistent with increases or decreases in the publicly
announced prime rate and/or the LIBOR rate with respect to LIBOR-related
loans, if any. A material increase in such rates could significantly
increase borrowing expenses. We did not have any cash borrowings under our
credit facilities at December 31, 2004.

In May 2003, we issued $200.0 million principal amount of Convertible
Subordinated Notes. The interest rate on the Convertible Subordinated Notes
is fixed at 2.50% and not subject to market interest rate changes.

In April 2003, we entered into an $8.8 million term loan secured by a
building under a floating rate loan with a bank. We also entered into an
interest rate swap agreement with the same bank, which fixed the interest
rate of the building mortgage at 5.31% per annum for the term of the loan.

ITEM 4.    CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including our
principal executive officer and principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes
that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our
management, including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our principal
executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of the end of the
period covered by this report.

                                     22

There have been no significant changes in our internal control over
financial reporting or in other factors that have materially affected, or
are reasonably likely to materially affect, our internal controls over
financial reporting in the third quarter of fiscal year 2005.








                                     23

PART II.  - OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS

ETHEX Corporation (ETHEX) was a defendant in a lawsuit styled Healthpoint,
Ltd. v. ETHEX Corporation, filed in federal court in San Antonio, Texas and
was also named as a defendant in a second lawsuit brought by Healthpoint. In
September 2004, we made a settlement payment in the amount of $16.5 million
to resolve all previously pending claims between us and Healthpoint without
the admission of any liability. The settlement was fully reserved by us in
September 2002 and therefore had no impact on our earnings for the nine
months ended December 31, 2004. The $0.8 million of income reflected in
"Litigation" on our consolidated income statement for the nine months ended
December 31, 2004 represents reversal of the portion of the Healthpoint
litigation reserve that remained after payment of the settlement amount and
related litigation costs.

The Company and ETHEX are named as defendants in a case brought by CIMA
LABS, Inc. and Schwarz Pharma, Inc. and styled CIMA LABS, Inc. et. al. v. KV
Pharmaceutical Company et. al. filed in federal court in Minnesota. It is
alleged that the Company and ETHEX infringed on a CIMA patent in connection
with the manufacture and sale of Hyoscyamine Sulfate Orally Dissolvable
Tablets, 0.125 mg. The court has denied the plaintiff's motion for a
preliminary injunction, which allows ETHEX to continue marketing the product
during the pendancy of the subject lawsuit and calls into question CIMA's
and Schwarz's ability to prevail in the lawsuit. We have filed several
motions for summary judgment that have yet to be decided, requesting that
the court rule that the relevant patent is unenforceable, invalid or not
infringed. CIMA and Schwarz have opposed these motions and filed a summary
judgment motion seeking the court to rule that the patent is valid. We
intend to vigorously defend our interests; however, we cannot give any
assurances we will prevail.

The Company and ETHEX are named as defendants in a case brought by Solvay
Pharmaceuticals, Inc. and styled Solvay Pharmaceuticals, Inc. v. ETHEX
Corporation, filed in federal court in Minnesota. In general, Solvay alleges
that ETHEX's comparative promotion of its Pangestyme(TM) CN 10 and
Pangestyme(TM) CN 20 products to Solvay's Creon(R) 10 and Creon(R) 20
products resulted in false advertising and misleading statements under
various federal and state laws, and constituted unfair and deceptive trade
practices. Discovery is active and trial has been set for November 2005. The
Company intends to vigorously defend its interests; however, we cannot give
any assurances it will prevail.

KV previously distributed several pharmaceutical products that contained
phenylpropanolamine, or PPA, and that were discontinued in 2000 and 2001.
The Company is presently named a defendant in a product liability lawsuit in
federal court in Mississippi involving PPA. The suit originated out of a
case, Virginia Madison, et al. v. Bayer Corporation, et al. The original
suit was filed on December 23, 2002, but was not served on KV until February
2003. The case was originally filed in the Circuit Court of Hinds County,
Mississippi, and was removed to the United States District Court for the
Southern District of Mississippi by then co-defendant Bayer Corporation. The
case has been transferred to a Judicial Panel on Multi-District Litigation
for PPA claims sitting in the Western District of Washington. The claims
against the Company have now been segregated into a lawsuit brought by
Johnny Fulcher individually and on behalf of the wrongful death
beneficiaries of Linda Fulcher, deceased, against KV. It alleges bodily
injury, wrongful death, economic injury, punitive damages, loss of
consortium and/or loss of services from the use of our distributed
pharmaceuticals containing PPA that have since been discontinued and/or
reformulated to exclude PPA. In May 2004, the case was dismissed with
prejudice by the U.S. District Court for the Western District of Washington
for a failure to timely file an individual complaint as required by certain
court orders. The plaintiff filed a request for reconsideration which was
opposed and subsequently denied by the court in June 2004. In July 2004, the
plaintiffs filed a notice of appeal of the dismissal. The Company opposed
this appeal. The Company intends to vigorously defend its interests;
however, it cannot give any assurances it will prevail.

KV's product liability coverage for PPA claims expired for claims made after
June 15, 2002. Although the Company renewed its product liability coverage
for coverage after June 15, 2002, that policy excludes future PPA claims in
accordance with the standard industry exclusion. Consequently, as of June
15, 2002, the Company will provide for legal defense costs and indemnity
payments involving PPA claims on a going forward basis as incurred,
including the Mississippi lawsuit that was filed after June 15, 2002.
Moreover, we may not be able to obtain product liability insurance in the
future for PPA claims with adequate coverage limits at commercially
reasonable prices for subsequent periods. From time to time in the future,
the Company may be subject to further


                                     24

litigation resulting from products containing PPA that we formerly
distributed. The Company intends to vigorously defend its interests;
however, it cannot give any assurances it will prevail.

The Company has been advised that one of its former distributor customers is
being sued in Florida state court captioned Darrian Kelly v. K-Mart et. al.
for personal injury allegedly caused by ingestion of K-Mart diet caplets
that are alleged to have been manufactured by the Company and to contain
PPA. The distributor has tendered defense of the case to the Company and has
asserted a right to indemnification for any financial judgment it must pay.
The Company previously notified its product liability insurer of this claim
in 1999, and the Company recently sent a letter to the insurer formally
demanding that it assume the Company's defense. The Company intends to
vigorously defend its interests; however, it cannot give any assurances it
will prevail.

After the Company filed ANDA with the FDA seeking permission to market a
generic version of the 50 mg, 100 mg, and 200 mg strengths of Toprol(R) XL
in extended release capsule form, AstraZeneca filed lawsuits against KV for
patent infringement under the provisions of the Act. In the Company's
Paragraph IV certification, KV contended that its proposed generic versions
do not infringe AstraZeneca's patents. Pursuant to the Act, the filing date
of the suit against the Company instituted an automatic stay of FDA approval
of the Company's ANDA until the earlier of a judgment, or 30 months from the
date of the suit. The Company has filed a motion for summary judgment with
the federal district court in Missouri alleging, among other things, that
AstraZeneca's patent is invalid. The trial is currently scheduled to begin
in April 2005, but it may be delayed. The Company intends to vigorously
defend its interests; however, it cannot give any assurances it will
prevail.

In September 2003, the Commonwealth of Massachusetts filed Commonwealth of
Massachusetts v. Mylan Laboratories, Inc. et al in Massachusetts federal
court, against ETHEX Corp. and 12 other manufacturers of generic
pharmaceutical products. The complaint generally alleges certain claims
based upon the pricing and price reporting practices of the defendants
relative to the Medicaid Drug Rebate Program in Massachusetts. The case is
in its early stages, and fact discovery has not yet begun. In August 2004,
the City of New York filed a lawsuit in U.S. District Court for the Southern
District of New York against 44 manufacturers of pharmaceuticals, including
ETHEX. The complaint also makes allegations regarding pricing and price
reporting relative to Medicaid reimbursements. The case is in its early
stages and fact discovery has not yet begun. In addition, the Company has
been named in actions brought by several smaller governmental entities
against a large number of branded and generic manufacturers. The Company
intends to vigorously defend its interests in the actions described above;
however, it cannot give any assurances it will prevail.

The Company believes that various other governmental entities have commenced
investigations into the generic and branded pharmaceutical industry, at
large, regarding pricing and price reporting practices. Although the Company
believes its pricing and reporting practices have complied in all material
respects with its legal obligations, it cannot give any assurances that it
would prevail if legal actions are instituted by these governmental
entities.

From time to time, the Company is involved in various other legal
proceedings in the ordinary course of its business. These legal proceedings
include various patent infringement actions brought by potential competitors
with respect to products the Company proposes to market and for which it has
submitted ANDA filings and provided notice of certification required under
the provisions of the Act. While it is not feasible to predict the ultimate
outcome of such other proceedings, the Company believes that the ultimate
outcome of such other proceedings will not have a material adverse effect on
its results of operations or financial position. For additional information
regarding legal proceedings in which the Company or its subsidiaries are a
party, see Item 1 of Part II of this report.

There are uncertainties and risks associated with all litigation and there
can be no assurances that the Company will prevail in any particular
litigation.



                                     25

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

          PURCHASE OF EQUITY SECURITIES BY THE COMPANY

          The following table provides information about purchases the
          Company made of its common stock during the quarter ended December
          31, 2004:

<TABLE>
<CAPTION>
                                                                           TOTAL NUMBER OF SHARES  MAXIMUM NUMBER OF SHARES
                                   TOTAL NUMBER OF                         PURCHASED AS PART OF A       THAT MAY YET BE
                                  SHARES PURCHASED    AVERAGE PRICE PAID     PUBLICLY ANNOUNCED       PURCHASED UNDER THE
              PERIOD                     (a)              PER SHARE               PROGRAM                   PROGRAM


  <S>                                   <C>                <C>                       <C>                      <C>
  October 1-31, 2004                     322               $ 18.55                   --                       --


  November 1-30, 2004                    555               $ 20.60                   --                       --


  December 1-31, 2004                    338               $ 21.88                   --                       --


              Total                     1,215              $ 20.41                   --                       --
                                        =====              =======

<FN>
(a) Shares were purchased from employees upon their termination pursuant to the terms
    of the Company's stock option plan.
</TABLE>

ITEM 6.   EXHIBITS

                  Exhibits. See Exhibit Index.





                                     26

                                 SIGNATURES
                                 ----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                    K-V PHARMACEUTICAL COMPANY



Date: February 9, 2005         By   /s/  Marc S. Hermelin
                                    -------------------------------------------
                                    Marc S. Hermelin
                                    Vice Chairman of the Board and
                                    Chief Executive Officer
                                    (Principal Executive Officer)



Date: February 9, 2005         By   /s/  Gerald R. Mitchell
                                    -------------------------------------------
                                    Gerald R. Mitchell
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and
                                    Accounting Officer)



                                     27

                                EXHIBIT INDEX



Exhibit No.                   Description
-----------                   -----------

   31.1           Certification of Chief Financial Officer.

   31.2           Certification of Chief Executive Officer.

   32.1           Certification pursuant to 18 U.S.C. Section 1350, as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002.







                                     28