<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               ------------------

                                   FORM 10-Q

(MARK ONE)

    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                          COMMISSION FILE NO. 0-24425

                           KING PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                  TENNESSEE                                     54-1684963
       (State or other jurisdiction of             (I.R.S. Employer Identification No.)
       incorporation or organization)



        501 FIFTH STREET, BRISTOL, TN                              37620
  (Address of principal executive offices)                      (Zip Code)
</Table>

      Registrant's telephone number, including area code:  (423) 989-8000

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of The Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Number of shares outstanding of Registrant's common stock as of May 6,
2002:  247,990,894

--------------------------------------------------------------------------------
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<PAGE>

                        PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                           KING PHARMACEUTICALS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                              MARCH 31,    DECEMBER 31,
                                                                 2002          2001
                                                              ----------   ------------
<S>                                                           <C>          <C>
                                        ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $  696,572    $  874,602
  Marketable securities.....................................     307,634        49,880
  Accounts receivable, net of allowance for doubtful
     accounts of $7,080 and $6,047..........................     182,011       161,864
  Inventories...............................................     130,527       111,578
  Deferred income taxes.....................................      31,556        31,556
  Prepaid expenses and other current assets.................       9,700         8,079
                                                              ----------    ----------
          Total current assets..............................   1,358,000     1,237,559
                                                              ----------    ----------
Property, plant and equipment, net..........................     167,669       164,116
Intangible assets, net......................................   1,026,704     1,037,795
Other assets................................................      67,287        67,141
                                                              ----------    ----------
          Total assets......................................  $2,619,660    $2,506,611
                                                              ==========    ==========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $   21,170    $   22,870
  Accrued expenses..........................................     122,018       119,498
  Income taxes payable......................................      48,793         7,718
  Current portion of long-term debt.........................       1,348         1,357
                                                              ----------    ----------
          Total current liabilities.........................     193,329       151,443
                                                              ----------    ----------
Long-term debt:
  Convertible debentures....................................     345,000       345,000
  Senior subordinated notes.................................          93            93
  Other.....................................................       1,237         1,304
Deferred income taxes.......................................      37,021        37,021
Other liabilities...........................................      61,194        63,466
                                                              ----------    ----------
          Total liabilities.................................     637,874       598,327
                                                              ----------    ----------
Commitments and contingencies (note 6)
  Shareholders' equity......................................   1,981,786     1,908,284
                                                              ----------    ----------
          Total liabilities and shareholders' equity........  $2,619,660    $2,506,611
                                                              ==========    ==========
</Table>

                            See accompanying notes.

                                        1
<PAGE>

                           KING PHARMACEUTICALS, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Revenues:
  Net sales.................................................  $246,556   $169,900
  Royalty revenue...........................................    11,509     11,417
                                                              --------   --------
          Total revenues....................................   258,065    181,317
                                                              --------   --------
Operating costs and expenses:
  Cost of revenues, including royalty expense of $2,041, and
     $2,847.................................................    48,108     37,416
                                                              --------   --------
  Selling, general and administrative.......................    40,614     37,795
  Co-promotion fees.........................................    37,851     17,464
                                                              --------   --------
          Total selling, general and administrative
           expenses.........................................    78,465     55,259
                                                              --------   --------
  Depreciation and amortization.............................    13,588     11,375
  Research and development..................................     5,643      4,015
                                                              --------   --------
          Total operating costs and expenses................   145,804    108,065
                                                              --------   --------
  Operating income..........................................   112,261     73,252
                                                              --------   --------
Other income (expense):
  Interest income...........................................     4,658      2,509
  Interest expense..........................................    (2,750)    (2,867)
  Other, net................................................      (783)    (1,571)
                                                              --------   --------
          Total other income (expense)......................     1,125     (1,929)
                                                              --------   --------
Income before income taxes and cumulative effect of change
  in accounting principle...................................   113,386     71,323
Income tax expense..........................................   (42,066)   (26,604)
                                                              --------   --------
Income before cumulative effect of change in accounting
  principle.................................................    71,320     44,719
Cumulative effect of change in accounting principle, net of
  income taxes of $325......................................        --       (545)
                                                              --------   --------
Net income..................................................  $ 71,320   $ 44,174
                                                              ========   ========
Income per common share:
  Basic:
     Income before cumulative effect of change in accounting
      principle.............................................  $   0.29   $   0.19
     Cumulative effect of change in accounting principle....        --         --
                                                              --------   --------
     Net income.............................................  $   0.29   $   0.19
                                                              ========   ========
  Diluted:
     Income before cumulative effect of change in accounting
      principle.............................................  $   0.29   $   0.19
     Cumulative effect of change in accounting principle....        --         --
                                                              --------   --------
     Net income.............................................  $   0.29   $   0.19
                                                              ========   ========
</Table>

                            See accompanying notes.

                                        2
<PAGE>

                           KING PHARMACEUTICALS, INC.

      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                         AND OTHER COMPREHENSIVE INCOME
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                             RETAINED
                                                    SHARES        AMOUNT     EARNINGS     TOTAL
                                                  -----------   ----------   --------   ----------
<S>                                               <C>           <C>          <C>        <C>
Balance at December 31, 2001....................  247,692,984   $1,361,563   $546,721   $1,908,284
Net income and total comprehensive income.......           --           --     71,320       71,320
Exercise of stock options.......................      221,986        2,182         --        2,182
                                                  -----------   ----------   --------   ----------
Balance at March 31, 2002.......................  247,914,970   $1,363,745   $618,041   $1,981,786
                                                  ===========   ==========   ========   ==========
</Table>

                            See accompanying notes.

                                        3
<PAGE>

                           KING PHARMACEUTICALS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                2002        2001
                                                              ---------   --------
<S>                                                           <C>         <C>
Cash flows from operating activities........................  $  84,181   $ 95,767
                                                              ---------   --------
Cash flows from investing activities:
  Loans receivable..........................................         --     (5,000)
  Purchases of property, plant and equipment................    (10,779)    (7,041)
  Proceeds from sale of product rights......................         --      3,332
  Proceeds from sale of property and equipment..............      4,309         43
  Purchases of marketable securities........................   (257,754)        --
                                                              ---------   --------
          Net cash used in investing activities.............   (264,224)    (8,666)
                                                              ---------   --------
Cash flows from financing activities:
  Proceeds from issuance of common shares and exercise of
     stock options, net.....................................      2,182      5,741
  Payments on other long-term debt and capital lease
     obligations............................................        (76)      (115)
  Other.....................................................        (93)       (34)
                                                              ---------   --------
          Net cash provided by financing activities.........      2,013      5,592
                                                              ---------   --------
(Decrease) increase in cash and cash equivalents............   (178,030)    92,693
Cash and cash equivalents, beginning of period..............    874,602     76,395
                                                              ---------   --------
Cash and cash equivalents, end of period....................  $ 696,572   $169,088
                                                              =========   ========
</Table>

                            See accompanying notes.

                                        4
<PAGE>

                           KING PHARMACEUTICALS, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 2002 AND 2001
                                  (UNAUDITED)
                                 (IN THOUSANDS)

1.  GENERAL

     The accompanying unaudited interim condensed consolidated financial
statements of King Pharmaceuticals, Inc. (the "Company") have been prepared by
the Company in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X, and accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of items of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These interim statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's latest Annual Report on Form 10-K. The year-end condensed
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.

     These consolidated financial statements include the accounts of King and
its wholly owned subsidiaries, Monarch Pharmaceuticals, Inc.; Parkedale
Pharmaceuticals, Inc.; King Pharmaceuticals Research and Development, Inc.;
Jones Pharma Incorporated; and King Pharmaceuticals of Nevada, Inc. All
intercompany transactions and balances have been eliminated in consolidation.

     Certain amounts from the prior consolidated financial statements have been
reclassified to conform to the presentation adopted in 2002.

     The Company had no significant amounts of "other comprehensive income" for
the three months ended March 31, 2002.

2.  EARNINGS PER SHARE

     The basic and diluted income per common share was determined using the
following share data:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Basic income per common share:
  Weighted average common shares............................  247,832    228,057
                                                              =======    =======
Diluted income per common share:
  Weighted average common shares............................  247,832    228,057
  Effect of stock options...................................    1,902      2,608
                                                              -------    -------
  Weighted average common shares plus assumed conversions...  249,734    230,665
                                                              =======    =======
</Table>

                                        5
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

3.  INVENTORIES

     Inventories consist of the following:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
<S>                                                           <C>         <C>
Finished goods (including $20,245 and $18,426 of sample
  inventory, respectively)..................................  $ 85,456      $ 74,471
Work-in-process.............................................    12,310         9,424
Raw materials...............................................    32,761        27,683
                                                              --------      --------
                                                              $130,527      $111,578
                                                              ========      ========
</Table>

4.  ACQUISITIONS/INTANGIBLE ASSETS

     On August 8, 2001, the Company acquired three branded pharmaceutical
products and a fully paid license to a fourth product from Bristol-Myers Squibb
("BMS") for $285.0 million plus approximately $1.5 million of expenses. The
products acquired include BMS's rights in the United States to Corzide(C),
Delestrogen(C), and Florinef(C). King also acquired a fully paid license to and
trademark for Corgard(C) in the United States. The acquisition was financed with
a combination of borrowings under its senior secured credit facility and cash on
hand.

     The following unaudited pro forma summary presents the financial
information as if the acquisition of the Corzide(R), Delestrogen(R), Florinef(R)
and Corgard(R) product lines had occurred as of January 1, 2001. These pro forma
results have been prepared for comparative purposes and do not purport to be
indicative of what would have occurred had the acquisition been made on January
1, 2001, nor is it indicative of future results.

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                MARCH 31, 2001
                                                              ------------------
<S>                                                           <C>
Net revenues................................................       $188,849
                                                                   ========
Income before cumulative effect of change in accounting
  principle.................................................       $ 45,183
                                                                   ========
Basic income per common share...............................       $   0.20
                                                                   ========
Diluted income per common share.............................       $   0.20
                                                                   ========
</Table>

5.  ACCOUNTING DEVELOPMENTS

     The results for the quarter ended March 31, 2002, include the effect of
adopting Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No.
141 provides that all business combinations initiated after June 30, 2001 shall
be accounted for using the purchase method. In addition, it provides that the
cost of an acquired entity must be allocated to the assets acquired, including
identifiable intangible assets, and liabilities assumed based on their estimated
fair values at the date of acquisition. The excess cost over the fair value of
the net assets acquired must be recognized as goodwill. SFAS No. 142 provides
that goodwill is no longer amortized and the value of an identifiable intangible
asset must be amortized over its useful life, unless the asset is determined to
have an indefinite useful life. Goodwill must be tested for impairment as of the
beginning of the fiscal year in which SFAS No. 142 is adopted. In accordance
with SFAS No. 142, the Company has six months from the initial date of adoption
to complete its impairment testing. Amounts assigned to indefinite-life
intangible assets primarily represent the trade name for products acquired which
meet specified criteria and have a carrying value of $19,192.

                                        6
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

     The following table reflects consolidated results adjusted as though the
adoption of SFAS No. 142 occurred as of the beginning of the three-month period
ended March 31, 2001:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Net income:
  As reported:..............................................  $71,320    $44,174
     Goodwill amortization..................................       --        102
     Indefinite-life intangibles amortization...............       --        149
                                                              -------    -------
          As adjusted.......................................  $71,320    $44,425
                                                              =======    =======
Basic earnings per share:
  As reported:..............................................  $  0.29    $  0.19
     Goodwill amortization..................................       --         --
     Indefinite-life intangibles amortization...............       --         --
                                                              -------    -------
          As adjusted.......................................  $  0.29    $  0.19
                                                              =======    =======
Diluted earnings per share:
  As reported:..............................................  $  0.29    $  0.19
     Goodwill amortization..................................       --         --
     Indefinite-life intangibles amortization...............       --         --
                                                              -------    -------
          As adjusted.......................................  $  0.29    $  0.19
                                                              =======    =======
</Table>

     The following table reflects the components of intangible assets as of
March 31, 2002:

<Table>
<Caption>
                                                                GROSS
                                                               CARRYING    ACCUMULATED
                                                                AMOUNT     AMORTIZATION
                                                              ----------   ------------
<S>                                                           <C>          <C>
Trademarks and product rights...............................  $1,017,456     $ 93,803
Patents.....................................................     110,000       22,944
Goodwill....................................................      16,251        3,509
Other intangibles...........................................       9,527        6,274
                                                              ----------     --------
          Total intangible assets...........................  $1,153,234     $126,530
                                                              ==========     ========
</Table>

     Amortization expense for the three months ended March 31, 2002 was $11,091.
Estimated annual amortization expense for each of the five succeeding fiscal
years is as follows:

<Table>
<Caption>
FISCAL YEAR ENDED DECEMBER 31:                                AMOUNT
------------------------------                                -------
<S>                                                           <C>
2002........................................................  $44,590
2003........................................................   44,545
2004........................................................   44,545
2005........................................................   44,454
2006........................................................   44,162
</Table>

     The Company's carrying value of goodwill of approximately $12,742 at March
31, 2002 is attributable to the acquisition of manufacturing facilities and
workforce. The Company has not yet completed its impairment testing of goodwill
as of January 1, 2002 for the applicable reporting unit.

     In the first quarter of 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS

                                        7
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

No. 138, which establishes accounting and reporting standards for derivative
instruments and hedging activities. The cumulative effect of the change in
accounting principle was $0.5 million, net of income taxes of $0.3 million. In
addition, the change in the value of the derivatives in the quarter ended March
31, 2001 of $1.5 million was included in other expense. The Company had no
derivative financial instruments as of March 31, 2002.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. These standards were adopted by the
Company effective January 1, 2002. The implementation of these standards did not
have any impact on the Company's financial statements.

     In May 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Revision of FAS Nos. 4, 44 and 64, Amendment of FAS 13 and Technical
Corrections as of April 2002." SFAS No. 145 is effective for fiscal periods
beginning after May 15, 2002. The primary impact on the Company of adopting FAS
145 will be that gains and losses incurred upon the extinguishment of debt may
no longer qualify for extraordinary items treatment in the income statement.

6.  CONTINGENCIES

  Fen/Phen Litigation

     Many distributors, marketers and manufacturers of anorexigenic drugs have
been subject to claims relating to the use of these drugs. Generally, the
lawsuits allege that the defendants (1) misled users of the products with
respect to the dangers associated with them, (2) failed to adequately test the
products and (3) knew or should have known about the negative effects of the
drugs, and should have informed the public about the risks of such negative
effects. The actions generally have been brought by individuals in their own
right and have been filed in various state and federal jurisdictions throughout
the United States. They seek, among other things, compensatory and punitive
damages and/or court supervised medical monitoring of persons who have ingested
the product. The Company is one of many defendants in 32 lawsuits which claim
damages for personal injury arising from the Company's production of the
anorexigenic drug, phentermine, under contract for GlaxoSmithKline. The Company
expects to be named in additional lawsuits related to the Company's production
of the anorexigenic drug under contract for GlaxoSmithKline.

     While the Company cannot predict the outcome of these suits, the Company
believes that the claims against it are without merit and intends to vigorously
pursue all defenses available to it. The Company is being indemnified in all of
these suits by GlaxoSmithKline for which it manufactured the anorexigenic
product, provided that neither the lawsuits nor the associated liabilities are
based upon the independent negligence or intentional acts of the Company, and
intends to submit a claim for all unreimbursed costs to its product liability
insurance carrier. However, in the event that GlaxoSmithKline is unable to
satisfy or fulfill its obligations under the indemnity, the Company would have
to defend the lawsuit and be responsible for damages, if any, which are awarded
against it or for amounts in excess of the Company's product liability coverage.
A reasonable estimate of possible losses related to these suits cannot be made.

     In addition, Jones, a wholly-owned subsidiary of the Company is a defendant
in 852 multi-defendant lawsuits involving the manufacture and sale of
dexfenfluramine, fenfluramine and phentermine. These suits have been filed in
various jurisdictions throughout the United States, and in each of these suits,
Jones is one of many defendants, including manufacturers and other distributors
of these drugs. Although Jones has not at any time manufactured dexfenfluramine,
fenfluramine, or phentermine, Jones was a distributor of a generic

                                        8
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

phentermine product, and, after the acquisition of Abana Pharmaceuticals, was a
distributor of Obenix, its branded phentermine product. The plaintiffs in these
cases claim injury as a result of ingesting a combination of these weight-loss
drugs and are seeking compensatory and punitive damages as well as medical care
and court supervised medical monitoring. The plaintiffs claim liability based on
a variety of theories including but not limited to, product liability, strict
liability, negligence, breach of warranty, and misrepresentation.

     Jones denies any liability incident to the distribution of Obenix or its
generic phentermine product and intends to pursue all defenses available to it.
Jones has tendered defense of these lawsuits to its insurance carriers for
handling and they are currently defending Jones in these suits. The
manufacturers of fenfluramine and dexfenfluramine have settled many of these
cases. In the event that Jones' insurance coverage is inadequate to satisfy any
resulting liability, Jones will have to resume defense of these lawsuits and be
responsible for the damages, if any, that are awarded against it.

     While the Company cannot predict the outcome of these suits, management
believes that the claims against Jones are without merit and intend to
vigorously pursue all defenses available. The Company is unable to disclose an
aggregate dollar amount of damages claimed. Many of these complaints are
multi-party suits and do not state specific damage amounts. Rather, these claims
typically state damages as may be determined by the court or similar language
and state no specific amount of damages against Jones. The Company, at this
time, cannot provide an aggregate dollar amount of damages claimed or a
reasonable estimate of possible losses related to the lawsuits.

  State of Wisconsin Investment Board

     On November 30, 1999, the Company entered into an agreement of merger with
Medco Research, Inc. ("Medco") pursuant to which the Company acquired Medco in
an all stock, tax-free pooling of interests transaction, which was subject to
approval by the Medco shareholders. On January 5, 2000, Medco issued to its
stockholders a proxy statement with respect to the proposed transaction and
noticed a meeting to approve the transaction for February 10, 2000.

     On January 11, 2000, the State of Wisconsin Investment Board, ("SWIB"), a
Medco shareholder which held approximately 11.6% of the outstanding stock of
Medco, filed suit on behalf of a proposed class of Medco shareholders in the
Court of Chancery for the State of Delaware, New Castle County, (State of
Wisconsin Investment Board v. Bartlett, et al., C.A. No. 17727), against Medco
and members of Medco's board of directors to enjoin the shareholder vote on the
merger and the consummation of the merger. SWIB alleged, among other things,
that the proxy materials filed by Medco failed to disclose all material
information and included misleading statements regarding the transaction, its
negotiation, and its approval by the Medco board of directors; that the Medco
directors were not adequately informed and did not adequately inform themselves
of all reasonably available information before recommending the transaction to
Medco shareholders; and that the Medco directors were disloyal and committed
waste in allegedly enabling one of the Medco directors to negotiate the
transaction purportedly for his own benefit and in agreeing to terms that
precluded what the complaint alleged were more beneficial alternative
transactions. SWIB also moved for a preliminary injunction to enjoin the
shareholder vote and the merger based on the claims asserted in its complaint.
Medco and the other defendants denied all allegations and continue to deny them.

     After Medco distributed a supplemental proxy statement on January 31, 2000
and the court postponed the February 10, 2000 vote on the merger agreement for
15 days to allow shareholders sufficient time to consider the supplemental
disclosures, the court rejected SWIB's claims in a February 24, 2000 Memorandum
Opinion and denied preliminary injunctive relief because SWIB had not shown a
reasonable likelihood of success following trial on the merits. The court made a
number of preliminary findings, including that the Medco board of directors
properly delegated to one of its directors the responsibility to negotiate the
merger; that the payment of the negotiating fee was a proper exercise of
business judgment and did not constitute
                                        9
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

waste; that the other merger provisions were also valid; that the Medco
directors were adequately informed of all material information reasonably
available to them prior to approving the merger agreement; that the Medco
directors acted independently and in good faith to benefit the economic
interests of the Medco shareholders; that the alleged omissions in the proxy
statements were not material; and that the Medco board of directors fully met
its duty of complete disclosure with respect to the transaction.

     SWIB has filed an Application for a Scheduling Order stating its intention
to dismiss the case, before a class has been certified, without prejudice. In
the meantime, the action is still pending. While SWIB has indicated that it does
not intend to prosecute the merits of the case further, another shareholder
could intervene and continue the action. Even though SWIB lost its motion for
preliminary injunction, and is going to dismiss the case, SWIB has claimed that
its attorneys are entitled to an award of attorney's fees and costs. SWIB
petitioned the court for approximately $7.26 million in attorney's fees and
approximately $270 in costs.

     A hearing on SWIB's petition to dismiss and for attorney's fees and costs
was held on June 26, 2000 in the Court of Chancery for the State of Delaware. On
April 10, 2002, the court granted the motion to dismiss with prejudice and
awarded SWIB $234 in fees and $94 in costs, for a total award of $328. SWIB has
appealed the court's decision to the Delaware Supreme Court, where the case is
still pending.

     The Company believes that SWIB's case is meritless, and the Company is
vigorously contesting it. The Company believes SWIB's actions did not confer a
benefit on the Medco shareholders. The Company also believes it is unlikely that
another shareholder will intervene to continue the action, but if that results
then the Company will vigorously contest it.

  Thimerosal/Vaccine Related Litigation

     King and its wholly-owned subsidiary, Parkedale Pharmaceuticals, Inc.
("Parkedale"), have been named as defendants in California and Mississippi,
along with Abbott Laboratories, Wyeth, Aventis Pharmaceuticals, and other
pharmaceutical companies, which have manufactured or sold vaccine products
containing the mercury-based preservative, thimerosal.

     In these cases, the plaintiffs attempt to link the receipt of the
mercury-based vaccinations to neurological defects. The plaintiffs in these
cases claim that the vaccines in question would have had their beneficial
effects with or without thimerosal, and that thimerosal was a tool for
undercutting other products on the market, thereby increasing defendants' sales
and profits. The plaintiffs also claim unfair business practices, fraudulent
misrepresentations, negligent misrepresentations, and breach of implied
warranty, which are all arguments premised on the idea that the defendants
promoted vaccines without any reference to the toxic hazards and potential
public health ramifications resulting from the mercury-containing preservative.
The plaintiffs also allege that the defendants knew of the dangerous
propensities of thimerosal in their products.

     The only vaccine that King/Parkedale has manufactured, distributed,
marketed and/or sold was Fluogen(R) vaccine, which did contain the mercury-based
preservative, thimerosal. Fluogen(R) was only distributed by King for two flu
seasons. King's product liability insurance carrier, has been given proper
notice of all of these matters, and defense counsel are vigorously defending the
Company's interests. The Company is moving to be dismissed from the litigation
due to lack of product identity in the plaintiffs' complaints. In 2001, King and
Parkedale were dismissed on this basis in a similar case.

  Other Legal Proceedings

     The Parkedale Facility was one of six facilities owned by Pfizer subject to
a Consent Decree of Permanent Injunction issued August 1993 in United States of
America v. Warner-Lambert Company and Melvin R. Goodes and Lodewijk J.R. DeVink
(U.S. Dist. Ct., Dist. of N.J.) (the "Consent Decree"). The Parkedale Facility
is currently manufacturing pharmaceutical products subject to the Consent Decree
which
                                        10
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

prohibits the manufacture and delivery of specified drug products unless, among
other things, the products conform to current good manufacturing practices and
are produced in accordance with an approved abbreviated new drug application or
new drug application. The Company intends, when appropriate, to petition for
relief from the Consent Decree.

     The Company is involved in various routine legal proceedings incident to
the ordinary course of its business.

  Summary

     Management believes that the outcome of all pending legal proceedings in
the aggregate will not have a material adverse affect on the Company's
consolidated financial position, results of operations, or cash flow.

7.  SEGMENT REPORTING

     The Company's business is classified into three reportable segments:
Branded Pharmaceuticals, Contract Manufacturing, and Royalties. Branded
Pharmaceuticals include a variety of branded prescription products over four
therapeutic areas, including cardiovascular, anti-infective, critical care and
women's health/endocrinology. These branded prescription products have been
aggregated because of the similarity in regulatory environment, manufacturing
process, method of distribution, and type of customer. Contract Manufacturing
represents contract manufacturing services provided for pharmaceutical and
biotechnology companies. Royalties represent products for which the Company has
transferred the manufacturing and marketing rights to corporate partners in
exchange for licensing fees and royalty payments on product sales. The
classification "all other" primarily includes generic pharmaceutical products
and development services.

     The Company primarily evaluates its segments based on gross profit.
Reportable segments were separately identified based on revenues, gross profit
and total assets. Revenues among the segments are presented in the individual
segments and removed through eliminations in the information below.
Substantially all of the eliminations relate to sales of contract manufacturing
to the branded pharmaceutical segment.

     The following represents selected information for the Company's operating
segments for the periods indicated:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Total revenues:
  Branded pharmaceuticals...................................  $237,050   $161,481
  Royalties.................................................    11,509     11,417
  Contract manufacturing....................................    37,314     15,028
  All other.................................................        --        524
  Eliminations..............................................   (27,808)    (7,133)
                                                              --------   --------
          Consolidated total revenues.......................  $258,065   $181,317
                                                              ========   ========
Gross profit:
  Branded pharmaceuticals...................................  $199,261   $134,368
  Royalties.................................................     9,581      8,916
  Contract manufacturing....................................     1,115        579
  All other.................................................        --         38
                                                              --------   --------
          Consolidated gross profit.........................  $209,957   $143,901
                                                              ========   ========
</Table>

                                        11
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                               AS OF
                                                              AS OF MARCH   DECEMBER 31,
                                                               31, 2002         2001
                                                              -----------   ------------
<S>                                                           <C>           <C>
Total assets:
  Branded pharmaceuticals...................................  $2,503,881     $2,397,062
  Royalties.................................................      14,045         11,326
  Contract manufacturing....................................     113,648        103,268
  All other.................................................          69             98
  Eliminations..............................................     (11,983)        (5,143)
                                                              ----------     ----------
          Consolidated total assets.........................  $2,619,660     $2,506,611
                                                              ==========     ==========
</Table>

     The Company evaluates impairment of long-term assets at the lowest level of
measurable cash flow in accordance with SFAS 144, including operating cash flows
generated by sales to the ultimate third party.

     The following represents revenues by therapeutic area:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Total revenues:
  Cardiovascular (including royalties)......................  $118,232   $ 70,460
  Anti-infective............................................    37,703     42,583
  Critical care.............................................    24,660     17,310
  Women's health/endocrinology..............................    61,080     35,309
  Other.....................................................    16,390     15,655
                                                              --------   --------
          Consolidated total revenues.......................  $258,065   $181,317
                                                              ========   ========
</Table>

8.  SUBSEQUENT EVENTS

     On May 13, 2002, the Company's board of directors authorized a plan to
repurchase up to 7.5 million shares of the Company's common stock. Under the
plan, the Company may repurchase shares of its common stock in the open-market
from time to time, depending on market conditions, share price and other
factors.

     In April 2002, the Company established a $400.0 million five year senior
secured revolving credit facility. This facility requires the Company to
maintain a certain minimum net worth and EBITDA to interest expense ratio and
maintain a funded debt to EBITDA ratio below an established maximum. The
facility has been collateralized in general by all real estate with a value of
$5.0 million or more and all personal property of the Company and its
significant subsidiaries.

     On April 29, 2002, the Company entered into an agreement with Ortho-McNeil
Pharmaceutical, Inc., a Johnson & Johnson subsidiary, to acquire the exclusive
rights to Ortho-Prefest(R) tablets in the United States, its territories and
possessions and the Commonwealth of Puerto Rico, including the related drug
application, investigational new drug application, copyrights, and patents or
licenses to the patents. The Company will pay $108.0 million for the product
rights upon closing, plus $7.0 million upon receipt of the U.S. Food and Drug
Administration's permission to rename the product "Prefest(TM)". The transaction
is expected to close during the second quarter of 2002, subject to review of the
related filing under the Hart-Scott-Rodino Act.

     The Company has an exclusive worldwide license from Novavax, Inc. to
promote, market, distribute and sell Estrasorb(TM), except in the United States
and Puerto Rico where the parties will co-market the product, following approval
by the FDA of Novavax's New Drug Application. Estrasorb(TM) is a topical
estrogen replacement therapy which employs Novavax's proprietary micellar
nanoparticle technology designed to

                                        12
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

deliver 17-beta-estradiol, a naturally occurring hormone, through the skin when
applied topically in the form of a lotion. Once approved, the Company will pay
Novavax a royalty based on a percentage of net sales of Estrasorb(TM) outside of
the United States and Puerto Rico. Novavax will pay King a co-promotion fee
equal to 50% of net sales less cost of goods of Estrasorb(TM) within the United
States and Puerto Rico. Marketing expenses for Estrasorb(TM) in the United
States and Puerto Rico, following approval, will be shared equally by the
parties. On April 24, 2002 Novavax announced that the FDA had completed its
review of the New Drug Application for Estrasorb(TM) previously filed by Novavax
on June 29, 2001. During the review process, no issues regarding the efficacy or
safety of Estrasorb(TM) were communicated by the review division of the FDA to
Novavax. However, the FDA did request from Novavax additional information with
respect to the Chemistry, Manufacturing and Control section, which we refer to
as the "CMC" section, of the Estrasorb(TM) New Drug Application. Based on its
discussions with the FDA, Novavax chose to temporarily withdraw the New Drug
Application and plans to refile it once Novavax has had an opportunity to
adequately address the issues identified by the FDA with respect to the CMC
section. The Company currently has investments totaling approximately $38.0
million in Novavax convertible senior notes.

9. GUARANTOR FINANCIAL STATEMENTS

     The Company's wholly-owned subsidiaries, Monarch Pharmaceuticals, Inc.;
Parkedale Pharmaceuticals, Inc.; Jones Pharma Incorporated; King Pharmaceuticals
Research and Development, Inc.; and King Pharmaceuticals of Nevada, Inc. (the
"Guarantor Subsidiaries"), have guaranteed the Company's performance under the
$345,000, 2 3/4% Convertible Debentures due 2021 on a joint and several basis.
There are no restrictions under the Company's financing arrangements on the
ability of the Guarantor Subsidiaries to distribute funds to the Company in the
form of cash dividends, loans or advances. The following combined financial data
provides information regarding the financial position, results of operations and
cash flows of the Guarantor Subsidiaries (condensed consolidating financial
data). Separate financial statements and other disclosures concerning the
Guarantor Subsidiaries are not presented because management has determined that
such information would not be material to the holders of the debentures.

                                        13
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

                             GUARANTOR SUBSIDIARIES

                     CONDENSED CONSOLIDATING BALANCE SHEETS
<Table>
<Caption>
                                                  MARCH 31, 2002                           DECEMBER 31, 2001
                              ------------------------------------------------------   -------------------------
                                            GUARANTOR     ELIMINATING       KING                     GUARANTOR
                                 KING      SUBSIDIARIES     ENTRIES     CONSOLIDATED      KING      SUBSIDIARIES
                              ----------   ------------   -----------   ------------   ----------   ------------
<S>                           <C>          <C>            <C>           <C>            <C>          <C>
ASSETS
Current assets:
  Cash and cash
    equivalents.............  $  705,010    $   (8,438)   $        --    $  696,572    $  882,391    $   (7,789)
  Marketable securities.....     307,634            --             --       307,634        49,880            --
  Accounts receivable,
    net.....................      20,227       173,727        (11,943)      182,011        12,735       154,272
  Inventories...............      13,055       117,472             --       130,527        18,683        92,895
  Deferred income taxes.....      28,928         2,628             --        31,556        28,928         2,628
  Prepaid expenses and other
    current assets..........       2,264         7,436             --         9,700         1,898         6,181
                              ----------    ----------    -----------    ----------    ----------    ----------
         Total current
           assets...........   1,077,118       292,825        (11,943)    1,358,000       994,515       248,187
                              ----------    ----------    -----------    ----------    ----------    ----------
Property, plant, and
  equipment, net............      40,464       127,205             --       167,669        38,964       125,152
Intangible assets, net......     675,628       351,076             --     1,026,704       682,875       354,920
Investment in
  subsidiaries..............   1,227,750            --     (1,227,750)           --     1,158,458            --
Other assets................      49,050        18,237             --        67,287        49,577        17,564
                              ----------    ----------    -----------    ----------    ----------    ----------
         Total assets.......  $3,070,010    $  789,343    $(1,239,693)   $2,619,660    $2,924,389    $  745,823
                              ==========    ==========    ===========    ==========    ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........  $    8,568    $   24,545    $   (11,943)   $   21,170    $    4,347    $   23,666
  Accrued expenses..........       5,613       116,405             --       122,018         6,700       112,798
  Income taxes payable......      (4,048)       52,841             --        48,793        (4,719)       12,437
  Current portion of
    long-term debt..........       1,343             5             --         1,348         1,344            13
                              ----------    ----------    -----------    ----------    ----------    ----------
         Total current
           liabilities......      11,476       193,796        (11,943)      193,329         7,672       148,914
                              ----------    ----------    -----------    ----------    ----------    ----------
Long-term debt..............     346,330            --             --       346,330       346,397            --
Deferred income taxes.......      34,539         2,482             --        37,021        34,539         2,482
Other liabilities...........      61,194            --             --        61,194        63,466            --
Intercompany (receivable)
  payable...................     634,685      (634,685)            --            --       564,031      (564,031)
                              ----------    ----------    -----------    ----------    ----------    ----------
         Total
           liabilities......   1,088,224      (438,407)       (11,943)      637,874     1,016,105      (412,635)
                              ----------    ----------    -----------    ----------    ----------    ----------
Shareholders' equity........   1,981,786     1,227,750     (1,227,750)    1,981,786     1,908,284     1,158,458
                              ----------    ----------    -----------    ----------    ----------    ----------
         Total liabilities
           and shareholders'
           equity...........  $3,070,010    $  789,343    $(1,239,693)   $2,619,660    $2,924,389    $  745,823
                              ==========    ==========    ===========    ==========    ==========    ==========

<Caption>
                                  DECEMBER 31, 2001
                              --------------------------
                              ELIMINATING       KING
                                ENTRIES     CONSOLIDATED
                              -----------   ------------
<S>                           <C>           <C>
ASSETS
Current assets:
  Cash and cash
    equivalents.............  $        --    $  874,602
  Marketable securities.....           --        49,880
  Accounts receivable,
    net.....................       (5,143)      161,864
  Inventories...............           --       111,578
  Deferred income taxes.....           --        31,556
  Prepaid expenses and other
    current assets..........           --         8,079
                              -----------    ----------
         Total current
           assets...........       (5,143)    1,237,559
                              -----------    ----------
Property, plant, and
  equipment, net............           --       164,116
Intangible assets, net......           --     1,037,795
Investment in
  subsidiaries..............   (1,158,458)           --
Other assets................           --        67,141
                              -----------    ----------
         Total assets.......  $(1,163,601)   $2,506,611
                              ===========    ==========
LIABILITIES AND SHAREHOLDERS
Current liabilities:
  Accounts payable..........  $    (5,143)   $   22,870
  Accrued expenses..........           --       119,498
  Income taxes payable......           --         7,718
  Current portion of
    long-term debt..........           --         1,357
                              -----------    ----------
         Total current
           liabilities......       (5,143)      151,443
                              -----------    ----------
Long-term debt..............           --       346,397
Deferred income taxes.......           --        37,021
Other liabilities...........           --        63,466
Intercompany (receivable)
  payable...................           --            --
                              -----------    ----------
         Total
           liabilities......       (5,143)      598,327
                              -----------    ----------
Shareholders' equity........   (1,158,458)    1,908,284
                              -----------    ----------
         Total liabilities
           and shareholders'
           equity...........  $(1,163,601)   $2,506,611
                              ===========    ==========
</Table>

                                        14
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

                             GUARANTOR SUBSIDIARIES
                  CONDENSED CONSOLIDATING STATEMENTS OF INCOME
<Table>
<Caption>
                                                   THREE MONTHS ENDED MARCH 31, 2002
                                          ----------------------------------------------------
                                                      GUARANTOR     ELIMINATING       KING
                                            KING     SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                          --------   ------------   -----------   ------------
<S>                                       <C>        <C>            <C>           <C>
Revenues:
  Net sales.............................  $ 21,300     $253,064      $(27,808)      $246,556
  Royalty revenue.......................        --       11,509            --         11,509
                                          --------     --------      --------       --------
        Total revenues..................    21,300      264,573       (27,808)       258,065
                                          --------     --------      --------       --------
Operating costs and expenses:
  Costs of revenues.....................    24,464       51,452       (27,808)        48,108
  Selling, general and administrative...     1,041       77,424            --         78,465
  Depreciation and amortization.........     7,931        5,657            --         13,588
  Research and development..............        --        5,643            --          5,643
                                          --------     --------      --------       --------
        Total operating costs and
          expenses......................    33,436      140,176       (27,808)       145,804
                                          --------     --------      --------       --------
Operating income........................   (12,136)     124,397            --        112,261
                                          --------     --------      --------       --------
Other income (expense):
  Interest income.......................     4,235          423            --          4,658
  Interest expense......................    (2,750)          --            --         (2,750)
  Other, net............................      (232)        (551)           --           (783)
  Equity in earnings of subsidiaries....    69,292           --       (69,292)            --
  Intercompany interest income
    (expense)...........................    14,108      (14,108)           --             --
                                          --------     --------      --------       --------
        Total other income (expense)....    84,653      (14,236)      (69,292)         1,125
                                          --------     --------      --------       --------
Income before income taxes and
  cumulative effect of change in
  accounting principle..................    72,517      110,161       (69,292)       113,386
                                          --------     --------      --------       --------
Income tax expense......................    (1,197)     (40,869)           --        (42,066)
                                          --------     --------      --------       --------
Income before cumulative effect of
  change in accounting principle........    71,320       69,292       (69,292)        71,320
Cumulative effect of change in
  accounting principle..................        --           --            --             --
                                          --------     --------      --------       --------
        Net income......................  $ 71,320     $ 69,292      $(69,292)      $ 71,320
                                          ========     ========      ========       ========

<Caption>
                                                   THREE MONTHS ENDED MARCH 31, 2001
                                          ----------------------------------------------------
                                                      GUARANTOR     ELIMINATING       KING
                                            KING     SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                          --------   ------------   -----------   ------------
<S>                                       <C>        <C>            <C>           <C>
Revenues:
  Net sales.............................  $  5,307     $168,767      $ (4,174)      $169,900
  Royalty revenue.......................        --       11,417            --         11,417
                                          --------     --------      --------       --------
        Total revenues..................     5,307      180,184        (4,174)       181,317
                                          --------     --------      --------       --------
Operating costs and expenses:
  Costs of revenues.....................     4,650       36,940        (4,174)        37,416
  Selling, general and administrative...     1,513       53,746            --         55,259
  Depreciation and amortization.........     5,309        6,066            --         11,375
  Research and development..............       198        3,817            --          4,015
                                          --------     --------      --------       --------
        Total operating costs and
          expenses......................    11,670      100,569        (4,174)       108,065
                                          --------     --------      --------       --------
Operating income........................    (6,363)      79,615            --         73,252
                                          --------     --------      --------       --------
Other income (expense):
  Interest income.......................     2,021          488            --          2,509
  Interest expense......................    (3,029)         162            --         (2,867)
  Other, net............................    (1,445)        (126)           --         (1,571)
  Equity in earnings of subsidiaries....    76,278           --       (76,278)            --
  Intercompany interest income
    (expense)...........................     2,912       (2,912)           --             --
                                          --------     --------      --------       --------
        Total other income (expense)....    76,737       (2,388)      (76,278)        (1,929)
                                          --------     --------      --------       --------
Income before income taxes and
  cumulative effect of change in
  accounting principle..................    70,374       77,227       (76,278)        71,323
                                          --------     --------      --------       --------
Income tax expense......................   (25,655)        (949)           --        (26,604)
                                          --------     --------      --------       --------
Income before cumulative effect of
  change in accounting principle........    44,719       76,278       (76,278)        44,719
Cumulative effect of change in
  accounting principle..................      (545)          --            --           (545)
                                          --------     --------      --------       --------
        Net income......................  $ 44,174     $ 76,278      $(76,278)      $ 44,174
                                          ========     ========      ========       ========
</Table>

                                        15
<PAGE>
                           KING PHARMACEUTICALS, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

                             GUARANTOR SUBSIDIARIES

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
<Table>
<Caption>
                                                   THREE MONTHS ENDED MARCH 31, 2002
                                         -----------------------------------------------------
                                                      GUARANTOR     ELIMINATING       KING
                                           KING      SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                         ---------   ------------   -----------   ------------
<S>                                      <C>         <C>            <C>           <C>
Cash flows from operating activities...  $   9,883     $ 74,298        $ --        $  84,181
                                         ---------     --------        ----        ---------
Cash flows from investing activities:
  Loans receivable.....................         --           --          --               --
  Purchases of property, plant and
    equipment..........................     (2,185)      (8,594)         --          (10,779)
  Proceeds from sale of product
    rights.............................         --           --          --               --
  Proceeds from sale of property and
    equipment..........................         --        4,309          --            4,309
  Purchases of marketable securities...   (257,754)          --          --         (257,754)
                                         ---------     --------        ----        ---------
Net cash used in investing
  activities...........................   (259,939)      (4,285)         --         (264,224)
                                         ---------     --------        ----        ---------
Cash flows from financing activities:
  Proceeds from issuance of common
    shares and exercise of stock
    options, net.......................      2,182           --          --            2,182
  Payments on other long-term debt.....        (68)          (8)         --              (76)
  Other................................        (93)          --          --              (93)
  Intercompany.........................     70,654      (70,654)         --               --
                                         ---------     --------        ----        ---------
Net cash provided by (used in)
  financing activities.................     72,675      (70,662)         --            2,013
                                         ---------     --------        ----        ---------
Increase (decrease) in cash and cash
  equivalents..........................   (177,381)        (649)         --         (178,030)
Cash and cash equivalents, beginning of
  period...............................    882,391       (7,789)         --          874,602
                                         ---------     --------        ----        ---------
Cash and cash equivalents, end of
  period...............................  $ 705,010     $ (8,438)       $ --        $ 696,572
                                         =========     ========        ====        =========

<Caption>
                                                  THREE MONTHS ENDED MARCH 31, 2001
                                         ----------------------------------------------------
                                                     GUARANTOR     ELIMINATING       KING
                                           KING     SUBSIDIARIES     ENTRIES     CONSOLIDATED
                                         --------   ------------   -----------   ------------
<S>                                      <C>        <C>            <C>           <C>
Cash flows from operating activities...  $  5,211     $ 90,556        $ --         $ 95,767
                                         --------     --------        ----         --------
Cash flows from investing activities:
  Loans receivable.....................        --       (5,000)         --           (5,000)
  Purchases of property, plant and
    equipment..........................    (4,246)      (2,795)         --           (7,041)
  Proceeds from sale of product
    rights.............................     3,332           --          --            3,332
  Proceeds from sale of property and
    equipment..........................        --           43          --               43
  Purchases of marketable securities...        --           --          --               --
                                         --------     --------        ----         --------
Net cash used in investing
  activities...........................      (914)      (7,752)         --           (8,666)
                                         --------     --------        ----         --------
Cash flows from financing activities:
  Proceeds from issuance of common
    shares and exercise of stock
    options, net.......................     5,741           --          --            5,741
  Payments on other long-term debt.....      (108)          (7)         --             (115)
  Other................................       (34)          --          --              (34)
  Intercompany.........................    79,134      (79,134)         --               --
                                         --------     --------        ----         --------
Net cash provided by (used in)
  financing activities.................    84,733      (79,141)         --            5,592
                                         --------     --------        ----         --------
Increase (decrease) in cash and cash
  equivalents..........................    89,030        3,663          --           92,693
Cash and cash equivalents, beginning of
  period...............................    82,316       (5,921)         --           76,395
                                         --------     --------        ----         --------
Cash and cash equivalents, end of
  period...............................  $171,346     $ (2,258)       $ --         $169,088
                                         ========     ========        ====         ========
</Table>

                                        16
<PAGE>

                        PART I -- FINANCIAL INFORMATION

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

     The following discussion contains certain forward-looking statements that
reflect management's current views of future events and operations. This
discussion should be read in conjunction with the following: (a) "Risk Factors"
set out below and other sections of our Annual Report on Form 10-K for the year
ended December 31, 2001, which are supplemented by the discussion which follows;
(b) our audited consolidated financial statements which are included in our
Annual Report on Form 10-K for the year ended December 31, 2001; and (c) our
unaudited consolidated financial statements and related notes thereto included
in this report.

OVERVIEW

  General

     The following summarizes net revenues by operating segment (in thousands).

<Table>
<Caption>
                                                              FOR THE THREE MONTHS
                                                                 ENDED MARCH 31,
                                                              ---------------------
                                                                2002        2001
                                                              ---------   ---------
<S>                                                           <C>         <C>
Branded pharmaceuticals.....................................  $237,050    $161,228
Royalties...................................................    11,509      11,417
Contract manufacturing......................................     9,506       8,148
Other.......................................................        --         524
                                                              --------    --------
          Total.............................................  $258,065    $181,317
                                                              ========    ========
</Table>

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 AND 2001

  Revenues

     Net revenues increased $76.8 million, or 42.4%, to $258.1 million in 2002
from $181.3 million in 2001, due primarily to the growth of our branded
pharmaceutical products and the acquisition of additional branded pharmaceutical
products.

     Net sales from branded pharmaceutical products increased $75.9 million, or
47.1%, to $237.1 million in 2002 from $161.2 million in 2001. This increase was
due primarily to growth in net sales of Altace(R) and Levoxyl(R) and the
acquisition of three branded pharmaceutical products, along with a fully paid
license to a fourth product from Bristol-Myers Squibb Company in August, 2001.
While we expect continued growth in net sales of our branded pharmaceuticals in
the future, we refer you to the "Risk Factors" that appear below.

     Revenues from royalties is derived from payments we receive based on sales
of Adenoscan(R) and Adenocard(R). Revenue from royalties increased $0.1 million,
or 0.9%, to $11.5 million in 2002 from $11.4 million in 2001.

     Revenues from contract manufacturing increased $1.4 million, or 17.3%, to
$9.5 million in 2002 from $8.1 million in 2001.

  Gross Profit

     Total gross profit (namely, revenues less cost of revenues, including
royalty expense) increased $66.1 million, or 45.9%, to $210.0 million in 2002
from $143.9 million in 2001. The increase was primarily due to increased sales
of higher margin branded pharmaceutical products.

     Gross profit from branded pharmaceutical products increased $64.9 million,
or 48.3%, to $199.3 million in 2002 from $134.4 million in 2001. This increase
was primarily due to increases in gross profit from the Altace(R)

                                        17
<PAGE>

and Levoxyl(R) product lines as well as additional gross profit arising from the
acquisition of three branded pharmaceutical products and a license to a fourth
from Bristol-Myers Squibb in August 2001.

     Gross profit from royalties increased $0.7 million, or 7.9%, to $9.6
million in 2002 from $8.9 million in 2001.

     Gross profit associated with contract manufacturing increased $0.5 million,
or 83.3%, to $1.1 million in 2002 from $0.6 million in 2001.

  Operating Costs and Expenses

     Total operating costs and expenses increased $37.7 million, or 34.9%, to
$145.8 million in 2002 from $108.1 million in 2001. The increase was primarily
due to costs associated with increased unit sales of our branded pharmaceutical
products, including Altace(R) and Levoxyl(R), and increased fees associated with
the promotion of Altace(R) under the Co-Promotion Agreement with Wyeth.

     Cost of revenues increased $10.7 million, or 28.6%, to $48.1 million in
2002 from $37.4 million in 2001. The increase was primarily due to costs
associated with increased unit sales of our branded pharmaceutical products,
including Altace(R) and Levoxyl(R), and the acquisition of three branded
pharmaceutical products and a license to a fourth from Bristol-Myers Squibb in
August 2001. As a percentage of revenues, cost of revenues decreased to 18.6% in
2002 from 20.6% in 2001 due to an increase in sales of higher margin products.

     Selling, general and administrative expenses increased $23.2 million, or
42.0%, to $78.5 million in 2002 from $55.3 million in 2001. This increase was
primarily attributable to fees associated with the promotion of Altace(R) under
the Co-Promotion Agreement with Wyeth and the growth of our dedicated national
field sales force from approximately 520 representatives in 2001 to 715
representatives in 2002. As a percentage of revenues, selling, general, and
administrative expenses remained relatively constant at 30.4% in 2002 compared
to 30.5% in 2001.

     Depreciation and amortization expense increased $2.2 million, or 19.3%, to
$13.6 million in 2002 from $11.4 million in 2001. This increase was primarily
attributable to the amortization of the intangible assets related to the
acquisition of three branded pharmaceutical products and a license to a fourth
from Bristol-Myers Squibb in August 2001. Amortization expense was reduced by
$0.4 million in 2002 due to the implementation of SFAS 142 (see Note 5 to
financial statements).

     Research and development expense increased $1.6 million, or 40.0%, to $5.6
million in 2002 from $4.0 million in 2001 due to our increased commitment to
research and development.

  Operating Income

     Operating income increased $39.0 million, or 53.2%, to $112.3 million in
2002 from $73.3 million in 2001. This increase was primarily due to increased
revenues from Altace(R) and Levoxyl(R), plus the acquisition of three branded
pharmaceutical products and a license to a fourth from Bristol-Myers Squibb in
August 2001. As a percentage of net revenues, operating income increased to
43.5% in 2002 from 40.4% in 2001 primarily due to an increase in sales of higher
margin branded pharmaceutical products.

  Other Income (Expense)

     Interest income increased $2.2 million, or 88.0%, to $4.7 million in 2002
from $2.5 million in 2001 due to higher balances of invested cash, cash
equivalents, and marketable securities during 2002 as compared to 2001.

     Interest expense decreased $0.1 million, or 3.6%, to $2.8 million in 2002
from $2.9 million in 2001.

     Other expense decreased from $1.6 million in 2001 to $0.8 million in 2002.

  Income Tax Expense

     The effective tax rate of 37.1% in 2002 and 37.3% in 2001 was higher than
the federal statutory rate of 35.0% due primarily to permanent differences
related to state income taxes in both 2002 and 2001.
                                        18
<PAGE>

  Cumulative Effect of Change in Accounting Principle

     We recognized the cumulative effect of a change in accounting principle of
$0.5 million, net of income taxes of $0.3 million, during the three months ended
March 31, 2001 due to the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, which
establishes accounting and reporting standards for derivative instruments and
hedging activities.

  Net Income

     Due to the factors set forth above, net income increased $27.1 million, or
61.3%, to $71.3 million in 2002 from $44.2 million in 2001.

LIQUIDITY AND CAPITAL RESOURCES

  General

     We believe that existing balances of cash, cash equivalents and marketable
securities, cash generated from operations, and an existing revolving credit
facility are sufficient to finance our current operations and working capital
requirements. However, in the event we make significant future acquisitions or
change our capital structure, we may be required to raise funds through
additional borrowings or the issuance of additional debt or equity securities.

     At present, we are actively pursuing acquisitions that may require the use
of substantial capital resources. There are no present agreements or commitments
with respect to any such acquisition.

THREE MONTHS ENDED MARCH 31, 2002

     We generated net cash from operations of $84.2 million for the three months
ended March 31, 2002. Our net cash provided from operations was primarily the
result of $71.3 million in net income, adjusted for non-cash depreciation and
amortization of $13.6 million, a change in income taxes payable/receivable of
$41.1 million, and an increase in accrued expenses of $2.5 million. Primary uses
of cash provided from operations included an increase in accounts receivable of
$20.6 million, an increase in inventory of $18.9 million, a decrease in accounts
payable of $1.7 million, and amortization of deferred revenue of $2.3 million
offset the items previously described.

     Cash flows used in investing activities was $264.2 million due to $10.8
million of capital expenditures and $257.8 million for purchases of marketable
securities offset by $4.3 million received as proceeds from the sale of product
rights.

     Financing activities provided $2.0 million primarily due to the exercise of
employee stock options.

  Certain Indebtedness and Other Matters

     As of March 31, 2002, we had $347.7 million of long-term debt (including
current portion). None of the debt agreements relating to the outstanding
indebtedness contain financial covenants.

     On September 20, 2001, we registered a $1.3 billion universal shelf
registration statement on Form S-3 with the Securities and Exchange Commission.
This universal shelf registration statement allows us to sell any combination of
debt and/or equity securities in one or more offerings up to a total of $1.3
billion. During November 2001, we completed the sale of 17,992,000 newly issued
shares of common stock for $38.00 per share ($36.67 per share net of commissions
and expenses) resulting in net proceeds of $659.8 million. Additionally, during
November 2001, we issued $345.0 million of 2 3/4% Convertible Debentures due
November 15, 2021 in a private placement. At March 31, 2002, $616.0 million
remains available to us under the $1.3 billion universal shelf registration.

     In April 2002, we established a $400.0 million five year senior secured
revolving credit facility. This facility requires us to maintain a certain
minimum net worth, EBITDA to interest expense ratio above an established
minimum, and funded debt to EBITDA ratio below an established maximum. As of May
13,

                                        19
<PAGE>

2001, we were in compliance with these covenants and had available up to $400.0
million under the senior secured revolving credit facility.

  Capital Expenditures

     Capital expenditures, including capital lease obligations, were $10.8
million and $7.0 million for the three months ended March 31, 2002 and 2001,
respectively. The principal capital expenditures included property and equipment
purchases and building improvements for facility upgrades and increased
capacity.

SUBSEQUENT EVENTS

  Stock Repurchase Plan

     On May 13, 2002, our Board of Directors authorized a plan to repurchase up
to 7.5 million shares of our common stock. Under the plan, we may repurchase
shares of our common stock in the open-market from time to time, depending on
market conditions, share price and other factors.

  Ortho-Prefest(R) Acquisition

     On April 29, 2002, we entered into an agreement with Ortho-McNeil
Pharmaceutical, Inc., a Johnson & Johnson subsidiary, to acquire
Ortho-Prefest(R) tablets in the United States, its territories and possessions
and the Commonwealth of Puerto Rico, including the related drug application,
investigational new drug application, copyrights, and patents or licenses to the
patents. We will pay $108.0 million for the product rights upon closing, plus
$7.0 million upon receipt of the U.S. Food and Drug Administration's (which we
refer to as the "FDA") permission to rename the product "Prefest(TM)". The
transaction is expected to close during the second quarter of 2002, subject to
review of the related filing under the Hart-Scott-Rodino Act.

  Estrasorb(TM) License

     We have an exclusive worldwide license from Novavax, Inc. to promote,
market, distribute and sell Estrasorb(TM), except in the United States and
Puerto Rico where the parties will co-market the product, following approval by
the FDA of Novavax's New Drug Application. Estrasorb(TM) is a topical estrogen
replacement therapy which employs Novavax's proprietary micellar nanoparticle
technology designed to deliver 17-beta-estradiol, a naturally occurring hormone,
through the skin when applied topically in the form of a lotion. Once approved,
we will pay Novavax a royalty based on a percentage of net sales of
Estrasorb(TM) outside of the United States and Puerto Rico. Novavax will pay
King a co-promotion fee equal to 50% of net sales less cost of goods of
Estrasorb(TM) within the United States and Puerto Rico. Marketing expenses for
Estrasorb(TM) in the United States and Puerto Rico, following approval, will be
shared equally by the parties. On April 24, 2002 Novavax announced that the FDA
had completed its review of the New Drug Application for Estrasorb(TM)
previously filed by Novavax on June 29, 2001. During the review process, no
issues regarding the efficacy or safety of Estrasorb(TM) were communicated by
the review division of the FDA to Novavax. However, the FDA did request from
Novavax additional information with respect to the Chemistry, Manufacturing and
Control section, which we refer to as the "CMC" section, of the Estrasorb(TM)
NDA. Based on its discussions with the FDA, Novavax chose to temporarily
withdraw the New Drug Application and plans to refile it once Novavax has had an
opportunity to adequately address the issues identified by the FDA with respect
to the CMC section.

IMPACT OF INFLATION

     We have experienced only moderate raw material and labor price increases in
recent years. While we have passed some price increases along to our customers,
we have primarily benefited from rapid sales growth negating most inflationary
pressures.

                                        20
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In the first quarter of 2001, we adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
which establishes accounting and reporting standards for derivative instruments
and hedging activities. The cumulative effect of the change in accounting
principle was $0.5 million, net of income taxes of $0.3 million. In addition,
the change in the value of the derivatives in the quarter ended March 31, 2001
of $1.5 million was included in other expense.

     In the first quarter of 2002, we adopted SFAS No. 141 "Business
Combinations", and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No.
141 requires all business combinations to be accounted for under the purchase
method of accounting. SFAS No. 141 was effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 modifies the accounting and
reporting for acquired intangible assets at the time of acquisition and in
subsequent periods. Intangible assets which have finite lives must be amortized
over their estimated useful life. Intangible assets with indefinite lives will
not be amortized, but evaluated annually for impairment.

     The results for the quarter ended March 31, 2002, include the effect of
adopting SFAS Nos. 141 and 142, which resulted in a $0.4 million reduction in
expenses ($0.3 million net of tax) and no increase in basic and diluted earnings
per share.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. We adopted these standards
effective January 1, 2002. The implementation of these standards did not have
any effect on our financial statements.

     In May 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Revision of FAS Nos. 4, 44 and 64, Amendment of FAS 13 and Technical
Corrections as of April 2002." SFAS No. 145 is effective for fiscal periods
beginning after May 15, 2002. The primary effect of our adopting FAS 145 will be
that gains and losses incurred upon the extinguishment of debt may no longer
qualify for extraordinary items treatment in the income statement.

RISK FACTORS

     Before you purchase our securities, you should carefully consider the risks
described below and the other information contained in this report, including
our financial statements and related notes. The risks described below are not
the only ones facing our company. Additional risks not presently known to us or
that we currently deem immaterial may also impair our business operations. If
any of the adverse events described in this "Risk Factors" section actually
occurs, our business, results of operations and financial condition could be
materially adversely affected, the trading price, if any, of our securities
could decline and you might lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

IF SALES OF OUR MAJOR PRODUCTS OR ROYALTY PAYMENTS TO US DECREASE, OUR RESULTS
OF OPERATIONS COULD BE ADVERSELY AFFECTED.

     Altace(R) accounted for approximately 38.6% and Levoxyl(R) accounted for
approximately 15.4% of our net sales for the three months ended March 31, 2002,
and Altace(R), Levoxyl(R), Thrombin-JMI(R), Lorabid(R), Bicillin(R) and royalty
revenues collectively accounted for approximately 77.8% of our net sales during
the same period. We believe that sales of these products will continue to
constitute a significant portion of our total revenues for the foreseeable
future. Accordingly, any factor adversely affecting sales of any of these
products or products for which we receive royalty payments could have a material
adverse effect on our business, financial condition, results of operations and
cash flows.

                                        21
<PAGE>

WE MAY NOT ACHIEVE OUR INTENDED BENEFITS FROM THE CO-PROMOTION AGREEMENT WITH
WYETH FOR THE PROMOTION OF ALTACE(R).

     We entered into the Co-Promotion Agreement with Wyeth for Altace(R)
partially because we believed a larger pharmaceutical company with more sales
representatives and, in our opinion, with substantial experience in the
promotion of pharmaceutical products to physicians would significantly increase
the sales revenue potential of Altace(R). By efficiently co-marketing the new
indications for Altace(R) which were approved by the FDA on October 4, 2000, we
intend to increase the demand for the product. In the agreement, both of us have
incentives to maximize the sales and profits of Altace(R) and to optimize the
marketing of the product by coordinating our promotional activities.

     Under the Co-Promotion Agreement, Wyeth and we agreed to establish an
annual budget of marketing expenses to cover, among other things,
direct-to-consumer advertising, such as television advertisements and
advertisements in popular magazines and professional journals. One of the goals
of the direct-to-consumer advertising campaign is to encourage the targeted
audience to ask their own physicians about Altace(R) and whether it might be of
benefit for them. The direct-to-consumer campaign may not be effective in
achieving this goal. Physicians may not prescribe Altace(R) for their patients
to the extent we might otherwise hope if patients for whom Altace(R) is
indicated do not ask their physicians about Altace(R).

     It is possible that we or Wyeth or both of us will not be successful in
effectively promoting Altace(R) or in optimizing its sales. The content of
agreed-upon promotional messages for Altace(R) may not sufficiently convey the
merits of Altace(R) and may not be successful in convincing physicians to
prescribe Altace(R) instead of other ACE inhibitors or competing therapies. The
targets for sales force staffing, the number and frequency of details to
physicians and the physicians who are called upon may be inadequate to realize
our expectations for revenues from Altace(R). Neither we nor Wyeth may be able
to overcome the perception by physicians of a class effect, which we discuss
below. Further, developments in technologies or the introduction of other
products or new therapies may make it more attractive for Wyeth to concentrate
on the promotion of a product or products other than Altace(R) or to lessen
their emphasis on the marketing of Altace(R). Our strategic decisions in dealing
with managed health care organizations may not prove to be correct and we could
consequently lose sales in this market to competing ACE inhibitor products or
alternative therapies. If any of these situations occurred, they could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.

IF OUR BRISTOL FACILITY DOES NOT RECEIVE FINAL APPROVAL FROM THE FDA TO
MANUFACTURE AND DISTRIBUTE ALTACE(R) OR IF THERE IS AN INTERRUPTION IN THE
SUPPLY OF RAW MATERIAL FOR ALTACE(R), THE DISTRIBUTION, MARKETING AND SUBSEQUENT
SALES OF THE PRODUCT COULD BE ADVERSELY AFFECTED.

     We have qualified our Bristol facility as a manufacturing and packaging
site for Altace(R) in accordance with FDA guidelines and are currently
manufacturing and distributing Altace(R) at that site. Aventis Pharma
Deutscheland GmbH (Germany) will continue to be our single supplier of ramipril,
the active ingredient in Altace(R). Because the manufacture of ramipril is a
patented process, we cannot secure the raw material from another source. We have
entered into a long-term supply agreement with Aventis (Germany) and we believe
that it adequately protects our supply of raw material, but there can be no
guarantee that there will not be interruptions or delays in the supply of the
raw material. Aventis (USA) will remain an alternative or back-up supplier of
Altace(R) for us. Any interruptions or delays in manufacturing or receiving the
finished product or raw material used for the future production of Altace(R) or
the failure of the FDA to issue formal written approval for the continued
manufacturing and distribution of Altace(R) at our Bristol facility could have a
material adverse effect on our business, financial condition, results of
operations and cash flows.

SALES OF ALTACE(R) MAY BE AFFECTED BY THE PERCEPTION OF A CLASS EFFECT, AND
ALTACE(R) AND OUR OTHER PRODUCTS MAY BE SUBJECT TO VARIOUS SOURCES OF
COMPETITION FROM ALTERNATE THERAPIES.

     Although the FDA has approved new indications for Altace(R), we may be
unable to meet investors' expectations regarding sales of Altace(R) due to a
perceived class effect or the inability to market Altace(R)'s new uses and
indications effectively.

                                        22
<PAGE>

     All prescription drugs currently marketed by pharmaceutical companies may
be grouped into existing drug classes, but the criteria for inclusion vary from
class to class. For some classes, specific biochemical properties may be the
defining characteristic. For example, Altace(R) (ramipril) is a member of a
class of products known as ACE inhibitors because ramipril is one of several
chemicals that inhibits the production of enzymes that convert angiotensin,
which could otherwise lead to hypertension.

     When one drug from a class is demonstrated to have a particularly
beneficial or previously undemonstrated effect (e.g., the benefit of Altace(R)
as shown by the HOPE trial), marketers of other drugs in the same class (for
example, other ACE inhibitors) will represent that their products offer the same
benefit simply by virtue of membership in the same drug class. Consequently,
other companies with ACE inhibitors that compete with Altace(R) will represent
that their products are equivalent to Altace(R). By doing so, these companies
will represent that their products offer the same efficacious results
demonstrated by the HOPE trial. Regulatory agencies do not decide whether
products within a class are quantitatively equivalent in terms of efficacy or
safety. Because comparative data among products in the same drug class are rare,
marketing forces often dictate a physician's decision to use one ACE inhibitor
over another. We may not be able to overcome other companies' representations
that their ACE inhibitors will offer the same benefits as Altace(R) as
demonstrated by the HOPE trial. As a result, sales of Altace(R) may suffer from
the perception of a class effect.

     Currently, there is no generic form of Altace(R) available. That is, there
is no product that has the same active ingredient as Altace(R). Although no
generic substitute for Altace(R) has been approved by the FDA, there are other
ACE inhibitors whose patents have expired or will expire in the next few years
and there are generic forms of other ACE inhibitors. Also, there are different
therapeutic agents that may be used to treat certain conditions treated by
Altace(R). For example, the group of products known as angiotensin II receptor
blocker, which we refer to as an "ARB" in this report beta-blockers, calcium
channel blockers and diuretics, may be prescribed to treat certain conditions
that Altace(R) is used to treat. New ACE inhibitors or other anti-hypertensive
therapies, increased sales of generic forms of other ACE inhibitors or of other
therapeutic agents that compete with Altace(R) may adversely affect the sales of
Altace(R).

OUR CO-PROMOTION AGREEMENT FOR ALTACE(R) WITH WYETH COULD BE TERMINATED BEFORE
WE REALIZE ALL OF THE BENEFITS OF THE AGREEMENT OR IT COULD BE ASSIGNED TO
ANOTHER COMPANY BY WYETH OR WYETH COULD MARKET A COMPETING PRODUCT.

     Our exclusive Co-Promotion Agreement for Altace(R) with Wyeth could be
terminated before we realize all of the benefits of the agreement. Wyeth and we
each have the right to terminate the agreement if annualized net sales of
Altace(R) have not reached $300.0 million by October 4, 2003. There are other
reasons why either Wyeth or we could terminate the Co-Promotion Agreement. If
the Co-Promotion Agreement is terminated for any reason, we may not realize
increased sales which we believe may result from the expanded promotion of
Altace(R). If we must unwind our marketing alliance efforts because of the
reasons mentioned above, there may be a material adverse effect on the sales of
Altace(R).

     If another company were to acquire, directly or indirectly, over 50% of the
combined voting power of Wyeth's voting securities or more than half of its
total assets, then Wyeth could assign its rights and obligations under the
Altace(R) Co-Promotion Agreement to a successor without our prior consent.
However, a successor would be required to first assume in writing the
obligations of Wyeth under the Co-Promotion Agreement before the rights of Wyeth
were assigned to it. Another party might not market Altace(R) as effectively or
efficiently as Wyeth did. Also, a company which acquires Wyeth might not place
as much emphasis on the Co-Promotion Agreement, might expend fewer marketing
resources, such as a fewer number of sales representatives, than Wyeth did, or
might have less experience or expertise in marketing pharmaceutical products to
physicians. In any of these cases, there may be a material adverse effect on the
sales of Altace(R).

     When feasible, Wyeth must give us six months' written notice of its intent
to sell, market or distribute any product competitive with Altace(R). Under the
Co-Promotion Agreement, a product competes with Altace(R) if it is an ACE
inhibitor, an ARB, or an ACE inhibitor or ARB in combination with other
cardiovascular agents in a single product. However, an ARB alone or in
combination with other cardiovascular agents competes with

                                        23
<PAGE>

Altace(R) only if the level of promotional effort used by Wyeth for the ARB is
greater than 50% of that applied to Altace(R). A product would not compete with
Altace(R) if in the last 12 months it had net sales of less than $100.0 million
or 15% of net sales of Altace(R), whichever was higher. Also, a product would
not compete with Altace(R) under the Co-Promotion Agreement if the product were
acquired by Wyeth through a merger with or acquisition by a third party and the
product was no longer actively promoted by Wyeth or its successor through
detailing the product to physicians.

     Once we have been notified in writing of Wyeth's intent to market, sell or
distribute a competing product, then Wyeth has 90 days to inform us as to
whether it intends to divest its interest in the competing product. If Wyeth
elects to divest the competing product, it must try to identify a purchaser and
to enter into a definitive agreement with the purchaser as soon as practicable.
If Wyeth elects not to divest the competing product or fails to divest the
product within one year of providing notice to us of its plan to divest the
competing product, then both of us must attempt to establish acceptable terms
under which we would co-promote the competing product for the remaining term of
our Altace(R) Co-Promotion Agreement. Alternatively, Wyeth and we could agree
upon another commercial relationship, such as royalties payable to us for the
sale of the competing product, or we could agree to adjust the promotion fee we
pay to Wyeth for the co-promotion of Altace(R). If Wyeth and we are unable to
establish acceptable terms under any of these options, then we have the option
at our sole discretion to reacquire all the marketing rights to Altace(R) and
terminate the Co-Promotion Agreement upon 180 days' prior written notice to
Wyeth. In the event we decided to reacquire all the marketing rights to
Altace(R) we would be obligated to pay Wyeth an amount of cash equal to twice
the net sales of Altace(R) in the United States for the 12 month period
preceding the reacquisition. The foregoing could have a material effect on our
business, financial condition, results of operations and cash flows.

OUR SALES OF LEVOXYL(R) COULD BE AFFECTED BY FUTURE ACTIONS OF THE FDA AND BY
UNCERTAINTY IN THE LEVOTHYROXINE SODIUM PRODUCT MARKET.

     On August 14, 1997, the FDA announced in the Federal Register (62 FR 43535)
that orally administered levothyroxine sodium drug products are new drugs. The
notice stated that manufacturers who wish to continue to market these products
must submit applications as required by the FDC Act by August 14, 2000. On April
26, 2000, the FDA issued a second Federal Register notice extending the deadline
for filing these applications until August 14, 2001.

     On May 25, 2001, the FDA approved our previously filed New Drug Application
for Levoxyl(R), our levothyroxine sodium drug product. Other manufacturers of
levothyroxine sodium drug products have filed New Drug Applications for their
levothyroxine sodium products. Jerome Stevens, Inc. has also received approval
for its levothyroxine sodium product Unithroid. Jerome Stevens has licensed
Unithroid to Watson Pharmaceuticals. The FDA has announced that after August 14,
2001, it will not accept New Drug Applications for levothyroxine sodium drug
products. However, the FDA has stated it will continue to review applications
which were submitted by August 14, 2001. Further, the FDA is requiring a
phasing-out of the distribution of levothyroxine sodium products for which New
Drug Applications were pending but not approved by August 14, 2001. Other
manufacturers who wish to submit an application for an equivalent product after
August 14, 2001 must submit an Abbreviated New Drug Application. Also, since the
Jerome Stevens product has been approved, a manufacturer could submit an
Abbreviated New Drug Application demonstrating in vivo bioequivalence (in other
words, the two products produce identical effects on the body) to the Jerome
Stevens product. If the FDA were to determine that another levothyroxine sodium
product is bioequivalent to Levoxyl(R), generic substitution for Levoxyl(R) may
become possible which could result in a decrease in sales of our product
Levoxyl(R).

     To further protect against the possibility of generic substitution, during
2001 we filed with the U.S. Patent and Trademark Office in excess of 20
applications for U.S. patents concerning our FDA-approved new formulation of
Levoxyl(R). The pending patent applications generally cover, among other things,
formulation methodologies and equipment, formulation technologies,
biopharmaceutical characteristics, drug delivery systems, and methods-of-use. If
such applications are granted, the resulting patents will potentially provide us
with patent protection on our FDA-approved new formulation of Levoxyl(R) for 20
years from the respective filing dates of the applications. However, we cannot
assure you that any or all of the patent applications will be

                                        24
<PAGE>

granted, or whether any or all of the resulting patents will provide Levoxyl(R)
with protection from possible generic substitution.

     On March 26, 2002, Jerome Stevens filed a Petition for Stay of Action
(assigned Docket No. 02P1035) with the FDA seeking redress from the FDA for the
public disclosure on the FDA's website of alleged trade secrets relating to the
manufacturing process for Jerome Stevens' orally-administered levothyroxine
sodium drug product Unithroid. While Jerome Stevens does not specifically
request that the FDA stay any action with respect to our levothyroxine sodium
drug product Levoxyl(R), Jerome Stevens does request, among other broad
remedies, that the FDA "immediately and indefinitely stay . . . all grants of
drug pre-market authority that used, relied on, or were based on Jerome
confidential and trade secret manufacturing information . . ." We intend to file
a Comment on Jerome Stevens' Petition with the FDA, stating that the New Drug
Application for Levoxyl(R) was filed with the FDA before the disclosure of
Jerome Stevens' alleged trade secrets, and that the approval of the Levoxyl(R)
New Drug Application is unrelated to such disclosure. Based on these facts, we
do not believe that Jerome Stevens' Petition applies to Levoxyl(R). However, if
the FDA were to determine that there is a valid legal basis for suspension or
withdrawal of FDA approval of the Levoxyl(R) New Drug Application it could have
a material adverse effect on our business, financial condition, results of
operations and cash flows.

WE CANNOT ASSURE YOU THAT SALES OF LORABID(R) WILL INCREASE IN THE FUTURE. IF
SALES DO NOT INCREASE, THERE MAY BE A MATERIAL ADVERSE EFFECT UPON OUR RESULTS
OF OPERATIONS.

     Prior to our acquisition of Lorabid(R), sales of that product were on the
decline because we believe that the prior owner was not actively promoting the
product. Increased sales of Lorabid(R) depend upon effective marketing to
physicians which leads them to write prescriptions for our product. Since the
antibiotic market is very competitive, we cannot assure you that sales of
Lorabid(R) will increase in the future. Eli Lilly and Company manufactures
Lorabid(R) for us under a supply agreement containing minimum purchase
requirements. If Lorabid(R) sales continue to decrease, there may be a material
adverse effect upon our results of operations and cash flows.

IF WE CANNOT IMPLEMENT OUR STRATEGY TO GROW OUR BUSINESS THROUGH INCREASED SALES
AND ACQUISITIONS, OUR COMPETITIVE POSITION IN THE PHARMACEUTICAL INDUSTRY MAY
SUFFER.

     We have historically increased our sales and net income through strategic
acquisitions and related internal growth initiatives intended to develop
marketing opportunities with respect to acquired product lines. Our strategy is
focused on increasing sales and enhancing our competitive standing through
acquisitions that complement our business and enable us to promote and sell new
products through existing marketing and distribution channels. Moreover, since
we engage in limited proprietary research activity with respect to product
development, we rely heavily on purchasing product lines from other companies.

     Other companies, some of which have substantially greater financial,
marketing and sales resources than we do, compete with us for the acquisition of
products or companies. We may not be able to acquire rights to additional
products or companies on acceptable terms, if at all, or be able to obtain
future financing for acquisitions on acceptable terms, if at all. The inability
to effect acquisitions of additional branded products could limit the overall
growth of our business. Furthermore, even if we obtain rights to a
pharmaceutical product or acquire a company, we may not be able to generate
sales sufficient to create a profit or otherwise avoid a loss. For example, our
marketing strategy, distribution channels and levels of competition with respect
to acquired products may be different than those of our current products,
limiting our ability to compete favorably in those product categories.

IF WE CANNOT INTEGRATE THE BUSINESS OF COMPANIES OR PRODUCTS WE ACQUIRE, OUR
BUSINESS MAY SUFFER.

     We anticipate that the integration of newly acquired companies and products
into our business will require significant management attention and expansion of
our sales force. In order to manage our acquisitions effectively, we must
maintain adequate operational, financial and management information systems and
motivate and effectively manage an increasing number of employees. Our
acquisitions, have significantly expanded our product offerings, operations and
number of employees. Our future success will also depend in

                                        25
<PAGE>

part on our ability to retain or hire qualified employees to operate our
expanding facilities efficiently in accordance with applicable regulatory
standards. If we cannot integrate our acquisitions successfully, these changes
and acquisitions could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

IF WE ARE NOT ABLE TO DEVELOP OR LICENSE NEW PRODUCTS, OUR BUSINESS MAY SUFFER.

     We compete with other pharmaceutical companies, including large
pharmaceutical companies with financial resources and capabilities substantially
greater than ours, in the development and licensing of new products. We cannot
assure you that we will be able to

     - engage in product life cycle management to develop new indications and
       line extensions for existing and acquired products;

     - successfully develop, license or commercialize new products on a timely
       basis or at all; or

     - develop or license new products in a cost effective manner.

     - obtain FDA approvals necessary to successfully implement the strategies
       described above.

For example, we are

     - in exclusive license agreements with Novavax to promote, market,
       distribute and sell Estrasorb(TM), a topical transdermal estrogen
       replacement therapy, and Androsorb(TM), a topical testosterone
       replacement therapy for testosterone deficient women, upon their approval
       by the FDA;

     - engaged in the development of MRE0470, a myocardial pharmacologic stress
       imaging agent; and

     - in a licensing agreement with Novavax to develop recombinant human
       papillomavirus (HPC) virus-like particle (VLP) vaccines.

     However, we cannot assure you that we will be successful in any or all of
these projects. If we are not successful, including the failure to obtain any
necessary FDA approval, our business, financial condition and results of
operations could be materially adversely affected.

     Further, other companies may license or develop products or may acquire
technologies for the development of products that are the same as or similar to
the products we have in development or that we license. Because there is rapid
technological change in the industry and because many other companies may have
more financial resources than we do, other companies may

     - develop or license their products more rapidly than we can,

     - complete any applicable regulatory approval process sooner than we can,

     - market or license their products before we can market or license our
       products, or

     - offer their newly developed or licensed products at prices lower than our
       prices,

     and thereby have a negative impact on the sales of our newly developed or
licensed products. Technological developments or the FDA's approval of new
therapeutic indications for existing products may make our existing products or
those products we are licensing or developing obsolete or may make them more
difficult to market successfully, which could have a material adverse effect on
our business, financial condition, results of operations and cash flows.

WE DO NOT HAVE PROPRIETARY PROTECTION FOR MOST OF OUR BRANDED PHARMACEUTICAL
PRODUCTS, AND OUR SALES COULD SUFFER FROM COMPETITION BY GENERIC SUBSTITUTES.

     Although most of our revenue is generated by products not subject to
competition from generic products, there is no proprietary protection for most
of our branded pharmaceutical products, and generic substitutes for most of
these products are sold by other pharmaceutical companies. In addition,
governmental and other pressure to reduce pharmaceutical costs may result in
physicians prescribing products for which there are

                                        26
<PAGE>

generic substitutes. Increased competition from the sale of generic
pharmaceutical products may cause a decrease in revenue from our branded
products and could have a material adverse effect on our business, financial
condition and results of operations. In addition, our branded products for which
there is no generic form available may face competition from different
therapeutic agents used for the same indications for which our branded products
are used.

THIRD PARTIES MANUFACTURE OR SUPPLY MATERIALS FOR MANY OF OUR PRODUCTS, AND ANY
DELAYS OR DIFFICULTIES EXPERIENCED BY THEM MAY REDUCE OUR PROFIT MARGINS AND
REVENUES OR HARM OUR REPUTATION.

     A portion or all of many of our product lines, including Altace(R),
Lorabid(R) and Cortisporin(R), are currently manufactured by third parties. Our
dependence upon third parties for the manufacture of our products may adversely
impact our profit margins or may result in unforeseen delays or other problems
beyond our control. If for any reason we are unable to obtain or retain
third-party manufacturers on commercially acceptable terms, we may not be able
to distribute our products as planned. If we encounter delays or difficulties
with contract manufacturers in producing or packaging our products, the
distribution, marketing and subsequent sales of these products would be
adversely affected, and we may have to seek alternative sources of supply or
abandon or sell product lines on unsatisfactory terms. We might not be able to
enter into alternative supply arrangements at commercially acceptable rates, if
at all. We also cannot assure you that the manufacturers we utilize will be able
to provide us with sufficient quantities of our products or that the products
supplied to us will meet our specifications. The occurrence of any of these
events could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

     DSM Pharmaceuticals, Inc. (formerly DSM Catalytica Pharmaceuticals, Inc.),
one of our third-party manufacturers, informed us on November 21, 2001, that
they ceased operations at their sterile manufacturing facilities in Greenville,
North Carolina, as a result of FDA concerns relating to compliance issues. Due
to the compliance issues, DSM Pharmaceuticals recommended that we initiate a
voluntary recall of all products that they manufacture for us. As a result, we
initiated a voluntary recall of these products on December 18, 2001. The
products affected are Cortisporin(R) Otic Suspension, Cortisporin(R) Otic
Solution, Cortisporin(R) Ophthalmic Suspension, Pediotic(R) Otic Suspension,
Septra(R) IV Infusion, and Neosporin(R) GU Irrigant. DSM Pharmaceuticals has
since notified us that it has addressed the compliance issues and has resumed
production of our products. Based on this assurance, we have resumed
distribution of some of the affected products during the first quarter of 2002
and we expect to resume distribution of the remaining affected products during
the first half of 2002. However, we cannot assure you that we will resume
distribution as planned or that additional product recalls will not occur in the
future. The failure of DSM Pharmaceuticals to adequately address the compliance
issues at its sterile manufacturing facilities in Greenville, North Carolina,
and recommence production of our products in a manner that allows us to resume
distribution in accordance with its written assurances to us or additional
product recalls could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

     We require a supply of quality raw materials and components to manufacture
and package pharmaceutical products for us and for third parties with which we
have contracted. Generally, we have not had difficulty obtaining raw materials
and components from suppliers in the past. Currently, we rely on over 500
suppliers to deliver the necessary raw materials and components. We have no
reason to believe that we will be unable to procure adequate supplies of raw
materials and components on a timely basis. However, if we are unable to obtain
sufficient quantities of any of the raw materials or components required to
produce and package our products, we may not be able to distribute our products
as planned. In this case, our business, financial condition and results of
operations could be materially and adversely affected.

OUR PARKEDALE FACILITY HAS BEEN THE SUBJECT OF FDA CONCERNS. IF WE CANNOT
ADEQUATELY ADDRESS THE FDA'S CONCERNS, WE MAY BE UNABLE TO OPERATE THE PARKEDALE
FACILITY AND, ACCORDINGLY, OUR BUSINESS MAY SUFFER.

     Our Parkedale facility, located in Rochester, Michigan, manufactures both
drug and biological pharmaceutical products. Prior to our acquisition of the
Parkedale facility in February 1998, it was one of six Pfizer facilities subject
to a consent decree issued by the U.S. District Court of New Jersey in August
1993 as a

                                        27
<PAGE>

result of FDA concerns about compliance issues within Pfizer facilities in the
period before the decree was entered.

     The Parkedale facility was inspected by the FDA in December 2001. When an
FDA inspector completes an authorized inspection of a manufacturing facility,
the FDC Act mandates that the inspector give to the owner/operator of the
facility a written report listing the inspector's observations of objectionable
conditions and practices. This written report is known as an "FDA Form 483" or
simply as a "483." The observations in a 483 are reported to the manufacturer in
order to assist the manufacturer in complying with the FDC Act and the
regulations enforced by the FDA. Often a pharmaceutical manufacturer receives a
483 after an inspection and our Parkedale facility received a 483 following the
December 2001 inspection. While no law or regulation requires us to respond to a
483 we have submitted a written response detailing our plan of action with
respect to each of the observations made on the December 483 and our commitment
to correct the objectionable practice or condition. The risk to us of a 483, if
left uncorrected, could include, among other things, the imposition of civil
monetary penalties, the commencement of actions to seize or prohibit the sale of
unapproved or non-complying products, or the cessation of manufacturing
operations at the Parkedale facility that are not in compliance with current
Good Manufacturing Practices, which we refer to as "cGMPs". While we believe the
receipt of the 483 will not have a material adverse effect on our business,
financial condition, results of operation and cash flows, we cannot assure you
that future inspections may not result in adverse regulatory actions. The 483
from December 2001 does not require us to delay or discontinue the production of
any products made at the Parkedale facility.

WE ARE AT APPROXIMATELY 100% OF CAPACITY AT OUR MIDDLETON FACILITY WHICH WILL
LIMIT OUR ABILITY TO INCREASE PRODUCTION OF THROMBIN-JMI(R).

     We are currently implementing short-term and long-term strategies to expand
our production capacity at our Middleton facility where we manufacture
Thrombin-JMI(R). If we cannot successfully expand our production capacity at our
Middleton facility, our ability to increase production of Thrombin-JMI(R) will
be limited thereby limiting our unit sales growth for this product.

OUR QUARTERLY RESULTS, INCLUDING, IN PARTICULAR, PRODUCT SALES REVENUE, MAY
FLUCTUATE, AND THESE FLUCTUATIONS MAY ADVERSELY AFFECT OUR PROFITABILITY.

     Our results of operations, including, in particular, product sales revenue,
may vary from quarter to quarter due to many factors. These factors include
expenditures related to the acquisition, sale and promotion of pharmaceutical
products, a changing customer base, the availability and cost of raw materials,
interruptions in supply by third-party manufacturers, new products introduced by
us or our competitors, the mix of products we sell, sales and marketing
expenditures, competitive pricing pressures and general economic and industry
conditions that may affect customer demand. For example, in advance of an
anticipated or announced price increase, many of our customers may order
pharmaceutical products in larger than normal quantities. The ordering of excess
quantities in any quarter could cause sales of some of our branded
pharmaceutical products to be lower in the subsequent quarter than they would
have been otherwise. We cannot assure you that we will be successful in
maintaining or improving our profitability or avoiding losses in any future
period.

AN INCREASE IN PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS OR PRODUCT RETURNS
COULD HARM OUR BUSINESS.

     We face an inherent business risk of exposure to product liability claims
in the event that the use of our technologies or products are alleged to have
resulted in adverse effects. These risks will exist for those products in
clinical development and with respect to those products that receive regulatory
approval for commercial sale. While we have taken, and will continue to take,
what we believe are appropriate precautions, we may not be able to avoid
significant product liability exposure. We currently have product liability
insurance in the amount of $60.0 million for aggregate annual claims with a $100
thousand deductible per incident and a $1.0 million aggregate annual deductible;
however, we cannot assure you that the level or breadth of any insurance
coverage will be sufficient to cover fully all potential claims. Also, adequate
insurance coverage might not be available in the future at acceptable costs, if
at all.

     Product recalls may be issued at our discretion or at the discretion of the
FDA, other government agencies or other companies having regulatory authority
for pharmaceutical product sales. From time to time,

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<PAGE>

we may recall products for various reasons. To date, however, these recalls have
not been significant and have not had a material adverse effect on our business,
financial condition, results of operations and cash flows. However, we cannot
assure you that the number and significance of recalls will not increase in the
future.

     Although product returns were approximately 2.2% of gross sales for the
three months ended March 31, 2002, we cannot assure you that actual levels of
returns will not increase or significantly exceed the amounts we have
anticipated.

OUR WHOLLY OWNED SUBSIDIARY, JONES PHARMA INCORPORATED, IS A DEFENDANT IN
LITIGATION WHICH IS CURRENTLY BEING HANDLED BY ITS INSURANCE CARRIERS. SHOULD
THIS COVERAGE BE INADEQUATE OR SUBSEQUENTLY DENIED OR WERE WE TO LOSE SOME OF
THESE LAWSUITS, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.

     Our wholly owned subsidiary, Jones Pharma Incorporated, is a defendant in
852 multi-defendant lawsuits involving the manufacture and sale of
dexfenfluramine, fenfluramine and phentermine, which is usually referred to as
"fen/phen." In 1996, Jones acted as a distributor of Obenix(R), a branded
phentermine product. Jones also distributed a generic phentermine product. We
believe that Jones' phentermine products have been identified in less than 100
of the foregoing cases. The plaintiffs in these cases claim injury as a result
of ingesting a combination of these weight-loss drugs. They seek compensatory
and punitive damages as well as medical care and court-supervised medical
monitoring. The plaintiffs claim liability based on a variety of theories
including but not limited to, product liability, strict liability, negligence,
breach of warranties and misrepresentation. These suits are filed in various
jurisdictions throughout the United States, and in each of these suits Jones is
one of many defendants, including manufacturers and other distributors of these
drugs. Jones denies any liability incident to the distribution of its
phentermine product and intends to pursue all defenses available to it. Jones
has tendered defense of these lawsuits to its insurance carriers for handling
and they are currently defending Jones in these suits. In the event that
insurance coverage is inadequate to satisfy any resulting liability, Jones will
have to resume defense of these lawsuits and be responsible for the damages, if
any, that are awarded against it.

SALES OF THROMBIN-JMI(R) MAY BE AFFECTED BY THE PERCEPTION OF RISKS ASSOCIATED
WITH SOME OF THE RAW MATERIALS USED IN ITS MANUFACTURE.

     The source material for our product Thrombin-JMI(R) comes from bovine
plasma and lung tissue. Bovine-sourced materials from outside the United States
may be of some concern because of potential transmission of Bovine Spongiform
Encephalopathy, or BSE. However, we have taken precautions to minimize the risks
of contamination from BSE in our source materials including, primarily, the use
of bovine materials only from FDA-approved sources in the United States.
Although no BSE has been documented in the United States, the United States is
considered a Category II BSE-risk country, meaning that the United States is
probably BSE-free but has some history of importing cattle from the United
Kingdom.

     We receive the bovine raw materials from a single vendor and any
interruption or delay in the supply of that material could adversely affect the
sales of Thrombin-JMI(R). In addition to other actions taken by us and our
vendor to minimize the risk of BSE, we are developing steps to further purify
the material of other contaminants. While we believe that our procedures and
those of our vendor for the supply, testing and handling of the bovine material
comply with all federal, state, and local regulations, we cannot eliminate the
risk of contamination or injury from these materials. We will continue
surveillance of the source and believe that the risk of BSE-contamination in the
source materials for Thrombin-JMI(R) is very low. There are high levels of
global public concern about BSE. Physicians could determine not to administer
Thrombin-JMI(R) because of the perceived risk which could adversely affect our
sales of the product. Any injuries resulting from BSE contamination could expose
us to extensive liability. Also there is currently no alternative to the bovine-
sourced materials for Thrombin-JMI(R). If BSE spreads to the United States, the
manufacture and sale of Thrombin-JMI(R) and our business, financial condition
and results of operations could be materially and adversely affected.

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<PAGE>

THE LOSS OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.

     We are highly dependent on the principal members of our management staff,
the loss of whose services might impede the achievement of our acquisition and
development objectives. Although we believe that we are adequately staffed in
key positions and that we will be successful in retaining skilled and
experienced management, operational, scientific and development personnel, we
cannot assure you that we will be able to attract and retain key personnel on
acceptable terms. The loss of the services of key personnel could have a
material adverse effect on us, especially in light of our recent growth. We do
not maintain key-person life insurance on any of our employees. In addition, we
do not have employment agreements with any of our key employees.

IF WE ARE UNABLE TO SECURE OR ENFORCE PATENT RIGHTS, TRADEMARKS, TRADE SECRETS
OR OTHER INTELLECTUAL PROPERTY, OUR BUSINESS COULD BE HARMED.

     We may not be successful in securing or maintaining proprietary patent
protection for our products or products we develop or technologies we license.
In addition, our competitors may develop products, including generic products,
similar to ours using methods and technologies that are beyond the scope of our
intellectual property protection, which could reduce our sales. The validity of
patents can be subject to expensive litigation. Some of our major branded
pharmaceutical products have proprietary patent protection, including Altace(R)
with a composition of matter patent through October 2008. We can give you no
assurance that our patents will not be challenged. Competitors may be able to
develop similar or competitive products outside the scope of our patents which
could have a material adverse effect on sales of our products or the amounts of
royalty revenues we receive.

     We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation, where patent protection is not believed to
be appropriate or attainable, in order to maintain our competitive position. We
cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to our
trade secrets or disclose the technology, or that we can adequately protect our
trade secrets.

OUR SHAREHOLDER RIGHTS PLAN AND BYLAWS DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS
AND COULD PREVENT SHAREHOLDERS FROM REALIZING A PREMIUM ON THEIR COMMON STOCK.

     We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group which attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our charter and bylaws contain provisions that may discourage
unsolicited takeover proposals that shareholders may consider to be in their
best interests. These provisions include:

     - a classified board of directors;

     - the ability of the board of directors to designate the terms of and issue
       new series of preferred stock;

     - advance notice requirements for nominations for election to the board of
       directors; and

     - special voting requirements for the amendment of our charter and bylaws.

     We are also subject to anti-takeover provisions under Tennessee laws, each
of which could delay or prevent a change of control. Together these provisions
and the rights plan may discourage transactions that otherwise could involve
payment of a premium over prevailing market prices for common stock.

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<PAGE>

OUR STOCK PRICE IS VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES.

     The trading price of our common stock is likely to be volatile. The stock
market in general and the market for emerging growth companies, such as King in
particular, have experienced extreme volatility. Many factors contribute to this
volatility, including

     - general market conditions;

     - perceptions about market conditions in the pharmaceutical industry;

     - announcements of technological innovations;

     - changes in marketing, product pricing and sales strategies or development
       of new products by us or out competitors;

     - changes in domestic or foreign governmental regulations or regulatory
       approval processes; and

     - variations in our results of operations.

     This volatility may have a significant impact on the market price of our
common stock. Moreover, the possibility exists that the stock market (and in
particular the securities of emerging growth companies such as King) could
experience extreme price and volume fluctuations unrelated to operating
performance. The volatility of our common stock imposes a greater risk of
capital losses on our shareholders than would a less volatile stock. In
addition, such volatility makes it difficult to ascribe a stable valuation to a
shareholder's holdings of our common stock.

RISKS RELATED TO OUR INDUSTRY

FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT OUR ABILITY TO
OPERATE OUR BUSINESS.

     Virtually all aspects of our activities are regulated by federal and state
statutes and government agencies. The manufacturing, processing, formulation,
packaging, labeling, distribution and advertising of our products, and disposal
of waste products arising from these activities, are subject to regulation by
one or more federal agencies, including the FDA, the Drug Enforcement Agency,
which we refer to as the "DEA," the Federal Trade Commission, the Consumer
Product Safety Commission, the U.S. Department of Agriculture, the Occupational
Safety and Health Administration and the U.S. Environmental Protection Agency,
which we refer to as the "EPA," as well as by foreign governments in countries
where we distribute some of our products.

     Noncompliance with applicable FDA policies or requirements could subject us
to enforcement actions, such as suspensions of manufacturing or distribution,
seizure of products, product recalls, fines, criminal penalties, injunctions,
failure to approve pending drug product applications or withdrawal of product
marketing approvals. Similar civil or criminal penalties could be imposed by
other government agencies, such as the DEA, the EPA or various agencies of the
states and localities in which our products are manufactured, sold or
distributed and could have ramifications for our contracts with government
agencies such as the Veteran's Administration or the Department of Defense.
These enforcement actions could have a material adverse effect on our business,
financial condition and results of operations.

     All manufacturers of human pharmaceutical products are subject to
regulation by the FDA under the authority of the Federal Food, Drug and Cosmetic
Act, known as the "FDC Act," or the Public Health Service Act, known as the "PHS
Act," or both. New drugs, as defined in the FDC Act, and new human biological
drugs, as defined in the PHS Act, must be the subject of an FDA-approved new
drug or biologic license application before they may be marketed in the United
States. Some prescription and other drugs are not the subject of an approved
marketing application but, rather, are marketed subject to the FDA's regulatory
discretion and/or enforcement policies. Any change in the FDA's enforcement
discretion and/or policies could have a material adverse effect on our business,
financial condition and results of operations.

     We manufacture some pharmaceutical products containing controlled
substances and, therefore, are also subject to statutes and regulations enforced
by the DEA and similar state agencies which impose security, record keeping,
reporting and personnel requirements on us. Additionally, we manufacture
biological drug products for human use and are subject to regulatory burdens as
a result of these aspects of our business.

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<PAGE>

There are additional FDA and other regulatory policies and requirements covering
issues such as advertising, commercially distributing, selling, sampling and
reporting adverse events associated with our products with which we must
continuously comply. Noncompliance with any of these policies or requirements
could result in enforcement actions which could have a material adverse effect
on our business, financial condition and results of operations.

     The FDA has the authority and discretion to withdraw existing marketing
approvals and to review the regulatory status of marketed products at any time.
For example, the FDA may require an approved marketing application for any drug
product marketed if new information reveals questions about a drug's safety or
efficacy. All drugs must be manufactured in conformity with cGMPs, and drug
products subject to an approved application must be manufactured, processed,
packaged, held and labeled in accordance with information contained in the
approved application.

     While we believe that all of our currently marketed pharmaceutical products
comply with FDA enforcement policies, have approval pending or have received the
requisite agency approvals, our marketing is subject to challenge by the FDA at
any time. Through various enforcement mechanisms, the FDA can ensure that
noncomplying drugs are no longer marketed and that advertising and marketing
materials and campaigns are in compliance with FDA regulations. In addition,
modifications, enhancements, or changes in manufacturing sites of approved
products are in many circumstances subject to additional FDA approvals which may
or may not be received and which may be subject to a lengthy FDA review process.
Our manufacturing facilities and those of our third-party manufacturers are
continually subject to inspection by governmental agencies. Manufacturing
operations could be interrupted or halted in any of those facilities if a
government or regulatory authority is unsatisfied with the results of an
inspection. Any interruptions of this type could have a material adverse effect
on our business, financial condition, results of operations and cash flows.

     We cannot determine what effect changes in regulations, enforcement
positions, statutes or legal interpretation, when and if promulgated, adopted or
enacted, may have on our business in the future. Changes could, among other
things, require changes to manufacturing methods or facilities, expanded or
different labeling, new approvals, the recall, replacement or discontinuance of
certain products, additional record keeping and expanded documentation of the
properties of certain products and scientific substantiation. These changes, or
new legislation, could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

ANY REDUCTION IN REIMBURSEMENT LEVELS BY MANAGED CARE ORGANIZATIONS OR OTHER
THIRD-PARTY PAYORS MAY HAVE AN ADVERSE EFFECT ON OUR REVENUES.

     Commercial success in producing, marketing and selling products depends, in
part, on the availability of adequate reimbursement from third-party health care
payors, such as government and private health insurers and managed care
organizations. Third-party payors are increasingly challenging the pricing of
medical products and services. For example, many managed health care
organizations are now controlling the pharmaceutical products that are on their
formulary lists. The resulting competition among pharmaceutical companies to
place their products on these formulary lists has reduced prices across the
industry. In addition, many managed care organizations are considering formulary
contracts primarily with those pharmaceutical companies that can offer a full
line of products for a given therapy sector or disease state. We cannot assure
you that our products will be included on the formulary lists of managed care
organizations or that downward pricing pressures in the industry generally will
not negatively impact our operations.

NEW LEGISLATION OR REGULATORY PROPOSALS MAY ADVERSELY AFFECT OUR REVENUES.

     A number of legislative and regulatory proposals aimed at changing the
health care system, including the cost of prescription products, reimportation
of prescription products and changes in the levels at which pharmaceutical
companies are reimbursed for sales of their products, have been proposed. While
we cannot predict when or whether any of these proposals will be adopted or the
effect these proposals may have on our business, the pending nature of these
proposals, as well as the adoption of any proposal, may exacerbate

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<PAGE>

industry-wide pricing pressures and could have a material adverse effect on our
financial condition, results of operations or cash flows.

THE INDUSTRY IS HIGHLY COMPETITIVE, AND OTHER COMPANIES IN OUR INDUSTRY HAVE
MUCH GREATER RESOURCES THAN WE DO.

     In the industry, comparatively smaller pharmaceutical companies like us
compete with large, global pharmaceutical companies with substantially greater
financial resources for the acquisition of products, technologies and companies.
We cannot assure you that

     - we will be able to continue to acquire commercially attractive
       pharmaceutical products, companies or technologies;

     - additional competitors will not enter the market; or

     - competition for acquisition of products, companies, technologies and
       product lines will not have a material adverse effect on our business,
       financial condition and results of operations.

     We also compete with pharmaceutical companies in developing, marketing and
selling pharmaceutical products. The selling prices of pharmaceutical products
typically decline as competition increases. Further, other products now in use
or acquired by other pharmaceutical companies may be more effective or offered
at lower prices than our current or future products. Competitors may also be
able to complete the regulatory process sooner and, therefore, may begin to
market their products in advance of ours. We believe that competition for sales
of our products will be based primarily on product efficacy, safety,
reliability, availability and price.

     COMPETITION FOR ACQUISITIONS.  We compete with other pharmaceutical
companies for product and product line acquisitions. These competitors include
Biovail Corporation, Elan Corporation, Forest Laboratories, Inc., Galen Holdings
plc, Medicis Pharmaceutical Corporation, Shire Pharmaceuticals Group plc.,
Watson Pharmaceuticals, Inc., and other companies which also acquire branded
pharmaceutical products and product lines from other pharmaceutical companies.
We cannot assure you that

     - we will be able to continue to acquire commercially attractive
       pharmaceutical products, companies or technologies;

     - additional competitors will not enter the market; or

     - competition for acquisition of products, companies, technologies and
       product lines will not have a material adverse effect on our business,
       financial condition and results of operations.

     PRODUCT COMPETITION.  Additionally, since our products are generally
established and commonly sold, they are subject to competition from products
with similar qualities.

     Our largest product Altace(R) competes in the market with other
cardiovascular therapies, including in particular, the following ACE inhibitors:

     - Zestril(R) (AstraZeneca PLC),

     - Acupril(R) (Pfizer Inc.),

     - Prinivil(R) (Merck & Co., Inc.),

     - Lotensin(R) (Novartis AG), and

     - Monopril(R) (Bristol-Myers Squibb Company).

     Our second largest product Levoxyl(R) competes with the following
levothyroxine sodium products:

     - Synthroid(R) (Abbott Laboratories),

     - Levothroid(R) (Forest Laboratories, Inc.) and

     - Unithroid(R) (Watson Pharmaceuticals, Inc.).

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<PAGE>

     We intend to market these products aggressively by, among other things

     - detailing and sampling to the primary prescribing physician groups,

     - sponsoring physician symposiums, including continuing medical education
       seminars, and

     - conducting a direct-to-consumer advertising campaign for Altace(R).

     Many of our branded pharmaceutical products have either a strong market
niche or competitive position. Some of our branded pharmaceutical products face
competition from generic substitutes. For example, the FDA approved for sale
generic substitutes for Tapazole(R) during 2000 and Florinef(R) in March 2002.

     The manufacturers of generic products typically do not bear the related
research and development costs and, consequently, are able to offer such
products at considerably lower prices than the branded equivalents. There are,
however, a number of factors which enable products to remain profitable once
patent protection has ceased. For a manufacturer to launch a generic substitute,
it must prove to the FDA when filing an application to make a generic substitute
that the branded pharmaceutical and the generic substitute have bioequivalence.
We believe it typically takes two or three years to prove bioequivalence and
receive FDA approval for many generic substitutes. By focusing our efforts in
part on products with challenging bioequivalence or complex manufacturing
requirements and products with a strong brand image with the prescriber or the
consumer, supported by the development of a broader range of alternative product
formulations or dosage forms, we are better able to protect market share and
produce sustainable high margins and cash flows. However, we cannot assure you
that, for any of the products, we can maintain exclusivity, protect market share
or produce high margins and cashflow as a result of these efforts.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

     This report includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies.

     These forward-looking statements are identified by their use of terms and
phrases, such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and other sections of this
report.

     Forward-looking statements include, but are not limited to:

     - the future growth potential of, and prescription trends for our branded
       pharmaceutical products, particularly Altace(R), Levoxyl(R) and
       Thrombin-JMI(R);

     - expected trends with respect to particular income and expense line items;

     - the development and potential commercialization of HPV vaccines,
       Estrasorb(TM) and Androsorb(TM) by Novavax and King;

     - the development by King Pharmaceuticals Research and Development of
       MREO470, pre-clinical programs, and product life cycle development
       projects;

     - our continued successful execution of our growth strategies;

     - anticipated developments and expansions of our business;

     - anticipated increases in sales of acquired products or royalty revenues;

     - the success of our co-promotion agreements with Wyeth;

     - the high cost and uncertainty of research, clinical trials and other
       development activities involving pharmaceutical products;

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<PAGE>

     - the development of product line extensions;

     - the unpredictability of the duration or future findings and
       determinations of the FDA, including the pending application related to
       Estrasorb(TM), and other regulatory agencies worldwide;

     - the products which we expect to offer;

     - the intent, belief or current expectations, primarily with respect to our
       future operating performance;

     - expectations regarding sales growth, gross margins, manufacturing
       productivity, capital expenditures and effective tax rates;

     - expectations regarding patent approval including those patents pending
       for Levoxyl(R) and Tigan(R) 300mg capsules; and

     - expectations regarding our financial condition and liquidity as well as
       future cash flows and earnings.

     These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different from those contemplated by our forward-looking statements. These known
and unknown risks, uncertainties and other factors are described in detail above
in the section entitled "Risk Factors."

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Certain of our financial instruments are subject to market risks, including
interest rate risk. Our financial instruments are not currently subject to
foreign currency risk or commodity price risk. We have no financial instruments
held for trading purposes.

     As of March 31, 2002, there were no significant changes in our qualitative
or quantitative market risk since the prior reporting period.

     We have marketable securities which are carried at fair value based on
current market quotes. Gains and losses on securities are based on the specific
identification method.

     The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates rise and decrease as interest rates fall. In
addition, the fair value of our convertible debentures would be impacted by our
stock price.

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<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The information required by this Item is incorporated by reference to Note
6 to the Condensed Consolidated Financial Statements included elsewhere in this
document.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<Table>
<Caption>
        EXHIBIT NO.                               DESCRIPTION
        -----------                               -----------
        <C>          <C>  <S>
           10.20      --  Credit Agreement dated as of April 23, 2002, among King
                          Pharmaceuticals, Inc., and the Lenders therein, Credit
                          Suisse First Boston, Cayman Islands Branch, as
                          Administrative Agent, as Collateral Agent and as Swingline
                          Lender, and Bank of America, NA, J.P. Morgan Securities
                          Inc., and UBS Warburg LLC as Co-Syndication Agents, Wachovia
                          Bank National Association, as Documentation Agent, Credit
                          Suisse First Boston as Sole Lead Arranger and Bookrunner.
</Table>

     (b) Reports on Form 8-K

     We filed no Current Reports on Form 8-K during the quarter ended March 31,
2002.

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<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          KING PHARMACEUTICALS, INC.

Date: May 14, 2002                        By: /s/ JEFFERSON J. GREGORY
                                            ------------------------------------
                                            Jefferson J. Gregory
                                            Chief Executive Officer

Date: May 14, 2002                        By: /s/ JAMES R. LATTANZI
                                            ------------------------------------
                                            James R. Lattanzi
                                            Chief Financial Officer

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