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

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

                                    FORM 10-K

               (MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

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

                         COMMISSION FILE NUMBER 0-28454

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

                                ANDRX CORPORATION

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

           FLORIDA                                              65-0366879
 (STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)                             IDENTIFICATION NO.)

     4001 SOUTHWEST 47TH AVENUE
     FORT LAUDERDALE, FLORIDA                                       33314
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                          (ZIP CODE)

                                 (954) 584-0300
                         (REGISTRANT'S TELEPHONE NUMBER,
                              INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:   NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.001
PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
     MARCH 13, 1998 IS:  14,923,700

THE AGGREGATE MARKET VALUE, AS OF MARCH 13, 1998, OF SHARES OF COMMON STOCK HELD
     BY NON-AFFILIATES OF THE REGISTRANT IS APPROXIMATELY $254,764,000

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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<PAGE>


                           FORWARD-LOOKING STATEMENTS

         ANDRX CORPORATION AND SUBSIDIARIES ("ANDRX" OR THE "COMPANY") CAUTIONS
READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE COMPANY'S ACTUAL RESULTS
AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS REPORT OR WHICH ARE
OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS PURPOSE, ANY STATEMENTS
CONTAINED IN THIS REPORT THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "BELIEVE", "ANTICIPATE",
"INTEND", "COULD", "WOULD", "ESTIMATE", OR "CONTINUE" OR THE NEGATIVE OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. FACTORS WHICH MAY AFFECT THE COMPANY'S RESULTS
INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND UNCERTAINTIES ASSOCIATED WITH A
DRUG DELIVERY COMPANY WHICH HAS ONLY RECENTLY COMMERCIALIZED ITS FIRST PRODUCT,
INCLUDING A HISTORY OF NET LOSSES, SOME UNPROVEN TECHNOLOGIES, LIMITED
MANUFACTURING EXPERIENCE, CURRENT AND POTENTIAL COMPETITORS WITH SIGNIFICANT
TECHNICAL AND MARKETING RESOURCES, NEED FOR FUTURE CAPITAL AND DEPENDENCE ON
COLLABORATIVE PARTNERS AND ON KEY PERSONNEL. ADDITIONALLY, THE COMPANY IS
SUBJECT TO THE RISKS AND UNCERTAINTIES ASSOCIATED WITH ALL DRUG DELIVERY
COMPANIES, INCLUDING COMPLIANCE WITH GOVERNMENT REGULATIONS AND THE POSSIBILITY
OF PATENT INFRINGEMENT LITIGATION. THE COMPANY IS ALSO SUBJECT TO OTHER RISKS
DETAILED HEREIN OR DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION").

                                     PART I

ITEM 1.  BUSINESS

(A) GENERAL DEVELOPMENT OF THE BUSINESS

         Andrx is engaged in the formulation and commercialization of
controlled-release oral pharmaceuticals utilizing the Company's proprietary drug
delivery technologies. To date, the Company has developed seven distinct drug
delivery technologies that are patented or for which patent applications have
been filed. The Company believes that its technologies are flexible and can be
modified to apply to a variety of pharmaceutical products. The Company is
applying its proprietary drug delivery technologies and formulation skills,
either directly or through collaborative arrangements, to the development of (i)
bioequivalent versions of selected controlled-release brand name
pharmaceuticals, (ii) brand name controlled-release formulations of existing
immediate-release or controlled-release drugs where the Company believes that
the application of the Company's drug delivery technologies may improve the
efficacy or other characteristics of that product and (iii) controlled-release
versions of existing drugs and drugs under development for other pharmaceutical
companies. The Company does not presently intend to develop new chemical
entities.

         The Company believes that pharmaceutical companies are increasingly
utilizing controlled-release drug delivery technologies to improve drug therapy.
Controlled-release drug delivery technologies generally provide more consistent
and appropriate drug levels in the bloodstream than immediate-release dosage
forms and may improve drug efficacy and reduce side effects by releasing drug
dosages at specific times and in specific locations in the body. These
technologies also allow for the development of "patient-friendly" dosage forms,
which reduce the frequency of drug administration, thus improving patient
compliance. Controlled-release pharmaceuticals can be especially beneficial for
certain patient populations, such as the elderly, who often require several
medications with differing dosing regimens.

         The Company believes the market for advanced drug delivery systems is
large and is growing rapidly. Based on published data, the market for
orally-administered drugs that utilize sustained and controlled-release drug
delivery systems is expected to increase to approximately $50 billion in 2005
from approximately $5.8 billion in 1995. The Company also believes that
pharmaceutical companies that do not possess controlled-released drug delivery
technology expertise will rely upon third parties such as Andrx to develop such
technologies for their product candidates.


                                       2
<PAGE>

         In October 1997, the Company received United States Food and Drug
Administration ("FDA") approval of its Abbreviated New Drug Application ("ANDA")
for its bioequivalent version of Dilacor XR/trademark/, which is marketed by
Watson Pharmaceuticals, Inc. ("Watson"). In September 1997, the Company received
tentative FDA approval of its ANDA for its bioequivalent version of
Cardizem/Registered trademark/ CD, which is marketed by Hoechst Marion Roussel,
Inc. ("HMR"). According to data from IMS America, the brand name versions of
these drugs had combined 1997 United States sales of approximately $800 million.
FDA approval of the ANDA for the Company's bioequivalent version of
Cardizem/registered trademark/CD is tentative because of the pending patent
infringement litigation (the "HMR Litigation") brought against Andrx by HMR and
Carderm Capital L.P. (collectively, "HMRI"), the holders of the patents relating
to Cardizem/registered trademark/CD, following the Company's submission of its
ANDA to the FDA. As a result of the HMR Litigation, the FDA may not grant final
marketing approval of Andrx's product until after either the lawsuit is resolved
in Andrx's favor or July 3, 1998 (30 months after HMR received Andrx's
certification that its product does not infringe the patents listed for
Cardizem/registered trademark/CD).

         In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with HMRI related to the HMR Litigation. The Stipulation provides
that upon receiving final FDA approval of its ANDA, Andrx will begin to receive
interim payments from HMRI of $10.0 million quarterly which, absent certain
defaults by Andrx, are nonrefundable. These payments will continue until the HMR
Litigation is concluded or other events occur. The payments will increase
retroactively if Andrx prevails in the HMR Litigation, with a lump sum payment
representing an agreed amount of profits that Andrx would have earned had it
begun to sell its product upon receiving final FDA approval of its ANDA. The
Stipulation also provides Andrx with the option of licensing HMRI's patents
covering the Cardizem/registered trademark/CD product at certain times.

         The Company is a 50% partner in ANCIRC Pharmaceuticals ("ANCIRC"), a
joint venture with Watson, for the development of up to eight bioequivalent
controlled-release pharmaceuticals. Watson also owns approximately 18% of the
Company's outstanding common stock and has warrants to acquire 337,000
additional shares of the Company's common stock. In April and December 1997,
ANCIRC submitted ANDAs to the FDA for two controlled-release products.

         In addition to the four products for which ANDAs have been submitted,
the Company, either directly or through ANCIRC, currently has 19 additional
bioequivalent versions of brand name controlled-release drugs under development
which had combined 1997 United States sales of approximately $5 billion. The
Company is continually evaluating other potential product candidates. In
selecting these product candidates, the Company focuses on high sales volume
pharmaceuticals for which marketing exclusivity or patent rights have expired or
are near expiration.

         The Company is also applying its proprietary drug delivery technologies
to the development of brand name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting these product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights have expired or are near expiration. The
Company believes that the application of its drug delivery technologies will
improve the efficacy or other characteristics of these products, for example, by
decreasing undesired side effects or reducing the frequency of administration.
The Company currently has five product candidates under development which had
combined 1997 United States sales of approximately $5 billion.

         The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing will require the filing of a New
Drug Application ("NDA") with the FDA. Andrx will generally study the innovator
product and evaluate whether it can be improved upon with respect to efficacy
and side effect profile. After a formulation is developed and evaluated, an IND
must be submitted before clinical trials begin. The Company nonetheless believes
that the process will be shorter than that typically associated with most new
drugs because the Company's development efforts involve chemical entities which
have been previously approved by the FDA. The Company may receive certain
marketing exclusivity rights for a controlled-release product it develops, upon
FDA approval for the product. In order to facilitate development of these
products, the Company plans to undertake formulation development and studies,
where appropriate, on its own. Thereafter, the Company may enter into
collaborative arrangements with other pharmaceutical companies to commercialize
these products.


                                       3
<PAGE>

         The Company is also using its proprietary drug delivery technologies in
collaborative arrangements with other pharmaceutical companies to formulate
controlled-release versions of existing commercialized drugs and drugs under
development for these companies. In addition to improving drug efficacy, the
Company believes that its drug delivery technologies will provide pharmaceutical
companies with the opportunity to enhance the commercial value of their existing
products and new drug candidates. The Company currently has two product
candidates under development.

         In addition to developing controlled-release pharmaceuticals, the
Company markets and distributes generic drugs manufactured by third parties.
These operations generated substantially all of the Company's revenues prior to
the fourth quarter of 1997, when Andrx commenced selling its bioequivalent
version of Dilacor XR/trademark/, the Company's first manufactured product. The
customer base for this operation consists primarily of independent pharmacies,
pharmacy chains which do not maintain their own central warehousing facilities
and pharmacy buying groups. The Company is using its distribution operations to
assist in the marketing of its bioequivalent version of Dilacor XR/trademark/
and plans to use these operations to assist in the marketing of other
controlled-release products being developed by the Company and its collaborative
partners. These operations also provide Andrx with an ability to directly
observe and participate in developments and trends in the generic pharmaceutical
industry.

         The Company was incorporated on August 28, 1992 under the name "Andrx
Pharmaceuticals, Inc.", commenced operations and assumed its present name in
November of that year. The Company's executive offices are located at 4001
Southwest 47th Avenue, Ft. Lauderdale, Florida 33314, and the Company's
telephone number is (954) 584-0300. Unless the context otherwise requires,
references herein to "Andrx" or the "Company" are to Andrx Corporation and its
subsidiaries.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

         Not applicable

(C) NARRATIVE DESCRIPTION OF BUSINESS

ANDRX'S PROPRIETARY DRUG DELIVERY TECHNOLOGIES

         Andrx is developing and applying multiple drug delivery technologies to
control the release characteristics of a variety of orally-administered drugs.
Controlled-release products are formulations which release active drug compounds
in the body gradually and predictably over a 12- or 24- hour period and which
therefore need be taken only once or twice daily. Controlled-release products
typically provide numerous benefits over immediate release drugs, including (i)
greater effectiveness in the treatment of chronic conditions; (ii) reduced side
effects; (iii) greater convenience (only once or twice a day); and (iv) higher
levels of patient compliance due to a simplified dosing schedule. To date, the
Company has developed seven distinct drug delivery technologies that are
patented or for which patent applications have been filed. These
controlled-release technologies were designed specifically for a drug that was
being formulated. The Company believes that its technologies are flexible and
can be modified to apply to a variety of pharmaceutical products.

         The Company's drug delivery technologies utilize a variety of polymers
and other materials to encapsulate or entrap the active drug compound and to
release the drug at varying rates at predetermined locations in the
gastrointestinal tract. In developing an appropriate drug delivery technology
for a particular drug candidate, Andrx considers such factors as: (i) the
desired release rates of the drug; (ii) the physico-chemical properties of the
drug; (iii) the physiology of the gastrointestinal tract and the manner in which
the drug will be absorbed during passage through the gastrointestinal tract; and
(iv) the effect of food on the absorption rate and transit time of the drug.


                                       4
<PAGE>


         The following summarizes the Company's drug delivery technologies:

        DRUG DELIVERY TECHNOLOGY                       DESCRIPTION
        ------------------------                       -----------

PELLETIZED PULSATILE                        PPDS is designed for use with
DELIVERY SYSTEM ("PPDS")                    products  that require a pulsed
                                            release of the  drug.  This
                                            technology  uses  pellets  that  are
                                            coated  with specific polymers and
                                            agents to control the release rate
                                            of the microencapsulated drug. By
                                            varying the proportion and
                                            composition of the polymer mixtures,
                                            the release rate of the drug may be
                                            specifically controlled.

SINGLE COMPOSITION OSMOTIC                  SCOT utilizes various osmotic
TABLET SYSTEM ("SCOT")                      modulating agents as well as polymer
                                            coatings to provide a zero-order
                                            release of a drug (a constant rate
                                            of release).

SOLUBILITY MODULATING                       SMHS is designed for products
HYDROGEL SYSTEM ("SMHS")                    utilizing a hydrogel-based dosage
                                            system  that provides for sustained
                                            release without the need to use
                                            special coatings or structures which
                                            add to the cost of manufacture. This
                                            technology avoids the "initial burst
                                            effect" commonly observed with other
                                            sustained-release hydrogel
                                            formulations.

DELAYED PULSATILE                           DPHS is designed for use with
HYDROGEL SYSTEM ("DPHS")                    hydrogel matrix products that are
                                            characterized by an initial zero-
                                            order release of drug followed by a
                                            rapid  release.  This  release
                                            profile is achieved by the  blending
                                            of selected hydrogel polymers to
                                            achieve a delayed pulse.

PELTAB SYSTEM ("PELTAB")                    PELTAB utilizes  polymer-coated drug
                                            pellets or drug crystals which are
                                            manufactured  into tablets. In
                                            order to provide a controlled
                                            release, a water  insoluble polymer
                                            is used to coat  discrete drug
                                            pellets or drug  crystals which
                                            then can resist the action of fluids
                                            in the gastrointestinal tract. This
                                            technology incorporates a strong
                                            polymer coating enabling the coated
                                            pellets to be compressed into
                                            tablets without significant
                                            breakage.

PORTAB SYSTEM ("PORTAB")                    PORTAB is designed for controlled-
                                            release dosage forms which utilize
                                            an osmotic core typically containing
                                            a water soluble drug. The core
                                            includes a water soluble component
                                            and a continuous polymer coating.
                                            The purpose of the soluble agent is
                                            to expand the core and thereby
                                            create microporous channels through
                                            which the drug is released.

STABILIZED PELLET DELIVERY                  SPDS is designed specifically for
                                            unstable drugs, incorporating a
                                            pellet core of drug and protective
                                            polymer outer layer(s).

         The Company has been issued 14 U.S. patents, one notice of allowance
and has filed five additional U.S. patent applications and various foreign
patent applications relating to its drug delivery technologies. The Company is
applying several other proprietary controlled-release drug delivery technologies
in its product development programs and continues to develop new technologies
for which it may seek patent protection.


                                       5
<PAGE>



PRODUCTS AND PRODUCT DEVELOPMENT

BIOEQUIVALENT CONTROLLED-RELEASE PHARMACEUTICALS

         GENERAL

         The Company is applying its proprietary drug delivery technologies and
formulation skills to the development of bioequivalent versions of selected high
sales volume, controlled-release brand name pharmaceuticals, for which marketing
exclusivity or patent rights have expired or are near expiration. In October
1997, the Company received FDA approval of its ANDA for the bioequivalent
version of Dilacor XR/trademark/ and commenced marketing this product. In
September 1997, the Company received tentative FDA approval of its ANDA for the
bioequivalent version of Cardizem/registered trademark/CD. According to data
from IMS America, the brand name versions of these drugs had combined 1997
United States sales of approximately $800 million. In April and December 1997,
ANCIRC submitted ANDAs to the FDA for two controlled-release products.

         In September 1997, the Company entered into the Stipulation with HMRI
wherein Andrx agreed that if the HMR Litigation is not concluded by the date the
FDA grants final approval of the Company's ANDA for a bioequivalent version of
Cardizem/registered trademark/CD, Andrx will not commence the commercial sale of
the product in the United States until a final and unappealable judgment is
issued. The Stipulation provides that upon FDA final approval of its product,
Andrx will begin to receive interim payments from HMRI of $10.0 million per
quarter which, absent certain defaults by Andrx, are non-refundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. The payments will increase retroactively if Andrx prevails in the HMR
Litigation, with a lump sum payment representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
final FDA approval of its ANDA. The Stipulation also provides Andrx with the
option of licensing HMRI's patents covering the Cardizem/registered trademark/CD
product at certain times.

         BIOEQUIVALENT PRODUCT PIPELINE

         In addition to the four products for which ANDAs have been submitted,
the Company, either directly or through ANCIRC, currently has 19 additional
bioequivalent versions of brand name controlled-release drugs under development
which had 1997 United States sales of approximately $5 billion. The Company is
continually evaluating other potential product candidates.

         BIOEQUIVALENT PHARMACEUTICAL DEVELOPMENT PROCESS

         When developing bioequivalent pharmaceuticals, the Company is required
to prove that the bioequivalent product candidate will exhibit IN VIVO release
characteristics equivalent to those of the brand name pharmaceutical. For a
controlled-release pharmaceutical, the drug delivery technology utilized to
replicate the release rates of the brand name pharmaceutical must do so without
infringing any unexpired patents. The process by which generic
controlled-release products are developed for manufacture and sale in the U.S.
may be categorized into three basic stages: (i) formulation development; (ii)
bioequivalence studies; and (iii) an ANDA filing with the FDA.

         During formulation development, the Company attempts to develop its own
version of the brand name drug. In creating a formulation, the Company utilizes
or adapts its drug delivery technologies to the product candidate or develops a
new drug delivery technology for that product candidate. The Company's
formulation is then evaluated in IN VITRO dissolution studies to determine
whether human bioequivalence studies should be conducted.

         Once a suitable formulation has been developed, human bioequivalence
studies are conducted which compare the Company's formulation to the brand name
drug. Because bioequivalence studies can be relatively expensive to perform, the
Company often conducts a preliminary bioequivalence study in which it
manufactures a small batch of its product for testing in a limited number of
human subjects (typically six to eight). If the formulation yields a blood level
profile comparable to the brand name drug, full-scale bioequivalence studies may
be performed, which studies require the manufacture of at least 100,000 dosage
units and usually involve 24 or more human subjects. These studies are conducted
to determine the plasma concentrations of the drug in human subjects under
fasted and fed conditions as well as under multiple dose administration. If
successful, the studies will demonstrate that the rate and


                                       6
<PAGE>

extent of absorption of the generic version is equivalent to that of the brand
name drug. If the studies demonstrate that the blood level profiles of the
Company's product are not comparable to the brand name drug, the Company will
either modify its formulation or alter the drug delivery technology employed.

         After the Company's formulation has been shown to be bioequivalent to
the brand name drug, an ANDA is prepared for submission to the FDA. This ANDA
includes the results of the bioequivalence studies and other data such as IN
VITRO specifications for the Company's formulation, stability data, analytical
data, methods validation and manufacturing procedures and controls.

BRAND NAME CONTROLLED-RELEASE PHARMACEUTICALS

         The Company is applying its proprietary drug delivery technologies to
the development of brand name controlled-release formulations of existing
immediate-release and controlled-release drugs. In selecting its product
candidates, the Company focuses on high sales volume pharmaceuticals whose
marketing exclusivity or patent rights have expired or are near expiration. The
Company believes that the application of its drug delivery technologies will
improve the efficacy or other characteristics of these products, for example, by
decreasing undesired side effects or reducing the frequency of administration.

         The FDA approval process for the brand name controlled-release
pharmaceuticals which the Company is developing will require the filing of an
ANDA with the FDA. As an initial step in the development process for an NDA,
Andrx will generally study the innovator product and evaluate whether it can be
improved upon with respect to efficacy and side effect profile. After a
formulation is developed and evaluated, an Investigational New Drug Application
("IND") must be submitted to the FDA before clinical trials can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical studies and clinical trials of a
pharmaceutical product are then submitted to the FDA, in the form of an NDA, for
approval to commence commercial sales. In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the application
if it determines that the application does not satisfy its regulatory approval
requirements.

         The Company currently has five product candidates under development.
One of such product candidates is undergoing Phase II trials and the remainder
are in early stage clinical trials or formulation development.

         The Company believes that the FDA approval process or its brand name
controlled-release formulations will be shorter than that typically associated
with most new drugs because the Company's development efforts involve chemical
entities which have been previously approved by the FDA. The Company may also
receive certain marketing exclusivity rights for a controlled-release product it
develops. In order to facilitate development of these products, the Company
plans to undertake formulation development and clinical studies, where
applicable, on its own. Thereafter, the Company may seek to enter into
collaborative arrangements with other pharmaceutical companies to commercialize
these products.

PHARMACEUTICALS DEVELOPED FOR THIRD PARTIES

         The Company is also using its proprietary drug delivery technologies to
formulate for other pharmaceutical companies controlled-release versions of
their existing commercialized drugs and drugs they are developing. In addition
to improving drug efficacy, the Company believes that its drug delivery
technologies will provide pharmaceutical companies with the opportunity to
enhance the commercial value of their new drug candidates.

         The Company is currently developing two controlled-release versions of
existing commercialized drugs for third parties. The Company is party to
agreements with Sepracor, Inc. ("Sepracor") and an affiliate of Bayer
Corporation (the "Bayer Affiliate") for the development of new products.
Pursuant to these agreements, Andrx's drug delivery technologies will be
combined with existing technologies to develop these two products.


                                       7
<PAGE>

         In addition, from time to time the Company considers licensing or other
agreements to obtain rights to patents or technology which the Company believes
may have commercial value. In 1994, the Company entered into such an agreement
with The UAB Research Foundation to license technology relating to the use of an
orally administered drug to be used in the treatment of cancer. In December
1996, that technology was sub-licensed to ASTA Medica, AG ("ASTA Medica"), a
subsidiary of Degussa, AG, which will be responsible for all product development
costs and will manufacture and market any products utilizing the technology. The
Company will receive a royalty from ASTA Medica on the sale of any products
utilizing the technology and the Company will be responsible for certain royalty
payments related thereto. ASTA Medica is completing the Phase I clinical studies
for this technology in Europe and expects to begin Phase II clinical studies in
the second quarter of 1998.

COLLABORATIVE ARRANGEMENTS

         The Company has entered into collaborative arrangements with other
pharmaceutical companies. The Company is a 50% partner in the ANCIRC joint
venture with Watson for the development of up to eight controlled-release
generic drugs and has entered into development and licensing agreements with a
number of U.S. and foreign pharmaceutical companies, including Watson, for
additional generic controlled-release products.

ANCIRC JOINT VENTURE

         In July 1994, the Company entered into a joint venture with Circa
Pharmaceuticals, Inc. ("Circa") for the development of up to six generic
controlled-release products. In July 1995, Circa was acquired by Watson. Since
it acquired Circa, Watson has expanded its relationship with Andrx to include up
to eight generic controlled-release products (the "ANCIRC Products") and has
made equity investments in the Company (including common stock purchased from
certain principal shareholders) in the aggregate of approximately $36.9 million.
Watson owns approximately 18% of the Company's outstanding common stock and has
warrants to acquire additional shares of common stock. Watson also has the right
to designate one member of the Company's Board of Directors through the end of
the term expiring in 1999.

         In July 1994, the Company and Watson identified six product candidates
for development by ANCIRC. Until three products have been successfully
developed, the Company and Watson will agree on a substitute product candidate
for any product candidate which is not successfully developed. Once three
products are successfully developed, the parties will not be required to agree
upon more than two additional substitute product candidates. In October 1995,
the agreement with Watson was amended to provide that the Company and Watson
would agree on two additional product candidates to be developed by ANCIRC.
Those product candidates were subsequently identified by the parties. The
Company has agreed that Dr. Chih-Ming J. Chen, its Chief Scientist, will
personally supervise the development of all of the ANCIRC Products until at
least five products have been successfully developed.

         ANCIRC is a 50/50 joint venture between the Company and Watson with
both the capital contributions and distributions and net income or losses
allocated equally between the Company and Watson. The Company and Watson have
each designated three representatives who together constitute the management
committee of ANCIRC. This management committee is responsible for reviewing each
partner's progress on the various projects on which they are working, preparing
budgets for each quarter, issuing capital calls to the Company and Watson when
necessary, approving expenditures and resolving any disputes which may arise
between the partners. The Company has made investments in ANCIRC totaling $5.8
million through December 31, 1997. The Company is responsible for contributing
50% of any additional capital contributions required by ANCIRC. Capital
contributions are utilized by ANCIRC to pay for services rendered by the
Company, Watson and unrelated third party vendors to ANCIRC.

         Under its research and development services agreement with ANCIRC, the
Company is responsible for the development of formulations for each of the
ANCIRC Products. When the Company has developed a formulation which the Company
and Watson believe is promising, Watson is responsible, under its manufacturing
and regulatory approval agreement with ANCIRC, for the manufacture of such
quantities of the ANCIRC Product as may be necessary for ANCIRC to conduct
bioequivalence studies required for an ANDA submission. If such studies are
successful, Watson is also responsible for obtaining the necessary regulatory
approvals for that ANCIRC Product and to manufacture that product


                                       8
<PAGE>

in commercial quantities. Following regulatory approval, Andrx is responsible
for marketing the ANCIRC products throughout the United States pursuant to a
distribution and marketing agreement with ANCIRC. The costs of developing,
manufacturing and marketing the ANCIRC Products are charged to ANCIRC on an
agreed-upon basis at least quarterly and ANCIRC then pays or reimburses both the
Company and Watson for their respective services. Notwithstanding the foregoing,
the Company and Watson have agreed that Andrx will be the manufacturer of one of
the two products for which ANDAs have been submitted to the FDA.

DEVELOPMENT AND LICENSING AGREEMENTS

         The Company has entered into development and licensing agreements
covering generic pharmaceuticals with United States and foreign pharmaceutical
companies, including Watson, for additional generic controlled-release
pharmaceutical products. Pursuant to such agreements, the licensees typically
will fund the cost of product development and will pay the Company royalties in
exchange for a license to manufacture and market the products for a specified
period in a specified territory. Management believes that such arrangements
offer a variety of benefits, including providing an additional source of funding
for product development and affording the Company the ability to have certain of
its generic controlled-release products sold through the distribution networks
of these major pharmaceutical companies. The Company may terminate a development
and licensing agreement if the licensee fails to market the licensed product, in
which case all rights revert to the Company.

GENERIC PHARMACEUTICAL DISTRIBUTION OPERATIONS

         In addition to its controlled-release drug development activities,
Andrx markets and distributes generic pharmaceuticals manufactured by third
parties. The Company purchases generic pharmaceuticals directly from
manufacturers and wholesalers and markets them through its in-house
telemarketing staff primarily to independent pharmacies, pharmacy chains which
do not maintain their own central warehousing facilities and pharmacy buying
groups. The Company offers this customer group competitive pricing, quality
products and responsive customer service, which the Company believes are the
critical elements to competing effectively in this market. The Company currently
has a telemarketing staff of approximately 100 persons, supplemented by
sales executives who are responsible for national accounts.

         The Company currently utilizes operating profit from its generic
pharmaceutical distribution operations to offset a portion of the Company's
operating expenses, consisting primarily of research and development expenses.
These operations also provide Andrx with an ability to directly observe and
participate in developments and trends in the generic pharmaceutical industry.
The Company plans to expand its generic pharmaceutical distribution operations
by further increasing its customer base to include larger regional and national
pharmacy chains. The Company is also using its distribution operations to assist
in the marketing of its first manufactured product, a bioequivalent version of
Dilacor XR/trademark/, and plans to use these operations to assist in the
marketing of generic controlled-release products developed by the Company and
its collaborative partners.

         The Company's distribution operations concentrate on high-volume
generic prescription drugs in capsule or tablet form. These products typically
provide higher gross margins, are subject to more rapid inventory turnover and
require less warehouse space than liquids, creams and many over-the-counter
products. By focusing on these products, the Company believes that it is able to
control inventory investments, minimize overhead and operate in an efficient and
cost-effective manner.

         The Company purchases its generic products for resale from a number of
major pharmaceutical manufacturers and wholesalers. The Company believes that it
is not dependent upon any particular supplier and that alternative sources of
supply for most of its products are available if required.

         In conjunction with its distribution operations, the Company has
developed a data management system referred to as CyBear/trademark/,
a software application designed to provide cost-effective on-line communications
between computer systems (regardless of compatibility) located in physicians'
offices, pharmacies, HMOs, clinical laboratories and hospitals. Through
CyBear/trademark/, physicians are expected to be able to
electronically transmit prescriptions (where permitted by law), specialist
referrals, patient encounters and laboratory orders and results. This data
management software system is also designed to conduct formula compliance checks
and confirms that the particular medication is reimbursable by the applicable
managed care organizations. Management believes that the use of
CyBear/Trademark/ will provide health


                                       9
<PAGE>

care professionals greater control over the medications being administered to
their patients. CyBear /Trademark/ is currently being beta-tested with
a limited number of healthcare professionals. The Company is also developing
AndaNet/trademark/, which is designed to provide on-line communications between
the Company and its customers. Through AndaNet/trademark/, pharmacists are
expected to be able to order products from the Company, access pharmacy
journals, publications and on-line education programs and research therapies.
However, there can be no assurance that these software products can be
successfully commercialized.

MANUFACTURING

         The Company has a commercial manufacturing facility of approximately
35,000 square feet that is being used to manufacture the Company's bioequivalent
version of Dilacor XR/trademark/. The facility will also be used for the
manufacture of Andrx's bioequivalent version of Cardizem/registered
trademark/CD, as appropriate, subject to HMR Litigation. The Company believes
that such facility will be sufficient for these products. As the Company's
existing manufacturing facility will not be suitable for the manufacture of all
of the additional products which the Company intends to develop and manufacture,
the Company intends to acquire additional property to eventually relocate its
executive offices, thereby enabling the Company to expand its commercial
manufacturing facility.

         The Company will be dependent on Watson to manufacture certain products
subject to the ANCIRC joint venture and on other companies with which it has
development and licensing agreements to manufacture those products.

MARKETING

         The Company is currently utilizing its existing distribution
operations' sales and marketing personnel for marketing the Company's
bioequivalent version of Dilacor XR/trademark/. The Company plans to utilize
this personnel to assist in the marketing of other controlled-release products
being developed by the Company and ANCIRC. In many instances, the Company's
existing distribution customers will be targeted for the products developed by
the Company. The Company may also contract with outside marketing organizations
to both train Andrx personnel for the marketing of the Company's products and to
market its products.

COMPETITION

         The pharmaceutical industry is highly competitive and is affected by
new technologies, new developments with respect to existing technologies and
products, governmental regulations, health care legislation, availability of
financing and other factors. The Company is subject to competition from numerous
entities that currently operate, or intend to operate, in the pharmaceutical
industry. These include companies that are engaged in the development of
controlled-release technologies and products, as well as other pharmaceutical
manufacturers that may decide to undertake in-house development of these
products. Many of the Company's competitors have longer operating histories and
greater financial, research and development, marketing and other resources than
the Company.

         Andrx believes that its distinct controlled-release drug delivery
technologies combined with its existing distribution operations will provide
efficiencies in product development and marketing, acceleration of regulatory
filings and cost savings necessary for Andrx to compete effectively. There can
be no assurance, however, that the Company's competitors will not succeed in
developing technologies and products that are as, or more, clinically successful
or cost-effective than any technologies utilized by or products being developed
by Andrx.

         In its generic pharmaceutical distribution business, the Company
competes with a number of large wholesalers and other distributors of generic
pharmaceuticals, many of which have substantially greater financial, marketing
and other resources than the Company.


                                       10
<PAGE>



PATENTS AND PROPRIETARY RIGHTS

GENERAL

         Andrx believes that patent and trade secret protection, particularly of
its drug delivery technologies, is important to its business and that its future
will depend in part on its ability to obtain patents, maintain trade secret
protection and operate without infringing the proprietary rights of others.

         Andrx has been issued 14 U.S. patents and one notice of allowance
relating to its drug delivery technologies. In addition, Andrx has filed five
additional U.S. patent applications and various foreign patent applications
relating to its drug delivery technologies. The Company expects to apply for
additional United States and foreign patents in the future. The issuance of a
patent is not conclusive as to its validity or as to the enforceable scope of
the claims of the patent. There is no assurance that the Company's patents or
any future patents will prevent other companies from developing similar or
functionally equivalent products or from successfully challenging the validity
of Company's patents. Furthermore, there is no assurance that (i) any of the
Company's future processes or products will be patentable; (ii) any pending or
additional patents will be issued in any or all appropriate jurisdictions; or
(iii) the Company's processes or products will not infringe upon the patents of
third parties. The failure of the Company to protect its patent rights or to
avoid infringement by the Company of the patent or proprietary rights of others
could have a material adverse effect on the Company's results of operations and
financial position.

         Andrx also relies on trade secrets and proprietary knowledge, which it
generally seeks to protect by confidentiality and non-disclosure agreements with
employees, consultants, licensees and pharmaceutical companies. There can be no
assurance, however, that these agreements will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known by competitors.

PATENT LITIGATION

         There has been substantial litigation in the pharmaceutical, biomedical
and biotechnology industries with respect to the manufacture, use and sale of
new products that are the subject of conflicting patent rights. Most of the
brand name controlled-release products of which the Company is developing
generic versions are covered by one or more patents. Under the Drug Price
Competition and Restoration Act of 1984 ("Waxman-Hatch amendments"), when a drug
developer files an abbreviated application for a generic drug, and the developer
believes that an unexpired patent which has been listed with the FDA as covering
that brand name product will not be infringed by the developer's product or is
invalid or unenforceable, the developer must so certify to the FDA. That
certification must also be provided to the patent holder, who may challenge the
developer's certification of non-infringement, invalidity or unenforceability by
filing a suit for patent infringement. If a suit is filed within 45 days of the
patent holder's receipt of such certification, the FDA can review and approve
the abbreviated application, but is precluded from making the marketing approval
of the product effective until a final judgment in the action has been rendered
or 30 months from the date the certification was received, whichever is sooner.
Should a patent holder commence a lawsuit with respect to alleged patent
infringement by the Company, the uncertainties inherent in patent litigation
make the outcome of such litigation difficult to predict. As described below, to
date, two such actions have been commenced against Andrx (one of which has been
dismissed without prejudice), and it is anticipated that additional actions will
be filed as Andrx or its collaborative partners files additional abbreviated
applications. The Company evaluates the probability of patent infringement
litigation with respect to its abbreviated application submissions on a
case-by-case basis and, accordingly, the Company provided for its litigation
costs in connection with the two ANDAs submitted in late 1995, as appropriate.
The delay in obtaining FDA approval to market the Company's product candidates
as a result of litigation, the expense of such litigation, whether or not the
Company is successful, or an adverse outcome in such litigation could have a
material adverse effect on the Company's results of operations, financial
condition and business.


                                       11
<PAGE>



         HMR LITIGATION

         In connection with the ANDA filed for Andrx's bioequivalent version of
Cardizem/registered trademark/CD, Andrx certified to the FDA that its product
did not infringe upon any of the patents listed as covering that brand name
product and sent the required notices to the holders of each of those patents.
In January 1996, HMRI commenced the HMR Litigation in the United States District
Court, Southern District of Florida, alleging that Andrx's product infringes
upon one of the six patents listed as covering Cardizem/registered trademark/CD.
While the Company believes that this product does not infringe upon the patents
in question, the uncertainties inherent in patent litigation make the outcome of
such litigation difficult to predict. In September 1997, the Company entered
into the Stipulation with HMRI wherein Andrx agreed that if the HMR Litigation
is not concluded by the date the FDA grants final approval of the Company's ANDA
for the bioequivalent version of Cardizem/registered trademark/CD, Andrx will
not commence the commercial sale of the product in the United States until a
final and unappealable judgment is issued. The Stipulation provides that upon
FDA final approval of its product, Andrx will begin to receive interim payments
from HMRI of $10.0 million per quarter which, absent certain defaults by Andrx,
are non-refundable. These payments will continue until the HMR Litigation is
concluded or other events occur. The payments will increase retroactively if
Andrx prevails in the HMR Litigation, with a lump sum payment representing an
agreed amount of profits that Andrx would have earned had it begun to sell its
product upon receiving final FDA approval of its ANDA. The Stipulation also
provides Andrx with the option of licensing HMRI's patents covering the
Cardizem/registered trademark/CD product at certain times. There can be no
assurance that the Company will prevail in the HMR Litigation and an adverse
outcome in the HMR Litigation could have a material adverse effect on the
Company's results of operations, financial condition and business.

         RPR LITIGATION

         In May 1996, in connection with the ANDA submitted for Andrx's
bioequivalent version of Dilacor XR/trademark/, Jagotec AC and Jago AG, who
licensed the patent listed as covering Dilacor XR/trademark/ to Rhone-Poulenc
Rorer, Inc. ("RPR"), and RPR (collectively, "Rhone"), commenced a lawsuit in the
United States District Court, Southern District of Florida (the "RPR
Litigation"), alleging that the Company's product infringed the patent listed as
covering Dilacor XR/trademark/. In December 1996, the parties entered into a
Settlement Agreement whereby Rhone agreed to dismiss the RPR Litigation, without
prejudice. An order of dismissal was entered by the judge in January 1997.

GOVERNMENT REGULATION

         All pharmaceutical manufacturers are subject to extensive regulation by
the federal government, principally the FDA, and, to a lesser extent, by state
and local governments. The Federal Food, Drug, and Cosmetic Act ("FDCA") and
other federal statutes and regulations govern or influence the development,
testing, approval, manufacture, labeling, storage, sale, distribution, promotion
and advertising of prescription drug products. Pharmaceutical manufacturers are
also subject to establishment registration and product listing, certain
recordkeeping and reporting requirements, and periodic FDA inspections.

         The FDCA includes procedures for the approval of generic versions of
brand name prescription drugs, defined as "Listed Drugs" because the FDA
publishes a list of approved prescription drug products. Applicants seeking
approval of generic versions of Listed Drugs generally are not required to
repeat the full battery of studies required to support FDA approval of Listed
Drugs. Instead, generic applicants may submit an ANDA showing that the generic
product is bioequivalent to a specified Listed Drug, viz., there are no
statistically significant differences in the rate or extent to which the
products are biologically available, originally as measured by blood level
studies. The FDA is authorized to approve an ANDA for a bioequivalent product
when the reference Listed Drug is off-patent or when the patents for the Listed
Drug are not infringed, invalid or otherwise not enforceable. A bioinequivalent
version of a Listed Drug (including a product not bioequivalent because it is a
controlled-release formulation designed to have a rate of release different from
the Listed Drug, or because the FDA has approved a petition permitting a
different dosage form) may be approved under an ANDA; products that are not
bioequivalent for other reasons may be approved under an alternate form of
application authorized by Section 505(b)(2) of the FDCA (see below).

         ANDAs are the approval mechanism for generic products that are the same
as Listed Drugs in all essential respects or are permitted by the FDA to be
modified in some respect that does not present


                                       12
<PAGE>

safety or effectiveness considerations. When differences from previously
approved chemical entities, strengths, dosage forms, uses or other conditions
raise novel safety or effectiveness issues, those differences require drug
sponsors to conduct preclinical and/or clinical studies necessary to provide
data necessary to make risk-benefit analyses. Such data are submitted in full
NDAs or in Section 505(b)(2) applications to which safety and effectiveness data
are cited from public sources, with at least some new clinical data provided on
the drug for which approval is sought. These approval processes are time
consuming and expensive. In order to conduct clinical investigations and most
bioavailability and bioequivalence studies, a drug sponsor is required to submit
to the FDA an IND containing safety data to justify clinical use and plans for
clinical studies. Drug development, safety and clinical investigations often
require a decade or more. Additionally, the FDCA requires payment of a
substantial user fee upon filing such applications, and the payment of other
fees annually to maintain any approval that is granted.

         The Company intends to develop and seek FDA approval of controlled- or
extended-release versions of Listed Drugs currently approved as
immediate-release dosage forms. Because delivery systems and duration of drug
availability will differ significantly between immediate and extended-release
dosage forms, the Company will be required to develop data under INDs and to
submit either full NDAs or Section 505(b)(2) applications for such innovative
products. There is no assurance that publicly available data on the chemical
entity or immediate-release dosage exist, either to a substantial extent or even
minimally, to cite in support of Section 505(b)(2) applications or that the FDA
will accept such data as may exist to support these applications. Additionally,
there can be no assurance that, if full NDA or Section 505(b)(2) approval is
required, such approval can be obtained in a timely manner, if at all.

         The FDCA requires ANDA and Section 505(b)(2) applicants to make a
patent certification when submitting an application. An applicant seeking to
market before expiration of a patent covering a Listed Drug may certify to the
FDA that a patent is invalid, unenforceable or not infringed; notice of such a
certification and the grounds for it must be provided to the owner(s) of the
patent and Listed Drug. By instituting a patent infringement suit against the
applicant within 45 days of notice, the owner(s) of the patent or Listed Drug
can stop the FDA from approving the generic drug application for 30 months or
until an earlier court order finding the patent to be invalid, unenforceable or
not infringed.

         Although the pertinent provisions of the FDCA remain the subject of
unresolved litigation, they have been interpreted to award the first generic
applicant to successfully challenge the patent status of a Listed Drug with the
right to compete exclusively against the Listed Drug for up to 180 days, viz.,
the FDA ordinarily may not approve another application until after the first
ANDA applicant has marketed its product for 180 days. The FDA's regulations
requiring the ANDA applicant to secure a court order that a patent is invalid,
unenforceable or not infringed as a condition to the 180 days of exclusivity
have been successfully challenged in two cases, and the Company currently is
engaged in litigation challenging those regulations. In this regard, on March
26, 1996, a federal district court in Washington, D.C. entered a temporary
restraining order prohibiting Mylan Pharmaceuticals, Inc. from shipping or
otherwise distributing its bioequivalent version of Dilacor XR/trademark/.

         While the FDA allows an abbreviated approval mechanism for generic
drugs, it also fosters pharmaceutical innovation by providing non-patent market
exclusivities and patent term extensions to applicants that develop new products
and uses for existing products. There are two distinct non-patent market
exclusivity provisions which either preclude the submission or delay the
approval of an ANDA or Section 505(b)(2) application. For chemical compounds not
previously approved by the FDA, a five-year period is provided during which
generic applications cannot be submitted. Because application approval generally
takes at least a year, the effect of this application preclusion is to delay
generic competition for six or more years. A three-year marketing exclusivity
period is provided for applications containing new clinical investigations
(other than bioavailability studies) essential to an approval. The three-year
marketing exclusivity period would be applicable to new indications or the
development of a novel drug delivery system. The effect of this exclusivity
award is limited, and generic competition can begin at the expiration of the
three years. The marketing exclusivity provisions apply equally to patented and
non-patented drug products.

         Second, the FDCA provides patent term extensions to compensate for
patent protection lost while conducting FDA required clinical studies and during
FDA review of data submissions. A patent may be extended up to five additional
years. However, the total period of patent protection following FDA marketing
approval cannot exceed 14 years. In addition, under the Uruguay Rund Agreements
Act of 1994, which ratified the General Agreement on Tariffs and Trade ("GATT"),
certain brand name drug patent terms have been extended to 20 years from the
date of filing of the pertinent patent applications (which can be longer than
the former 17-year patent term). Patent term extensions may delay the ability


                                       13
<PAGE>

of the Company to use its proprietary technology, market new extended release
products, file Section 505(b)(2) applications referencing public data on
approved products (see below), and file ANDAs based on Listed Drugs when those
approved products or listed drugs have acquired patent term extensions. In
addition, there is a possibility that Congress will provide additional grounds
for patent extensions of drugs approved under NDAs.

         The Company has filed ANDAs with the FDA for generic versions of
Cardizem/registered trademark/CD and Dilacor XR/trademark/ (both diltiazem
hydrochloride, a prescription drug indicated for hypertension), has submitted
ANDAs for two additional products through ANCIRC, and intends to file additional
ANDAs or Section 505(b)(2) applications to obtain approval to market its other
generic controlled-release products. In September 1997, the Company received
tentative FDA approval of its ANDA for the bioequivalent version of
Cardizem/registered trademark/CD. In October 1997, the Company received FDA
approval of its ANDA for the bioequivalent version of Dilacor XR/trademark/. No
assurances exist that ANDAs will be suitable or available for the products
developed by the Company, directly or in collaborative arrangements, or that the
proposed products will receive FDA approval on a timely basis, if at all.

         The FDCA requires that drugs manufactured in conformity with "current
good manufacturing practice" ("cGMP"), and the FDA has promulgated and enforces
regulations to assure that manufacturing processes and controls adhere to cGMP
standards. Drugs not manufactured in conformity with cGMP standards are deemed
adulterated under the FDCA. The Company's manufacturing facility was inspected
by the FDA prior to the approval of Cardizem/registered trademark/CD and Dilacor
XR/trademark/ applications, and the FDA advised the Company that its
manufacturing site was then in conformity with cGMP requirements. The Company's
facility will be subject to periodic inspections by the FDA, and there can be no
assurance that the Company's facility will be found to be in compliance with
cGMP.

         The FDA also has extensive requirements for the promotion and
advertising of prescription drug products, including restrictions on the
dissemination of information pertaining to extra-label uses of approved
products. Noncompliance with these requirements also can result in various
sanctions discussed below. Furthermore, anti-kickback statutes applicable to
Medicare and Medicaid proscribe certain marketing, pricing and rebate activities
for drugs reimbursed under those programs and provide civil and criminal
penalties for violations. Most states have similar statutes.

         Under the FDCA, ANDA applicants (both the company and individuals) who
are convicted of a crime involving dishonest or fraudulent activity (even
outside the FDA regulatory context) are subject to debarment. Debarment is
disqualification from submitting or participating in the submission of future
ANDAs for a period of years or permanently, and the FDA will refuse to accept
ANDAs from any company that employs or uses the services of a debarred
individual in any capacity.

         The Prescription Drug Marketing Act ("PDMA"), which amends various
sections of the FDCA, requires, among other things, state licensing of wholesale
distributors of prescription drugs under federal guidelines that include minimum
standards for storage, handling and recordkeeping. PDMA requires wholesale
distributors of prescription drugs such as the Company, to provide certain
customers with a list, in advance of a particular sale, of each prior sale,
purchase or trade of the same drug. PDMA also establishes other requirements for
wholesale distributors, including without limitation, registration with the
state or Federal government and other record-keeping requirements. It also sets
forth civil and criminal penalties for violations of these and other provisions.

         Failure to comply with FDCA requirements, including PDMA and cGMP
requirements, can lead to sanctions such as the seizure of drug products,
prohibition of manufacturing and distribution, product recalls, withdrawal of
existing product approvals, refusal to approve new applications for the Company,
refusal of the federal government to enter into supply contracts, and criminal
prosecution of the Company and its officers. Such sanctions could have a
materially adverse effect on the Company.

         Approved drug products manufactured in the United States may be
exported to any country in which the products may be sold under the laws of that
country. Unapproved drug products manufactured for export are subject to certain
FDA export regulations as well as regulations by the country in which the
products are to be sold.


                                       14
<PAGE>



         The Company is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions and environmental
protection. The Company also is licensed by, registered with, and subject to
periodic inspection and regulation by, the Drug Enforcement Administration of
the Department of Justice (the "DEA") and Florida state agencies, pursuant to
federal and state legislation relating to drugs and narcotics. Certain drugs
that the Company may develop in the future may be subject to regulations under
the Controlled Substances Act and related statutes.

PRODUCT LIABILITY INSURANCE

         The design, development and manufacture of the Company's products
involve an inherent risk of product liability claims. The Company has obtained
product liability insurance that covers substantially all products marketed by
the Company in its generic drug distribution operations, bioequivalence and
other studies for the Company's controlled-release product candidates and the
products the Company intends to commercialize. The Company believes that its
product liability insurance is adequate for its current operations, but may seek
to increase its coverage prior to the commercial introduction of its product
candidates. There can be no assurance that the coverage limits of the Company's
insurance will be sufficient to offset potential claims. Product liability
insurance is expensive and difficult to procure and may not be available in the
future on acceptable terms or in sufficient amounts, if available at all. A
successful claim against the Company in excess of its insurance coverage could
have a material adverse effect upon the Company's results of operations and
financial condition.

PERSONNEL

         As of February 27, 1998, the Company had 384 employees, of whom 25 were
involved in corporate administration, 238 were involved in the Company's sales,
marketing and distribution operations, including 100 telemarketers, and 21 were
involved in software development and support. The remaining 100 employees were
involved in research, pharmaceutical development and manufacturing, including
over 47 scientists, 31 of whom hold Ph.D., masters or medical degrees.

SCIENTIFIC ADVISORY BOARD

         The Company has established a scientific advisory board ("SAB") which
is comprised of certain members of the medical, health care, pharmaceutical and
scientific communities. The Company generally consults with members of the SAB
from time to time on an individual basis to obtain their ideas, insights, input
and other assistance in helping the Company achieve its goals. Members of the
SAB have agreed to serve in such capacity for a three-year period. Certain
members of the SAB may, from time to time, render consulting services to the
Company for which they may be separately compensated.

ITEM 2. PROPERTIES

         The Company leases approximately 96,000 square feet in a facility in
Fort Lauderdale, Florida, which houses the Company's executive offices,
warehousing and shipping facilities, a laboratory and pilot manufacturing plant
and a commercial-scale manufacturing facility. The buildings are occupied
pursuant to leases expiring March 31, 2003 at a current total annual rent of
approximately $700,000. Each of the leases afford the Company five five-year
renewal options, and require the Company to pay certain increases in common area
costs.

         The Company also leases approximately 18,500 square feet of office
space in Davie, Florida, which house its non-warehouse distribution staff. Such
space is occupied pursuant to a lease expiring in May 1998, at an annual rent of
$220,000, including common area maintenance costs and real estate taxes, and
affords the Company four six-month renewal options. Additionally, the Company
leases approximately 4,000 square feet in Tampa, Florida, which houses its
software development staff. Such lease is occupied pursuant to a lease expiring
in November 1998 (with two one-year renewal options) at current annual rent of
approximately $60,000.

         The Company has also entered into an agreement to purchase a 15-acre
tract of land in the vicinity of the facilities which presently house the
Company's current personnel. On this parcel, the Company contemplates building
office and warehouse space sufficient to replace and expand the 18,500 square
foot facility and portions of the 96,000 square foot facility which are being
used for purposes other than research, product development and manufacturing.


                                       15
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

         See "Item 1. Business - Patents and Proprietary Rights" with respect to
the HMR Litigation.

         In May 1996, an employee of the Company resigned from his position and,
in connection therewith, claimed that he was entitled to receive, pursuant to
the terms of his employment arrangement with the Company, a royalty equal to 1%
of gross revenues from certain products under development by the Company. In May
1997, a complaint was filed against the Company seeking a declaratory judgment
as to whether the former employee is entitled to a 1% royalty with respect to
Andrx's versions of Cardizem/registered trademark/CD and Dilacor XR/trademark/.
The Company is contesting this claim and the matter is currently in the
discovery stage.

         On March 18, 1998 the Company received a letter from counsel for
Cymedix Lynx Corporation ("Cymedix") alleging the theft and unlawful
appropriation by Andrx and certain of its directors, officers and employees of
certain computer medical software and internet medical communications technology
allegedly owned by Cymedix. The letter demands trebled damages totaling $396.6
million pursuant to the civil theft provisions of Florida law, and also alleges
claims under Florida's Racketeer Influenced and Corrupt Organization Act and
certain other provisions of federal and state law. The Company believes that
Cymedix's accusations and threatened claims have no basis in substantial fact or
legal support and intends to vigorously defend these accusations and claims. On
March 23, 1998, the Company filed a complaint against Cymedix and its parent
corporation, Medix Resources, Inc., for libel and slander arising from the
improper public dissemination of the contents of the aforesaid demand letter.
The Company intends to vigorously prosecute its complaint which seeks damages,
costs, interest and attorneys' fees.

         Other than the HMR Litigation and the above described litigation, the
Company is not party to a legal proceeding wherein an adverse outcome would have
a material adverse effect on the Company's results of operations, financial
condition or business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1997.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

(A) MARKET INFORMATION

         The Company's Common Stock has been listed for trading on The Nasdaq
National Market under the symbol "ADRX" since June 14, 1996. The following table
sets forth, for the calendar quarters indicated, the range of high and low sale
prices per share of Common Stock as reported by the Nasdaq National Market:

1996                                             HIGH                 LOW
----                                             ----                 ---

Second Quarter (Commencing June 14, 1996)       $17.50              $12.00
Third Quarter                                    15.50               11.00
Fourth Quarter                                   17.63               12.75

1997

First Quarter                                   $26.75              $15.25
Second Quarter                                   38.75               20.50
Third Quarter                                    45.63               31.75
Fourth Quarter                                   47.00               28.75


                                       16
<PAGE>



(B) HOLDERS

         At March 13, 1998, there were approximately 215 holders of record of
the Company's common stock. The Company believes the number of beneficial owners
of its common stock is in excess of 2,750.

(C) DIVIDENDS

         The Company has not paid dividends on its common stock and does not
intend to pay dividends for the foreseeable future. The Company intends to
retain earnings, if any, to finance the development and expansion of its
business. Payment of dividends in the future will depend, among other things,
upon the Company's ability to generate earnings, its need for capital and its
overall financial condition.

(D) CHANGES IN SECURITIES AND USE OF PROCEEDS

         On June 14, 1996, the U.S. Securities and Exchange Commission declared
effective the Company's registration statement on Form S-1 (Registration
Statement No. 333-03614). The offering of the securities registered pursuant to
the registration statement commenced on June 14, 1996. The offering terminated
after the sale of 2,530,000 shares of the Company's common stock, $.001 par
value per share for $12.00 per share. The managing underwriters for the public
offering of the Company's securities were Oppenheimer & Co., Inc. and Gruntal &
Co., Incorporated.

         In connection with the offering, the Company incurred expenses of
approximately $2.9 million. These expenses were in the form of direct or
indirect payments to others and not direct or indirect payments to directors or
officers of the Company or to persons owning more than 10% of any class of
securities of the Company. From the net proceeds of approximately $27.4 million,
through December 31, 1997 the Company has used approximately $11.9 million for
research and development costs, $4.5 million for the construction of plant,
building and facilities, $5.4 million for the purchase and installation of
machinery and equipment, and $3.1 million for contributions to ANCIRC. With the
exception of the contributions to ANCIRC, a joint venture between the Company
and Watson, none of the payments from the use of proceeds were made to officers,
directors or persons beneficially owning more than 10% of any class of
securities of the Company.


                                       17
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and related notes thereto included in Item 8 of this Report and "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations."

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                 (in  000's,  except  for  share and per share amounts)
                                  --------------------------------------------------------------------------------------
                                       1997                1996             1995            1994            1993
                                  --------------------------------------------------------------------------------------
<S>                               <C>                 <C>              <C>              <C>             <C>
Statement of Operations Data*
Revenues
  Distributed products, net       $     146,237       $     86,721     $     50,468     $     25,916    $     5,655
  Manufactured products, net              3,324                  -                -                -              -
  Licensing revenues                        137                 50              165              155            225
                                  -------------       ------------     ------------     ------------    -----------
Total revenues                          149,698             86,771           50,633           26,071          5,880
                                  -------------       ------------     ------------     ------------    -----------

Cost of revenues
  Distributed products                  124,177             72,400           41,781           21,362          5,258
  Manufactured products                     737                  -                -                -              -
                                  -------------       ------------     ------------     ------------    -----------
Total cost of revenues                  124,914             72,400           41,781           21,362          5,258
                                  -------------       ------------     ------------     ------------    -----------

Gross profit                             24,784             14,371            8,852            4,709            622
                                  -------------       ------------     ------------     ------------    -----------

Operating expenses
   Selling, general and
     administrative                      18,734             13,178            8,647            5,390          1,706
   Research and development               9,769              3,655            3,255            2,110            960
   Idle manufacturing facility
     costs                                1,888                  -                -                -              -
   Equity in losses of joint
     venture                              1,682              2,011            1,840              316              -
   Software development                   1,442                  -                -                -              -
                                  -------------       ------------     ------------     ------------    -----------
Total operating expenses                 33,515             18,844           13,742            7,816          2,666
                                  -------------       ------------     ------------     ------------    -----------

Loss from operations                     (8,731)            (4,473)          (4,890)          (3,107)        (2,044)

Interest income (expense), net            1,095                445             (297)               2              -
                                  -------------       ------------     ------------     ------------    -----------
Net loss                          $      (7,636)      $     (4,028)    $     (5,187)    $     (3,105)   $    (2,044)
                                  =============       ============     ============     ============    ===========


Basic and diluted
   net loss per share             $       (0.54)      $      (0.33)    $      (0.55)    $      (0.35)   $     (0.26)
                                  =============       ============     ============     ============    ===========

Basic and diluted
  weighted average shares of
  common stock outstanding           14,213,100         12,148,000        9,446,800        8,758,400      7,745,100
                                  =============       ============     ============     ============    ===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                             (in  000's,  except  for  share and per share amounts)
                                  --------------------------------------------------------------------------------------
                                         1997                1996            1995            1994             1993
                                  --------------------------------------------------------------------------------------
<S>                               <C>                 <C>              <C>              <C>             <C>
Balance Sheet Data*
  Cash, cash equivalents and
     investments available-for-
     sale                         $     25,543        $     30,320     $     13,841     $     3,846     $     2,770
  Working capital                       45,144              32,963           14,402           4,368           3,085
  Total assets                          90,845              66,538           36,010          16,002           6,837
  Short-term borrowings                    546               6,563            6,101           2,635              68
  Accumulated deficit                  (22,145)            (14,509)         (10,481)         (5,294)         (2,190)
  Total shareholders' equity            60,861              42,762           18,325           8,098            3,927
</TABLE>

*Certain prior year amounts have been reclassified to conform to the current
year presentation.


                                       18
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

INTRODUCTION

         Andrx was organized in August 1992 and in November 1992 commenced
marketing and distributing generic pharmaceuticals manufactured by third
parties. In February 1993, the Company began to engage in the development of
generic versions of controlled-release pharmaceuticals utilizing its proprietary
drug delivery technologies. During 1996, the Company commenced its efforts to
develop brand name controlled-released products and an internet based software
application for healthcare providers. Through October 9, 1997, the Company's
distribution operations had generated substantially all of its revenues. On
October 10, 1997, the FDA granted final approval of the Company's ANDA for its
bioequivalent version of Dilacor XR/trademark/, the Company's first manufactured
product, which it immediately launched. The Company expects negative cash flows
and net losses to continue at least until it receives its final marketing
approval for its bioequivalent version of Cardizem/registered trademark/CD and
it either begins to receive quarterly payments from HMRI of $10.0 million or the
Company launches its bioequivalent version of Cardizem/registered trademark/CD.
The Company will not receive final marketing approval for its bioequivalent
version of Cardizem/registered trademark/CD until after either the HMR
Litigation is resolved in Andrx's favor or July 3, 1998.

         The Company is a 50% partner in ANCIRC, a joint venture with Watson,
for the development of up to eight controlled-release pharmaceutical products.
Capital contributions to, distributions from, and net income or losses generated
by ANCIRC are allocated equally between the Company and Watson. The Company is
also party to development and licensing agreements for additional
controlled-release products.

RESULTS OF OPERATIONS

1997 AS COMPARED TO 1996

         Net sales from distributed products were $146.2 million in 1997, an
increase of 68.6% or $59.5 million, as compared to $86.7 million in 1996. The
increase in net sales from distributed products reflects the Company's greater
penetration of the generic market. Gross profit on net sales from distributed
products was $22.1 million in 1997, an increase of 54.0%, as compared to $14.3
million in 1996. Gross profit on distributed products as a percentage of net
sales from distributed products decreased to 15.1% in 1997 as compared to 16.5%
in 1996. The decrease in gross profit on distributed products as a percentage of
net sales from distributed products is the result of continuing competition and
pricing pressures within the generic industry. The Company expects that
continuing competition and pricing pressures may reduce the Company's gross
profit percentage on the net sales of distributed products in future periods.

         In October 1997, immediately following approval by the FDA, the Company
launched its first manufactured product, a bioequivalent version of Dilacor
XR/trademark/, which generated net sales of $3.3 million in the fourth quarter
of 1997. Gross profit on this manufactured product was $2.6 million or 77.8%.

         Selling, general and administrative expenses as a percentage of total
revenues decreased to 12.5% for 1997 from 15.2% for 1996. Selling, general and
administrative expenses increased to $18.7 million in 1997 as compared to $13.2
million in 1996 primarily due to an increase in selling activities to support
the increase in distribution revenues, and includes costs related to the sale of
the Company's first manufactured product.

         Research and development expenses increased to $9.8 million in 1997, as
compared to $3.7 million in 1996. The increase in research and development
expenses of 167.3% reflects the progress and expansion of activities in the
Company's ANDA program to develop controlled-release bioequivalent products and
the expansion of activities in the Company's NDA program to develop brand name
controlled-release products. Research and development expenses in 1997 and 1996
also include expenses related to the establishment of a commercial-scale
manufacturing facility. Research and development expenses exclude cost of
research and development services rendered to ANCIRC of $1.5 million in 1997 and
$2.2 million in 1996.


                                       19
<PAGE>



         In 1997, the Company incurred $1.9 million of idle manufacturing
facility costs related to the Company's commercial-scale manufacturing
operations. As the Company increases its production of salable products in the
future, these costs will be absorbed as a component of the cost of inventory.

         The Company's equity in losses of ANCIRC was $1.7 million in 1997 as
compared to $2.0 million in 1996. ANCIRC's losses decreased to $3.4 million in
1997 as compared to $4.0 million in 1996.

         In 1997, the Company incurred $1.4 million in software development
costs related to its efforts to develop and commercialize the Company's
CyBear /Trademark/ and AndaNet/trademark/ healthcare software
applications.

         Interest income (expense), net primarily consists of interest income
and interest expense. Interest income was $1.6 million in 1997 as compared to
$1.2 million in 1996. The increase in interest income is the result of the
higher level of cash, cash equivalents and investments available-for-sale during
1997 as compared to 1996, primarily the result of the Company's private
placement transactions in June 1997 which generated net proceeds of $21.3
million. The Company invests in short-term investment grade interest bearing
securities. Interest expense was $490,000 in 1997 as compared to $765,000 in
1996. The decrease was a result of a lower average level of borrowings under the
Company's line of credit agreement during 1997 as compared to 1996. Such
borrowings are utilized to fund the Company's distribution operations and the
Company used a portion of the net proceeds from the June 1997 private placements
to reduce the revolving line of credit balance.

         For 1997 and 1996, the Company was not required to provide for federal
or state income taxes due to its net losses. As of December 31, 1997, for
financial reporting purposes and federal income tax purposes, the Company has
net operating loss carryforwards of approximately $19 million and $14 million,
respectively, which, if not utilized, will begin to expire in 2008.

1996 AS COMPARED TO 1995

         Net sales from distributed products were $86.7 million in 1996, an
increase of 71.8% or $36.3 million as compared to $50.5 million in 1995. The
increase in net sales from distributed products reflects the Company's increased
penetration of the generic market. Gross profit on net sales from distributed
products was $14.3 million in 1996, an increase of 64.9%, as compared to $8.7
million in 1995. Gross profit on distributed products as a percentage of
distribution revenues was 16.5% in 1996, as compared to 17.2% in 1995. The
decrease in gross profit on distributed products as a percentage of net sales
from distrubuted products is the result of continuing competition and pricing
pressures within the generic industry. The Company expects that such competition
and pricing pressures may reduce the Company's gross profit percentage on the
net sales of distributed products in future periods.

         Selling, general and administrative expenses as a percentage of total
revenues decreased to 15.2% in 1996 as compared to 17.1% in 1995. Selling,
general and administrative expenses increased to $13.2 million in 1996, as
compared to $8.6 million in 1995. This increase was primarily attributable to an
increase in selling activities to support the increase in distribution revenues.

         Research and development expenses were $3.7 million in 1996, as
compared to $3.3 million in 1995. Research and development expenses in 1996
include expenses related to the establishment of a commercial-scale
manufacturing facility. Research and development expenses in 1996 and 1995
include provisions for anticipated litigation costs in connection with the ANDAs
filed in 1995 for the Company's bioequivalent versions of Cardizem/registered
trademark/CD and Dilacor XR/trademark/. Litigation with respect to Dilacor
XR/trademark/ was settled, without prejudice, in December 1996. The filing of an
ANDA for a bioequivalent version of a brand name pharmaceutical may result in
litigation alleging infringement of patents covering the brand name
pharmaceutical. Even though the Company believes that its drug delivery
technologies and controlled-release products do not infringe on any patent
rights held by others, the Company evaluates the probability of patent
infringement litigation with respect to its ANDA submissions on a case by case
basis and, accordingly, will reserve for anticipated legal expenses as it deems
appropriate. Research and development expenses exclude the cost of services
rendered to ANCIRC of $2.2 million in 1996 and $2.5 million in 1995.


                                       20
<PAGE>

         The Company's equity in losses of the joint venture was $2.0 million in
1996 as compared to $1.8 million in 1995. The Company's share of ANCIRC's losses
was decreased from 60% to 50% effective October 30, 1995 in connection with an
amendment to the ANCIRC agreement. ANCIRC's losses increased to $4.0 million in
1996 as compared to $3.2 million in 1995 primarily due to an increase in the
research and development services rendered by Watson to ANCIRC during 1996.

         Interest income (expense), net primarily consists of interest income
and interest expense. Interest income was $1.2 million in 1996 as compared to
$250,000 in 1995. The increase in interest income is the result of the net
increase in cash, cash equivalents and investments available-for-sale during
1996 and late 1995, primarily from the sale of shares of the Company's common
stock. In June 1996, the Company completed its initial public offering ("IPO")
generating net proceeds of $27.4 million. In August and December 1995, the
Company sold shares of common stock to Watson for net proceeds of approximately
$13.6 million. Interest expense was $765,000 in 1996 as compared to $636,000 in
1995. Although the interest rate on the Company's bank borrowings decreased
effective January 1996 and October 1996, interest expense increased in 1996 as
compared to 1995, due to a higher average level of borrowings during 1996. Such
higher level of borrowings was required to finance the higher average level of
working capital supporting the growth of the distribution operations.

         For 1996 and 1995, the Company was not required to provide for federal
or state income taxes due to its net losses.

LIQUIDITY AND CAPITAL RESOURCES

         Prior to June 1996, the Company financed its operations primarily
through private placements of equity securities which generated net proceeds of
$27.9 million and, to a lesser extent, through bank borrowings. In June 1996,
the Company completed its IPO which generated net proceeds of $27.4 million. In
June 1997, the Company completed two private placements which generated net
proceeds of $21.3 million. As of December 31, 1997, Andrx had $25.5 million in
cash, cash equivalents and investments available-for-sale and $45.1 million of
working capital.

         Net cash used in operating activities was $16.6 million and $5.5
million in 1997 and 1996, respectively. Net cash used in operating activities in
1997 and 1996 was primarily attributable to research and development expenses
and increases in accounts receivable and inventories, offset by increases in
accounts payable and accrued liabilities.

         Net cash provided by investing activities was $291,000 in 1997 as
compared to net cash used in investing activities of $33.8 million in 1996. In
1997, the Company invested $7.7 million in capital expenditures as compared to
$6.9 million in 1996. The capital expenditures in 1997 and 1996 were primarily
for the procurement of manufacturing equipment and construction of the Company's
commercial-scale manufacturing facility. In 1997, $8.0 million of investments
available-for-sale matured while in 1996 the Company purchased $26.9 million in
investments available-for-sale. The Company invests in short-term investment
grade interest bearing securities.

         Net cash provided by financing activities was $19.5 million and $28.9
million for 1997 and 1996, respectively. Net cash provided by financing
activities for 1997 consisted primarily of net proceeds of $21.3 million from
the private placements in June 1997 and also included net proceeds of $4.1
million from the exercise of stock options and warrants, offset by $5.9 million
in net repayments under the Company's line of credit. Net cash provided by
financing activities in 1996 consisted primarily of the net proceeds of $27.4
million from the IPO in June 1996, and net proceeds of $1.0 million from the
exercise of stock options and warrants.

         The Company had an outstanding short-term borrowing balance under its
distribution subsidiary's revolving line of credit of $538,000 as of December
31, 1997 as compared to $6.5 million as of December 31, 1996. Borrowings under
the line of credit are available for the financing of the Company's distribution
operations, and are secured by all of the assets of that operation and are
subject to a borrowing base related to the value of that operation's accounts
receivable and inventories. The line of credit agreement requires compliance by
the Company with certain covenants including the maintenance of minimum working
capital and net worth levels by the distribution subsidiary. In October 1996,
the Company amended the line of credit agreement whereby, amongst other things,
the interest rate was


                                       21
<PAGE>

decreased from the prime rate (8.5% as of December 31, 1997) plus 1.5% to the
prime rate plus 1.0%, the unused commitment fee was reduced from .5% to .25%,
and under certain circumstances, the agreement permitted the payment of
dividends, repayments and advances from the Company's distribution subsidiary to
Andrx Corporation and its other subsidiaries. In October 1997, the Company
further amended its line of credit whereby the interest rate was decreased from
the prime rate plus 1.0% to the prime rate plus 0.5%. The Company used a portion
of the net proceeds from the June 1997 private placement transactions to reduce
the revolving line of credit balance.

         In September 1997, Andrx entered into the Stipulation with HMRI related
to the HMR litigation. In the Stipulation, Andrx agreed that if the HMR
Litigation is not concluded by the date the FDA grants final approval of the
ANDA for the Company's bioequivalent version of Cardizem/registered
trademark/CD, Andrx will not commence the commercial sale of the product in the
United States until a final and unappealable judgment is issued or other events
occur. The Stipulation provides that upon receiving final FDA approval of its
ANDA, Andrx will begin to receive interim payments from HMRI of $10.0 million
quarterly which, absent certain defaults by Andrx, are non-refundable. These
payments will continue until the HMR Litigation is concluded or other events
occur. If Andrx prevails in the HMR Litigation, the payments will be increased
retroactively by a lump sum payment, representing an agreed amount of profits
that Andrx would have earned had it begun to sell its product upon receiving
notice of final FDA approval of its ANDA. The Stipulation also provides Andrx
with the option of licensing HMRI's patents covering Cardizem/registered
trademark/CD at certain times.

         The Company anticipates that its cash requirements will continue to
increase, due to expected increases in expenses related to the research and
development of its controlled-release brand name and bioequivalent
pharmaceutical products and the development and marketing of the Company's
healthcare software products. These expenses include, but are not limited to,
increases in personnel and personnel related costs and facilities expansion.

         The Company anticipates that its existing capital resources will be
sufficient to enable it to maintain its operations into 1998. Because the
Company will use substantial funds for its product development efforts,
including bioequivalence studies for its bioequivalent controlled-release
product candidates, the expansion of the Company's program to develop brand name
controlled-release products and for software development costs related to its
healthcare software products, the Company expects negative cash flows and net
losses to continue at least until it either receives final marketing approval
for its bioequivalent version of Cardizem/registered trademark/CD and it begins
to receive quarterly payments from HMRI of $10 million or the Company launches
its version of Cardizem/registered trademark/CD. The Company will not receive
final marketing approval until after either the HMR Litigation is resolved in
Andrx's favor or July 3, 1998. The Company anticipates that during 1998
approximately $20 million will be used for research and product development
activities related to bioequivalent and brand name controlled-release products
(including the Company's share of the funding of the ANCIRC joint venture). The
Company may need additional funding in order to continue research and
development for its product candidates and to commercialize products after
receipt of FDA approvals. Additional funding, whether obtained through public or
private debt or equity financing, or from collaborative arrangements, may not be
available when required or may not be available on terms favorable to the
Company, if at all. If additional financing is not available, the Company may be
required to delay, scale back or eliminate some or all of its research and
development programs and software development or to license to third parties
products or technologies that the Company would otherwise seek to develop and
commercialize itself.

YEAR 2000 SYSTEMS COSTS

         The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. The
Company is in the process of evaluating the full scope and related costs to
insure that the Company's systems continue to meet its internal needs and those
of its customers. Anticipated costs for system modifications will be expensed as
incurred and are not expected to have a material impact on the Company's
consolidated results of operations. However, the Company cannot measure the
impact that the year 2000 issue will have on its vendors, suppliers, customers
and other parties with which it conducts business.


                                       22
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS

         Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", was issued by the Financial Accounting
Standards Board ("FASB") in June 1997. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt the
provisions of SFAS No. 130 beginning January 1, 1998, as required.

         SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt the provisions of
SFAS No. 131 beginning January 1, 1998, as required. Adoption of this standard
will not have a material impact on the Company's existing reporting disclosures.

FORWARD-LOOKING STATEMENTS

         Except for the historical information contained herein, "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements that involve a number of risks
and uncertainties, the regulatory environment, fluctuations in operating
results, capital spending, year 2000 issues and other risks described elsewhere
in this Report and detailed from time to time in the Company's filings with the
Commission.



                                       23
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                       ANDRX CORPORATION AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF
  ANDRX CORPORATION AND SUBSIDIARIES:

                                                                          PAGE

Report of Independent Certified Public Accountants                         F-2

Consolidated Balance Sheets
    as of December 31, 1997 and 1996                                       F-3

Consolidated Statements of Operations
    for the years ended December 31, 1997, 1996 and 1995                   F-4

Consolidated Statements of Shareholders' Equity
    for the years ended December 31, 1997, 1996 and 1995                   F-5

Consolidated Statements of Cash Flows
    for the years ended December 31, 1997, 1996 and 1995                   F-6

Notes to Consolidated Financial Statements                                 F-7



                                      F-1
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders of
    Andrx Corporation:

         We have audited the accompanying consolidated balance sheets of Andrx
Corporation and subsidiaries (a Florida corporation) as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Andrx Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

/S/ ARTHUR ANDERSEN LLP
-------------------------
    ARTHUR ANDERSEN LLP

Fort Lauderdale, Florida,
   February 17, 1998 (except with respect to the
   matter discussed in Note 18, as to which the
   date is March 18, 1998).


                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                       ANDRX CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

               (in 000's, except for share and per share amounts)

                                                                                      DECEMBER 31,
                                                                     -----------------------------------------
                                                                           1997                        1996
                                                                     ----------------               ----------
<S>                                                                    <C>                            <C>
ASSETS
Current assets
  Cash and cash equivalents                                            $      6,625                   $       3,428
  Investments available-for-sale                                             18,918                          26,892
  Accounts receivable, net of allowances of $1,589
    and $970 as of December 31, 1997
    and 1996, respectively                                                   22,632                          13,502
  Investment in and due from joint venture, net                                 416                             216
  Inventories                                                                25,901                          12,240
  Prepaid and other current assets                                              636                             461
                                                                        -----------                    ------------

     Total current assets                                                    75,128                          56,739

  Property and equipment, net                                                15,403                           9,724
  Other assets                                                                  314                              75
                                                                        -----------                    ------------

     Total assets                                                       $    90,845                    $     66,538
                                                                        ===========                    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable                                                      $    24,291                    $     13,839
  Accrued liabilities                                                         5,147                           3,374
  Bank loan                                                                     538                           6,461
  Notes payable                                                                   8                             102
                                                                        -----------                    ------------

      Total current liabilities                                              29,984                          23,776
                                                                        -----------                    ------------

Commitments and contingencies (Notes 11 and 16)

Shareholders' equity
  Convertible preferred stock; $0.001 par
    value, 1,000,000 shares authorized; none
    issued and outstanding as of December 31,
    1997 and 1996                                                                 -                               -
  Common stock; $0.001 par value, 25,000,000
    shares authorized; 14,856,700 and 13,417,500
    shares issued and outstanding as of December
    31, 1997 and 1996, respectively                                              15                              13
  Additional paid-in-capital                                                 82,954                          57,253
  Accumulated deficit                                                       (22,145)                        (14,509)
  Unrealized gain on investments available-for-sale                              37                               5
                                                                        -----------                     -----------

     Total shareholders' equity                                              60,861                          42,762
                                                                        -----------                     -----------

     Total liabilities and shareholders' equity                         $    90,845                     $    66,538
                                                                        ===========                     ===========
</TABLE>


                The accompanying notes to consolidated financial statements
                  are in integral part of these balance sheets.


                                      F-3
<PAGE>


<TABLE>
<CAPTION>
                       ANDRX CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (in 000's, except for share and per share amounts)

                                                                             YEARS ENDED DECEMBER 31,
                                                          -----------------------------------------------------------
                                                                  1997                1996                1995
                                                          ------------------  ------------------  -------------------
<S>                                                       <C>                 <C>                 <C>
Revenues
   Distributed products, net                              $         146,237   $          86,721   $            50,468
   Manufactured products, net                                         3,324                   -                     -
   Licensing revenues                                                   137                  50                   165
                                                          -----------------   -----------------   -------------------


Total revenues                                                      149,698              86,771                50,633
                                                          -----------------   -----------------   -------------------


Cost of revenues
   Distributed products                                             124,177              72,400                41,781
   Manufactured products                                                737                   -                     -
                                                          -----------------   -----------------   -------------------


Total cost of revenues                                              124,914              72,400                41,781
                                                          -----------------   -----------------   -------------------


Gross profit                                                         24,784              14,371                 8,852
                                                          -----------------   -----------------   -------------------

Operating expenses
    Selling, general and administrative                              18,734              13,178                 8,647
    Research and development                                          9,769               3,655                 3,255
    Idle manufacturing facility costs                                 1,888                   -                     -
    Equity in losses of joint venture                                 1,682               2,011                 1,840
    Software development                                              1,442                   -                     -
                                                          -----------------   -----------------   -------------------


Total operating expenses                                             33,515              18,844                13,742
                                                          -----------------   -----------------   -------------------

Loss from operations                                                 (8,731)             (4,473)               (4,890)


Interest income                                                       1,585               1,210                   250
Interest expense                                                       (490)               (765)                 (636)
Other income, net                                                         -                   -                    89
                                                          ------------------  ------------------  -------------------


Net loss                                                  $          (7,636)  $          (4,028)  $            (5,187)
                                                          ==================  ==================  ====================


Basic and diluted net loss per share                      $           (0.54)  $           (0.33)  $             (0.55)
                                                          ==================  ==================  ====================


Basic and diluted weighted average shares of
    common stock outstanding                                      14,213,100          12,148,000             9,446,800
                                                          ==================  ==================  ====================
</TABLE>


           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


                                      F-4
<PAGE>
                       ANDRX CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
               (in 000's, except for share and per share amounts)


<TABLE>
<CAPTION>
                                                                                                     UNREALIZED
                                                                                                       GAIN ON
                                CONVERTIBLE                            ADDITIONAL                    INVESTMENTS        TOTAL
                              PREFERRED STOCK        COMMON STOCK       PAID-IN      ACCUMULATED   AVAILABLE-FOR-   SHAREHOLDERS'
                             SHARES     AMOUNT     SHARES    AMOUNT     CAPITAL        DEFICIT          SALE            EQUITY
                             -----------------     ----------------    ----------    -----------   --------------   -------------

<S>                            <C>     <C>        <C>        <C>       <C>           <C>           <C>              <C>
BALANCE, DECEMBER 31, 1994     33,700  $     -    8,553,600  $    9    $   13,383    $    (5,294)  $            -   $       8,098

Shares of common  stock
  issued in connection
  with private placements           -        -    1,338,800       1        14,623              -                -          14,624
Shares of common stock
  issued in connection
  with conversion of
  shares of convertible
  preferred stock             (33,700)       -      674,200       1            (1)             -                -               -
Shares of common stock
  issued in connection
  with exercise of
  warrants                          -        -      154,500       -           772              -                -             772
Shares of common stock
  issued in connection
  with exercise of
  stock options                     -        -        6,000       -            18              -                -              18
Net loss                            -        -            -       -             -         (5,187)               -          (5,187)
                              -------  -------   ----------  ------    ----------    -----------   --------------   -------------

BALANCE, DECEMBER 31, 1995          -        -   10,727,100      11        28,795        (10,481)               -          18,325

Shares of common stock
  issued in connection
  with initial
  public offering                   -        -    2,530,000       2        27,428              -                -          27,430
Shares of common stock
  issued in connection
  with exercise of
  warrants                          -        -       28,100       -           204              -                -             204
Shares of common stock
  issued in connection
  with exercise of
  stock options                     -        -      132,300       -           826              -                -             826
Unrealized gain on
  investments
  available-for-sale                -        -            -       -             -              -                5               5
Net loss                            -        -            -       -             -         (4,028)               -          (4,028)
                              -------  -------   ----------  ------    ----------    -----------   --------------   -------------

BALANCE, DECEMBER 31, 1996          -        -   13,417,500      13        57,253        (14,509)               5          42,762

Shares of common stock
  issued in
  connection with private
  placements                        -        -      880,000       1        21,342              -                -          21,343
Shares of common stock
  issued in connection
  with exercise of
  warrants                          -        -      384,500       1         2,846              -                -           2,847
Shares of common stock
  issued in connection
  with exercise of
  stock options                     -        -      174,700       -         1,288              -                -           1,288
Options granted to
  consultants                       -        -            -       -           225              -                -             225
Unrealized gain on
  investments
  available-for-sale                -        -            -       -             -              -               32              32
Net loss                            -        -            -       -             -         (7,636)               -          (7,636)
                              -------  -------   ----------  ------    ----------    -----------   --------------   -------------

BALANCE, DECEMBER 31, 1997          -  $     -   14,856,700  $   15    $   82,954    $   (22,145)  $           37   $      60,861
                              =======  =======   ==========  ======    ==========    ===========   ==============   =============
</TABLE>

          The accompanying notes to consolidated financial statements
                    are an integral part of these statements.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                       ANDRX CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               (in 000's, except for share and per share amounts)


                                                                           YEARS  ENDED  DECEMBER  31,
                                                                 ---------------------------------------------
                                                                    1997             1996              1995
                                                                 ----------       ----------        ----------
<S>                                                              <C>              <C>               <C>
Cash flows from operating activities
    Net loss                                                     $  (7,636)       $   (4,028)       $   (5,187)
    Adjustments to reconcile net loss to net cash
       used in operating activities
      Depreciation and amortization                                  2,036             1,017               902
      Provisions for doubtful accounts, net                            619               396               272
      Options granted to consultants                                   225                 -                 -
      Equity in losses of joint venture                              1,682             2,011             1,840
      Contributions to joint venture                                (1,800)           (2,506)           (1,200)
      Cancellation of note receivable--employee                          -                 -               100
      Increase in accounts receivable                               (9,749)           (5,634)           (3,940)
      (Increase) decrease in due from joint venture                    (82)              628              (630)
      Increase in inventories                                      (13,661)           (2,738)           (5,909)
      Increase in prepaid and other current assets                    (175)             (331)               (1)
      (Increase) decrease in other assets                             (239)               17                79
      Increase in accounts payable and accrued liabilities          12,225             5,629             6,315
                                                                 ---------        ----------        ----------

           Net cash used in operating activities                   (16,555)           (5,539)           (7,359)
                                                                 ---------        ----------        ----------
Cash flows from investing activities
    Purchases of property and equipment                             (7,715)           (6,909)           (1,525)
    Maturities (purchases) of investments available-for-sale, net    8,006           (26,887)                -
                                                                 ---------        ----------        ----------
           Net cash provided by (used in) investing activities         291           (33,796)           (1,525)
                                                                 ---------        ----------        ----------
Cash flows from financing activities
    Proceeds from issuance of shares of common stock                21,343            27,430            14,624
    Proceeds from exercise of stock options and warrants             4,135             1,030               790
    Net borrowings (repayments) under bank loan                     (5,923)              383             3,526
    Payment on notes payable                                           (94)             (423)              (91)
    Proceeds from notes payable                                          -               502                30
                                                                 ---------        ----------        ----------

            Net cash provided by financing activities               19,461            28,922            18,879
                                                                 ---------        ----------        ----------
Net increase (decrease) in cash and cash equivalents                 3,197           (10,413)            9,995
Cash and cash equivalents, beginning of year                         3,428            13,841             3,846
                                                                 ---------        ----------        ----------
Cash and cash equivalents, end of year                           $   6,625        $    3,428        $   13,841
                                                                 =========        ==========        ==========


Supplemental disclosure of cash paid during the year for:

      Interest                                                   $     490        $      765        $      636
                                                                 =========        ==========        ==========
</TABLE>



           The accompanying notes to consolidated financial statements
                   are an integral part of these statements.


                                      F-6



<PAGE>


                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


(1) GENERAL

         Andrx Corporation and subsidiaries ("Andrx" or the "Company") was
organized in August 1992 and in November 1992 commenced marketing and
distributing generic pharmaceutical products manufactured by third parties. In
February 1993, the Company began to engage in the development of bioequivalent
controlled-release pharmaceutical products utilizing its proprietary drug
delivery technologies. During 1996, the Company commenced its efforts to develop
brand name controlled-release products and internet based communications
software products for healthcare providers. During 1997, the United States Food
and Drug Administration ("FDA") granted final marketing approval of the
Company's abbreviated new drug application ("ANDA") for a bioequivalent version
of Dilacor XR/trademark/ and tentative approval of the Company's ANDA for a
bioequivalent version of Cardizem/registered trademark/CD.

         In June 1996, the Company completed an initial public offering of
2,530,000 shares of the Company's common stock. The net proceeds of $27,430 are
being used primarily for research and product development activities and for
capital expenditures. In June 1997, the Company completed the sale of 880,000
shares of common stock in private placement transactions. The net proceeds of
$21,343 are being used by Andrx to reduce the outstanding principal balance on
the Company's line of credit, to fund additional research and development and
for working capital and general corporate purposes.

         The Company is subject to the risks and uncertainties associated with a
drug delivery company which has only recently commercialized its first product,
including a history of net losses, some unproven technologies, limited
manufacturing experience, current and potential competitors with significant
technical and marketing resources, need for future capital and dependence on
collaborative partners and on key personnel. Additionally, the Company is
subject to the risks and uncertainties associated with all drug delivery
companies, including compliance with government regulations and the possibility
of patent infringement litigation.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The accompanying consolidated financial statements include the accounts
of Andrx Corporation and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

         The most significant estimates made by management include the provision
for doubtful accounts receivable, inventory writedowns, discounts and rebates to
customers, returns, pricing adjustments and other adjustments related to sales
of products, and provisions for litigation (see Note 16). Management
periodically evaluates estimates used in the appropriation of the consolidated
financial statements for continued reasonableness. Appropriate adjustments, if
any, to the estimates used are made prospectively based on such periodic
evaluations.


                                      F-7
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


CASH AND CASH EQUIVALENTS

         All highly liquid investments with an original maturity of three months
or less are considered cash equivalents and are carried at cost.

INVESTMENTS AVAILABLE-FOR-SALE

         The Company utilizes the provisions of Financial Accounting Standards
Board ("FASB") Statement on Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that marketable equity securities and all debt securities be classified
into three categories: (i) held to maturity securities, (ii) trading securities,
and (iii) available-for-sale securities. The Company classifies its investments
as available-for-sale and, accordingly, any unrealized gain or loss is reported
as a separate component of shareholders' equity. The cost related to investments
available-for-sale is determined utilizing the specific identification method.

INVENTORIES

         Inventories of pharmaceutical products consist of finished goods held
for distribution, and raw materials, work in process and finished goods of
manufactured products. Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost of inventories held for distribution is based on
purchase price, net of vendor discounts, rebates and allowances.

PROPERTY AND EQUIPMENT, NET

         Property and equipment are recorded at cost, less accumulated
depreciation or amortization. Depreciation or amortization is provided using the
straight-line method over the following estimated useful lives:

                           Manufacturing equipment            10 years
                           Laboratory equipment               5 years
                           Leasehold improvements             Term of lease
                           Computer hardware and software     3 years
                           Furniture and fixtures             5 years

         Major renewals and betterments are capitalized, while maintenance,
repairs and minor renewals are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

         The Company utilizes the provision of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever events
or changes in circumstance indicate that the carrying amount of an asset may not
be recoverable. To determine a loss, if any, to be recognized, the book value of
the asset would be compared to the market value or expected future cash flow
value. The Company adopted the provisions of SFAS No. 121 for the year ended
December 31, 1996, as required. Such provisions had no impact on the Company's
financial position or results of operations as of or for the years ended
December 31, 1997 and 1996.

REVENUE RECOGNITION

         Revenues and the related cost of revenues for distributed products and
manufactured products are recognized at the time a product is shipped.
Provisions for discounts and rebates to customers, and returns, pricing
adjustments and other adjustments related to sales are provided in the same
period the


                                      F-8
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


related sales are recorded. Licensing revenue is recognized when earned in
accordance with the terms of the underlying agreements (see Note 9).

RESEARCH AND DEVELOPMENT EXPENSES

         Research and development expenses consist of costs related to products
being developed internally as well as costs related to products subject to
licensing agreements. Research and development expenses exclude the cost of
research development services rendered to ANCIRC Pharmaceuticals (see Note 10).
Research and development costs are expensed as incurred.

IDLE MANUFACTURING FACILITY COSTS

         During 1997, the Company commenced its commercial-scale manufacturing
operation and incurred manufacturing costs in excess of the amount which were
absorbed as a component of inventory based on the levels of production.
Accordingly, such idle manufacturing facility costs were expensed as incurred
(see Note 8).

SOFTWARE DEVELOPMENT COSTS

         Software development costs consist of costs related to the development
of computer software to be marketed and for internal use. Software development
costs incurred during the year ended 1997, were classified as development and
were expensed as incurred.

STOCK-BASED COMPENSATION

         In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". Under the provisions of SFAS No. 123, companies can
either measure the compensation cost of equity instruments issued to employees
under employee compensation plans using a fair value based method, or can
continue to recognize compensation cost using the intrinsic value method under
the provisions of Accounting Principles Board Opinion ("APB") No. 25. However,
if the provisions of APB No. 25 are applied, pro forma disclosures of net income
or loss and earnings or loss per share must be presented in the financial
statements as if the fair value method had been applied. For the years ended
December 31, 1997, 1996 and 1995, the Company recognized compensation costs
under the provisions of APB No. 25, and the Company has provided the expanded
disclosure required by SFAS No. 123 (see Note 14).

INCOME TAXES

         The provisions of SFAS No. 109, "Accounting for Income Taxes", require,
among other things, recognition of future tax benefits measured at enacted rates
attributable to the deductible temporary differences between the financial
statement and income tax bases of assets and liabilities and to tax net
operating loss carryforwards to the extent that the realization of said benefits
is "more likely than not" (see Note 6).

NET LOSS PER SHARE

         In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 supersedes APB No. 15, "Earnings Per Share", and specifies the
computation, presentation and disclosure requirements for earnings or loss per
share. The provisions of SFAS No. 128 are effective for financial statements for
both interim and annual periods ended after December 15, 1997. The Company
adopted the provisions of SFAS No. 128, as required. Due to the Company's
history of net losses, the restatement provisions of SFAS No. 128 do not impact
the Company's prior periods' losses per share.


                                      F-9
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


         For the years ended December 31, 1997 and 1996 basic and diluted net
loss per share is based on the weighted average number of shares of common stock
outstanding. Since the effect of common stock equivalents was antidilutive, all
such equivalents were excluded in diluted loss per share.

         Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued at prices below the public
offering price during the 12-month period prior to a public offering are
required to be included in the calculation of basic and diluted earnings or loss
per share as if they were outstanding for all periods presented prior to the
offering (using the treasury stock method and the initial public offering
price). Accordingly, the basic and diluted weighted average number of shares of
common stock outstanding for the year ended December 31, 1995 have been adjusted
to reflect the impact of such additional common and common equivalent shares
issued below the initial public offering price.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         As of December 31, 1997 and 1996, the carrying amount of cash and cash
equivalents, investments available-for-sale, accounts receivable, net, accounts
payable, accrued liabilities, bank loan, and notes payable approximate fair
value due to the short maturity of these instruments.

CONCENTRATION OF CREDIT RISK

         The Company invests in U.S. Treasury and government agency securities,
and debt instruments of corporations with investment grade credit ratings. The
Company has established guidelines relative to diversification and maturities
that are designed to help ensure safety and liquidity.

         Accounts receivable are principally due from independent pharmacies,
pharmacy chains, pharmacy buying groups and wholesalers and distributors. Credit
is extended based on an evaluation of the customer's financial condition and
collateral is generally not required. The Company performs periodic credit
evaluations of its customers and maintains allowances for potential credit
losses.

         The Company has no significant off-balance sheet concentration of
credit risk.

COMPREHENSIVE INCOME

         SFAS No. 130, "Reporting Comprehensive Income", was issued by the FASB
in June 1997. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt the provisions of SFAS No.
130 beginning January 1, 1998, as required.

BUSINESS SEGMENT

         SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", was issued by the FASB in June 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt the provisions of
SFAS No. 131 beginning January 1, 1998, as required. Adoption of the provisions
of this standard will not have a material impact on the Company's existing
reporting disclosures.

RECLASSIFICATIONS

         Certain prior year amounts have been reclassified to conform to the
current year presentation.


                                      F-10
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


(3) INVESTMENTS AVAILABLE-FOR-SALE

         Investments available-for-sale consist of the following:

<TABLE>
<CAPTION>
                                          DECEMBER 31, 1997
                                          -----------------
                                                         GROSS
                                       AMORTIZED       UNREALIZED
                                         COST             GAINS                NET
                                         ----             -----                ---
<S>                              <C>                  <C>                 <C>
       U.S. Treasury and
       government agencies       $       17,879       $         30        $   17,909

       Corporate bonds                    1,002                  7             1,009
                                 --------------       ------------        ----------

                                 $       18,881       $         37        $   18,918
                                 ==============       ============        ==========
</TABLE>


<TABLE>
<CAPTION>
                                           DECEMBER 31, 1996
                                           -----------------
                                                         GROSS
                                AMORTIZED              UNREALIZED
                                   COST                  GAINS                NET
                                   ----                  -----                ---
<S>                              <C>                  <C>                 <C>
       U.S. Treasury and
       government agencies       $       21,291       $          5        $   21,296

       Corporate bonds                    5,596                  -             5,596
                                 --------------       ------------        ----------
                                 $       26,887       $          5        $   26,892
                                 ==============       ============        ==========
</TABLE>

(4) INVENTORIES

         Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                      ------------
                                                         1997                              1996
                                                         ----                              ----

<S>                                                   <C>                 <C>
Raw materials                                         $      2,511                      $      377
Work in process                                                573                              -
Finished goods                                              22,817                          11,863
                                                      ------------                      ----------
Total inventories                                     $     25,901                      $   12,240
                                                      ============                      ==========
</TABLE>

                                      F-11
<PAGE>


                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)

(5) PROPERTY AND EQUIPMENT, NET

         Property and equipment are summarized as follows:

                                                         DECEMBER 31,
                                                 1997                   1996
                                                 ----                   ----

Manufacturing equipment                     $     6,137              $   3,924
Laboratory equipment                              2,283                  1,622
Leasehold improvements                            5,979                  3,781
Computer hardware and software                    3,784                  1,755
Furniture and fixtures                            1,521                    907
                                            -----------              ---------

                                                 19,704                 11,989
Less: accumulated depreciation
   and amortization                              (4,301)                (2,265)
                                            -----------              ----------

Property and equipment, net                 $    15,403              $   9,724
                                            ===========              =========



(6) INCOME TAXES

         For the years ended December 31, 1997, 1996 and 1995, the Company was
not required to provide for federal or state income taxes due to its net losses.
Under the provisions of SFAS No. 109, the Company has provided a valuation
allowance to reserve against 100% of its net operating loss carryforwards given
the Company's history of net losses. As of December 31, 1997, for financial
reporting purposes and federal income tax purposes, the Company has net
operating loss carryforwards of approximately $19 million and $14 million,
respectively, which if not utilized, will expire beginning in 2008. Net
operating loss carryforwards are subject to review and possible adjustments by
the Internal Revenue Service and may be limited in the event of certain
cumulative changes in the ownership interest of significant shareholders over a
three-year period in excess of 50%.

(7) BANK LOAN

         In January 1996, Anda Generics, Inc. ("Generics"), the Company's wholly
owned subsidiary engaged in the distribution of pharmaceutical products,
increased the maximum amount available under an existing line of credit from
$8,000 to $10,000 and the interest rate was decreased from the prime rate (8.5%
as of December 31, 1997) plus 2.0% to the prime rate plus 1.5%. In October 1996,
the Company amended its line of credit agreement whereby, amongst other things,
the interest rate was decreased from the prime rate plus 1.5% to the prime rate
plus 1.0%, the unused commitment fee was reduced from .5% to .25% and, under
certain circumstances, the agreement permitted the payment of dividends,
repayments and advances from Generics to Andrx Corporation and its other
subsidiaries. In October 1997, the Company further amended its line of credit
agreement whereby the interest rate was decreased from the prime rate plus 1.0%
to the prime rate plus .5%.


                                      F-12
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


         Borrowings under the line of credit are available for financing
Generics' operations, are secured by all the assets of that operation and are
subject to a borrowing base related to the value of Generics' accounts
receivable and inventories. The loan is guaranteed by Andrx Corporation and its
other subsidiaries. The agreement requires compliance with certain covenants
including the maintenance of minimum working capital and net worth levels by
Generics. As of December 31, 1997, the Company was in compliance with all of the
covenants of this line of credit agreement.

(8) MANUFACTURED PRODUCTS

         In 1995 the Company commenced construction of its manufacturing
facility and procurement of the related manufacturing equipment required in
connection with its ANDAs for bioequivalent versions of Cardizem/registered
trademark/CD and Dilacor XR/trademark/. The Company commenced limited
utilization of its facility with the commercial-scale production of its version
of Dilacor XR/trademark/ in the second quarter of 1997, in anticipation of
obtaining FDA marketing approval, and commenced sales of that product on October
10, 1997, when FDA marketing approval was obtained. Expenses associated with the
production of Dilacor XR/trademark/ are included as a component of "Inventories"
in the accompanying consolidated balance sheets or as "Cost of
revenues-Manufactured products" in the accompanying consolidated statements of
operations, as appropriate. While the FDA has tentatively approved the Company's
ANDA for its bioequivalent version of Cardizem/registered trademark/CD, the
Company has not commenced significant commercial-scale production of this
product due to the pending litigation (see Note 16). As a result of the limited
utilization of the manufacturing facility, costs not related to current
production, primarily facility costs, are expensed as incurred and are reflected
as "Idle manufacturing facility costs" in the accompanying consolidated
statements of operations.

(9) LICENSING AGREEMENTS

         In April 1996, the Company entered into a collaboration agreement for
the development of a brand name controlled-release pharmaceutical product with
Sepracor, Inc. ("Sepracor"). Pursuant to this agreement, Andrx is using one of
its controlled-release drug delivery technologies to formulate a once-a-day
version of fexofenadine (previously known as terfenadine carboxylate), an
antihistamine being developed by Sepracor. A twice-a-day version of this drug
was approved by the FDA in 1996, and is marketed in the U.S. under the brand
name Allegra/registered trademark/ by Hoechst Marion Roussel, Inc. Under the
development agreement with Sepracor, the Company is responsible for developing a
formulation of the product and transferring such technology to Sepracor who will
be responsible for obtaining FDA approval for the product and the
commercialization of the product. The Company has received certain fees under
the development agreement and will be entitled to receive royalties from the
sale or license of the product.

         In December 1996, Andrx entered into a worldwide licensing agreement
with ASTA Medica, AG ("Asta Medica"), a subsidiary of Degussa, AG, for the use
of dilazep, an orally administered drug to be used in the treatment of cancer.
Under the terms of the agreement, ASTA Medica will be responsible for clinical
development, the filing of a New Drug Application ("NDA") and the
commercialization of the product. Andrx will receive a royalty from ASTA Medica
based on the worldwide net sales or license of the product and will be
responsible for certain royalty payments related thereto. Andrx originally
licensed this technology, which has now been patented, from The UAB Research
Foundation.


                                      F-13
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)



         In September 1997, Andrx entered into an agreement to assist an
affiliate of Bayer Corporation in the development of a new product. This
agreement contemplates that one of Andrx's drug delivery technologies will be
combined with the Bayer affiliate's technologies in order to create an
over-the-counter product. The Company received certain fees under this agreement
and will be entitled to receive royalties from the sale or license of the
product.

(10) JOINT VENTURE

         In July 1994, the Company and Circa Pharmaceuticals, Inc., now a wholly
owned subsidiary of Watson Pharmaceuticals, Inc. ("Watson") (the Company and
Watson are hereafter collectively referred to as the "Partners"), formed ANCIRC
Pharmaceuticals, a joint venture to develop, manufacture and market up to six
bioequivalent controlled-release pharmaceutical products (the "joint venture" or
"ANCIRC"). Watson also acquired an equity interest in the Company in exchange
for a payment of $6,000. In addition, Watson may acquire a further equity
interest by the exercise of certain warrants (see Note 13). The agreement
between the Partners contemplates that Andrx Pharmaceuticals, Inc.
("Pharmaceuticals"), a wholly owned subsidiary of the Company, will perform the
research and development formulations for the joint venture products, that
Generics will market and distribute ANCIRC's products following FDA approval,
and that Watson will provide the regulatory support for the joint venture
products and will manufacture the ANCIRC products. ANCIRC has filed ANDAs for
two controlled-release products.

         Capital contributions to, distributions from and net income or loss
generated by ANCIRC are allocated in proportion to the respective Partners'
interest in the joint venture. Such interests were originally 60% to Andrx and
40% to Watson. On October 30, 1995, in connection with Watson's purchase of
additional shares of common stock of Andrx (see Note 13), the Partners amended
the joint venture agreement to modify each Partner's respective interest to 50%
and increased the amount of products to be developed for ANCIRC to eight. Under
the terms of the amendment to the joint venture agreement, Watson was not
required to contribute additional capital to ANCIRC to equalize the partners'
capital accounts as of the amendment date. The Partners' capital accounts will
be equalized in future periods out of net cash flow or upon liquidation, to the
extent funds are available.

         ANCIRC is managed by and under the direction of a management committee
which is comprised of six members. Three members are appointed by each Partner.
Based on the equal representation of the management committee and the Company's
inability to unilaterally control the joint venture, the Company utilizes the
equity method to account for its investment in or its commitment to this joint
venture.


                                      F-14
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)

         The agreements governing the ANCIRC joint venture require Dr. Chih-Ming
J. Chen, Pharmaceutical's President and the Company's Chief Scientist, to
supervise the development of all ANCIRC products until at least five products
have been successfully developed by ANCIRC. If Dr. Chen fails to perform
supervisory services (other than by reason of his death or disability), Watson
has the option to (i) require the Company to repurchase Watson's interests in
ANCIRC and the Company for an amount equal to Watson's investments therein, plus
interest, or (ii) assume the rights of the Company to develop and market the
products. Once ANCIRC has developed three products, Watson is limited to the
option set forth in (ii) of the preceding sentence.

         Condensed balance sheet and statement of operations information for
ANCIRC is as follows:

                                                           DECEMBER 31,
                                                      1997              1996
                                                  ------------       ----------
Cash and cash equivalents                         $        416       $      701
Inventories                                                312                -
Laboratory equipment, net                                  237               25
                                                  ------------       ----------
     Total assets                                 $        965       $      726
                                                  ============       ==========

Current liabilities                               $      1,050       $    1,048
Partners' deficit                                          (85)            (322)
                                                  ------------       ----------
     Total liabilities and partners' deficit      $        965       $      726
                                                  ============       ==========


<TABLE>
<CAPTION>
                                CUMULATIVE
                                  PERIOD                                       YEARS ENDED
                              FROM INCEPTION                                   DECEMBER 31,
                             (JULY 8, 1994) TO           ---------------------------------------------------
                             DECEMBER 31, 1997           1997                    1996                   1995
                             -----------------           ----                    ----                   ----
<S>                             <C>                   <C>                      <C>                   <C>
Research and development
expenses                        $   11,142            $   3,392                $  4,039              $  3,184
                                ==========            =========                ========              ========

Net loss                        $  (11,086)           $ ( 3,363)               $ (4,022)             $ (3,174)
                                ==========            === =====                ========              ========
</TABLE>

         For the years ended December 31, 1997, 1996 and 1995, Pharmaceuticals
rendered research and development services to ANCIRC of $1,143, $2,206, and
$2,529, respectively. These services were provided at cost, which includes
research and development overhead allocations. As of December 31, 1997 and 1996,
the Company was due $458 and $376, respectively, from ANCIRC for research and
development services rendered and such amounts are included in "Investment in
and due from joint venture, net" in the consolidated balance sheets. The Company
is committed to the funding of ANCIRC's future operations. In 1998, each Partner
made a capital contribution of $600 to ANCIRC, the proceeds of which were
utilized by ANCIRC to pay the Partners' and unrelated third party vendors'
outstanding balances for services rendered through December 31, 1997, including
$458 owed to the Company.


                                      F-15
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)



(11) COMMITMENTS

OPERATING LEASES

         The Company leases manufacturing, laboratory, warehouse and office
space, and various equipment under operating leases. The following schedule
summarizes future minimum lease payments required under non-cancelable operating
leases with terms greater than one year, as of December 31, 1997:

                           1998                    $    812
                           1999                         833
                           2000                         804
                           2001                         770
                           2002                         772
                           Thereafter                   325
                                                  ---------

                                                   $  4,316
                                                   ========

         Rent expense amounted to $969, $446 and $210 for the years ended
December 31, 1997, 1996 and 1995, respectively.

(12) RELATED PARTY TRANSACTIONS

         The Company is party to a royalty agreement with Dr. Chih-Ming J. Chen,
Pharmaceuticals' President, which provides for royalties to Dr. Chen upon the
sale of certain products, including Cardizem/registered trademark/CD, for which
the Company received tentative approval in 1997 from the FDA.
Cardizem/registered trademark/CD is not currently being sold or marketed (see
Note 16). The Company is no longer attempting to develop the other product
included in that agreement, as the reference brand product is no longer being
marketed. In 1996, the Board of Directors canceled Dr. Chen's obligation to
repay a $100 loan and the related accrued interest as a bonus for the submission
of one of the Company's ANDAs in 1995. Accordingly, for the year ended December
31, 1995, the Company recorded $107 of compensation expense in the accompanying
consolidated statements of operations.

         During 1995, the management of the Company determined that the net
outstanding accounts receivable balance of $52 due from Pharmacy Services Group,
Inc. ("PSG"), a pharmacy benefits management and mail order marketing company,
and note receivable of $250 were uncollectible, and the Company wrote-off these
balances. PSG was a customer of the Company's distribution operations and was
controlled by a former principal shareholder of the Company. In addition, the
Company's Chairman of the Board and President each owned less than 1% of PSG's
outstanding shares of common stock.

         For the years ended December 31, 1996 and 1995, revenues from
distributed products of approximately $119 and $579, respectively, were
generated from related parties, which were owned in part by the Company's
Chairman of the Board. During 1995, management provided an allowance and
wrote-off the net outstanding accounts receivable balance of $157.



                                      F-16
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)



(13)     SHAREHOLDERS' EQUITY

         On April 30, 1995, 33,700 shares of the Company's convertible preferred
stock held by Watson automatically converted into 674,200 shares of common
stock. Watson also owns a warrant to acquire up to 337,100 shares of the
Company's common stock, which is exercisable in whole or in part until July 8,
1999 at an exercise price of $8.90 per share. Watson has certain registration
rights under the Securities Act of 1933, as amended, related to this common
stock, including the shares to be acquired upon exercise of the warrant. The
issuance of the shares of convertible preferred stock was associated with a
joint venture agreement between the Company and Watson (see Note 10).

         In August 1995, the Company issued 90,900 shares of common stock in a
private placement transaction with Watson at $11.00 per share for an aggregate
consideration of $1,000. In December 1995, the Company issued 1,144,900 shares
of common stock in a private transaction with Watson at $11.00 per share for an
aggregate consideration of $12,594. Watson's registration rights were extended
to include the 1,235,800 shares of common stock purchased from the Company as
well as 181,800 shares of common stock purchased from certain of the Company's
principals in 1996. In conjunction with these transactions, the Company and
Watson amended the terms of the joint venture agreement (see Note 10).

         In June 1996, the Company completed its initial public offering of
2,530,000 shares of the Company's common stock at a price of $12.00 per share.
The net proceeds from the sale of such stock totaled approximately $27.4
million.

         In June 1997, Capital Research and Management Company ("Capital"), an
investment management firm, purchased 730,000 shares of common stock and Watson
purchased 150,000 shares of common stock. The purchase price paid by each of
Capital and Watson was $25.50 per share, the closing price of Andrx's common
stock on June 11, 1997. In a contemporaneous transaction, certain of the
Company's principals also sold a total of 450,000 shares of Andrx common stock
to Watson on the same terms and conditions. Capital and Watson were granted
certain registration rights under the Securities Act of 1933, as amended, with
respect to the shares purchased. In addition, Capital entered into a lock-up
agreement, pursuant to which it agreed not to sell the shares it purchased for a
period of at least one year, without the Company's prior written consent. Watson
entered into a standstill agreement with the Company pursuant to which it
agreed, among other matters, not to acquire more than a 25.0% equity interest in
the Company or to engage in certain transactions with the Company (including a
merger), prior to June 13, 2000, without the prior approval of the Company's
board of directors.

(14) STOCK INCENTIVE PLAN

         Under the Company's stock incentive plan as amended (the "Plan") the
Company's Board of Directors or its compensation committee (the "Committee") is
authorized to grant stock options, stock appreciation rights, restricted stock,
deferred stock, performance units, loans and tax offset payments or any
combination thereof, to employees, consultants or advisors of the Company. The
terms for, and exercise price at which any stock option may be awarded is to be
determined by the Committee. Options granted under the Plan must be exercised
within ten years of grant, unless a shorter period is designated at the time of
grant. Options cannot be awarded under the Plan after February 26, 2003. In
1997, the Company's Board of Directors and shareholders approved an increase in
the number of shares available for grant under the Plan to 2,000,000.


                                      F-17
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)

         The Company accounts for options granted to employees under the Plan in
accordance with the provisions of APB No. 25. Each stock option has an exercise
price equal to the market price on the date of grant and, accordingly, no
compensation expense has been recorded for any stock option grants.

         A summary of the Plan's activity is as follows:

<TABLE>
<CAPTION>

                                                                  OUTSTANDING                                     EXERCISABLE
                                              --------------------------------------------------------     ----------------------
                                                NUMBER
                                                  OF                       EXERCISE PRICE PER SHARE                     WTD. AVG.
                                                SHARES               ---------------------------------                  EXERCISE
                                              UNDER OPTION           LOW         HIGH        WTD. AVG.     SHARES        PRICE
                                              ------------           ---         ----        ---------     ------        -----

<S>      <C> <C>                                 <C>             <C>          <C>          <C>             <C>          <C>
DECEMBER 31, 1994                                636,375         $   3.00     $   9.00     $   6.22        109,000      $  4.65
Granted                                          210,250             7.25        11.00         9.14
Exercised                                         (6,000)            3.00         3.00         3.00
Forfeited                                        (74,000)            3.00         8.00         7.10
                                              ------------
DECEMBER 31, 1995                                766,625             3.00        11.00         6.96        307,875         5.95
Granted                                          378,325            11.00        14.50        12.27
Exercised                                       (132,287)            3.00        11.00         6.25
Forfeited                                        (98,313)            3.00        14.44        10.86
                                              ------------
DECEMBER 31, 1996                                914,350             3.00        14.50         8.85        463,570         6.67
Granted                                          259,900            20.00        37.88        25.19
Exercised                                       (170,164)            3.00        14.00         7.33
Forfeited                                        (43,249)            6.50        37.88        22.60
                                              ------------
DECEMBER 31, 1997                                960,837             3.00        37.88        12.92        495,729         8.97
                                              ============
</TABLE>

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING AT                                    EXERCISABLE  OPTIONS AT
                                  DECEMBER 31, 1997                                         DECEMBER 31, 1997
------------------------------------------------------------------------------         --------------------------
                                                                                                         WEIGHTED
       RANGE OF                              WEIGHTED AVG.       WEIGHTED AVG.                             AVG.
       EXERCISE                             REMAINING LIFE          EXERCISE                             EXERCISE
        PRICES               SHARES             (YEARS)              PRICE             SHARES             PRICE
--------------------        -------             -------           ----------           -------         ----------
<S>       <C>               <C>                   <C>             <C>                  <C>             <C>
$  3.00 - $  7.25           330,250               5.6             $    6.37            305,750         $    6.32
$  8.00 - $ 14.00           388,687               5.8                 11.35            155,854             10.65
$ 14.50 - $ 37.88           241,900               6.8                 24.36             34,125             24.96
                            -------               ---             ---------            -------         ---------
                            960,837               6.0             $   12.92            495,729         $    8.97
                            =======               ===             =========            =======         =========
</TABLE>

         The range of weighted average fair value per share as of the grant date
was $5.72 to $12.85 and $3.46 to $10.31 for stock options granted during the
years ended December 31, 1997 and 1996, respectively.

                                      F-18

<PAGE>


                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)

         The fair market value of an option grant was estimated using the
Black-Scholes option pricing model with the following assumptions:

                                           YEARS ENDED DECEMBER 31,
                                           ------------------------
                                         1997        1996        1995
                                         ----        ----        ----

Risk-free interest rate                  5.3%        5.8%         5.8%
Average life of options (years)          4.9         5.5          5.6
Average volatility                        48%         68%          67%
Dividend yield                            -           -            -

         The following table summarizes the pro forma consolidated results of
operations of the Company as though the provision of the fair value based
accounting method of SFAS No. 123 had been used in accounting for stock options.

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER  31,
                                                                      -------------------------
                                                             1997                 1996                1995
                                                             ----                 ----                ----

<S>                                                     <C>                     <C>                 <C>
Basic and diluted
    net loss                   As reported              $   (7,636)             $(4,028)            $(5,187)
                                                        ==========              =======             =======

                               Pro forma                $   (9,317)             $(5,108)            $(5,492)
                                                        ==========              =======             =======

Basic and diluted
    net loss per share         As reported              $    (0.54)             $ (0.33)            $ (0.55)
                                                        ==========              =======             =======

                               Pro forma                $    (0.66)             $ (0.42)            $ (0.58)
                                                        ==========              =======             =======
</TABLE>

(15) 401(K) PLAN

         In February 1995, the Company adopted a 401(k) retirement plan covering
substantially all of its employees. Monthly contributions to the retirement plan
are made by the Company based upon the employees' contributions to the plan.
During the years ended December 31, 1997, 1996 and 1995, the Company contributed
$160, $86 and $64, respectively, to the 401(k) retirement plan.

(16) LITIGATION

         In January 1996, Hoechst Marion Roussel, Inc. and Carderm Capital L.P.
(collectively, "Hoechst"), filed suit against the Company claiming patent
infringement as a result of the Company's ANDA filing with the FDA in late 1995
for a bioequivalent version of Cardizem/registered trademark/CD. The Company
responded to these claims by denying infringement, raising various other
defenses and by filing certain counterclaims against Hoechst. While the Company
believes its product does not infringe upon any of the patents held in
connection with the branded product and that it has meritorious defenses against
this suit, the ultimate resolution of this matter is not currently known and as
described below, has delayed the Company from obtaining final FDA approval of
the ANDA for the Company's bioequivalent version of Cardizem/registered
trademark/CD. Although the Company believes it has adequately provided for such
matter based on currently available information, the Company may incur
additional litigation costs in future periods which may be material to the
Company's results of operations and financial position.

                                      F-19

<PAGE>


                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995

               (in 000's, except for share and per share amounts)



         In September 1997, Andrx received tentative FDA approval of the ANDA
for its bioequivalent version of Cardizem/registered trademark/CD. Such approval
is tentative because as a result of the pending patent infringement litigation
brought by Hoechst, the FDA may not grant final approval of the ANDA for Andrx's
product until after either the lawsuit is resolved in Andrx's favor or July 3,
1998 (30 months after Hoechst received Andrx's certification that its product
does not infringe the patents listed for Cardizem/registered trademark/CD).

         In September 1997, Andrx entered into a Stipulation and Agreement (the
"Stipulation") with Hoechst related to the Hoechst litigation. In the
Stipulation, Andrx agreed that if the Hoechst litigation is not concluded by the
date the FDA grants final approval of the ANDA for the Company's bioequivalent
version of Cardizem/registered trademark/CD, Andrx will not commence the
commercial sale of the product in the United States until a final and
unappealable judgment is issued. The Stipulation provides that upon receiving
final FDA approval of its ANDA, Andrx will begin to receive interim payments
from Hoechst of $10.0 million quarterly which, absent certain defaults by Andrx,
are non-refundable. These payments will continue until the Hoechst litigation is
concluded or other events occur. If Andrx prevails in the Hoechst litigation,
the payments will be increased retroactively by a lump sum payment, representing
an agreed amount of profits that Andrx would have earned had it begun to sell
its product upon receiving final FDA approval of its ANDA. The Stipulation also
provides Andrx with the option of licensing Hoechst's patents covering
Cardizem/registered trademark/CD at various times throughout the period of the
agreement.

         In May 1996, Rhone-Poulenc Rorer, Inc. and Jagotec AG (collectively
"RPR"), commenced a lawsuit against the Company claiming patent infringement as
a result of the Company's ANDA filing with the FDA in late 1995 for a
bioequivalent version of Dilacor XR/trademark/. The Company denied infringement
and raised various other defenses in this claim. In December 1996, RPR agreed to
dismiss the patent infringement lawsuit and the parties signed a settlement
agreement which provided for the dismissal, without prejudice, of all claims and
counterclaims in the lawsuit. An Order of Dismissal was entered by the U.S.
District Court judge on January 7, 1997.

         Patent infringement claims of this nature may be made by other
pharmaceutical companies in connection with the Company's filing of other ANDAs
or NDAs with the FDA. The Company evaluates the probability of patent
infringement litigation with respect to each of its ANDA and NDA submissions on
a case by case basis. Accordingly, the Company has provided for estimated
litigation costs, as appropriate. Although the Company believes it has
adequately provided for such matters based on currently available information,
the Company may incur additional litigation costs in future years which may be
material to the Company's results of operations and financial position.

         In January 1998, the Company filed an action against the FDA, Biovail
Corporation International and Faulding, Inc., related to the FDA's
interpretation of certain provisions of the Drug Price Competition and Patent
Restoration Act of 1984 (the "Waxman-Hatch Amendments"). The Company seeks,
among other things, a final injunction requiring the FDA to provide the Company
a 180-day period of marketing exclusivity for its bioequivalent version of
Cardizem/registered trademark/CD and its Dilacor XR/trademark/. On March 26,
1996, a federal district court in Washington, D.C. entered a temporary
restraining order prohibiting Mylan Pharmaceuticals, Inc. from shipping or
otherwise distributing its bioequivalent version of Dilacor XR/trademark/.

         In May 1997, a former employee of the Company filed a suit against the
Company claiming he is entitled to receive, pursuant to the terms of his
employment arrangement with the Company, a royalty equal to 1% of the gross
revenues from certain products under development by the Company. Such products
include the bioequivalent version of Dilacor XR/trademark/, which was launched
by the Company on October 10, 1997 and the bioequivalent version of
Cardizem/registered trademark/CD. The Company has filed an answer and certain
affirmative defenses to the suit and specifically has denied the products of the
Company in question were developed by the former employee. The Company believes
that this suit is without merit, intends to vigorously defend it and believes
that the outcome will not be material to the Company's results of operations and
financial position.


                                      F-20
<PAGE>

                       ANDRX CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
               (in 000's, except for share and per share amounts)


(17) SELECTED QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                  MARCH 31,           JUNE 30,           SEPTEMBER 30,         DECEMBER 31,
                                  ---------           --------           -------------         ------------
1997
----

<S>                               <C>                 <C>                     <C>                   <C>
Total revenues                    $  30,661           $  32,559               $  42,661             $  43,817
Gross profit                      $   4,772           $   4,901               $   6,159             $   8,952
Net loss                          $  (1,402)          $  (2,261)              $  (2,865)            $  (1,108)
Basic and diluted net
  loss per share                  $   (0.10)          $   (0.16)              $   (0.19)            $   (0.07)

1996
----

Total revenues                    $  18,039           $  19,737               $  23,321             $  25,674
Gross profit                      $   2,991           $   3,287               $   3,844             $   4,249
Net loss                          $    (722)          $  (1,163)              $  (1,018)            $  (1,125)
Basic and diluted net
  loss per share                  $   (0.07)          $   (0.10)              $   (0.08)            $   (0.08)
</TABLE>


(18) SUBSEQUENT EVENT

         On March 18, 1998 the Company received a letter from counsel for
Cymedix Lynx Corporation ("Cymedix") alleging the theft and unlawful
appropriation by Andrx and certain of its directors, officers and employees of
certain computer medical software and internet medical communications technology
allegedly owned by Cymedix. The letter demands trebled damages totaling $396,600
pursuant to the civil theft provisions of Florida law, and also alleges claims
under Florida's Racketeer Influenced and Corrupt Organization Act and certain
other provisions of federal and state law. The Company believes that Cymedix's
accusations and threatened claims have no basis in substantial fact or legal
support and intends to vigorously defend these accusations and claims.




                                      F-21

<PAGE>



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters since January 1, 1995.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below is certain information concerning the directors and
executive officers of the Company:

<TABLE>
<CAPTION>
NAME                                             AGE                         POSITION
----                                             ---                         --------

<S>                                             <C>            <C>
Alan P. Cohen(1)                                43             Chairman of the Board and Chief Executive
                                                                  Officer and Director
Elliot F. Hahn, Ph.D.(1)                        53             President and Director
Chih-Ming J. Chen, Ph.D.(1)                     46             Vice President, Chief Scientist and Director
Randy Glover                                    55             Vice President of Operations
Scott Lodin                                     42             Vice President, General Counsel and Secretary
Angelo C. Malahias                              36             Vice President and Chief Financial Officer
Rep. Elaine Bloom(2)                            60             Director
Irwin C. Gerson(3)                              68             Director
Elliot Levine(2)                                61             Director
Michael A. Schwartz, Ph.D.(3)                   67             Director
Melvin Sharoky, M.D.(1)                         47             Director
</TABLE>
-------------------------

(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.

         ALAN P. COHEN is Chairman of the Board, Chief Executive Officer and a
director of Andrx, which he founded in August 1992. He is a graduate of the
University of Florida and is a registered pharmacist. In 1984, Mr. Cohen founded
Best Generics, Inc., a generic drug distribution firm ("Best"), which was sold
to IVAX Corporation ("IVAX") in 1988. Mr. Cohen served as President of Best from
April 1989 until June 1990. Alan P. Cohen and certain members of his family
controlled Corner Drugstore, Inc., a privately-held retail drugstore chain,
which was a shareholder and a customer of the Company. Corner Drugstore, Inc.
filed for reorganization under Chapter 11 of the United States Bankruptcy Code
in December 1994.

         DR. ELLIOT F. HAHN has been President and a director of Andrx since
February 1993. From June 1990 to February 1993, Dr. Hahn was employed as Vice
President, Scientific Affairs of IVAX, where he was involved in the evaluation
and international licensing of product opportunities and was responsible for
maintaining the intellectual property of IVAX. From 1988 to 1993, Dr. Hahn also
served as the Vice President of Research of Baker Norton Pharmaceuticals, a
subsidiary of IVAX. Prior to that, he was an Associate Professor at The
Rockefeller University from 1977 to 1988. From 1972 until 1977, Dr. Hahn was an
Assistant Professor at Albert Einstein College of Medicine and a member of the
Institute for Steroid Research at Montefiore Hospital in New York City. Since
1988, he has been an adjunct Associate Professor at the University of Miami
School of Medicine. Dr. Hahn holds a B.S. degree from City College of New York
and a Ph.D. degree in chemistry from Cornell University.

         DR. CHIH-MING J. CHEN has served as the Company's Vice President, Chief
Scientist and a director since November 1992. In January 1992, Dr. Chen formed
his own company, ASAN Labs, Inc., which was acquired by the Company in November
1992. Dr. Chen served as the Director of Product Development at IVAX from 1988
to 1992, where he was the leader of a research team which specialized in the
development of drug formulations, including several controlled-release products.
After graduating with a Ph.D. degree in pharmaceutics from Ohio State University
in 1981, Dr. Chen worked at Bristol-Myers and Berlex Labs.

                                       24
<PAGE>


         RANDY GLOVER joined Andrx in March 1996 as Vice President of
Operations, with responsibilities for all aspects of manufacturing. From 1991 to
1996, he was Vice President of Manufacturing at IVAX with responsibility for
seven generic pharmaceutical manufacturing plants. From 1982 to 1991, Mr. Glover
held senior manufacturing management positions with Key Pharmaceuticals, Inc.
and Schering-Plough in Florida and Puerto Rico and was employed by the FDA from
1965 to 1981.

         SCOTT LODIN joined Andrx in January 1994 and is its Vice President,
General Counsel and Secretary. From 1983 until joining Andrx, Mr. Lodin was an
attorney with Hughes, Hubbard & Reed and a predecessor firm in Miami, Florida,
where he practiced primarily in the areas of corporate and commercial law.

         ANGELO C. MALAHIAS joined Andrx as its Vice President and Chief
Financial Officer in January 1996. From January 1995 to January 1996, Mr.
Malahias was Vice President and Chief Financial Officer of Circa, where he also
served as Corporate Controller from July 1994 to January 1995. From 1983 to July
1994 he was employed by KPMG Peat Marwick LLP. Mr. Malahias is a certified
public accountant.

         REPRESENTATIVE ELAINE BLOOM, a director of Andrx since October 1993, is
the former Speaker Pro-Tempore of the Florida House of Representatives, of which
she has been a member from 1974 to 1978 and since 1986. She currently chairs the
Joint Legislative Management Committee and serves on the Health Care, Aging and
Human Services and Government Operations Committees.

         IRWIN C. GERSON, a director of Andrx since November 1993 and currently
Chairman Emeritus, was the Chairman of the Lowe McAdams Healthcare division of
the Interpublic Group (formerly William Douglas McAdams, Inc.), a health care
marketing, communications and public relations company, from 1987 through
January 1998. Mr. Gerson is a member of the board of trustees of academic
institutions, including Long Island University, Albany College of Pharmacy and
is Chairman of the Council of Overseers of the Arnold and Marie Schwartz College
of Pharmacy. Mr. Gerson is also a director of Cytoclonal Pharmaceutics, Inc., a
biotechnology company.

         ELLIOT LEVINE, a director of Andrx since January 1994, was Executive
Vice President and Chief Financial Officer of Cheyenne Software, a developer and
marketer of proprietary network software products, from September 1989 through
November 1996. From February 1988 to September 1989, Mr. Levine was president of
VTX Electronics, a distributor of electronic networking products, and, from
March 1986 to February 1988, he was a Managing Director of Ladenburg, Thalmann &
Co. Inc., an investment banking firm.

         DR. MICHAEL A. SCHWARTZ, a director of Andrx since November 1993, is
currently Dean Emeritus and a Professor at the College of Pharmacy at the
University of Florida having served as Dean of that college from April 1978
through May 1996.

         DR. MELVIN SHAROKY, a director of Andrx since November 1995, has been a
director of Watson since July 1995. From July 1995 through January 1998, Dr.
Sharoky was President of Watson. From February 1993 through January 1998, Dr.
Sharoky served as the President and Chief Executive Officer of Circa. Dr.
Sharoky serves on Andrx's Board of Directors as the designee of Watson. Pursuant
to the agreements entered into with Watson in connection with its equity
investment in the Company, Watson has the right to designate one member of the
Company's Board of Directors for the term expiring in 1999.

         The Company's Articles provide that the Board of Directors is divided
into three classes and directors serve staggered three-year terms. Dr. Elliot F.
Hahn, Elaine Bloom and Elliot Levine will hold office until the annual meeting
of shareholders to be held in 1998, Alan P. Cohen and Dr. Melvin Sharoky will
hold office until the 1999 annual meeting and Dr. Chih-Ming J. Chen, Irwin C.
Gerson and Dr. Michael A. Schwartz will hold office until the 2000 annual
meeting.

                                       25
<PAGE>


DIRECTOR COMPENSATION

         Non-employee directors do not receive cash compensation for their
services, although they are each granted stock options under the Stock Incentive
Plan to purchase 7,000 shares of Common Stock on June 1 of each year. The
initial 7,000 share annual grants, which were made to existing non-employee
directors on June 1, 1996, were adjusted based on prior options granted to give
effect to prior periods of service. Each new non-employee director will be
granted an option on the date such person becomes a director (the "Appointment
Date") to purchase that number of shares equal to 7,000 multiplied by a
fraction, the numerator of which is the number of full months between the
Appointment Date and the following June 1, and the denominator of which is
twelve. These options become exercisable in ten equal monthly installments
(unless such director's term commences after June 1, in which case the options
shall vest equally over the number of full months they serve as a director until
the following June 1), beginning the first day of the month following the date
of grant, provided the optionee has continuously served as a non-employee
director. All options granted to non-employee directors are granted at fair
market value on the date of the grant and expire ten years from the date of the
grant. The following sets forth information with respect to options granted to
non-employee directors under the Stock Incentive Plan.

<TABLE>
<CAPTION>
                                           NUMBER OF
NAME OF OPTIONEE                            SHARES                EXERCISE PRICE               EXPIRATION DATE
----------------                            ------                --------------               ---------------

<S>                                           <C>                     <C>                      <C>
Elaine Bloom                                  2,500                   $     3.00                May 12, 2003
                                              9,000                         6.50               August 7, 2004
                                              5,875                        12.00                May 31, 2006
                                              7,000                        23.00                May 31, 2007

Irwin C. Gerson                               2,500                         3.00                May 12, 2003
                                              9,000                         6.50               August 7, 2004
                                              5,875                        12.00                May 31, 2006
                                              7,000                        23.00                May 31, 2007

Elliot Levine                                 2,500                         8.00              January 23, 2004
                                              9,000                         6.50               August 7, 2004
                                              4,000                        12.00                May 31, 2006
                                              7,000                        23.00                May 31, 2007

Michael Schwartz, Ph.D.                       2,500                         3.00                May 12, 2003
                                              9,000                         6.50               August 7, 2004
                                              5,875                        12.00                May 31, 2006
                                              7,000                        23.00                May 31, 2007

Melvin Sharoky, M.D.                          2,500                        11.00              November 11, 2005
                                              5,750                        12.00                May 31, 2006
                                              7,000                        23.00                May 31, 2007
</TABLE>

INDEMNIFICATION AGREEMENTS

         The Company has entered into an indemnification agreement with each of
its directors and executive officers. Each indemnification agreement provides
that the Company will indemnify such person against certain liabilities
(including settlements) and expenses actually and reasonably incurred by him or
her in connection with any threatened or pending legal action, proceeding or
investigation (other than actions brought by or in the right of the Company) to
which he or she is, or is threatened to be, made a party by reason of his or her
status as a director, officer or agent of the Company, provided that such
director or executive officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal proceedings, had no reasonable cause to
believe his or her conduct was unlawful. With respect to any action brought by
or in the right of the Company, a director or executive officer will also be
indemnified, to the extent not prohibited by applicable law, against expenses
and amounts paid in settlement, and certain liabilities


                                       26
<PAGE>

if so determined by a court of competent jurisdiction, actually and reasonably
incurred by him or her in connection with such action if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and holders of more than
10% of the Company's Common Stock, to file reports of ownership and changes in
ownership with the Commission and The Nasdaq National Market. Such persons are
required to furnish the Company with copies of all Section 16(a) forms they
file.

         Based solely on its review of the copies of such forms received by it,
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
1997, all filing requirements applicable to its executive officers, directors
and greater than 10% beneficial owners were complied with.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth information concerning compensation for
1997, 1996 and 1995 received by the Chief Executive Officer (the "CEO") and the
four most highly compensated other executive officers whose annual salary and
bonus exceeded $100,000 for 1997 (collectively with the CEO, the "Named
Executive Officers").

<TABLE>
<CAPTION>
                                                                                                       LONG TERM
                                                    ANNUAL COMPENSATION                              COMPENSATION
                                                    -------------------                              ------------
                                                                                                      SECURITIES
                                        FISCAL                                OTHER ANNUAL            UNDERLYING
NAME AND PRINCIPAL POSITION              YEAR      SALARY         BONUS       COMPENSATION           OPTIONS(#)(1)
---------------------------              ----      ------         -----       ------------           -------------

<S>                                      <C>     <C>        <C>              <C>                      <C>
Alan P. Cohen                            1997    $188,400   $    55,000      $  13,300(2)                   -
    Chairman of the Board and CEO        1996     141,900        50,000         18,000(2)                   -
                                         1995     124,300             -         10,600(2)                   -

Elliot F. Hahn, Ph.D.                    1997    $188,400   $    50,000      $  14,700(2)                   -
    President                            1996     141,900        45,000         19,900(2)                   -
                                         1995     124,300             -         13,400(2)                   -

Chih-Ming J. Chen, Ph.D.                 1997    $188,400   $    50,000      $  15,900(2)                   -
    Vice President and Chief Scientist   1996     141,900        45,000         19,400(2)                   -
                                         1995     124,300       108,500(3)      14,900(2)                   -

Randy Glover                             1997    $171,700   $    38,000       $265,000(5)               4,000
    Vice President of                    1996     108,000        37,800              -                 50,000
      Operations(4)

Angelo C. Malahias                       1997    $129,700   $    25,000      $  38,600(7)               7,500
    Vice President and Chief             1996     110,800        20,000         12,900(7)              40,000
    Financial Officer(6)
</TABLE>
----------
(1)  Represents options to purchase shares of Common Stock granted to the Named
     Executive Officer under the Stock Incentive Plan.
(2)  Represents an automobile allowance, premiums for a $1 million life
     insurance policy (the beneficiary of which is designated by the Named
     Executive Officer), certain medical expense reimbursements and the premiums
     for a disability policy (other than for Mr. Cohen), the beneficiary of
     which is designated by the Named Executive Officer.
(3)  Represents compensation to Dr. Chen arising from the forgiveness of an
     interest-bearing loan made by the Company to Dr. Chen.
(4)  Mr. Glover joined the Company as Vice President of Operations
     in March 1996.
(5)  Represents exercise of options to purchase 11,000 shares of common stock
     with an exercise price of $11.00 per share.
(6)  Mr. Malahias joined the Company as Vice President and Chief Financial
     Officer in January 1996.
(7)  Represents relocation expenses and reimbursement of premium on medical and
     dental insurance.


                                       27
<PAGE>



EMPLOYMENT AND SEVERANCE AGREEMENTS

         The Company was party to an employment agreement with each of Mr.
Cohen, Dr. Hahn and Dr. Chen which expired in February 1998.

         The Company is party to an employment agreement with Mr. Malahias, its
Vice President and Chief Financial Officer, which expires in February 2001. Mr.
Malahias currently receives a base salary of $150,000 per year. The agreement
provides that if Mr. Malahias' employment is terminated by the Company without
cause, Mr. Malahias may receive a lump sum payment up to $90,000. Other amounts
are payable and acceleration of vesting of certain options may occur in the
event Mr. Malahias' employment is terminated pursuant to a change of control of
the Company. The agreement also includes provisions regarding confidentiality
and non-solicitation.

         The Company has an agreement with Mr. Lodin, its Vice President and
General Counsel, which provides that in the event Mr. Lodin's employment is
terminated by the Company without cause prior to December 31, 1998, Mr. Lodin
will receive a lump-sum payment equal to 100% of his then annual compensation.
Mr. Lodin currently receives a base salary of $172,500.

OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth information concerning individual grants
of stock options made during Fiscal 1997 to any of the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                                POTENTIAL REALIZABLE
                                                                                                  VALUE OF ASSUMED
                                                                                                  ANNUAL RATES OF
                                                                                                    STOCK PRICE
                                                                                                 APPRECIATION FOR
                NUMBER OF SECURITIES    % OF TOTAL OPTIONS      EXERCISE OR                        OPTION TERMS
                 UNDERLYING OPTIONS    GRANTED TO EMPLOYEES     BASE PRICE      EXPIRATION    -------------------
                       GRANTED            IN FISCAL YEAR          ($/SH)            DATE          5%         10%(1)
                 -------------------      -----------------   --------------      --------        --         ---
<S>                     <C>                    <C>                <C>          <C>            <C>        <C>
Randy Glover            4,000                  1.8%               $23.00       June 1, 2007   $ 58,000   $147,000

Angelo C. Malahias      7,500                  3.5%               $20.25       March 2, 2007  $108,000   $275,000
</TABLE>
----------
(1)    Based upon the exercise price, which was equal to the fair market value
       on the date of grant, and annual appreciation at the assumed rates stated
       on such price through the expiration date of the options. Amounts shown
       represent hypothetical gains that could be achieved for the options if
       exercised at the end of the term. These amounts have been determined on
       the basis of assumed rates of appreciation mandated by the Commission and
       do not represent the Company's estimate or projection of the future stock
       price. Actual gains, if any, are contingent upon the continued employment
       of the Named Executive Officer through the expiration date, as well as
       being dependent upon the general performance of the Common Stock. The
       potential realizable values have not taken into account amounts required
       to be paid for federal income taxes.



                                       28
<PAGE>


STOCK OPTIONS HELD AT END OF FISCAL 1997

       The following table indicates the number of shares acquired and value
realized from the exercise of options and the total number and value of
exercisable and unexercisable stock options held by each of the Named Executive
Officers as of December 31, 1997.

<TABLE>
<CAPTION>
                                                                 NUMBER OF SECURITIES                        VALUE OF UNEXERCISED
                                                                UNDERLYING UNEXERCISED                           IN-THE-MONEY
                                                              OPTIONS AT FISCAL YEAR-END                  OPTIONS AT FISCAL YEAR-END
                                SHARES ACQUIRED    VALUE
                                   ON EXERCISE    REALIZED    EXERCISABLE   UNEXERCISABLE   EXERCISABLE(1)   UNEXERCISABLE(1)
                                   -----------    --------    -----------   -------------   --------------   ----------------
<S>                                  <C>          <C>            <C>            <C>                 <C>            <C>
Chih-Ming J. Chen, Ph.D.........          -              -       200,000             -           $5,550,000               -
Randy Glover....................     11,000       $265,000         9,000        34,000              209,300        $742,500
Angelo C. Malahias..............          -              -         8,000        39,500              186,000         849,000
</TABLE>
----------
(1)  Based on a fair market value of $34.25 per share at December 31, 1997.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         There were no compensation committee interlocks and insider
participation in executive compensation decisions during 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of the common stock as of March 13, 1998, by (i) each
person or entity known by the Company to beneficially own more than 5% of the
outstanding shares of common stock; (ii) each director of the Company; (iii)
each of the Named Executive Officers; and (iv) all directors and executive
officers of the Company as a group:

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                              NUMBER OF SHARES       % OF CLASS
BENEFICIAL OWNER (1)(2)                         BENEFICIALLY OWNED      OUTSTANDING
-----------------------                         ------------------      -----------
<S>                                                  <C>                     <C>
DIRECTORS AND EXECUTIVE OFFICERS
Alan P. Cohen(3)..........................           1,631,464               10.9%
Elliot F. Hahn, Ph.D.(4)..................             982,447                6.6
Chih-Ming J. Chen, Ph.D.(5)...............           1,696,614               11.2
Randy Glover(6)...........................              25,000                 *
Angelo C. Malahias(7).....................              21,300                 *
Elaine Bloom(8)...........................              24,775                 *
Irwin C. Gerson(9)........................              24,375                 *
Elliot Levine(10).........................              29,120                 *
Michael A. Schwartz, Ph.D.(11)............              24,375                 *
Melvin Sharoky, M.D.(12)..................              21,080                 *
All directors and executive
  officers as a group
  (11 persons)(13)........................           4,528,050               29.6

5% OR GREATER HOLDERS

Watson Pharmaceuticals, Inc.(14)
311 Bonnie Circle
Corona, CA 91720..........................           3,028,869               19.8
</TABLE>



                                       29
<PAGE>

----------
*      Less than 1%

(1)      Except as indicated, the address of each person named in the table is
         c/o Andrx, 4001 Southwest 47th Avenue, Ft. Lauderdale, Florida 33314.

(2)      Except as otherwise indicated, the persons named in this table have
         sole voting and investment power with respect to all shares of Common
         Stock listed, which include shares of common stock that such persons
         have the right to acquire a beneficial interest within 60 days from the
         date of this Report.

(3)      Includes 4,875 shares of common stock held jointly by Mr. Cohen and his
         spouse, and 1,568,347 shares held in family limited partnerships.

(4)      Includes 582,945 shares of common stock held in a trust for the benefit
         of Dr. Hahn and 399,502 shares of Common Stock held in trusts for the
         benefit of Dr. Hahn's children.

(5)      Includes 1,200,000 shares of common stock and 257,693 shares of common
         stock held by limited partnerships for which Dr. Chen is an officer of
         the corporate general partner, and 200,000 shares of common stock
         issuable upon the exercise of stock options.

(6)      Includes 19,000 shares of common stock issuable upon the exercise of
         stock options.

(7)      Includes 18,500 shares of common stock issuable upon the exercise of
         stock options, 2,000 shares of common stock held jointly by Mr.
         Malahias and his spouse, and 800 shares of common stock held by Mr.
         Malahias as custodian for his minor children.

(8)      Includes 12,875 shares of common stock issuable upon the exercise of
         stock options.

(9)      Includes 24,375 shares of common stock issuable upon the exercise of
         stock options.

(10)     Represents 4,620 shares of common stock held jointly by Mr. Levine and
         his spouse; 2,000 shares of common stock issuable upon the exercise of
         Warrants held jointly by Mr. Levine and his spouse and 22,500 shares of
         common stock issuable upon the exercise of stock options.

(11)     Represents 24,375 shares of common stock issuable upon exercise of
         stock options.

(12)     Includes 15,250 shares of common stock issuable upon exercise of stock
         options and 830 shares of common stock held by Dr. Sharoky as custodian
         for his minor children. Does not include shares of common stock
         beneficially owned by Watson, in which shares Dr. Sharoky disclaims
         beneficial ownership.

(13)     Includes the shares of common stock described in notes (3), (4), (5),
         (7), (10) and (12); 338,875 shares of common stock issuable upon the
         exercise of the stock options and warrants described in notes (5)
         through (12); and 2,500 shares of common stock and 45,000 shares of
         common stock issuable upon the exercise of stock options held by Scott
         Lodin, the Company's Vice President, General Counsel and Secretary.

(14)     Includes 337,079 shares of common stock issuable upon the exercise of
         the warrants to purchase common stock held by Watson.


                                       30
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH WATSON

       In July 1994, the Company and Circa, which was subsequently acquired by
Watson, established the ANCIRC joint venture. The terms of the ANCIRC joint
venture are described in "Item 7. Business--Collaborative Arrangements," except
that when established, ANCIRC was owned 60% by Andrx and 40% by Watson. In
connection with the establishment of ANCIRC, the Company sold to Watson, for
aggregate consideration of $6.0 million, (i) 33,708 shares of preferred stock,
which in accordance with its terms, converted into 674,160 shares of common
stock on April 30, 1995 and (ii) the Watson Warrants to purchase 337,079 shares
of common stock exercisable through July 1999 at a price equal to the lesser of
$8.90 or the offering price per share of shares sold in an initial public
offering.

       In August 1995, Watson purchased an additional 90,909 shares of common
stock from the Company at a price of $11.00 per share and Watson was granted a
two-month option to purchase no less than 818,182 nor more than 1,454,545 shares
of common stock from the Company, Mr. Cohen, trusts for the benefit of Dr.
Hahn's children (the "Trusts") and Dr. Chen at a price of $11.00 per share (with
no more than 181,818 shares being sold by selling shareholders. Watson exercised
such option in October 1995 and in December 1995 purchased 1,144,903 shares from
the Company, 63,636 shares from Mr. Cohen, 54,546 shares from the Trusts, and
63,636 shares from Dr. Chen, for a total of 1,326,721 shares of common stock. In
connection with the exercise of the option by Watson, the ANCIRC joint venture
agreement was amended to provide that the Company and Watson would agree on two
additional product candidates to be developed by ANCIRC, and to restructure the
respective interests of the Company and Watson in ANCIRC so that ANCIRC became a
50/50 joint venture.

       In June 1997, Watson purchased an additional 150,000 shares of common
stock from the Company and 450,000 shares from Andrx's founders at a price of
$25.50 per share, the closing price of the common stock on the business date
prior to the sale. Watson also entered into a standstill agreement with the
Company pursuant to which it agreed, among other matters, not to acquire more
than a 25% equity interest in the Company or engage in certain transactions with
the Company (including a merger), prior to June 13, 2000, without the prior
approval of the Company's Board of Directors.

       The Company has also granted Watson certain demand and piggyback
registration rights, under the Securities Act of 1933, as amended, with respect
to the shares of common stock held by Watson and the shares underlying the
Watson Warrants, which rights became exercisable commencing June 1997.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)      DOCUMENTS FILED AS PART OF THIS REPORT

         (1) CONSOLIDATED FINANCIAL STATEMENTS

             Reference is made to the Index to Financial Statements included in
Part II, Item 8 of this Report.

         (2) FINANCIAL STATEMENT SCHEDULES

                                                                            PAGE
                                                                            ----

             Report of Independent Certified Public Accountants on
                 Financial Statement Schedule                                S-1

              Schedule II - Valuation and Qualifying Accounts                S-2

         All other schedules for which provision is made in applicable
regulations of the Commission are omitted because they are not applicable or the
required information is in the Consolidated Financial Statements or notes
thereto.


                                       31
<PAGE>



         (3) EXHIBITS

EXHIBIT NO.           DESCRIPTION

3.1      Form of Registrant's Amended and Restated Articles of Incorporation(1)

3.2      Form of Registrant's Amended and Restated Bylaws(1)

4.1      Specimen Common Stock Certificate(1)

10.1     Form of Stock Incentive Plan, as amended(1)*

10.2     Employment Agreement between the Registrant and Alan P. Cohen, as
         amended(1)*

10.3     Employment Agreement between the Registrant and Elliot F. Hahn, as
         amended(1)*

10.4     Employment Agreement between the Registrant and Chih-Ming J. Chen, as
         amended(1)*

10.5     Severance Agreement between the Registrant and Scott Lodin(1)*

10.6     Royalty Agreement between the Registrant and Chih-Ming J. Chen(1)*

10.7     Form of Indemnification Agreement between the Registrant and its
         officers and directors(1)*

10.8     Development and License Agreement dated as of June 28, 1993 by and
         between Zenith Laboratories, Inc. and the Registrant(1)(3)

10.9     Technical Transfer Agreement dated as of July 30, 1993 by and between
         Yung Shin Pharmaceutical Ind. Co. Ltd. and the Registrant (1)(3)

10.10    Development and License Agreement dated as of September 22, 1993 by and
         between Circa Pharmaceuticals, Inc. and the Registrant(1)(3)

10.11    Development and License Agreement dated as of November 10, 1993 by and
         between Mylan Pharmaceuticals, Inc. and the Registrant(1)(3)

10.12    Development and License Agreement dated as of December 7, 1993 by and
         between Circa Pharmaceuticals, Inc. and the Registrant(1)(3)

10.13    Development and License Agreement dated as of January 17, 1994 by and
         between Purzer Pharmaceutical Co., Ltd. and the Registrant(1)(3)

10.14    Lease Agreement relating to premises located at 4001 SW 47th Avenue,
         Ft. Lauderdale, Florida(1)

10.15    Lease Agreement relating to premises located at 4011 SW 47th Avenue,
         Ft. Lauderdale, Florida(1)

10.16    Lease Agreement relating to premises located at 3436 University Drive,
         Davie, Florida(1)

10.17    Loan and Security Agreement by and between Congress Financial
         Corporation (Florida) and the Registrant, as amended(1)


                                       32
<PAGE>



EXHIBIT NO.           DESCRIPTION

10.18    ANCIRC General Partnership Agreement between Circa Pharmaceuticals,
         Inc. and the Registrant, as amended(1)

10.19    Research and Development Services Agreement dated as of July 8, 1994 by
         and between ANCIRC and the Registrant, as amended(1)

10.20    Manufacturing and Regulatory Approval Agreement dated as of July 8,
         1994 by and between Circa Pharmaceuticals, Inc. and ANCIRC, as
         amended(1)

10.21    Distribution and Marketing Agreement dated as of July 8, 1994 between
         ANCIRC and the Registrant, as amended(1)

10.22    Patent and Know How License Agreement dated as of July 8, 1994 between
         ANCIRC and the Registrant, as amended(1)

10.23    Patent and Know How License Agreement dated as of July 8, 1994 between
         Circa Pharmaceuticals, Inc. and ANCIRC, as amended(1)

10.24    Securities Purchase Agreement dated as of July 8, 1994 between the
         Registrant and Circa Pharmaceuticals, Inc.(1)

10.25    Securities Purchase Agreement dated as of August 17, 1995 between the
         Registrant and Circa Pharmaceuticals, Inc.(1)

10.26    Securities Purchase Agreement dated as of October 30, 1995 between the
         Registrant and Circa Pharmaceuticals, Inc.(1)

10.27    Development Agreement between Sepracor, Inc. and the Registrant(1)(3)

10.28    Sixth Amendment to the Loan and Security Agreement by and between
         Congress Financial Corporation (Florida) and Registrant(4)

10.29    Employment Agreement between the Registrant and Angelo C. Malahias(5)*

10.30    First Amendment to Lease Agreement relating to the premises located at
         3436 University Drive, Davie, Florida(5)

10.31    Third Addendum to Lease between the Registrant and New Town Commerce
         Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
         Florida (2)

10.32    Fourth Addendum to Lease between the Registrant and New Town Commerce
         Centre, Ltd., relating to the premises at 4001 S.W. 47th Avenue, Davie,
         Florida (2)

10.33    Lease by and between Registrant and New Town Commerce Center, Ltd.,
         relating to the premises located at 4111 S.W. 47th Avenue, Davie,
         Florida(2)

10.34    Second Amendment to Lease between Registrant and University
         Associates Limited, L.L.P. relating to the premises located at 3436
         Univesity Drive, Davie, Florida(2)

11.1     Net loss per share computation(2)

21.1     Subsidiaries of the Registrant(5)

23.2     Consent of Arthur Andersen LLP(2)

27.1     Financial Data Schedule(2)

99.1     Financial Statements of ANCIRC Pharmaceuticals(2)



                                       33
<PAGE>

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

*        MANAGEMENT COMPENSATION PLAN OR ARRANGEMENT.

(1)      Filed as an exhibit of the same number to the Company's Registration
         Statement on Form S-1 (File No. 333-03614) and incorporated herein by
         reference.

(2)      Filed herewith.

(3)      A request for confidential treatment pursuant to Rule 406 under the
         Securities Act has been made and granted for certain portions of this
         exhibit.

(4)      Filed as an exhibit of the same number in Quarterly Report on Form 10-Q
         for the period ended September 30, 1996 and incorporated herein by
         reference.

(5)      Filed as an exhibit of the same number in Annual Report on Form 10-K
         for the year ended December 31, 1996 and incorporated herein by
         reference.

(B)      REPORTS ON FORM 8-K

         None.

(C)      ITEM 601 EXHIBITS

         The exhibits required by Item 601 of Regulation S-K are set forth in
         (A)(3) above.

(D)      FINANCIAL STATEMENT SCHEDULES

         The financial statement schedules required by Regulation S-K are set
         forth in (A)(2) above.



                                       34
<PAGE>


                                   SIGNATURES

                  Pursuant to the requirements of Section 13 or 15(d) 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.

                                                 ANDRX CORPORATION

                                                 By:   /S/ ALAN P. COHEN
                                                    ----------------------------
                                                      Alan P. Cohen
                                                      Chairman of the Board and
                                                      Chief Executive Officer

                                                 By:   /S/ ANGELO C. MALAHIAS
                                                    ----------------------------
                                                      Angelo C. Malahias
                                                      Vice President and
                                                      Chief Financial Officer

Date:  March 30, 1998

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
      SIGNATURE                             TITLE                                      DATE
      ---------                             -----                                      ----

<S>                                       <C>                                          <C>
/S/ ALAN P. COHEN                         Chairman of the Board and Chief              March 30, 1998
----------------------                    Executive Officer
Alan P. Cohen                             (Principal Executive Officer)


/S/ ELLIOT F. HAHN                        President                                    March 30, 1998
-----------------------
Elliot F. Hahn, Ph.D.

/S/ CHIH-MING J. CHEN                     Vice President and Chief Scientist           March 30, 1998
------------------------
Chih-Ming J. Chen, Ph.D.

/S/ ANGELO C. MALAHIAS                    Vice President and Chief                     March 30, 1998
-------------------------                 Financial Officer
Angelo C. Malahias                        (Principal Financial and
                                          Accounting Officer)


/S/ ELAINE BLOOM                          Director                                     March 30, 1998
-------------------------
Rep. Elaine Bloom

/S/ IRWIN C. GERSON                       Director                                     March 30, 1998
--------------------------
Irwin C. Gerson

/S/ ELLIOT LEVINE                         Director                                     March 30, 1998
--------------------------
Elliot Levine

/S/ MICHAEL A. SCHWARTZ                   Director                                     March 30, 1998
--------------------------
Michael A. Schwartz, Ph.D.

/S/ MELVIN SHAROKY                        Director                                     March 30, 1998
--------------------------
Melvin Sharoky, M.D.
</TABLE>



                                       35
<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                         ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders of
     Andrx Corporation

         We have audited in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Form 10-K, and have issued our report thereon dated February 17, 1998. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Fort Lauderdale, Florida,
   February 17, 1998 (except with respect to the
   matter discussed in Note 18, as to which the
   date is March 18, 1998).

                                      S-1
<PAGE>


                       ANDRX CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                   (in 000's)

<TABLE>
<CAPTION>
                                         BALANCE AT                                               BALANCE AT
                                         BEGINNING                                                  END OF
                                          OF YEAR          ADDITIONS         DEDUCTIONS              YEAR
                                          -------          ---------         ----------              ----
<S>                                         <C>              <C>                <C>                 <C>
Year ended December 31, 1997
  allowance for doubtful accounts           $970             $743               $(124)              $1,589
                                            ====             ====               ======              ======

Year ended December 31, 1996
  allowance for doubtful accounts           $574             $577               $(181)             $   970
                                            ====             ====               ======             =======

Year ended December 31, 1995
  allowance for doubtful accounts           $552             $547               $(525)             $   574
                                            ====             ====               ======             =======
</TABLE>




                                      S-2
<PAGE>


                                ANDRX CORPORATION

                                INDEX TO EXHIBITS

                                 1997 FORM 10-K

EXHIBIT
NUMBER                   DESCRIPTION

10.31    Third Addendum to Lease between the Registrant and New Town Commerce
         Centre, Ltd., relating to the premises at 4011 S.W. 47th Avenue, Davie,
         Florida

10.32    Fourth Addendum to Lease between the Registrant and New Town Commerce
         Centre, Ltd., relating to the premises at 4001 S.W. 47th Avenue, Davie,
         Florida

10.33    Lease by and between Registrant and New Town Commerce Center, Ltd.,
         relating to the premises located at 4111 S.W. 47th Avenue, Davie,
         Florida

10.34    Second Amendment to lease between Registrant and University of
         Associates Limited, L.L.P. relating to the premises located at 34365
         Univesity Drive, Davie, Florida


11.1     Net Loss per Share Computation

23.2     Consent of Arthur Andersen LLP

27.1     Financial Data Schedule

99.1     Financial Statements of ANCIRC Pharmaceuticals