UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~March 3031, ~~2005~~ 2009

Commission file number 0-17254

NOVEN PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


STATE OF DELAWARE		59-2767632

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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

(305) 253-5099

(Address of principal executive offices) (Zip Code)

(305) 253-5099

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant ishas ansubmitted ~~accelerated~~electronically ~~filer~~and ~~(as~~posted ~~defined~~on inits corporate ~~Rule~~Web site, if any, the Interactive Data File required to be submitted and posted pursuant ~~12b~~to Rule 405 of Regulation S-2T (§232.405 of this chapter) during the ~~Exchange~~preceding ~~Act~~12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þo No o

Indicate by check mark whether the ~~number~~registrant ofis ~~shares~~a ~~outstanding~~large ofaccelerated ~~each~~filer, ofan ~~the~~accelerated ~~issuer’s~~filer, a ~~classes~~non-accelerated filer, or a smaller reporting company. See the definitions of ~~common~~“large accelerated ~~stock~~filer,” as “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the ~~last~~Exchange ~~practicable date~~Act. (Check one):

Class		Outstanding at July 29, 2005
Common stock $.0001 par value		23,578,359


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2009

Common stock $.0001 par value		24,914,418

NOVEN PHARMACEUTICALS, INC.

INDEX

	Page No.
PART I — FINANCIAL INFORMATION
Item 1 -Unaudited Condensed Financial Statements
Item 1 — Unaudited Condensed Consolidated Financial Statements
Condensed Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004		3
Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008		3
Condensed Balance Sheets as of June 30, 2005 and December 31, 2004		4
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008		4
Condensed Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004		5
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2009		5
Notes to Unaudited Condensed Financial Statements		6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008		6
Item 2 -Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		38
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 4 - Controls and Procedures		38
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		40
Item 4 — Controls and Procedures		40
PART II — OTHER INFORMATION
Item 1 – Legal Proceedings		40
Item 1 — Legal Proceedings		41
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 1A — Risk Factors		41
Item 4 – Submission of Matters to a Vote of Security Holders		41
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 6 - Exhibits		42
Item 5 — Other Information		42
Item 6 — Exhibits		42
SIGNATURES		43
Certification of Principal Executive Officer
EX-31.1
Certification of Principal Financial Officer
EX-31.2
Section 906 Certification of Principal Executive Officer
EX-32.1
Section 906 Certification of Principal Financial Officer
EX-32.2

Cautionary Factors: ~~This~~Statements in this report ~~contains~~that are not descriptions of historical facts are “forward-looking statements.” provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. Our actual results, performance and achievements may be materially different from those expressed or implied by such statements and readers should consider the risks and uncertainties associated with our business that are ~~listed,~~discussed byin ~~category,~~Part I ~~starting~~— onItem 1A ~~page~~— “Risk 35Factors” of ~~this report. For additional information regarding these and other risks and uncertainties, readers should refer to~~ our Annual Report on Form 10-K for the year ended December 31, ~~2004~~2008, as well as other reports filed from time to time with the Securities and Exchange Commission.

Trademark Information: ~~Vivelle~~Lithobid®, ~~Vivelle-Dot,~~Pexeva® ~~Estalis,~~and ~~Estradot,~~Stavzor® are ~~Famvir~~registered trademarks, and ~~Menorest~~Mesafem™ ~~are~~is ~~trademarks of~~a ~~Novartis~~trademark AGof orNoven ~~its~~Therapeutics, ~~affiliated companies~~LLC; Vivelle® ~~CombiPatch~~ is a registered trademark of ~~Vivelle Ventures~~Novartis ~~LLC~~Pharmaceuticals Corporation; Estradot® ~~Duragesic~~(foreign) and Vivelle-Dot® are registered trademarks, and Menorest is a trademark, of Novartis AG; CombiPatch® and Estalis® (United States) are registered ~~trademark~~trademarks of ~~Johnson~~Vivelle &Ventures ~~Johnson~~LLC; ~~Intrinsa~~and Daytrana® is a ~~trademark~~registered oftrademark ~~Procter~~of &Shire ~~Gamble~~ Pharmaceuticals, ~~Inc~~Ireland Limited.

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed ~~Statements~~Consolidated ofBalance ~~Operations~~Sheets

~~Three~~(amounts ~~and~~in ~~Six~~thousands, ~~Months~~except ~~Ended~~share ~~June 30,~~data) (unaudited)

(in thousands, except per share amounts)


	March 31,			December 31,
	2009			2008
Assets
Current Assets:
Cash and cash equivalents	$	72,174		$	62,875
Investments in auction rate securities, current portion		—			3,650
Accounts receivable (less allowances of $217 at 2009 and $509 at 2008)		6,729			8,577
Accounts receivable — Novogyne, net		6,737			6,510
Inventories		14,673			13,924
Net deferred income tax asset, current portion		7,235			7,026
Prepaid income taxes		3,356			8,178
Prepaid and other current assets		2,990			2,898

		113,894			113,638

Non-current Assets:
Property, plant and equipment, net		34,809			34,886
Investments in auction rate securities, non-current portion		11,810			11,810
Investment in Novogyne		19,175			24,319
Net deferred income tax asset, non-current portion		64,766			65,159
Intangible assets, net		35,546			36,508
Goodwill		14,407			14,407
Deposits and other non-current assets		623			839

		181,136			187,928

	$	295,030		$	301,566


Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	7,153		$	7,384
Accrued compensation and related liabilities		5,355			7,958
Other accrued liabilities		17,147			17,260
Current portion of long-term obligations		101			3,396
Deferred product revenue — Stavzor^®		1,639			1,537
Deferred license and contract revenues, current portion		25,390			25,459

		56,785			62,994

Non-current Liabilities:
Long-term obligations, less current portion		26			27
Deferred license and contract revenues, non-current portion		70,892			77,112
Other non-current liabilities		887			997

		71,805			78,136

Total Liabilities		128,590			141,130


Commitments and Contingencies (Note 14)

Stockholders’ Equity:
Preferred stock — authorized 100,000 shares par value $.01 per share; no shares issued or outstanding		—			—
Common stock — authorized 80,000,000 shares, par value $.0001 per share; 25,235,763 issued at March 31, 2009 and December 31, 2008		3			3
Additional paid-in capital		124,797			123,290
Retained earnings		46,764			42,267
Treasury stock, at cost - 322,345 shares at March 31, 2009 and December 31, 2008		(5,124	)		(5,124	)
Common stock held in trust		(1,725	)		(1,569	)
Deferred compensation obligation		1,725			1,569

		166,440			160,436

	$	295,030		$	301,566

(The accompanying notes to unaudited) condensed consolidated financial statements are an integral part of these financial statements.

	Three Months					Six Months
	2005			2004		2005			2004
Revenues:
Product revenues — Novogyne:
Product sales	$	4,714		$	4,886	$	9,692		$	10,694
Royalties		1,713			1,608		2,827			2,498
Total product revenues — Novogyne		6,427			6,494		12,519			13,192
Product revenues — third parties		3,933			3,564		7,971			6,541
Total product revenues		10,360			10,058		20,490			19,733
Contract and license revenues:
Contract		429			853		1,024			1,372
License		982			1,044		1,993			1,980
Contract and license revenues		1,411			1,897		3,017			3,352
Net revenues		11,771			11,955		23,507			23,085
Expenses:
Cost of products sold		5,124			4,975		10,881			10,493
Research and development		3,145			2,734		6,155			4,989
Marketing, general and administrative		4,189			3,762		8,244			7,666
Total expenses		12,458			11,471		25,280			23,148
Income (loss) from operations		(687	)		484		(1,773	)		(63	)
Equity in earnings of Novogyne		8,101			8,228		9,013			8,865
Interest income, net		593			184		1,096			340
Income before income taxes		8,007			8,896		8,336			9,142
Provision for income taxes		2,886			3,218		3,004			3,306
Net income	$	5,121		$	5,678	$	5,332		$	5,836
Basic earnings per share	$	0.22		$	0.24	$	0.23		$	0.25
Diluted earnings per share	$	0.21		$	0.23	$	0.22		$	0.24
Weighted average number of common shares outstanding:
Basic		23,565			23,386		23,537			23,226
Diluted		24,068			24,387		24,017			24,334

The accompanying notes are an integral part of these statements.

NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed ~~Balance~~Consolidated ~~Sheets~~Statements of Operations

(amounts in thousands, except per share data)

(unaudited)

	June 30, 2005			December 31, 2004
	Three Months Ended March 31,
Assets
	2009			2008
Current Assets:
Revenues:
Cash and cash equivalents	$	33,333		$	93,958
Product revenues — Novogyne:
Short-term investments		44,600			—
Product sales, net	$	5,480		$	2,431
Accounts receivable — trade (less allowance for doubtful accounts of $86 in 2005 and $64 in 2004)		5,290			5,395
Royalties		2,222			2,180
Accounts receivable — Novogyne, net		7,378			10,098
Total net product revenues — Novogyne		7,702			4,611
Inventories		19,778			15,988
Product revenues, net — third parties		13,649			11,585
Net deferred income tax asset, current portion		6,100			6,700
Total net product revenues		21,351			16,196
Prepaid income taxes		6,407			9,344
License and contract revenues		6,289			5,286
Prepaid and other current assets		2,688			1,238
Total net revenues		27,640			21,482
		125,574			142,721
Costs and Expenses:
Property, plant and equipment, net		26,947			22,587
Cost of products sold — Novogyne		3,648			3,326
Other Assets:
Cost of products sold — third parties		7,768			7,983
Investment in Novogyne		24,863			26,233
Total cost of products sold		11,416			11,309
Net deferred income tax asset		8,782			8,239
Research and development		4,653			3,319
Patent development costs, net		2,197			2,174
Selling and marketing		5,013			4,823
Deposits and other assets		22			21
General and administrative		7,048			7,022
		35,864			36,667
Total costs and expenses		28,130			26,473
	$	188,385		$	201,975
Loss from operations		(490	)		(4,991	)
Liabilities and Stockholders’ Equity
Equity in earnings of Novogyne		7,545			8,267
Current Liabilities:
Interest and other income, net		89			622
Accounts payable and accrued expenses	$	6,295		$	12,176
Income before income taxes		7,144			3,898
Capital lease obligations — current portion		118			114
Provision for income taxes		2,647			1,306
Accrued liability — Shire		4,979			10,587
Net income	$	4,497		$	2,592
Accrued compensation and related liabilities		3,609			5,762
Basic earnings per share	$	0.18		$	0.11
Other accrued liabilities		2,734			3,015
Diluted earnings per share	$	0.18		$	0.11
Deferred rent credit		89			—
Weighted average number of common shares outstanding:
Deferred contract revenues		1,853			2,076
Basic		24,692			24,560
Deferred license revenues — current portion		10,018			11,642
Diluted		24,769			24,665
		29,695			45,372
Long-Term Liabilities:
Capital lease obligations		61			121
Deferred rent credit		792			—
Deferred license revenues		22,252			27,443
		52,800			72,936
Commitments and Contingencies (Note 12) Stockholders’ Equity:
Stockholders’ Equity:
Preferred stock — authorized 100,000 shares of $.01 par value; no shares issued or outstanding		—			—
Common stock — authorized 80,000,000 shares, par value $.0001 per share; issued and outstanding 23,576,820 at June 30, 2005 and 23,481,264 at December 31, 2004		2			2
Additional paid-in capital		89,450			88,236
Retained earnings		46,133			40,801
		135,585			129,039
	$	188,385		$	201,975

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

NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed ~~Statements~~Consolidated Statement of ~~Cash~~Changes ~~Flows~~in Stockholders’ Equity

~~Six~~(amounts ~~Months~~in ~~Ended June 30,~~thousands)

(in thousands)

(unaudited)

	2005			2004
							Additional
Cash flows from operating activities:
	Common Stock						Paid-in			Retained		Treasury
Net income	$	5,332		$	5,836
	Shares			Amount			Capital			Earnings		Stock			Other			Total
Adjustments to reconcile net income to net cash flows (used in) provided by operating activities:
Balance at December 31, 2008		24,913		$	3		$	123,290		$	42,267	$	(5,124	)	$	—		$	160,436
Depreciation and amortization		1,134			1,173
Stock-based compensation expense and issuance of shares to outside directors		—			—			1,298			—		—			—			1,298
Amortization of patent costs		218			186
Issuance of SSAR in settlement of executive bonus		—			—			219			—		—			—			219
Amortization of non-competition agreement		—			167
Tax benefit adjustments		—			—			(10	)		—		—			—			(10	)
Amortization of deferred rent credit		(31	)		—
Common stock held in trust		(13	)		—			—			—		—			(156	)		(156	)
Income tax benefits on exercise of stock options		154			2,728
Deferred compensation obligation		13			—			—			—		—			156			156
Deferred income tax expense (benefit)		57			(3,079	)
Net income		—			—			—			4,497		—			—			4,497
Non-cash expense related to issuance of stock to outside directors		—			30
Balance at March 31, 2009		24,913		$	3		$	124,797		$	46,764	$	(5,124	)	$	—		$	166,440
Recognition of deferred license revenues		(1,993	)		(1,980	)
Equity in earnings of Novogyne		(9,013	)		(8,865	)
Distributions from Novogyne		8,926			12,263
Changes in operating assets and liabilities:
Decrease in accounts receivable — trade, net		105			1,189
Decrease in accounts receivable — Novogyne, net		2,720			2,782
Increase in inventories		(3,790	)		(252	)
Decrease in prepaid income taxes		4,394			2,212
Increase in prepaid and other current assets		(1,450	)		(1,383	)
Increase in deposits and other assets		(1	)		(6	)
(Decrease) increase in accounts payable		(5,881	)		1,557
(Decrease) increase in accrued liability — Shire		(5,608	)		932
Decrease in accrued compensation and related liabilities		(2,153	)		(843	)
Decrease in other accrued liabilities		(281	)		(872	)
(Decrease) increase in deferred contract revenue		(223	)		1,803
Increase in deferred license revenue		—			6,500
Direct expenses incurred in pursuit of methylphenidate patch regulatory approval		(4,822	)		(1,346	)
Cash flows (used in) provided by operating activities		(12,206	)		20,732
Cash flows from investing activities:
Purchases of property, plant and equipment, net		(4,582	)		(2,290	)
Payments for patent development costs, net		(241	)		(285	)
Purchases of short-term investments		(201,665	)		—
Proceeds from sale of short-term investments		157,065			—
Cash flows used in investing activities		(49,423	)		(2,575	)
Cash flows from financing activities:
Issuance of common stock from exercise of stock options		1,060			5,321
Repayments of capital leases and notes payable		(56	)		(49	)
Cash flows provided by financing activities		1,004			5,272
Net (decrease) increase in cash and cash equivalents		(60,625	)		23,429
Cash and cash equivalents, beginning of period		93,958			83,381
Cash and cash equivalents, end of period	$	33,333		$	106,810

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

NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

~~Notes~~Condensed toConsolidated ~~Unaudited~~Statements ~~Condensed~~of ~~Financial~~Cash ~~Statements~~Flows

1.(amounts ~~DESCRIPTION~~in ~~OF BUSINESS:~~thousands)

~~Noven Pharmaceuticals, Inc.~~ (~~“Noven”~~unaudited) ~~was incorporated in Delaware in 1987 and is engaged in the research, development, manufacture and marketing of advanced transdermal drug delivery technologies and prescription transdermal products.~~

Noven and Novartis Pharmaceuticals Corporation (“Novartis”) entered into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals) (“Novogyne”), effective May 1, 1998, to market and sell women’s prescription healthcare products in the United States and Canada. These products include Noven’s transdermal hormone therapy products delivery systems marketed under the brand names Vivelle®, Vivelle-Dot™ and CombiPatch®. Noven accounts for its 49% investment in Novogyne under the equity method and reports its share of Novogyne’s earnings as “Equity in earnings of Novogyne” on its Statements of Operations. Noven defers the recognition of 49% of its profit on products sold to Novogyne until the products are sold by Novogyne to third party customers.


	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net income	$	4,497		$	2,592
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation and amortization		2,057			2,272
Loss on disposal of property, plant and equipment		—			11
Inventory write-offs		916			3,050
Stock based compensation expense		1,298			858
Income tax benefits on stock-based awards/SSARs		—			37
Deferred income tax benefit		184			(2,380	)
Recognition of deferred license and contract revenues		(6,289	)		(5,286	)
Equity in earnings of Novogyne		(7,545	)		(8,267	)
Distributions from Novogyne		12,689			10,916
Other noncash items		271			39
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable — trade, net		1,848			(1,782	)
(Increase) decrease in accounts receivable — Novogyne, net		(227	)		2,753
Increase in inventories		(1,665	)		(6,202	)
Decrease in prepaid income taxes		4,822			2,802
Decrease (increase) in prepaid and other current assets		(92	)		(462	)
Increase in deposits and other assets		(94	)		(176	)
(Decrease) increase in accounts payable and accrued expenses		(240	)		732
Decrease in accrued compensation and related liabilities		(2,384	)		(5,165	)
Decrease in other accrued liabilities		(101	)		(110	)
Increase in deferred license and contract revenues		—			346
Increase in deferred product revenue — Stavzor^®		102			—
Increase in other liabilities		(93	)		(654	)

Cash flows provided by (used in) operating activities		9,954			(4,076	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(798	)		(341	)
Payments for intangible assets		(211	)		(96	)
Purchases of investments		—			(550	)
Proceeds from sale of investments		3,650			18,800

Cash flows provided by investing activities		2,641			17,813

Cash flows from financing activities:
Issuance of common stock from exercise of stock options/SSARs		—			10
Payments of long-term obligations		(3,296	)		(55	)

Cash flows used in financing activities		(3,296	)		(45	)

Net increase in cash and cash equivalents		9,299			13,692
Cash and cash equivalents, beginning of period		62,875			13,973

Cash and cash equivalents, end of period	$	72,174		$	27,665

2.The ~~BASIS~~accompanying OFnotes ~~PRESENTATION:~~to unaudited condensed consolidated financial statements are an integral part of these financial statements.

In management’s opinion, the accompanying unaudited condensed financial statements of Noven contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the financial position of Noven as of June 30, 2005, and the results of its operations and its cash flows for the three and six months ended June 30, 2005 and 2004. Noven’s business is subject to numerous risks and uncertainties including, but not limited to, those set forth in Noven’s Annual Report on Form 10-K for the year ended December 31, 2004 (“Form 10-K”), and in Part I — Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this quarterly report on Form 10-Q. Accordingly, the results of operations and cash flows for the three and six months ended June 30, 2005 and 2004 are not, and should not be construed as, necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2005 or for periods thereafter.

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes to the financial statements included in Noven’s Form 10-K. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 2 of the notes to the financial statements included in Noven’s Form 10-K.

3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

Cash and cash equivalents includes all highly liquid investments with an original maturity of three months or less at the date of purchase. Cash and cash equivalents as of June 30, 2005, and December 31, 2004, consisted primarily of overnight money market accounts, time deposits, and money market funds with original maturities of three months or less at the date of purchase.

~~Beginning~~NOVEN ~~in the first quarter of 2005~~PHARMACEUTICALS, Noven invested a portion of its cash in short-term investments, which primarily consist of investment grade, asset backed, variable rate debt obligations and municipal auction rate securities, which are categorized as available-for-sale under the provisions of Statement of Financial Accounting Standards (“SFAS”) NoINC. ~~115~~ ~~“Accounting~~AND ~~for Certain Investments in Debt and Equity Securities”. Despite the~~SUBSIDIARIES long-term nature of their stated contractual maturities, these securities have provisions that allow for liquidation in the short-term. Accordingly, the short-term investments are reported at fair value, with any related unrealized gains and losses included in comprehensive income as a separate component of stockholder’s equity, net of applicable taxes. As of June 30, 2005, the cost of all short-term investments approximated fair value. Therefore, no unrealized gains and losses have been recognized for the quarter ended June 30, 2005. Realized gains and losses and interest and dividends are included in interest income or interest expense, as appropriate.

4.Notes ~~RECENT~~to ~~ACCOUNTING~~Unaudited ~~PRONOUNCEMENTS:~~Condensed Consolidated Financial Statements

~~In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No~~1. ~~151 “Inventory~~ ~~Costs~~DESCRIPTION –OF anBUSINESS ~~amendment~~AND ofBASIS ~~ARB~~OF ~~No. 43, Chapter 4” (“SFAS 151”), to clarify the~~PRESENTATION: accounting for abnormal amounts of idle facility expense, freight or wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the “so abnormal” criterion outlined in Accounting Research Bulletin 43, Chapter 4, “Inventory Pricing”. SFAS 151 also introduces the concept of “normal capacity” and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. Unallocated overheads must be recognized as an expense in the period in which they are incurred. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Noven is currently assessing SFAS 151 and is unable to estimate the impact it will have on its results of operations and financial condition.

InIncorporated ~~December 2004,~~in ~~the~~Delaware ~~FASB issued SFAS No. 123(R) “Share-Based Payment (Revised 2004)” that will require compensation costs related to share-based payment transactions to be recognized~~ in ~~the financial statements. With limited exceptions~~1987, ~~the~~Noven amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the awardPharmaceuticals, ~~which is generally over the vesting period~~Inc. ~~SFAS 123~~(R“Noven”) ~~also requires~~is ~~the~~a ~~benefits~~specialty pharmaceutical ofcompany ~~tax~~engaged ~~deductions~~ in ~~excess~~the ofresearch, ~~recognized~~development, ~~compensation costs to be reported as financial cash flows~~manufacturing, ~~rather than as operating cash flows as required under current~~licensing, ~~literature.~~marketing ~~This requirement will reduce net operating cash flows~~ and ~~increase~~sale ~~net~~of ~~financing cash~~prescription ~~flows~~pharmaceutical ~~in periods after adoption~~products. ~~While~~ Noven’s ~~cannot~~business ~~estimate~~is ~~what~~focused ~~those amounts will be~~ in ~~the future, the amount of such income tax benefits on exercise of stock options was $0.2~~ ~~million~~three ~~and~~principal ~~$2.7~~areas: (i) ~~million~~Noven ~~for~~Transdermals, the ~~first~~transdermal ~~half~~drug ofdelivery ~~2005~~segment; ~~and 2004, respectively. SFAS 123~~(Rii) ~~replaces~~Novogyne ~~SFAS~~Pharmaceuticals ~~123,~~ (“~~Accounting for Stock-Based Compensation~~Novogyne”), ~~and supersedes APB 25, “Accounting for Stock Issued to Employees”. For public companies such as Noven,~~ the ~~statement is~~women’s ~~effective~~health asjoint ofventure ~~the~~with ~~beginning of the first annual reporting period that begins after June~~Novartis ~~15,~~Pharmaceuticals ~~2005~~Corporation ~~and accordingly, Noven anticipates adopting this statement in the first quarter of 2006. See Note 7~~ (“~~Employee Stock Plans~~Novartis”); ~~with~~and ~~respect~~(iii) Noven toTherapeutics, the ~~estimated impact SFAS 123 will~~specialty ~~have~~pharmaceutical ~~on Noven’s results of operations and financial condition~~segment.

InNoven’s ~~December 2004,~~primary ~~the~~commercialized ~~FASB~~products ~~issued~~include ~~SFAS~~prescription ~~No. 153~~transdermal ~~“Exchanges~~patches ~~of Nonmonetary Assets, An~~utilizing ~~Amendment~~its ofproprietary ~~APB~~transdermal ~~Opinion~~drug ~~No. 29”~~delivery ~~(“SFAS~~technology ~~153”).~~for ~~SFAS~~use ~~153~~in ~~eliminates~~ the ~~exception~~treatment ~~for~~of ~~exchange~~Attention ofDeficit ~~similar~~Hyperactivity ~~productive~~Disorder ~~assets~~(“ADHD”) and ~~replaces~~in itmenopausal ~~with~~hormone atherapy ~~general~~(“HT”), ~~exception~~as ~~for~~well ~~exchanges of~~as ~~non-monetary~~oral ~~assets~~prescription ~~that~~products ~~do not have commercial substance. SFAS 153 is effective~~ for ~~non-monetary~~ ~~assets~~use ~~and exchanges occurring~~ in the ~~first~~treatment ~~quarterly~~of ~~period~~certain ~~beginning~~psychiatric ~~after June 15, 2005~~conditions. As Noven’s developmental ~~has~~pipeline ~~not~~includes ~~and~~products ~~has no present intention to engage~~ in ~~exchanges~~the ofwomen’s ~~non-monetary assets,~~health ~~Noven~~and ~~does~~central ~~not~~nervous ~~anticipate that implementation of this statement will have a material~~system ~~impact~~(“CNS”) ~~on its results of operations and financial condition~~categories.

Noven operates in three segments distinguished along product categories and nature of the business unit: (i) Noven Transdermals, which currently engages in the development, manufacturing and licensing to partners of prescription transdermal products; (ii) Novogyne, the women’s health joint venture with Novartis in which Noven owns a 49% equity interest and for which Noven reports its share of Novogyne’s earnings as “Equity in earnings of Novogyne” on its Condensed Consolidated Statements of Operations; and (iii) Noven Therapeutics, which currently engages in the marketing and sale of pharmaceutical products. Historically, Novogyne was viewed as a component of the Noven Transdermals unit since the joint venture’s primary activity involves the marketing and sale of patches manufactured by Noven Transdermals. In the fourth quarter of 2008, as a result of organizational changes throughout 2008, Noven revised its presentation of reportable segments to reflect the joint venture as a reportable unit distinct from Noven Transdermals, which is consistent with the manner in which information is reported for management decision making. See Note 15 — “Segment Data” for Noven’s segment financial reporting.

In management’s opinion, the accompanying Unaudited Condensed Consolidated Financial Statements of Noven contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of Noven, the results of its operations, and its cash flows for the periods presented. Noven’s business is subject to numerous risks and uncertainties including, but not limited to, those set forth in Part I — Item 1A — “Risk Factors” of Noven’s Annual Report on Form 10-K for the year ended December 31, 2008 (“Form 10-K”). Accordingly, the results of operations and cash flows for the periods presented are not, and should not be construed as, necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2009 or for periods thereafter.

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. The Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included in Noven’s Form 10-K. The accounting policies followed for interim financial reporting are the same as those disclosed in Note 2 — “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Noven’s Form 10-K.

InNoven Therapeutics ~~June~~commercially launched Stavzor® in August ~~2005,~~2008. Noven sells Stavzor® to pharmaceutical wholesalers and chain drug stores. These companies have the ~~FASB~~right ~~issued~~to ~~SFAS~~return NoStavzor® for up to one year after product expiration. ~~154~~ As a result of the commercial launch of Stavzor® in the third quarter of 2008, ~~Accounting~~Noven ~~Changes~~does not ~~and~~yet ~~Error~~have ~~Corrections~~sufficient sales history to reasonably estimate product returns of ~~(“SFAS~~Stavzor®. ~~154”)~~Noven’s customers are no longer permitted to return the product after it has been dispensed. ~~SFAS~~Under ~~154~~Statement ~~replaces~~of ~~APB~~Financial ~~Opinion~~Accounting Standards (“SFAS”) No. 2048, ~~Accounting~~“Revenue Recognition ~~Changes~~When ~~and~~Right ~~FAS~~of Return Exists” (“SFAS No. 348”), Noven cannot recognize revenue on ~~Reporting~~product ~~Accounting~~shipments ~~Changes~~until init ~~Interim~~can ~~Financial~~reasonably ~~Statements.~~estimate ~~SFAS~~returns ~~154~~relating ~~requires~~to ~~that~~these ashipments. In ~~voluntary~~accordance ~~change~~with inSFAS ~~accounting~~No. 48, ~~principle~~Noven behas ~~applied~~deferred ~~retrospectively~~recognition ~~with~~of ~~all~~revenue ~~prior~~on ~~period~~product shipments of ~~financial~~Stavzor® ~~statements~~to ~~presented~~Noven’s oncustomers ~~the~~until ~~new~~such ~~accounting~~time ~~principle.~~as ~~SFAS~~Stavzor® ~~154~~units ~~also~~are dispensed ~~requires~~through ~~that~~patient ~~a change~~prescriptions. inNoven ~~method~~estimates the volume of ~~depreciating~~prescription orunits dispensed ~~amortizing~~at apharmacies ~~long-lived~~based ~~non-financial~~on ~~asset~~data beprovided ~~accounted for~~by ~~prospectively~~external, asindependent asources. ~~change~~These insources poll ~~estimate~~pharmacies, ~~and~~hospitals, ~~correction~~mail oforder ~~errors~~and inother ~~previously~~retail ~~issued~~outlets for Stavzor® ~~financial~~prescriptions ~~statements~~and ~~should~~project bethis ~~termed~~sample on a ~~restatement~~national level. ~~SFAS~~Noven ~~154~~will isrecognize ~~effective~~revenue ~~for accounting~~based ~~changes~~on ~~and~~prescription ~~correction~~units ofdispensed ~~errors~~until ~~made~~Noven inhas ~~the~~sufficient ~~first~~sales ~~annual~~history ~~reporting~~to ~~period~~reasonably ~~beginning after~~estimate ~~December 15,~~product ~~2005~~returns. ~~The~~Noven ~~implementation~~recognized $0.7 million of ~~SFAS~~net ~~154~~revenues isfor ~~not~~Stavzor® ~~presently~~in ~~expected~~the first toquarter ~~have~~of a2009, ~~material~~and $1.6 million of deferred product revenue relating to ~~impact~~Stavzor® was reflected on Noven’s ~~results~~Condensed ofConsolidated ~~operations~~Balance ~~and~~Sheet ~~financial~~as ~~condition~~of March 31, 2009.

5. Certain ~~RECLASSIFICATIONS:~~reclassifications have been made to the prior period’s Condensed Consolidated Statements of Cash Flows to conform to the current period’s presentation.

~~Certain~~2. ~~reclassifications~~RECENT ~~have~~ACCOUNTING ~~been made to prior period financial statements to conform~~PRONOUNCEMENTS: ~~to the current year’s presentation.~~

6. The ~~INVENTORIES:~~following information updates the discussion of recent accounting pronouncements in Note 2 — “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Noven’s Form 10-K.

~~The~~In ~~following~~November 2008, ~~are~~ the ~~major~~Emerging ~~classes~~Issues Task Force (“EITF”) of ~~inventories~~the Financial Accounting Standards Board (“FASB”) ratified the consensus reached in ~~thousands~~EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”):. The application of the equity method is affected by the accounting for business combinations under SFAS No. 141(R) and the accounting for consolidated subsidiaries under SFAS No. 160. Therefore, the objective of EITF 08-6 is to clarify how to account for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, consistent with the effective dates of SFAS No. 141(R) and SFAS No. 160. EITF 08-6 applies prospectively. The adoption of EITF 08-6 did not impact Noven’s consolidated financial condition, results of operations or cash flows.

	June 30,		December 31,
	2005		2004
Finished goods	$	750	$	610
Work in process		8,958		6,522
Raw materials		10,070		8,856
Total	$	19,778	$	15,988

In October 2008, the FASB issued FASB Staff Position (“FSP”) SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP SFAS 157-3”). FSP SFAS 157-3 clarifies the application of SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) when determining the fair value of a financial asset when the market for that asset is not currently active. FSP SFAS 157-3 emphasizes that approaches other than the market approach to determining fair value may be appropriate when it is determined that, as a result of market inactivity, other valuation approaches are more representative of fair value. Other valuation approaches can involve significant assumptions regarding future cash flows. FSP SFAS 157-3 clarifies that these assumptions must incorporate adjustments for nonperformance and liquidity risks that market participants would consider in valuing the asset in an inactive market. FSP SFAS 157-3 emphasizes the existing disclosure requirements under SFAS No. 157 regarding significant unobservable inputs (Level 3 inputs). FSP SFAS 157-3 became effective upon issuance, including with respect to prior periods for which financial statements have not been issued. The adoption of FSP SFAS 157-3 did not impact Noven’s consolidated financial condition, results of operations or cash flows.

Included in the amounts identified above as of June 30, 2005 and December 31, 2004, were $13.8 million and $10.8 million, respectively, in inventories to manufacture Noven’s generic fentanyl patch for which an Abbreviated New Drug Application has been filed and is pending before the U.S. Food and Drug Administration (“FDA”). See Note 9 — Contract and License Agreements — Endo Collaboration and Note 12 — Fentanyl Inventories. The remaining inventories as of June 30, 2005 and December 31, 2004 relate to Noven’s marketed products. Provisions have been made to reduce inventories to net realizable value, including giving effect to reserves and charges related to non-saleable product due to insufficient remaining shelf life.

To date, Noven has not experienced any difficulty acquiring materials necessary to manufacture its marketed products. Certain materials and compounds, including essential polymers used by Noven, are available from limited sources and, in some cases, a single supplier. In addition, the Drug Enforcement Agency (“DEA”) controls access to controlled substances (including fentanyl and methylphenidate) and Noven must annually apply to the DEA for procurement quota in order to obtain these substances. Pursuant to recent legislation, the DEA may not establish procurement quota following FDA approval of an NDA or ANDA for a controlled substance until after DEA reviews and provides public comment on the labeling, promotion, risk management plan and other documents associated with such product. No assurance can be given that Noven will not experience difficulties in obtaining raw materials in the future or that the DEA review process will not result in delays in obtaining procurement quota for controlled substances or result in a reduction in the quota issued to Noven. Any delay by the DEA in establishing Noven’s procurement quota for controlled substances could delay Noven’s product launches or could interrupt trade supply for those products that

~~have~~ In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting ~~already~~Principles” ~~been~~(“SFAS ~~launched~~No. 162”). ~~Other~~SFAS ~~than~~No. 162 ~~products~~identifies ~~produced~~the sources of accounting principles and the framework for ~~commercial~~selecting ~~sale,~~the ~~Noven~~principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the Securities Exchange and Commission’s ~~policy~~approval of the Public isCompany Accounting Oversight Board amendments to ~~immediately~~AU ~~recognize~~Section 411, as“The ~~expense~~Meaning ~~all~~of ~~inventory~~Present ~~purchased~~Fairly in ~~for~~Conformity ~~research~~With ~~and~~Generally Accepted Accounting Principles.” The adoption of SFAS No. 162 did ~~development~~not ~~purposes~~impact Noven’s consolidated financial condition, results of operations or cash flows.

7 In April 2008, the FASB issued FSP No. 142-3, ~~EMPLOYEE~~“Determination ~~STOCK~~of ~~PLANS:~~the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under GAAP and SFAS No. 141(R), “Business Combinations.” For a recognized intangible asset, an entity shall disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008, with early adoption prohibited. FSP 142-3 requires the guidance for determining the useful life of a recognized intangible asset to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The adoption of FSP 142-3 did not impact Noven’s consolidated financial condition, results of operations or cash flows.

In ~~accordance~~December 2007, ~~with~~ the ~~provisions~~FASB ofissued SFAS No. ~~123~~160, “~~Accounting~~Noncontrolling ~~for~~Interests ~~Stock-Based~~in Consolidated ~~Compensation”~~Financial ~~(“SFAS~~Statements ~~123”),~~— asan ~~amended~~Amendment ~~by Statement~~ of ~~Financial~~ Accounting ~~Standards~~Research Bulletin (“ARB”) No. ~~148,~~ 51” (“~~Accounting~~SFAS ~~for~~No. 160”). ~~Stock-Based~~SFAS ~~Compensation~~No. 160 ~~-Transition~~establishes accounting and ~~Disclosure”~~reporting ~~(“SFAS~~standards ~~148”),~~for ~~Noven~~the ~~may~~noncontrolling ~~elect~~interest to(minority ~~continue~~interest) toin ~~apply~~a ~~the~~subsidiary ~~provisions~~and offor the ~~Accounting~~deconsolidation ~~Principles~~of ~~Board’s~~a ~~Opinion~~subsidiary. SFAS No. ~~25, “Accounting~~160 ~~for~~amends ~~Stock~~certain ~~Issued~~of ARB 51’s consolidation procedures to ~~Employees”~~conform them to the requirements of SFAS No. 141(R), “~~APB~~Business 25Combinations”), ~~and~~which ~~related~~was ~~interpretations~~issued inat the same time as SFAS No. 160. ~~accounting~~This ~~for~~new ~~its~~statement ~~employee~~is ~~stock~~effective ~~option~~for ~~plans~~fiscal years, orand ~~adopt~~interim ~~the~~periods ~~fair~~within ~~value~~those ~~method~~fiscal ~~of accounting~~years, ~~prescribed~~beginning byon ~~SFAS~~or ~~123.~~after ~~Noven~~December 15, ~~has~~2008 ~~elected~~(that tois, ~~continue~~January 1, to2009, ~~account~~ for ~~its~~entities ~~stock~~with ~~plans~~calendar year-ends). ~~using~~SFAS ~~APB 25,~~No. 160 ~~and~~applies ~~therefore~~prospectively noas ~~stock-based~~of ~~employee~~the ~~compensation~~beginning ~~cost~~of isthe ~~reflected~~fiscal year in ~~net~~which this ~~income~~statement is initially applied, asexcept ~~all options~~for ~~granted~~the ~~under~~presentation ~~those~~and ~~plans~~disclosure ~~had~~requirements, which anmust ~~exercise~~be ~~price~~applied ~~equal~~retrospectively tofor ~~the~~all ~~market~~periods ~~value~~presented. The adoption of ~~the~~SFAS No. 160 ~~underlying~~did ~~common~~not ~~stock~~impact onNoven’s ~~the~~consolidated ~~date~~financial condition, results of ~~grant~~operations or cash flows.

~~The~~In ~~following~~December 2007, ~~table~~the ~~illustrates~~FASB ~~the~~revised ~~effect~~SFAS onNo. 141, ~~net~~“Business ~~income~~Combinations” ~~and~~(“SFAS ~~earnings~~No. 141(R)”). ~~per~~SFAS ~~share~~No. 141(R) establishes principles and requirements for how an acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the ~~three~~liabilities assumed, and ~~six~~any ~~months~~noncontrolling ~~ended~~interest ~~June~~in the acquiree; (ii) ~~30,~~recognizes ~~2005~~and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and ~~2004~~(iii) determines ifwhat ~~Noven~~information ~~had~~to ~~applied~~disclose to enable users of the ~~fair~~financial ~~value~~statements to ~~recognition~~evaluate ~~provisions~~the nature and financial effects of the business combination. SFAS ~~123~~No. 141(R) applies to all transactions or other events in which an entity (the acquirer) obtains control of one or more businesses (the acquiree), including those sometimes referred to as ~~amended~~“true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. In April 2009, the FASB issued FSP SFAS ~~148~~141(R)-1, “Accounting for Assets and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP SFAS 141(R)-1”) to amend and clarify the application of SFAS No. 141(R) to assets and liabilities arising from contingencies in ~~thousands,~~a ~~except~~business ~~per~~combination. ~~share~~SFAS No. 141(R) and ~~amounts~~FSP SFAS 141(R):-1 apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Noven will apply the provisions of SFAS No. 141(R), as amended by FSP SFAS 141(R)-1, to any business combination transactions consummated after December 31, 2008.

	Three Months						Six Months
	2005			2004			2005			2004
Net income:
As reported	$	5,121		$	5,678		$	5,332		$	5,836
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(10,223	)		(984	)		(11,970	)		(1,724	)
Pro forma	$	(5,102	)	$	4,694		$	(6,638	)	$	4,112
Basic earnings per share:
As reported	$	0.22		$	0.24		$	0.23		$	0.25
Pro forma	$	(0.22	)	$	0.20		$	(0.28	)	$	0.18
Diluted earnings per share:
As reported	$	0.21		$	0.23		$	0.22		$	0.24
Pro forma	$	(0.22	)	$	0.19		$	(0.28	)	$	0.17

SFAS 123 requires the use of option valuation models that require the input of highly subjective assumptions, including expected stock price volatility. Because Noven’s stock options have characteristics significantly different from traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable measure of the fair value of Noven’s employee stock options.

As noted in Note 4 — “Recent Accounting Pronouncements”, above, in December 2004, the FASB issued SFAS 123(R) that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. Noven will be required to adopt the standards of stock option expensing under SFAS 123(R) beginning in the first quarter of 2006. In April 2005, the Compensation and Stock Option Committee of the Board of Directors of Noven approved the acceleration of vesting of unvested out-of-the-money stock options under the Noven 1999 Long-Term Incentive Plan. The affected options were those with exercise prices

~~greater~~ In ~~than $17.28 per share~~December 2007, ~~which was~~ the ~~closing~~EITF ~~price~~reached ofa ~~Noven’s~~consensus ~~common stock~~ on ~~April~~EITF Issue No. 707-1, ~~2005~~“Accounting ~~(the~~for Collaborative ~~effective~~Arrangements” ~~date~~(“EITF ~~of the modification to accelerate vesting of the out~~07-~~of-the-money stock options~~1”). AsEITF a07-1 ~~result~~discusses ofthe ~~this~~appropriate ~~action,~~income ~~options to purchase approximately~~statement ~~932,000~~presentation ~~shares~~and ofclassification ~~Noven’s~~for ~~common~~the ~~stock~~activities ~~became~~and ~~immediately~~payments ~~exercisable,~~between ~~including~~the ~~options~~participants ~~held by~~in ~~Noven’s~~arrangements ~~executive~~related ~~officers~~ to ~~purchase~~the ~~approximately~~development ~~401,000~~and ~~shares.~~commercialization ~~The~~of ~~purpose~~intellectual ofproperty. ~~the~~It ~~accelerated~~requires ~~vesting~~certain ~~was~~transactions tobetween ~~eliminate~~collaborators ~~the~~to ~~future~~be ~~compensation~~recorded ~~expense~~in ~~that~~the ~~Noven~~income ~~would~~statement ~~otherwise~~on ~~recognize~~either ina ~~its~~gross ~~Statement~~or ofnet ~~Operations~~basis ~~with~~within ~~respect~~expenses towhen ~~these~~certain ~~accelerated~~characteristics ~~options~~exist ~~upon~~in the ~~adoption~~collaboration ~~of SFAS 123(R)~~relationship. ~~Noven’s~~The ~~total~~sufficiency ~~stock-based employee compensation expense determined under the fair value based method net~~ of ~~applicable~~disclosure ~~income~~related ~~taxes~~to ~~(“Compensation~~these ~~Expense”)~~arrangements ~~was~~is also ~~$10~~specified.~~2 million~~ ~~and~~EITF ~~$12.0 million~~07-1 ~~for~~is ~~the~~effective ~~three~~for ~~and~~fiscal ~~six~~years ~~months~~beginning ~~ended~~after ~~June~~December 3015, ~~2005,~~2008. ~~respectively,~~The ofadoption ~~which, approximately $8.8 million resulted from the acceleration~~ of ~~vesting~~EITF ~~of unvested out~~07-~~of-the-money~~1 ~~stock~~did ~~options~~not inimpact ~~April 2005.~~Noven’s Atconsolidated ~~June 30,~~financial ~~2005~~condition, ~~unamortized~~results ~~Compensation Expense related to outstanding unvested options, as determined in accordance with SFAS 123, that Noven expects to record during 2006 was approximately $3.2 million before the effect~~ of ~~income~~ ~~taxes.~~operations ~~Noven~~or ~~will~~cash ~~incur additional expense during 2006 related to new awards granted during the remainder of 2005 and 2006 that cannot yet be quantified~~flows.

83. CASH FLOW INFORMATION:

~~Cash~~Income ~~payments~~Tax ~~for income taxes were not material for the six months ended June 30, 2005~~ and ~~were~~ ~~$3.2 million~~Interest ~~for the six months ended June 30, 2004. Cash payments for interest were not~~Payments ~~material for the six months ended June 30, 2005 and 2004.~~

Cash payments for income taxes were $0.2 million and $1.2 million for the three months ended March 31, 2009 and 2008, respectively. In 2002, the State of New Jersey enacted legislation that requires Novogyne to remit estimated state income tax payments on behalf of its owners, Noven and Novartis. These payments are deemed distributions to Noven from Novogyne. Noven received tax refunds directly from the State of New Jersey of $2.9 million and $2.7 million during the three months ended March 31, 2009 and 2008, respectively, related to these state income tax payments made on Noven’s behalf. Cash payments for interest were not material for the three months ended March 31, 2009 or 2008.

Non-cash Operating Activities

InNoven ~~2002~~recorded $37,000 ~~the State of New Jersey enacted legislation that requires Novogyne to remit estimated state~~ income tax ~~payments~~benefit onas ~~behalf~~additional ~~of its owners, Noven and Novartis. In April 2005 and 2004, Novogyne~~ paid-in ~~$1.5 million~~capital ~~and~~derived ~~$1.7 million,~~from ~~respectively, to~~ the ~~New Jersey~~ ~~Department~~exercise of ~~Revenue,~~non-qualified ~~representing~~stock ~~Noven’s~~options ~~portion~~and ofdisqualifying ~~Novogyne’s~~dispositions ~~estimated~~of ~~state~~incentive ~~income tax~~stock ~~payment.~~options ~~These~~for ~~payments~~the ~~were~~three ~~deemed~~months aended ~~distribution~~March 31, ~~to Noven from Novogyne~~2008.

Non-cash Investing Activities

~~During the six months ended June 30, 2005,~~ Noven recorded ~~approximately~~ $0.95 million in ~~leasehold~~ ~~improvements~~unrealized aslosses aon ~~deferred~~its ~~rent~~investments ~~credit~~in ~~relating~~auction torate securities ~~landlord-funded~~for ~~leasehold improvements~~the three months ended March 31, 2008. ~~See~~The ~~Note~~unrealized 12losses —were ~~Commitments~~recorded ~~and~~as ~~Contingencies~~a reduction —of ~~Facility~~stockholders’ ~~Lease~~equity through other comprehensive income.

~~During~~Non-cash ~~the~~Financing ~~six months ended June 30, 2004, Noven entered into a capital lease obligation of~~Activities ~~$0.3 million for new equipment.~~

9 Noven issued immediately exercisable SSARs with a fair value of $0.2 million ~~CONTRACT~~as ~~AND~~a ~~LICENSE~~portion of ~~AGREEMENTS:~~the President and Chief Executive Officer’s 2008 incentive bonus award during the three months ended March 31, 2009.

~~Endo~~4. ~~Collaboration~~INVESTMENTS AVAILABLE-FOR-SALE:

InAt ~~July~~March ~~2003~~31, 2009, Noven ~~submitted~~held aninvestments ~~Abbreviated~~in ~~New~~auction ~~Drug~~rate ~~Application~~securities (~~“ANDA”)~~classified ~~to the FDA~~as ~~seeking~~available-for-sale) ~~approval~~with toa ~~market~~par avalue ~~generic~~and ~~version~~fair value of ~~Duragesic®~~$12.3 million ~~(fentanyl~~and ~~transdermal~~$11.8 million, ~~system)~~respectively. ~~Duragesic®~~Noven isliquidated a$3.7 million ~~transdermal~~of ~~patch~~its ~~containing~~investments ~~fentanyl,~~in anauction ~~opioid~~rate ~~analgesic and~~securities aat ~~Schedule II~~par value ~~controlled~~during ~~substance, indicated for~~ the ~~management~~three ofmonths ~~chronic~~ended ~~pain~~March 31, 2009. ~~Noven’s ANDA~~Due ~~for~~to ~~this~~uncertainty ~~product~~regarding ~~was~~the ~~accepted~~timing ~~for~~of ~~filing~~Noven’s infuture ~~October 2003~~investment ~~and~~liquidations, Noven iscontinues ~~under~~to ~~review~~classify atits ~~the FDA.~~auction ~~Johnson~~rate &securities ~~Johnson’s~~as ~~patent~~non-current ~~and~~assets ~~exclusivity~~as ~~status~~of ~~for Duragesic® expired in January~~March ~~2005~~31, 2009.

In the first quarter of 2004, Noven entered into an exclusive license agreement with Endo Pharmaceuticals Inc. (“Endo”) pursuant to which Noven granted Endo the right to market Noven’s fentanyl patch in the United States and Canada. Noven retained all rights to the fentanyl patch

~~outside~~ In of the ~~United~~fourth ~~States~~quarter ~~and~~of ~~Canada.~~2008, Noven ~~received~~determined anthat ~~up-front~~a ~~payment of~~ $8.0.5 million ~~from~~ ~~Endo~~unrealized ~~upon~~decline ~~signing~~in fair ~~the~~value ~~agreement.~~of ~~The~~its ~~agreement~~auction ~~provides~~rate ~~that,~~portfolio ~~upon~~was ~~Endo’s~~other-than-temporary. ~~first~~As ~~commercial sale~~a ~~of the fentanyl patch~~result, Noven recognized isthe ~~entitled~~impairments toin ~~receive~~its an2008 ~~additional~~Consolidated ~~milestone~~Statement ~~payment~~of ~~ranging from $5~~Operations.~~0 million~~ toThe ~~$10.0 million,~~determination that ~~depending~~the onunrealized ~~the~~losses ~~timing~~were ofother-than-temporary ~~launch~~was ~~and~~primarily based on the ~~number~~length of ~~generic~~time ~~competitors~~that in the ~~market.~~securities ~~Under~~have abeen ~~long-term~~impaired ~~supply~~and ~~agreement~~the ~~entered~~fact ~~into~~that ~~between~~ the ~~parties, Noven~~continuing ~~will~~auction ~~manufacture~~failures ~~and~~do ~~supply~~not enable ~~the~~Noven ~~product~~to atreliably ~~its~~estimate ~~cost~~when ~~and~~the ~~will~~value ~~share~~of inthe ~~Endo’s~~securities ~~profit generated~~may ~~from U~~recover.S. ~~product~~To ~~sales.~~the Inextent future ~~April 2005,~~declines ~~Endo~~in ~~returned~~fair ~~the~~value ~~Canadian~~are ~~marketing~~determined ~~rights~~ to ~~Noven~~be ~~for~~other-than-temporary, noadditional ~~consideration~~impairment charges will result. ~~Noven~~Such isimpairment ~~exploring~~charges ~~strategies~~could tomaterially ~~commercialize~~and ~~the~~adversely ~~product~~affect Noven’s ~~outside~~consolidated ~~the~~financial ~~United~~condition ~~States~~and results of operations.

~~Under the terms of the transaction, Noven remains responsible for securing final regulatory approval for its fentanyl patch~~5. ~~The~~FAIR ~~agreement~~VALUE ~~provides that Endo may terminate the agreement,~~MEASUREMENTS: and its obligation to launch the product, if launch is delayed either (i) because of a delayed FDA approval or (ii) Noven fails to supply Endo with its launch requirements after approval, and in either case if as a result of the delay there is additional generic competition beyond that expected by the parties at the time of execution of the agreement. In February 2005, the FDA approved the fentanyl transdermal system ANDA filed by a competitor. The earliest that this right could be triggered under the agreement is 120 days after the launch of the next generic fentanyl transdermal product. In the event of such a termination, rights to the fentanyl patch would return to Noven.

OnNoven ~~July~~adopted SFAS No. 14157, ~~2005,~~“Fair ~~the~~Value ~~FDA~~Measurements” ~~issued~~(“SFAS aNo. 157”) ~~public~~in ~~advisory~~2008. ~~that~~As itof March 31, is2009, ~~investigating~~the ~~reports~~total ~~of death~~par value and ~~other~~fair ~~serious~~value ~~side~~of ~~effects~~Noven’s ~~from~~investments ~~overdoses~~in ~~involving~~auction ~~both~~rate securities ~~the~~were ~~branded~~$12.3 million and ~~generic~~$11.8 million, respectively. Due to continuing auction ~~fentanyl~~failures ~~patches~~beginning ~~and~~in February 2008, Noven isutilized ~~aware~~valuation ~~that~~models ~~the~~to ~~FDA~~determine isthe ~~considering~~fair values ~~such~~of ~~safety~~its ~~issues~~investments in ~~its~~auction ~~review~~rate securities. The fair values of ~~pending~~the investments were ~~fentanyl~~calculated ~~ANDAs.~~based ~~The~~on ~~FDA~~the ~~has~~following: ~~indicated~~(i) the ~~that~~underlying itstructure ~~will~~of ~~provide~~each ~~public~~security; ~~updates~~(ii) the present asvalue ~~new~~of ~~information regarding~~future ~~the~~principal ~~investigation~~and ~~becomes~~interest ~~available.~~payments ~~Noven~~discounted isat ~~unable~~rates considered to reflect ~~predict~~current ~~the~~market ~~outcome~~conditions; ~~or impact~~(iii) consideration of ~~this~~the ~~investigation.~~probabilities Itof ~~could~~default, ~~however~~auction failure, ~~materially~~or ~~and~~repurchase ~~adversely~~at ~~affect~~par ~~the market~~ for ~~all~~each ~~fentanyl~~period; ~~patch~~and ~~products,~~(iv) consideration ~~and~~of ~~could~~third ~~delay~~party orcredit enhancement. ~~prevent~~These ~~approval~~estimated offair ~~pending~~values ~~ANDAs~~could ~~for~~change ~~fentanyl, including~~significantly ~~Noven’s~~based ~~pending~~on ~~application~~future market conditions.

InChanges ~~addition~~ to ~~the~~investments ~~fentanyl~~measured ~~license,~~at ~~Noven~~fair ~~has~~value ~~established~~on a ~~collaboration~~recurring ~~with~~basis ~~Endo~~using tounobservable ~~seek~~inputs to(Level ~~identify~~3) ~~and~~during ~~develop new transdermal therapies. Of~~ the ~~$8.0 million~~three ~~received~~months atended ~~signing of the fentanyl agreement, $6.5~~March ~~million will be recognized as license revenues as earned over a 10-year period~~31, ~~which~~2009 iswere the estimated product life cycle of the fentanyl patch. The remaining $1.5 million has been allocated based on fair value to fund feasibility studies that seek to determine whether certain compounds identified by the parties can be delivered through Noven’s transdermal patch technology. This amount is being recognized as ~~contract~~follows ~~revenues~~(in ~~over the~~thousands): course of feasibility development of any additional patches developed under the collaboration. Endo is expected to fund and manage clinical development of those compounds proceeding into clinical trials.

Shire


Balance at December 31, 2008	$	15,460
Redemptions of investments at par value		(3,650	)

Balance at March 31, 2009	$	11,810

In the first quarter of 2003, Noven signed an agreement to license the exclusive global rights to market its methylphenidate patch for Attention Deficit Hyperactivity Disorder (“ADHD”) to Shire Pharmaceuticals Group plc (“Shire”) for payments of up to $150 million and ongoing manufacturing revenues6. ~~Consideration for the transaction is as follows~~INVENTORIES: ~~(i) $25~~ million was paid upon closing of the transaction in April 2003; (ii) $50 million is payable upon receipt of final marketing approval for the methylphenidate patch by the FDA; and (iii) three installments of $25 million each are payable upon Shire’s achievement of $25 million, $50 million and $75 million in annual net sales of the methylphenidate patch, respectively. Shire’s annual net sales will be measured quarterly on a trailing 12-month basis, with each milestone payment due 45 days after the end of the first quarter during which trailing 12-month sales exceed the applicable threshold. Shire has agreed that it will not sell any other product containing methylphenidate as an active ingredient until the earlier of (i) five years from the closing date or (ii) payment of all of the sales milestones. On the closing date, Noven entered into a long-term supply agreement under

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


	March 31,		December 31,
	2009		2008
Finished goods	$	3,431	$	3,200
Work in process		3,239		2,510
Raw materials		8,003		8,214

	$	14,673	$	13,924

During the three months ended March 31, 2009, Noven recorded a $0.9 million charge to cost of products sold related to the write-off of inventories, of which approximately $0.8 million related to Daytrana^® product and $0.1 million related to other products in the ordinary course of business.

Shire plc (“Shire”) retains title to the active methylphenidate ingredient (“AMI”) in Daytrana^®. The value of the AMI is neither included in Daytrana^® product revenues nor in Noven’s cost of products sold. Noven bears certain manufacturing risks of loss related to the AMI. These risks include the contractual obligation of Noven to reimburse Shire for the cost of AMI if Noven does not meet certain minimum yields of the finished product. Shire has a reciprocal obligation to pay Noven if the yield requirements are exceeded. Noven exceeded the yield requirements for the three months ended March 31, 2009, resulting in an immaterial payment from Shire to Noven during the three months ended March 31, 2009. During the three months ended March 31, 2009, Noven used $1.0 million of Shire’s AMI in the finished product, and had $2.3 million and $2.6 million of consignment AMI inventory on hand at March 31, 2009 and December 31, 2008, respectively, which is not reflected in the table above.

~~which it expects to manufacture and supply its methylphenidate patch to Shire~~7. ~~The~~GOODWILL ~~agreement~~AND ~~gives~~INTANGIBLE ~~Shire the right to qualify a second manufacturing source~~ASSETS: and purchase a portion of its requirements from the second source. If Shire were to exercise this right, Noven’s manufacturing revenues from sales of its methylphenidate patch would be adversely affected. Pursuant to the agreement, under certain circumstances Shire has the right to require Noven to repurchase the product rights for $5 million.

InAll ~~April 2003,~~of Noven’s ~~received~~goodwill aarose ~~not~~from ~~approvable~~the ~~letter~~Noven ~~from~~Therapeutics ~~the~~acquisition ~~FDA~~in ~~relating~~August 2007 and, thus, relates to ~~its methylphenidate~~the ~~patch~~Noven ~~New~~Therapeutics ~~Drug~~segment. ~~Application~~The ~~(“NDA”)~~carrying amount of goodwill is $14.4 million Inat ~~June~~March ~~2005~~31, ~~Noven~~2009 ~~submitted~~and anDecember 31, ~~amendment to~~2008. ~~the~~Goodwill ~~NDA~~is ~~that~~tested ~~included~~for ~~new~~impairment ~~clinical~~annually ~~trial~~in the ~~results~~fourth quarter or more frequently, ~~and~~when ~~the~~events ~~FDA~~or ~~accepted~~other ~~the~~changes ~~amendment~~in ~~for~~circumstances indicate ~~filing~~that inthe ~~July 2005.~~carrying ~~The~~value ~~amendment~~of isgoodwill ~~expected~~may tonot ~~receive~~be arecoverable. ~~six-month~~If ~~review~~after bytesting the ~~FDA. No~~intangible ~~assurance~~assets ~~can~~and begoodwill, ~~given~~Noven determines that ~~the~~these ~~amendment~~assets ~~will~~are inimpaired, ~~fact~~then ~~address~~Noven would be required to write-down the ~~FDA’s~~impaired ~~issues~~asset ~~that~~to ~~resulted~~ fair value and record a corresponding expense in the period when the ~~not~~determination ~~approvable~~is ~~letter~~made. orSuch ~~that~~a ~~the~~write-down ~~FDA~~and ~~may~~corresponding ~~not~~expense ~~raise~~could have ~~additional~~a ~~issues~~material adverse effect on Noven’s results of operations.

Noven’s ~~direct~~intangible ~~costs~~assets, ~~incurred~~all ~~in pursuit~~ of ~~approval~~which are ~~being~~subject ~~deferred~~to and offset against a portion of the $25.0 million deferred revenue previously received from Shire. Such expenses did not impact Noven’s research and development expenses in 2004 or in the three and six months ended June 30amortization, ~~2005,~~are ~~although~~summarized ~~the direct expenses incurred~~ in ~~pursuit of FDA approval reduce Noven’s cash position and will have~~ the ~~effect of reducing the amount of deferred revenues that~~ ~~Noven~~tables ~~may~~below ~~recognize~~as ~~in future periods. As~~ of ~~June~~March 3031, ~~2005,~~2009 ~~the~~and ~~amount of available deferred revenues was $0.8~~December ~~million~~31, 2008 (~~which~~amounts ~~excludes the $5.0 million of deferred revenues related to Shire’s repurchase right) and Noven does not expect its prospective cost~~ in ~~pursuit of approval~~thousands): ~~to exceed this amount.~~

In June 2004, Noven entered into an agreement with Shire for the development of a transdermal amphetamine patch for ADHD. The agreement provides for the payment to Noven of up to $5.0 million if certain development milestones are achieved. No such development milestones had been earned as of June 30, 2005. The product is in pre-clinical development and Noven is recognizing payments received as contract revenue as the work is performed.


								Weighted-
						Net		Average
	Gross Carrying		Accumulated			Carrying		Remaining
	Amount		Amortization			Amount		Life (years)
As of March 31, 2009
Patent development costs	$	5,140	$	(3,183	)	$	1,957		8.1
Acquired product intangibles		39,290		(6,234	)		33,056		8.8
Non-competition agreements		530		(359	)		171		1.1
Favorable lease		790		(428	)		362		1.5

	$	45,750	$	(10,204	)	$	35,546		8.6


As of December 31, 2008
Patent development costs	$	4,929	$	(3,070	)	$	1,859		7.2
Acquired product intangibles		39,290		(5,289	)		34,001		9.0
Non-competition agreements		530		(304	)		226		1.6
Favorable lease		790		(368	)		422		2.0

	$	45,539	$	(9,031	)	$	36,508		8.8

~~P&G~~ The ~~Pharmaceuticals~~intangible ~~Collaboration~~assets for acquired products, non-competition agreements and favorable lease included in the tables above resulted primarily from the Noven Therapeutics acquisition. Amortization expense was $1.2 million and $1.1 million for the three months ended March 31, 2009 and 2008, respectively.

In April 2003, Noven established a collaboration with Procter & Gamble Pharmaceuticals, Inc. (“P&G Pharmaceuticals”) for the development of new prescription patches. The products under development explore follow-on product opportunities for Intrinsa®, P&G Pharmaceuticals’ in-licensed investigational transdermal testosterone patch designed to help restore desire in menopausal women who have Hypoactive Sexual Desire Disorder. P&G Pharmaceuticals withdrew its NDA for Intrinsa® in December 2004 based on feedback from an FDA Advisory Committee and has stated its intention to file a new NDA with additional clinical data. During 2004, Noven earned $4.4 million under the P&G Pharmaceuticals collaboration. No development milestones under this collaboration were earned for the six months ended June 30, 2005.

10. INVESTMENT IN VIVELLE VENTURES LLC (d/b/a NOVOGYNE):

Noven shares in the earnings of Novogyne, after satisfaction of an annual preferred return of $6.1 million to Novartis, according to an established formula. Noven’s share of Novogyne’s earnings increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne produced sufficient income in the first quarter of 2005 and 2004 to meet Novartis’ annual preferred return for those years and for Noven to recognize earnings from Novogyne under the formula.

~~During~~Noven estimates that the ~~three~~annual ~~and~~amortization ~~six~~expense ~~months~~for ~~ended~~intangible ~~June 30,~~assets ~~2005~~held ~~and~~at ~~2004~~March 31, ~~Noven~~2009 ~~had~~for each of the ~~following transactions~~five ~~with~~years ~~Novogyne~~through 2014 is as follows (amounts in thousands):

	Three Months				Six Months
	Remainder		Years Ending December 31,
	2005		2004		2005		2004
	of 2009		2010		2011		2012		2013		2014
Revenues:
Cost of goods sold:
Product sales	$	4,714	$	4,886	$	9,692	$	10,694
Intellectual property	$	3,174	$	4,174	$	4,109	$	4,096	$	4,042	$	3,961
Royalties		1,713		1,608		2,827		2,498
General and administrative:
	$	6,427	$	6,494	$	12,519	$	13,192
Non-compete and favorable lease agreements		297		236		—		—		—		—
Reimbursed expenses	$	6,378	$	5,973	$	13,620	$	12,262
Total	$	3,471	$	4,410	$	4,109	$	4,096	$	4,042	$	3,961

~~As of June 30, 2005 and December 31, 2004, Noven had amounts due from Novogyne of $7~~8.~~4 million~~ ~~and~~OTHER ~~$10.1 million,~~ACCRUED ~~respectively, for products sold to, and marketing expenses~~LIABILITIES: ~~reimbursable by, Novogyne.~~

~~The~~Other ~~unaudited~~accrued ~~condensed~~liabilities ~~Statements~~consist of ~~Operations of Novogyne for~~ the ~~three~~following ~~and six months ended June 30, 2005 and 2004 are as follows~~ (amounts in thousands):

	Three Months						Six Months
	March 31,			December 31,
	2005			2004			2005		2004
	2009			2008
Gross revenues	$	35,211		$	35,015		$	62,545	$	60,149
Income taxes payable	$	2,463		$	2,197
Sales allowances		3,676			3,517			7,071		6,289
Accrued medicaid and other rebates		3,417			2,726
Sales return allowances (reductions)		(401	)		(717	)		865		292
Accrued market withdrawal costs		3,758			3,598
Sales allowances and returns		3,275			2,800			7,936		6,581
Allowance for product returns		3,034			3,070
Net revenues		31,936			32,215			54,609		53,568
Other accrued liabilities		4,475			5,669
Cost of sales		5,762			6,697			10,317		11,532
Total other accrued liabilities	$	17,147		$	17,260
Selling, general and administrative expenses		7,770			6,937			16,440		14,562
Amortization of intangible assets		1,545			1,545			3,090		3,090
Income from operations		16,859			17,036			24,762		24,384
Interest income		42			13			135		53
Net income	$	16,901		$	17,049		$	24,897	$	24,437
Noven’s equity in earnings of Novogyne	$	8,101		$	8,228		$	9,013	$	8,865

~~The~~9. ~~activity~~EQUITY ~~in the Investment in Novogyne account for the six months ended June 30, 2005 is as follows (in thousands)~~PLANS:

Investment in Novogyne, beginning of period	$	26,233
Equity in earnings of Novogyne		9,013
Cash distributions from Novogyne		(8,926	)
Non-cash distribution from Novogyne (Note 8)		(1,457	)
Investment in Novogyne, end of period	$	24,863

Prior to January 1, 2006, all awards granted to employees under Noven’s 1999 Long-Term Incentive Plan (the “1999 Plan”) were stock options. In 2006, Noven began granting stock-settled stock appreciation rights (“SSARs”) and nonvested shares of common stock (“restricted stock”). Noven accounts for these awards in accordance with SFAS No. 123 Revised, “Share-Based Payment” (“SFAS No. 123 (R)”). At March 31, 2009, there were 1.5 million stock options and 2.6 million SSARs outstanding under the 1999 Plan.

~~Subject~~The toweighted ~~the~~average ~~approval~~grant ofdate ~~Novogyne’s~~fair ~~management~~values ~~committee,~~of ~~Novogyne~~SSARs ~~may,~~granted ~~from~~during ~~time~~the tothree months ended ~~time~~March 31, ~~distribute~~2009 ~~cash to Novartis~~ and ~~Noven~~2008 ~~based~~were ~~upon a contractual formula~~$3.96 ~~For the three~~ and ~~six~~ ~~months ended June 30~~$5.11, ~~2005~~respectively, ~~Noven~~using ~~received~~the ~~cash~~Black-Scholes option-pricing ~~distributions~~model ofwith ~~$1.5 million~~the ~~and~~assumptions below:


	2009			2008
Volatility		52.2	%		45.5	%
Risk free interest rate		1.75	%		2.63	%
Expected life (years)		3.9			4.8
Dividend yield		0.0	%		0.0	%

~~$8.9 million~~ Total ~~from~~stock-based ~~Novogyne,~~compensation ~~respectively.~~recognized ~~For~~in ~~the three and six months ended June 30, 2004,~~ Noven ~~received~~’s ~~cash~~Condensed ~~distributions~~Consolidated ofStatements ~~$6.3 million and $12.3 million from Novogyne, respectively. In addition, as discussed in Note 8, tax payments~~ of ~~$1.5 million and $1.7 million were made by~~ ~~Novogyne~~Operations onfor ~~Noven’s behalf to~~ the ~~New~~three ~~Jersey~~months ~~Department~~ended ~~of Revenue in April~~March ~~2005 and 2004~~31, ~~respectively.~~ ~~These~~2009 ~~payments were deemed distributions from Novogyne to Noven~~ and ~~were~~2008 ~~recorded~~ was as ~~reductions~~follows (in ~~Noven’s investment in Novogyne when deemed received.~~thousands):

11. SHARE REPURCHASE PROGRAM:


	2009		2008
Selling and marketing	$	166	$	154
General and administrative		859		469
Research and development		145		90
Total cost of products sold		128		145

	$	1,298	$	858


Tax benefit recognized related to compensation expense	$	491	$	293

In ~~the~~accordance ~~first~~with ~~quarter~~SFAS ~~of 2003~~No. 123(R), ~~Noven’s~~tax ~~Board~~benefits at the time of ~~Directors~~exercise ~~authorized~~in aexcess ~~share~~of ~~repurchase~~those ~~program~~recognized ~~under~~in ~~which~~conjunction ~~Noven~~with ~~may~~compensation ~~acquire~~expense upare toreported ~~$25.0 million~~as ofcash ~~its~~flow ~~common~~from ~~stock~~financing activities. ToNo ~~date,~~stock ~~Noven has~~options ~~repurchased~~or ~~105~~SSARs were exercised during the three months ended March 31,~~000~~ 2009. ~~shares~~Due to the small number of ~~its~~exercises ~~common~~during the three months ended March 31, 2008, cash received from stock atoption anexercises, ~~aggregate~~the ~~price~~tax ofbenefit ~~approximately~~realized ~~$1.3~~from exercises, and the total ~~million.~~intrinsic Novalue ~~shares~~of ~~were~~stock ~~repurchased~~options ~~during~~exercised for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2008 ~~and~~were ~~2004~~not material.

12 Noven granted 70,847 and 26,244 shares of restricted stock to Noven’s non-employee directors in June 2008 and May 2007, respectively, as compensation for their service on the Board of Directors. ~~COMMITMENTS~~The ~~AND~~grants ~~CONTINGENCIES:~~fall under the definition of nonvested shares under SFAS No. 123(R). The shares vest over each director’s one-year service period at the end of each calendar quarter beginning with the end of the second quarter. As the shares vest, those shares that have been deferred by non-employee directors under Noven’s deferred compensation plan are transferred into a rabbi trust maintained by Noven. As of March 31, 2009 and December 31, 2008, there were a total of 105,469 and 92,818 shares of common stock in the rabbi trust, respectively.

HT Stock ~~Studies~~option and SSAR transactions under the 1999 Plan for the three months ended March 31, 2009 are summarized as follows (stock options/SSARs and aggregate intrinsic value amounts in thousands):

In July 2002, the National Institutes of Health (“NIH”) released data from its Women’s Health Initiative (“WHI”) study on the risks and benefits associated with the use of oral combination hormone therapy (“HT”). The study revealed an increase in the risk of developing breast cancer and increased risks of stroke, heart attack and blood clots. The WHI study was followed by the subsequent publication of the results of a number of other studies that found that the overall health risks from the use of certain HT products exceed the benefits from the use of those products. In the first quarter of 2004, the NIH discontinued the estrogen-only arm of the WHI study because results were showing an increased risk of stroke and because, after nearly seven years of follow-up, the NIH determined that it had sufficient data to assess the risks and benefits of estrogen use in the trial. Researchers continue to analyze data from both arms of the WHI study and other studies, and other publications may be forthcoming.


				Weighted		Weighted Average
	Stock			Average		Remaining		Aggregate
	Options/			Exercise		Contractual		Intrinsic
	SSARs			Price		Life (years)		Value
Outstanding at beginning of period		4,093		$	14.31
Granted		102			9.62
Exercised		—			—
Canceled or expired		(33	)		16.04

Outstanding at end of period		4,162		$	14.18		4.6	$	128

Exercisable at end of period		1,806		$	16.56		2.6	$	1

Shares of common stock reserved		4,332

These studies and others have caused the HT market, and the market for Noven’s products, to significantly decline. Prescriptions for CombiPatch®, Noven’s combination estrogen/progestin patch, continue to decline in the post-WHI environment. Novogyne recorded the acquisition of the marketing rights for Noven’s CombiPatch® product at cost and tests this asset for impairment on a periodic basis. Further adverse change in the market for HT products could have a material adverse impact on the ability of Novogyne to recover its investment in these rights, which could require Novogyne to record an impairment loss on the CombiPatch® intangible asset. Impairment of the CombiPatch® intangible asset would adversely affect Novogyne’s and Noven’s financial results. Management cannot predict whether these or other studies will have additional adverse effects on Noven’s liquidity and results of operations, or Novogyne’s ability to recover the net carrying value of the CombiPatch® intangible asset.

Production Issues

Noven maintains in-house product stability testing for its commercialized products. This process includes, among other things, testing samples from commercial lots under a variety of conditions to confirm that the samples remain within required specifications for the shelf-life of the product.

As a result of the 2003 recall of certain Vivelle-Dot™ patches, Noven initiated a series of special stability protocols to monitor commercial lots in distribution as well as future production

of As ~~Vivelle-Dot™. In the first quarter~~ of ~~2005~~March 31, a2009, ~~total~~the ofunamortized ~~ten lots~~compensation ofexpense ~~Vivelle-Dot™~~that ~~manufactured in 2003 were identified for recall when one of~~ Noven’s ~~stability~~expects ~~protocols~~to ~~revealed~~record ~~that these lots did not meet required specifications or~~in ~~were~~future ~~associated~~periods ~~with~~related ~~lots~~to ~~that~~currently ~~did~~outstanding ~~not~~unvested ~~meet~~stock ~~specifications.~~options, ~~The~~SSARs ~~recall~~and ~~of these lots in the~~nonvested ~~first~~shares ~~quarter~~ of ~~2005~~restricted ~~did~~stock, ~~not~~as ~~have~~determined ain ~~material~~accordance ~~impact~~with onSFAS ~~Noven’s or Novogyne’s results of operations because an immaterial number of patches from these lots~~ No. 123(~~manufactured in 2003~~R) ~~remained~~, inis ~~distribution~~approximately $10.4 million ~~Based~~before ~~on testing and analysis to date, Noven believes that~~ the ~~probable~~ ~~cause~~effect of ~~the~~income ~~Vivelle-Dot™~~taxes. ~~stability~~The ~~failures~~weighted ~~remains~~average ~~related~~period toover ~~certain patch~~which ~~backing material that Noven obtained from a raw material supplier. Noven and Novartis~~this ~~have~~compensation ~~established~~cost ais ~~joint~~expected ~~task force~~ to ~~identify~~be ~~the~~recognized ~~definitive~~is ~~root cause of the Vivelle-Dot™ stability failures~~4.0 years. IfThe ~~the~~total ~~root~~fair ~~cause~~value ~~determination~~of ~~or additional~~equity ~~testing~~grants ~~(including~~that ~~Noven’s~~vested ~~routine~~in ~~stability testing) indicates that~~ the ~~production~~three ~~issue affects~~months ~~more~~ended ~~product than Noven’s current testing and analysis suggests~~March 31, ~~additional~~2009 ~~recalls~~was ~~may be required~~$0.5 million. ~~Noven~~As ~~cannot~~of ~~predict what action~~March 31, ~~if any~~ 2009, ~~the~~approximately ~~FDA may take with respect to the recalls of Vivelle-Dot™~~3.6 million ~~Although~~outstanding ~~Noven~~stock ~~and~~options/SSARs ~~Novartis~~ are ~~working~~vested ~~together~~or ~~in assessing~~are ~~the~~expected ~~Vivelle-Dot™ production issues, the decision~~ to ~~recall product resides~~ ~~with~~vest. ~~Novartis~~Such asstock ~~the~~options ~~holder~~have ofa ~~the~~weighted ~~Vivelle-Dot™~~average ~~NDA~~exercise ~~and~~price isof ~~not within Noven’s control~~$14. ~~Among other risks~~44, ~~the recent, or any additional, recalls of Vivelle-Dot™ could result in~~ a ~~decision to: recall all or a significant portion of the product in~~$0.1 million ~~distribution~~aggregate ~~until~~intrinsic avalue ~~definitive root cause has been identified~~ and ~~any required corrective action has been completed; cease production or shipment of new product until~~ a ~~definitive~~weighted ~~root cause~~average ~~has~~remaining ~~been identified and any required corrective action has been completed; or reduce the shelf-~~life of ~~Vivelle-Dot™~~4.4 years ~~Vivelle-Dot™~~at ~~represented~~March 31, over 80% of Novogyne’s total prescriptions in the second quarter of 2005 and Noven’s and Novogyne’s results of operations and prospects would be materially and adversely affected in the event these or similar actions were to occur2009.

~~In late October 2004,~~ Noven’s product stability testing program indicated that one commercial lot of CombiPatch® product did not maintain required specifications throughout the product’s shelf-life due to the formation of crystals. Novartis has ~~recalled~~granted ~~the~~a ~~affected lot.~~total ~~The 2004 recall~~ of ~~this lot did not have a material impact on Noven’s or Novogyne’s financial statements. Noven continues to maintain stability testing for CombiPatch®~~388,780 ~~and~~shares isof ~~undertaking~~restricted ~~additional~~stock ~~testing~~under ~~related to~~ the ~~October 2004 stability~~1999 ~~failure~~Plan. ~~If Noven’s testing indicates that additional CombiPatch® lots do~~The ~~not~~following ~~meet~~table ~~specifications~~summarizes orinformation ~~are~~regarding ~~affected by the issue impacting the lot recalled, Novartis could initiate additional recalls. Although~~ Noven ~~and Novartis are working together to assess production issues, the decision to recall product resides with Novartis as the holder of the CombiPatch® NDA and is not within Noven~~’s ~~control.~~restricted Ifstock ~~Noven’s~~at ~~estimates concerning product returns associated with the recall are incorrect~~March 31, ~~or if Noven’s continued testing~~2009 ~~indicates~~(share ~~that~~amounts ~~more~~in ~~than one lot is affected, or if Novartis should initiate additional recalls~~thousands): ~~for any reason, then Noven’s and Novogyne’s business and results of operations could be materially and adversely impacted.~~

The recalls may result in an FDA inspection of Noven’s facilities and procedures and Noven cannot assure that the FDA will be satisfied with Noven’s operations and procedures, which could result in more frequent and stringent inspections and monitoring. If the FDA were to conclude that Noven’s manufacturing controls and procedures are not sufficient, Noven could be required to suspend production until Noven demonstrates to the FDA that Noven’s controls and procedures are sufficient.


				Weighted Average
	Shares			Grant-Date Fair Value
Nonvested at December 31, 2008		221		$	9.43
Granted		—			—
Vested		(19	)		12.41

Nonvested at March 31, 2009		202		$	9.16

~~Supply~~10. ~~Agreement~~INCOME TAXES:

~~Noven’s~~On ~~supply agreement with Novogyne for Vivelle® and Vivelle-Dot™ patches expired in~~ January ~~2003.~~1, ~~Since expiration~~2007, ~~the~~Noven ~~parties~~adopted ~~have continued to operate in accordance with~~ the ~~supply~~provisions ~~agreement’s~~of, ~~commercial~~and ~~terms.~~began ~~There~~accounting isfor ~~no assurance that the~~uncertainty ~~agreement’s~~in ~~non-commercial~~income ~~terms~~taxes ~~would~~in beaccordance ~~enforceable~~ with, ~~respect~~FASB toInterpretation ~~post-expiration occurrences~~No. A(“FIN”) ~~decision~~48, to“Accounting ~~discontinue~~for Uncertainty ~~operating~~ in ~~accordance~~Income ~~with~~Taxes ~~the~~— ~~agreement’s~~an ~~commercial terms~~interpretation ~~could~~of ~~have~~FASB aStatement ~~material~~No. 109” ~~adverse~~(“FIN ~~effect on Noven’s financial position, results of operations, and cash flows~~48”).

As of March 31, 2009, the gross amount of unrecognized tax benefits was approximately $1.5 million. If the $1.5 million is ultimately recognized, approximately $1.1 million would affect the effective tax rate due to approximately $0.4 million in related federal tax benefit. As of December 31, 2008, the gross amount of unrecognized tax benefits was approximately $1.3 million. If the $1.3 million is ultimately recognized, approximately $0.9 million would impact the effective income tax rate due to a federal tax benefit of approximately $0.4 million. Interest and penalties related to income taxes are classified as a component of income tax expense. Approximately $0.5 million were accrued for interest and penalties as of March 31, 2009 and December 31, 2008. Noven does not expect the gross amount of unrecognized tax benefits to significantly increase or decrease within 12 months after March 31, 2009. All of Noven’s unrecognized tax benefits relate to state tax positions.

Noven is periodically audited by federal and state taxing authorities. The outcome of these audits may result in Noven being assessed taxes in addition to amounts previously paid. The accruals are determined based upon Noven’s best estimate of possible assessments by the Internal Revenue Service (“IRS”) or other taxing authorities and are adjusted, from time to time, based upon changing facts and circumstances. Federal returns for years 2005 through 2007 remain open and subject to examination by the IRS. During the third quarter of 2008, the IRS initiated an examination of Noven’s federal income tax returns for the years ended December 31, 2006 and 2007. Noven files and remits state income taxes in various states where Noven has determined it is required to file state income taxes. Noven’s filings with those states remain open for audit for the years 2004 through 2007. In January 2009, the State of New Jersey Division of Taxation initiated an examination of Noven’s tax returns for 2004 through 2007. Noven does not expect the outcome of the examinations to materially impact its tax liabilities. Other than the IRS and New Jersey examinations described above, as well as routine state tax inquiries, Noven has not been notified of any, and is not aware of, other examinations currently taking place related to income taxes in any jurisdiction. It is possible that examinations may be initiated by any jurisdiction where Noven operates, or where it can be determined that Noven operates, and the results of which can materially change the amount of unrecognized income tax benefits for tax positions taken, which may increase Noven’s income tax liabilities or decrease the amount of deferred tax assets.

~~Novogyne’s~~ At ~~designation~~March 31, of2009 aand ~~new~~December 31, ~~supplier~~2008, net deferred tax assets were $72.0 million and $72.2 million, ~~approval~~respectively. Realization of these deferred tax assets depends upon the generation of sufficient future taxable income. A valuation allowance is established if it is more likely than not that all or a ~~new~~portion of the deferred tax asset will not be realized. ~~supply~~Noven ~~agreement~~Therapeutics ~~would~~files ~~require~~separate state income tax returns in states where Noven Therapeutics has determined that it is required to file state income taxes. As a result, state deferred tax assets relating to Noven Therapeutics are evaluated separately in determining whether the ~~affirmative~~state deferred ~~vote~~tax ofassets ~~four~~are ofrealizable. Noven Therapeutics has historically reported taxable losses in these states and expects to continue to incur state taxable losses in the ~~five~~next ~~members~~few ofyears. These ~~Novogyne~~circumstances create negative evidence indicating the need for a valuation allowance at March 31, 2009 and December 31, 2008. Noven’s valuation allowance for state deferred tax assets ~~Management~~was ~~Committee~~$3.5 million ~~Accordingly,~~as ~~both~~of ~~Novartis~~March 31, 2009 and December 31, 2008, due to uncertainty regarding Noven’s ~~must~~ability ~~agree~~to realize these state deferred tax assets based on ~~Novogyne~~Noven’s ~~supplier~~projection of future state taxable income relating to Noven Therapeutics. If Noven determines, based on Noven Therapeutics’ potential future profitability, that these state deferred tax assets will more likely than not be realized, a release of all, or part, of the related valuation allowance could result in an immediate income tax benefit in the period the valuation allowance is released.

~~Litigation,~~11. ~~Claims~~CONTRACT ~~and~~AND ~~Assessments~~LICENSE AGREEMENTS:

InSHIRE ~~July 2004, an individual plaintiff and her husband filed a complaint in Superior~~COLLABORATION Court of New Jersey Law Division, Atlantic County, against Noven, Novartis and others alleging liability in connection with personal injury claims allegedly arising from the use of HT products, including CombiPatch®. Aventis Pharmaceuticals, Inc. (“Aventis”) marketed CombiPatch® during the time period relevant to the plaintiffs’ claims and the parties agreed in April 2005 to substitute Aventis for Noven and Novartis in this case and to dismiss Noven and Novartis without prejudice for a period of six months and with prejudice thereafter.

Noven has developed a once-daily transdermal methylphenidate patch for Attention Deficit Hyperactivity Disorder (“ADHD”) called Daytrana®. In ~~July 2005,~~the anfirst ~~individual~~quarter ~~plaintiff~~of ~~filed~~2003, Noven ~~notice~~licensed to ~~add~~Shire ~~Noven,~~the ~~Novogyne~~exclusive ~~and~~global ~~Novartis~~rights to a ~~complaint~~market inDaytrana® ~~Superior~~for ~~Court~~payments by Shire of ~~New~~up ~~Jersey~~to ~~Law~~$150.0 million. ~~Division~~In consideration for this licensing transaction, ~~Atlantic~~Shire ~~County~~has paid inNoven ~~which~~as follows: (i) $25.0 million upon the closing of the transaction in April 2003; ~~plaintiff~~(ii) ~~claims~~$50.0 million ~~personal~~upon ~~injury~~receipt ~~allegedly~~of ~~arising~~final ~~from~~marketing approval by the ~~use~~FDA in April 2006; and (iii) three installments of HT$25.0 million ~~products~~each upon Shire’s achievement of $25.0 million, ~~including~~$50.0 ~~Vivelle~~million and $75.0 million in annual Daytrana® net sales. ~~The~~Noven ~~plaintiff~~received ~~claims~~the ~~compensatory~~first $25.0 million sales milestone payment in the first quarter of 2007, ~~punitive~~the second $25.0 million sales milestone payment in the third quarter of 2007 and ~~other~~the ~~damages~~third $25.0 million sales milestone payment in anthe third quarter of 2008. Noven is currently deferring and recognizing approval and ~~unspecified~~sales ~~amount~~milestone payments as license revenues on a straight-line basis, beginning on the date the milestone was achieved through the first quarter of 2013, which is Noven’s current best estimate of the end of the useful economic life of the product.

InSYNTHON ~~addition,~~PHARMACEUTICALS ~~Novartis has advised Noven that Novartis has been named as a defendant in at~~COLLABORATION least 15 additional lawsuits that include approximately 26 plaintiffs that allege liability in connection with personal injury claims allegedly arising from the use of HT patches distributed and sold by Novartis and Novogyne, including Noven’s Vivelle®, Vivelle-Dot™ and CombiPatch® products. Novartis has indicated that it will seek indemnification from Noven and Novogyne to the extent permitted by law and by the agreements between and among Novartis, Novogyne and Noven. Novogyne’s accrual for expected legal fees and settlements of these lawsuits was $2.7 million as of June 30, 2005, for which there was a related insurance receivable of $1.7 million. This accrual represents Novartis management’s best estimate as of June 30, 2005. The ultimate outcome of these product liability lawsuits cannot be predicted.

~~Noven~~In isNovember 2005, ~~involved~~JDS inPharmaceuticals, ~~certain~~LLC ~~litigation~~(“JDS”), ~~and~~now ~~claims~~Noven ~~incidental~~Therapeutics, toentered ~~its~~into ~~business~~an asset purchase agreement with Synthon Pharmaceuticals, Inc. ~~Noven~~(“Synthon”) ~~does~~for the purchase of ~~not~~Pexeva®. ~~believe~~In this transaction, ~~based~~JDS onpurchased ~~currently~~certain ~~available~~assets ~~information~~related to Pexeva® including the New Drug Application (“NDA”), ~~that~~intellectual ~~these~~property ~~matters~~(including patents ~~will~~and ~~have~~trademarks) aand ~~material~~certain finished goods inventory. The purchase of ~~adverse~~Pexeva® ~~effect~~included ona cash payment at the ~~accompanying~~time ~~financial~~of ~~statements~~closing and an obligation to make certain future fixed payments and certain contingent payments.

~~Contract~~ Following Noven’s acquisition of JDS, Noven became responsible for possible future contingent milestone payments of up to $11.5 million in the event sales of Pexeva® achieve certain levels under the asset purchase agreement with Synthon. Based on net sales of Pexeva® in 2007 and ~~License~~2008, ~~Agreements~~Noven Therapeutics was required to make milestone payments to Synthon of $3.3 million for each of those years. The 2007 sales milestone was paid in April 2008 and the 2008 sales milestone was paid in March 2009. In addition to the amounts already paid, Noven is obligated to make another $5.0 milestone payment if annual net sales of Pexeva® (or a future product utilizing the same compound as is used in Pexeva®) achieves $30.0 million or more through 2017. Noven recorded a liability for these contingent milestone payments at the time of closing of the Noven Therapeutics acquisition based on projected future sales of Pexeva® which indicated that the achievement of each of the specified sales levels was probable. In the third quarter of 2008, Noven determined that the achievement of $30.0 million in annual net sales for Pexeva®, the next specified sales level, was no longer probable, resulting in a change in accounting estimate. The change resulted from lower forecasted long-term prescription growth than originally expected, as well as a redistribution of selling efforts to support Stavzor®, which was commercially launched in August 2008. In the third quarter of 2008, Noven recognized $5.0 million in operating income as a result of the reversal of the accrued liability. Although Noven reversed the $5.0 million accrued liability, Noven remains contingently liable for the $5.0 million payment if annual net sales of Pexeva® (or a future product utilizing the same compound as is used in Pexeva®) achieves $30.0 million or more through 2017.

Noven is obligated to perform under its contract and license agreements. In certain circumstances, Noven is required to indemnify its licensees from damages caused by the products Noven manufactures as well as claims or losses related to patent infringement.

Fentanyl Inventories

Noven manufactured initial launch quantities of its fentanyl patch during the fourth quarter of 2004 and first quarter of 2005. The product has a two-year shelf life. Noven and Endo have agreed to share the cost of any fentanyl inventory that cannot be sold by Endo in accordance with an agreed-upon formula. If Noven determines that all or a portion of its fentanyl inventory cannot be sold (due to failure to obtain approval, insufficient remaining shelf-life or otherwise), Noven would incur charges associated with that portion of fentanyl inventory deemed non-saleable. The amount of any such charge would be dependent on the date of fentanyl approval, if any, as well as the actual amount of inventory deemed non-saleable. As of June 30, 2005, Noven had $13.8 million in total fentanyl inventories. If the fentanyl patch were never approved and launched, the contractual formula would call for Noven to bear up to $9.0 million of the production costs for the inventories deemed non-saleable, which Noven would record as a charge to income from operations. If the product were not launched by the end of 2005, the contractual formula would call for Noven to record charges aggregating up to $5.7

~~million (of the $9~~12.~~0 million~~ ~~noted~~INVESTMENT ~~above)~~IN ~~during~~VIVELLE ~~the~~VENTURES ~~second~~LLC ~~half~~(d/b/a ~~of 2005, reflecting Noven’s~~NOVOGYNE): share of fentanyl inventories deemed non-saleable due to insufficient remaining shelf life. Noven could begin to incur such charges as early as the third quarter of 2005, and any such charges could materially and adversely impact Noven’s results of operations. If all or any portion of existing launch quantities are not commercially saleable, Noven may manufacture additional fentanyl launch quantities prior to obtaining FDA approval, which would further increase Noven’s exposure if the product is not ultimately approved by the FDA.

~~Internal~~ Noven ~~Revenue~~shares ~~Service~~in ~~Audit~~the earnings of Novogyne, after satisfaction of an annual preferred return of $6.1 million to Novartis, according to an established formula. Noven’s share of Novogyne’s earnings increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne earned sufficient income in the first quarter of 2009 and 2008 to meet Novartis’ annual preferred return for those periods and for Noven to recognize earnings from Novogyne under the formula.

~~Noven,~~During ~~from~~the ~~time~~three tomonths ~~time,~~ended ~~is subject to audits by taxing authorities~~March 31, ~~covering~~2009 aand ~~wide range of matters. The Internal Revenue Service is currently auditing Noven’s federal income tax returns for certain open years. Such matters are subject to various uncertainties~~2008, ~~and it is possible that some of these matters may be resolved unfavorably to~~ Noven. ~~Since~~had ~~2001, Noven~~the ~~has~~following ~~established $1.1 million in accruals for pending matters that it believes are~~transactions ~~probable~~with ~~and~~Novogyne ~~reasonably~~(amounts ~~estimable. There were no changes~~ in ~~the amount accrued for the periods~~thousands): ~~ended June 30, 2005 and 2004. The outcome of the pending matters cannot ultimately be predicted.~~

Facility Lease


	2009		2008
Revenues:

Product sales	$	5,480	$	2,431
Royalties		2,222		2,180

	$	7,702	$	4,611

Reimbursed expenses	$	8,146	$	7,272

InReimbursed ~~February 2005,~~expenses ~~Noven~~are ~~entered~~primarily ~~into~~comprised ~~an Industrial Long-Term Lease (the “Lease”) for approximately 73,000 square feet~~ of ~~newly~~selling ~~constructed space located in close proximity to its manufacturing facility in Miami, Florida. Noven intends to use the leased space for the storage~~ and, asmarketing ~~needed,~~expenses ~~the~~paid ~~manufacture~~by of new product. The lease term is 10 years, which may be extended for up to an additional 21 years pursuant to four renewal options of five years each and a one-time option to renew for one year. The annual base rent is $6.40 per square foot. Noven ~~will also pay a monthly management fee equal to 1.5% of the base rent. The rent for the~~ ~~first~~on ~~year~~behalf ~~is discounted to $3.20 per square foot. The base rent is subject to annual increases~~ of ~~3% during the initial 10-year term~~Novogyne. ~~After~~As ~~the initial term, the rent will be 95%~~ of the fair market rate of the leased space as determined under the Lease. Noven is in the process of improving the leased space in order to prepare it for its intended use. The landlord was responsible for up to approximately $0.9March ~~million of leasehold improvements~~31, ~~which were~~2009 ~~fully~~and ~~paid as of June~~December 3031, ~~2005. Any amounts paid to the general contractor in excess of this amount and any other leasehold improvements will be the responsibility of Noven. For accounting purposes~~2008, Noven ishad ~~amortizing~~amounts ~~the~~due ~~total expected rental payments on a straight-line~~from ~~basis~~Novogyne ~~over the initial 10-year term~~ of ~~the Lease~~$6.7 million ~~The renewal terms have not been included for amortization purposes because Noven cannot reasonably estimate the rental payments after the initial term~~ and Noven cannot assure that it will renew the Lease after the initial term. Any leasehold improvements will be recorded at cost and will be amortized on a straight-line basis over the shorter of the estimated useful life of the improvements or the remaining initial 10-year lease term. Leasehold improvements to the leased space paid by the landlord will be recorded by Noven as a deferred rent credit and will be amortized on a straight-line basis when incurred over the remaining initial 10-year lease term as a reduction of rent expense. Rent expense related to this lease was $06.25 million ~~for the six months ended June 30~~, ~~2005~~respectively.

~~Item 2.~~ The ~~Management’s~~Unaudited ~~Discussion~~Condensed ~~and~~Statements ~~Analysis~~of Operations of ~~Financial~~Novogyne ~~Condition~~for the three months ended March 31, 2009 and ~~Results~~2008 ofare as follows (amounts in thousands): ~~Operations~~

The following section addresses material aspects of Noven’s financial condition at June 30, 2005, and the results of operations for the three and six months ended June 30, 2005 and 2004. The contents of this section include:


	2009		2008
Gross revenues	$	48,230	$	45,294

Sales allowances		6,666		5,853
Sales return allowances		1,373		(85	)

Sales allowances and returns		8,039		5,768

Net revenues		40,191		39,526
Cost of sales		8,077		7,808
Selling, general and administrative expenses		10,711		9,012

Income from operations		21,403		22,706
Interest income		94		267

Net income	$	21,497	$	22,973

Noven’s equity in earnings of Novogyne	$	7,545	$	8,267

• The Anactivity ~~overview~~in ofthe ~~Noven~~Investment ~~and~~in ~~our~~ Novogyne ~~joint~~account ~~venture;~~for ~~• A review of certain items that affect~~ the ~~historical~~three ormonths ~~future~~ended comparability of our results of operations; • An analysis of our results of operations and our liquidity and capital resources; • A discussion of recently issued accounting standards and the application of our critical accounting policies; • An outlook that includes our current financial guidance for 2005; and • A review of cautionary factors that could have a material adverse effect on our businessMarch 31, 2009 ~~financial~~is ~~condition~~as ~~and~~follows ~~results~~(amounts ofin ~~operations.~~thousands):

This discussion should be read in conjunction with Noven’s financial statements for the three and six months ended June 30, 2005 and 2004 and the related notes included elsewhere in this Form 10-Q, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” from our Annual Report on Form 10-K for the year ended December 31, 2004.


Investment in Novogyne, beginning of period	$	24,319
Equity in earnings of Novogyne		7,545
Cash distributions from Novogyne		(12,689	)

Investment in Novogyne, end of period	$	19,175

~~Overview~~ Subject to the approval of Novogyne’s management committee, Novogyne may, from time to time, distribute cash to Novartis and Noven based upon a contractual formula. For the three months ended March 31, 2009 and 2008, Noven received cash distributions from Novogyne representing return on investment of $12.7 million and $10.9 million, respectively. This amount was recorded as a reduction in the investment in Novogyne when received.

~~We develop and manufacture advanced transdermal patches and presently derive substantially all of our revenues from sales of transdermal patches for use in menopausal hormone therapy~~13. InSHARE ~~the United~~REPURCHASE ~~States, our HT products are marketed and sold by Novogyne Pharmaceuticals, the joint venture~~PROGRAM: that we formed with Novartis in 1998. Our business, financial position and results of operations currently depend largely on Novogyne and its marketing of our three principal HT products – Vivelle®, Vivelle-Dot™ and CombiPatch®– in the United States. A discussion of Novogyne’s results and their impact on our results can be found under the caption “—Results of Operations—Equity in Earnings of Novogyne.”

In ~~all~~September 2007, ~~countries~~Noven’s ~~other~~Board ~~than~~of ~~the~~Directors ~~United~~authorized ~~States,~~a ~~Canada~~share ~~and~~repurchase ~~Japan,~~program weunder which ~~have~~Noven ~~licensed~~may ~~the marketing~~acquire ~~rights~~up to ~~these~~$25.0 million ~~products~~of toits ~~Novartis~~common ~~Pharma~~stock. AGDuring ~~(“Novartis~~the ~~Pharma”)~~fourth quarter of 2007, ~~which~~Noven isrepurchased an322,345 ~~affiliate~~ shares of ~~Novartis.~~its Incommon ~~most~~stock at an aggregate price of approximately ~~these~~$5.1 million. ~~markets,~~These ~~Vivelle®~~shares isremained ~~marketed~~in ~~under~~treasury ~~the~~as ~~brand~~of ~~name Menorest~~March 31, ~~Vivelle-Dot™~~2009 isand ~~marketed~~December 31, ~~under~~2008, ~~the~~and ~~brand~~no ~~name~~additional ~~Estradot~~shares ~~and CombiPatch®~~have isbeen ~~marketed~~repurchased under the ~~brand~~program ~~name~~since ~~Estalis®~~December 31, 2007.

~~We hold a 49% equity interest in Novogyne, and Novartis holds the remaining 51% equity interest~~14. ~~Under~~COMMITMENTS ~~the~~AND ~~terms of the joint venture agreements, we manufacture and supply~~CONTINGENCIES: Vivelle®, Vivelle-Dot™ and CombiPatch® to Novogyne, perform marketing, sales and promotional activities, and receive royalties from Novogyne based on Novogyne’s sales of the estrogen therapy (“ET”) products. Novartis distributes Vivelle®, Vivelle-Dot™ and CombiPatch® and provides certain other services to Novogyne, including financial and accounting functions.

~~Novartis~~HORMONE isTHERAPY ~~entitled~~(“HT”) ~~to an annual $6.1 million preferred return from Novogyne, which has the~~STUDIES: effect of reducing our share of Novogyne’s income in the first quarter of each year. After the annual preferred return to Novartis, our share of Novogyne’s income increases as product sales increase, subject to a maximum of 49%. Our share of Novogyne’s income was $9.0 million and $8.9 million for the six months ended June 30, 2005 and 2004, respectively. The income we recognize from

Since 2002, several studies, including the Women’s Health Initiative (“WHI”) study performed by the National Institutes of Health (“NIH”) and a study performed by the National Cancer Institute (“NCI”), have identified increased risks from the use of HT, including increased risks of invasive breast cancer, ovarian cancer, stroke, heart attacks and blood clots. As a result of the findings from these and other studies, the FDA has required that “black box” labeling be included on all HT products marketed in the United States to warn, among other things, that these products have been associated with increased risks for heart disease, heart attacks, strokes and breast cancer and that they are not approved for heart disease prevention. Since the July 2002 publication of the WHI and NCI study data, total United States prescriptions have declined for substantially all HT products, including our HT products in the aggregate. Researchers continue to analyze data from the WHI study and other studies. Other studies evaluating HT are currently underway or in the planning stage. In particular, a private foundation is funding a clinical study aimed at determining whether estrogen therapy (“ET”) use, by women aged 42 to 58, reduces the risk of heart disease. The study also seeks to determine if transdermal estrogen patches are more or less beneficial than an oral HT product. While Noven’s HT products are not being used in the study, the market for Noven’s HT products could be adversely affected if this study finds that a transdermal estrogen patch is less beneficial than other dosage forms, and Noven could be subject to increased product liability risk if HT patch products are found to increase the risk of adverse health consequences. Noven’s products have been named in lawsuits filed against Noven, Novogyne and Novartis.

~~Novogyne~~SUPPLY ~~is a non-cash item. Any cash we receive from Novogyne is in the form of cash~~AGREEMENTS: distributions declared by Novogyne’s Management Committee. Accordingly, the amount of cash that we receive from Novogyne in any period may not be the same as the amount of income we recognize from Novogyne for that period. For the six months ended June 30, 2005 and 2004, we received $8.9 million and $12.3 million, respectively, in distributions from Novogyne, which accounted for a substantial portion of our cash flows from operating activities for these periods. We expect that a significant portion of our earnings and cash flow for the next several years will be generated through our interest in Novogyne, but we cannot assure that Novogyne will continue to be profitable or make cash distributions. Any failure by Novogyne to remain profitable or to continue to make distributions could have a material adverse effect on our results of operations and financial condition.

~~The~~Noven’s ~~market~~supply ~~for~~agreement HTwith ~~products,~~Novogyne ~~including~~for ~~our~~Vivelle® ~~transdermal~~and HTVivelle-Dot® patches ~~products,~~expired ~~has~~in ~~contracted since the July~~January ~~2002~~2003. ~~publication~~While of the ~~WHI~~parties ~~study~~have ~~that~~continued ~~found~~to ~~adverse~~operate ~~health~~in ~~risks~~accordance ~~associated~~ with ~~HT products.~~ ~~Comparing~~certain ~~the second quarter~~ of ~~2002 (~~the ~~quarter~~supply ~~immediately~~agreement’s ~~preceding~~pricing ~~the~~terms, ~~publication~~there ofis ~~initial data~~no ~~from~~assurance ~~the~~that ~~WHI study) to~~ the ~~second~~parties ~~quarter of 2005, total prescriptions dispensed in the HT~~will ~~market~~continue into ~~the~~do ~~United States decreased by 51%~~so. ~~For the same period, aggregate prescriptions for Noven~~Novogyne’s ~~United~~designation ~~States~~of HTa ~~products~~new ~~decreased~~supplier ~~9%.~~and ~~The~~approval ~~estrogen segment~~ of ~~the~~a HTnew ~~market in the~~supply ~~United~~agreement ~~States~~would ~~declined~~require ~~46%,~~the ~~while~~affirmative ~~our~~vote ~~Vivelle®~~of ~~line~~four of ~~products~~the ~~increased~~five 2%members ~~over~~of ~~the~~Novogyne’s ~~second~~Management ~~quarter 2002~~Committee. ~~Vivelle-Dot™,~~Since ~~which~~Noven ~~represented~~appoints ~~84%~~two members of ~~our~~Novogyne’s ~~total~~Management ~~United~~Committee, ~~States~~both ~~prescriptions~~Novartis inand ~~the~~Noven ~~second~~must ~~quarter~~agree ofon ~~2005,~~Novogyne’s ~~increased~~supplier. ~~27%~~In ~~from~~connection ~~the~~with ~~second~~a ~~quarter~~transition ~~of 2002~~ to ~~the~~ ~~second quarter of 2005. We believe~~ Vivelle-Dot™®, ~~patch~~effective ~~prescriptions~~December 2006, ~~have~~Noven ~~benefited~~ceased ~~from both~~supplying ~~increased demand and patient conversions from the original~~ Vivelle® product to Novogyne.

~~United~~Noven ~~States~~and ~~prescriptions~~Shire ~~for~~are ~~our~~also ~~CombiPatch®~~parties ~~product~~to ~~(which~~a ~~represented approximately~~long-term ~~12%~~supply ofagreement ~~our~~under ~~total~~which ~~United States prescriptions in the second quarter of 2005) declined~~Noven ~~51%~~manufactures ~~from~~and ~~the~~supplies ~~second~~Daytrana® ~~quarter of 2002~~ to ~~the~~Shire ~~second~~at ~~quarter~~a offixed ~~2005,~~price. ~~while~~During ~~prescriptions for~~ the ~~total~~ ~~United States market for fixed combination hormone therapy products decreased 70%. The~~three ~~combination~~months ~~therapy~~ended ~~arm~~March 31, of2009 ~~WHI~~and ~~involved~~2008, anNoven’s ~~oral~~net ~~combination estrogen/progestin~~ product ~~and, accordingly,~~sales ~~the combination therapy segment~~ of ~~the~~Daytrana® HTto ~~market has experienced the most significant~~Shire ~~decrease~~were $2.9 million ~~Further~~and ~~decreases for our CombiPatch® product (whether as a result of the WHI studies~~$3.0 million, ~~the~~respectively. ~~production~~The ~~issues~~supply ~~discussed~~agreement ~~below~~gives orShire ~~otherwise) could require Novogyne (which holds~~ the ~~CombiPatch®~~right ~~marketing rights)~~ to ~~record an impairment loss related to these~~ ~~marketing~~qualify ~~rights,~~a ~~which~~second ~~would~~manufacturing ~~adversely~~source ~~affect~~and ~~the~~purchase ~~results~~a ofportion ~~operations~~ of ~~both~~its ~~Noven~~requirements ~~and~~from that ~~Novogyne~~source.

~~Certain~~LITIGATION, ~~Items~~CLAIMS ~~That~~AND ~~Affect or Could Affect Historical or Future Comparability~~ASSESSMENTS:

~~Stock~~ In ~~Options~~September 2005, Noven, Novogyne and Novartis were served with a summons and complaint from an individual plaintiff in Superior Court of New Jersey Law Division, Atlantic County in which the plaintiff claims personal injury allegedly arising from the use of HT products, including Vivelle®. The plaintiff claims compensatory, punitive and other damages in an unspecified amount. Noven does not expect any activity in this case in the near future, as the court has entered an order to stay proceedings in all its pending and future HT cases except for cases where Wyeth Pharmaceuticals and its affiliates and Pfizer Inc. are the defendants.

In April ~~2005~~2006, ~~the~~an ~~Compensation~~individual plaintiff and ~~Stock~~her ~~Option~~husband ~~Committee~~filed ofa ~~the~~complaint ~~Board~~in ofthe ~~Directors of Noven~~United ~~approved~~States ~~the~~District ~~acceleration~~Court, ofDistrict ~~vesting~~ of ~~unvested~~Minnesota ~~out-of-the-money~~against ~~stock options under the~~ Noven ~~1999~~, ~~Long-Term~~Novogyne, ~~Incentive~~Novartis, ~~Plan~~Wyeth Inc. ~~The affected options were those with exercise prices greater than~~and ~~$17.28~~Wyeth ~~per share~~Pharmaceuticals, ~~which~~Inc. ~~was~~alleging ~~the~~liability ~~closing~~in ~~price~~connection ofwith ~~Noven’s~~personal ~~common~~injury ~~stock on April 7, 2005 (the~~claims ~~effective~~allegedly ~~date~~arising offrom the ~~modification~~use ~~to accelerate vesting~~ of ~~the~~HT ~~out-of-the-money stock options). As a result of this action~~products, ~~options to purchase approximately 932,000 shares of Noven’s common stock became immediately exercisable,~~ including ~~options held by~~ Noven’s ~~executive~~CombiPatch® ~~officers to purchase approximately 401,000 shares~~product. ~~The accelerated options represented approximately 26% of~~ ~~Noven’s total outstanding options on the date of the transaction.~~ The ~~exercise~~plaintiffs ~~prices~~claim ofcompensatory ~~the accelerated~~and ~~options~~other ~~ranged~~damages ~~from~~in ~~$17.88~~an tounspecified ~~$41~~amount.~~81 per share.~~

~~The~~In ~~purpose~~July 2006, offour ~~the~~complaints ~~accelerated~~were ~~vesting~~filed ~~was~~in tothe ~~eliminate~~United ~~the~~States ~~future~~District ~~compensation~~Court, ~~expense~~District ~~that~~of Minnesota against Noven ~~would~~and ~~otherwise~~other ~~recognize~~pharmaceutical incompanies ~~its~~by ~~Statement~~four ofseparate ~~Operations~~individual plaintiffs, each filing alone or with ~~respect~~her tohusband. Three of the complaints also name Novartis as a defendant, and of these, ~~accelerated~~two name Novogyne as a defendant as well. Each complaint alleges ~~options~~liability ~~upon~~in connection with personal injury claims allegedly arising from the ~~adoption~~use of ~~Financial~~HT products, ~~Accounting~~including ~~Standards~~Vivelle® ~~Board~~in ~~Statement~~one ofcase ~~Financial~~and ~~Accounting Standards~~CombiPatch® Noin two of the cases. ~~123~~ ~~(Revised~~The ~~2004),~~plaintiffs ~~Share-Based~~in ~~Payment (“SFAS~~each ~~123(R)”).~~case ~~SFAS~~claim ~~123(R)~~compensatory and other damages in an unspecified amount.

is In ~~effective from the first annual reporting period that begins after June~~July 152008, ~~2005, and will require that the compensation expense associated with stock options be recognized in Noven’s Statement of Operations, rather than as historically presented as~~ a ~~footnote~~complaint ~~disclosure~~was infiled ~~Noven’s financial statements. We anticipate adopting this statement~~ in the ~~first~~United ~~quarter~~States ofDistrict ~~2006.~~Court, ~~Our total~~District ~~stock-based employee compensation expense determined under the fair value based method net~~ of ~~applicable~~Minnesota ~~income~~against ~~taxes~~Wyeth ~~(“Compensation Expense”) was $10~~Inc.~~2 million~~ and ~~$12.0 million~~other ~~for~~named ~~the~~pharmaceutical ~~three and six months ended June 30~~companies, ~~2005,~~including ~~respectively~~Noven, ~~of which, approximately $8.8 million resulted~~Novogyne ~~from~~and ~~the acceleration of vesting of unvested out-of-the-money stock options in April 2005~~Novartis. AtThe ~~June 30,~~complaint ~~2005,~~alleges ~~unamortized~~liability ~~Compensation Expense related to outstanding unvested options, as determined~~ in ~~accordance~~connection with ~~SFAS~~personal ~~123,~~injury ~~that~~claims allegedly wearising ~~expect~~from ~~to record during 2006 was approximately $3.2 million before~~ the ~~effect~~use of ~~income~~HT ~~taxes.~~products, Weincluding ~~will~~Vivelle-Dot®. ~~incur additional expense during 2006 related to new~~The ~~awards~~plaintiffs ~~granted~~claim ~~during~~compensatory ~~the remainder of 2005~~ and ~~2006~~other ~~that~~damages ~~cannot~~in ~~yet~~an beunspecified ~~quantified~~amount.

~~Production~~ In ~~Issues~~March 2009, a complaint was filed in the United States District Court, Southern District of Illinois against Wyeth Inc. and other named pharmaceutical companies, including Noven, Novogyne and Novartis. The complaint alleges liability in connection with personal injury claims allegedly arising from the use of HT products, including CombiPatch®. The plaintiff claims compensatory and other damages in an unspecified amount. Noven has not yet been served with the complaint.

WeIn ~~maintain~~April 2009, a complaint was filed in~~-house~~ ~~product~~the ~~stability~~United ~~testing~~States ~~for~~District ~~our~~Court, ~~commercialized~~District ~~products~~of Oregon against Noven and Novartis. ~~This~~The ~~process includes,~~complaint ~~among~~alleges ~~other~~liability ~~things,~~in ~~testing~~connection ~~samples~~with ~~from~~personal ~~commercial~~injury claims ~~lots~~allegedly ~~under~~arising afrom ~~variety~~the use of ~~conditions~~the toHT product, CombiPatch®. The plaintiff ~~confirm~~claims ~~that~~compensatory ~~the~~and ~~samples~~other ~~remain~~damages ~~within~~in ~~required~~an ~~specifications~~unspecified ~~for~~amount. ~~the~~Noven ~~shelf-life~~has ofnot yet been served with the ~~product~~complaint.

AsEach ~~a result~~ of the ~~2003~~aforementioned ~~recall~~federal ofcourt ~~certain~~cases ~~Vivelle-Dot™~~has ~~patches~~been, Noven initiated a series of special stability protocols to monitor commercial lots in distribution as well as future production of Vivelle-Dot™. In the first quarter of 2005, a total of ten lots of Vivelle-Dot™ manufactured in 2003 were identified for recall when one of our stability protocols revealed that these lots did not meet required specifications or ~~were~~is ~~associated~~expected with lots that did not meet specifications. The recall of these lots in the first quarter of 2005 did not have a material impact on Noven’s or Novogyne’s results of operations because an immaterial number of patches from these lots (manufactured in 2003) remained in distribution. Based on testing and analysis to ~~date~~be, ~~Noven believes that the probable cause of the Vivelle-Dot™~~transferred ~~stability failures remains related~~ to ~~certain patch backing material that Noven obtained from a raw material supplier. Noven and Novartis have established a joint task force to identify~~ the ~~definitive~~ ~~root~~federal ~~cause of the Vivelle~~multi-~~Dot™~~district ~~stability~~litigation ~~failures.~~proceedings ~~If the root cause determination or additional testing (including Noven’s routine stability testing) indicates~~ that ~~the~~ production issue affects more product than Noven’s current testing and analysis suggests, additional recalls may be required. We cannot predict what action, if any, the FDA may take with respect to the recalls of Vivelle-Dot™. Although Noven and Novartis are ~~working together~~pending in ~~assessing~~ the ~~Vivelle-Dot™~~United ~~production issues, the decision to recall product~~States ~~resides~~District ~~with Novartis as the holder of the Vivelle-Dot™ NDA and is not within our control. Among other risks~~Court, ~~the~~Eastern ~~recent,~~District ~~or any additional, recalls~~ of Vivelle-Dot™ could result in a decision to: recall all or a significant portion of the product in distribution until a definitive root cause has been identified and any required corrective action has been completed; cease production or shipment of new product until a definitive root cause has been identified and any required corrective action has been completed; or reduce the shelf-life of Vivelle-Dot™Arkansas. ~~Vivelle-Dot™ represented over 80% of Novogyne’s total~~ prescriptions in the second quarter of 2005 and Noven’s and Novogyne’s results of operations and prospects would be materially and adversely affected in the event these or similar actions were to occur.

InNovartis ~~late~~has ~~October 2004,~~advised ~~our~~Noven ~~product~~that ~~stability~~Novartis ~~testing~~is ~~program~~currently ~~indicated~~named ~~that~~as ~~one~~a ~~commercial~~defendant ~~lot of~~in ~~CombiPatch®~~at ~~product~~least ~~did~~28 additional ~~not~~lawsuits ~~maintain~~that ~~required~~include ~~specifications~~approximately ~~throughout~~29 ~~the~~plaintiffs ~~product’s shelf-life~~that ~~due~~allege toliability ~~the~~in ~~formation~~connection with ofpersonal ~~crystals.~~injury ~~Novartis~~claims ~~has~~allegedly ~~recalled~~arising from the ~~affected~~use ~~lot. The 2004 recall~~ of ~~this~~HT ~~lot~~patches ~~did~~distributed ~~not~~and ~~have~~sold aby Novartis ~~material~~and ~~impact~~Novogyne, onincluding Noven’s orVivelle-Dot®, ~~Novogyne’s~~Vivelle®, ~~financial~~and CombiPatch® ~~statements~~products. We ~~continue~~Novogyne tohas ~~maintain~~been ~~our~~named ~~stability~~as ~~testing~~a ~~for~~defendant ~~CombiPatch®,~~in ~~and~~one ~~are~~lawsuit ~~undertaking~~in ~~additional~~addition ~~testing~~to ~~related~~five toof the ~~October 2004~~lawsuits ~~stability~~specifically ~~failure~~referenced above. IfNovartis ~~our~~has ~~testing~~indicated ~~indicates~~ that it ~~additional~~will ~~CombiPatch®~~seek ~~lots~~indemnification dofrom ~~not~~Noven ~~meet~~and ~~specifications~~Novogyne orto ~~are~~the ~~affected~~extent permitted by the ~~issue~~agreements ~~impacting~~between ~~the~~and ~~lot~~among ~~recalled~~Novartis, ~~Novartis~~Novogyne ~~could~~and ~~initiate~~Noven. ~~additional~~Novogyne’s ~~recalls.~~aggregate ~~Although~~limit ~~Noven~~under ~~and~~its ~~Novartis~~claims-made ~~are~~insurance ~~working~~policy ~~together~~as toof ~~assess~~March 31, ~~production~~2009 ~~issues,~~was $10.0 million. Novogyne has established reserves in the ~~decision~~amount toof ~~recall~~$9.6 million ~~product~~with ~~resides~~an ~~with~~offsetting ~~Novartis~~insurance recovery of $7.1 million for expected defense and settlement expenses as ~~the~~well ~~holder~~as for estimated future cases alleging use of ~~the~~Noven’s ~~CombiPatch®~~HT ~~NDA~~products. ~~and~~This isaccrual represents ~~not~~Novartis ~~within~~management’s ~~our~~best estimate as of March 31, 2009.

In June 2007, Johnson-Matthey Inc. filed a complaint in the United States District Court, Eastern District of Texas against Noven alleging that Noven was infringing one of its patents through Noven’s manufacture and sale of Daytrana^®. The plaintiff is seeking injunctions from further infringement and claiming compensatory and other damages in an unspecified amount. In July 2007, Johnson-Matthey added Shire as a defendant in this lawsuit. The parties have commenced formal discovery and the case has been scheduled for trial in late 2009.

As of March 31, 2009 and December 31, 2008, Noven had reserved $1.2 million and $2.0 million, respectively, for the matters described above. Noven intends to vigorously defend all of the foregoing lawsuits, but the outcome of these lawsuits cannot ultimately be predicted.

Noven is a party to other pending legal proceedings arising in the normal course of business, none of which Noven believes is material to its consolidated financial condition, results of operations or cash flows.

FDA WARNING LETTER:

Daytrana^® is Noven’s transdermal methylphenidate system for the treatment of ADHD, which Noven has licensed globally to Shire. Noven and Shire have received reports from some consumers concerning the difficulty of removing the release liner from certain Daytrana^® patches. In the first quarter of 2007, Noven, together with Shire, implemented enhancements to the Daytrana^® release liner. While the enhanced release liner has reduced the level of consumer reports, some patients and caregivers continue to have difficulty in removing the release liner from some Daytrana^® patches.

~~control.~~ In IfJuly 2007, ~~our~~Noven ~~estimates~~received ~~concerning~~a ~~product~~list ~~returns~~of ~~associated~~observations ~~with~~from the ~~recall~~FDA ~~are incorrect,~~on orForm 483 iffollowing ~~our~~an on-site ~~continued~~inspection ~~testing~~of ~~indicates~~its ~~that~~manufacturing ~~more~~facilities. ~~than~~The ~~one~~majority ~~lot~~of isthe ~~affected,~~observations orin ifthe ~~Novartis~~Form ~~should~~483 ~~initiate~~related ~~additional~~to ~~recalls~~the ~~for~~Daytrana® ~~any~~patch ~~reason~~and difficulties experienced by some patients in removing the release liner, ~~then~~including ~~Noven’s~~certain ~~and~~product ~~Novogyne’s~~lots ~~business~~that ~~and~~utilize ~~results~~the enhanced release ofliner. ~~operations~~In ~~could~~July 2007, beNoven ~~materially~~submitted ~~and~~to ~~adversely~~the ~~impacted~~FDA its response to the Form 483.

~~The~~In ~~recalls~~the ~~may~~third ~~result~~quarter inof an2007, ~~FDA~~Shire ~~inspection~~initiated oftwo ~~our~~voluntary ~~facilities~~recalls ~~and~~of ~~procedures~~a ~~and~~portion weof ~~cannot~~the ~~assure~~Daytrana® ~~that~~product on the ~~FDA~~market ~~will~~primarily bein ~~satisfied~~response ~~with~~to ~~our~~feedback ~~operations~~from ~~and~~patients ~~procedures, which could result in~~and ~~more~~caregivers ~~frequent~~who ~~and~~experienced ~~stringent~~difficulty ~~inspections~~removing ~~and monitoring. If~~ the ~~FDA~~release ~~were~~liner tofrom ~~conclude~~some ~~that our~~Daytrana® ~~manufacturing~~patches. ~~controls~~Noven ~~and~~paid ~~procedures~~Shire ~~are~~$3.3 million ~~not~~in ~~sufficient,~~February 2008 werelated ~~could~~to bethose ~~required~~recalls. toThis ~~suspend~~payment ~~production~~was ~~until~~charged ~~we demonstrate~~ to ~~the~~operations ~~FDA~~in ~~that our controls and procedures are sufficient~~2007.

~~Shire~~ In January 2008, Noven received a warning letter from the FDA in connection with the FDA’s July 2007 inspection of its manufacturing facilities. In the warning letter, which is posted at the FDA’s website, the FDA cited Current Good Manufacturing Practice deficiencies related to: (i) peel force specifications for removal of Daytrana’s® release liner; and (ii) data supporting the peel force characteristics of Daytrana’s® enhanced release liner throughout the product’s shelf life. Noven submitted its response to the warning letter on January 30, 2008, which remains under review by the FDA.

WeIn ~~are~~April 2008, ~~developing~~ a ~~transdermal~~Noven ~~methylphenidate~~stability ~~patch~~protocol ~~for~~identified ~~ADHD~~certain Daytrana® lots exhibiting high peel force characteristics. ~~Global~~In ~~rights~~June 2008, toShire initiated the voluntary recall ~~developmental~~of two lots of Daytrana® that did not meet the product’s ~~were~~release ~~licensed~~liner toremoval specification. In August 2008, Shire ininitiated the ~~first~~voluntary ~~quarter~~recall of ~~2003~~two ~~for~~additional ~~payments~~lots upof Daytrana® that did not meet the product’s release liner removal specification. Noven paid Shire $3.7 million related to its June and August 2008 recalls, of which approximately $~~150~~3.01 million, ~~including~~has been charged to general and administrative expenses, $250.4 million was recorded as a reduction in revenues and $0.2 million ~~paid~~was atcharged ~~closing~~to cost of products sold in 2008. For each of the ~~license~~recalls ~~transaction~~described above, the amounts reflected as reductions of revenue represent the amounts recognized for product which is expected to be returned, the charge to cost of product sold represents the value of AMI included in such product for which Noven is required to reimburse Shire, and the amount charged to general and administrative expenses represents amounts Noven is obligated to reimburse Shire for direct costs of the recalls.

In ~~April 2005~~the fourth quarter of 2008, Noven ~~and~~implemented: ~~Shire~~(i) new ~~announced~~product ~~preliminary~~release ~~results~~testing ~~from~~intended to ~~additional~~predict ~~clinical~~which ~~trials~~Daytrana® lots are at risk of developing peel force issues during ~~conducted~~the inproduct’s ~~2004~~shelf life; and ~~2005~~(ii) new ~~that~~manufacturing ~~were~~processes ~~intended~~and toprocedures ~~address~~that ~~clinical~~helped improve ~~issues~~efficiencies ~~raised~~associated inwith ~~the~~existing ~~not approvable~~Daytrana® ~~letter~~production. Product that fails weto ~~received~~meet ~~from~~ the ~~FDA~~predictive inrelease ~~April 2003.~~test Inwill ~~June 2005~~be destroyed, ~~Noven~~which ~~submitted an~~will ~~amendment~~result toin ~~the~~increased Daytrana® ~~NDA~~manufacturing ~~that~~costs, ~~included~~including ~~these~~reimbursements ~~new~~to ~~trial~~Shire ~~results,~~for ~~and~~the AMI included in the ~~FDA~~destroyed ~~accepted~~product. For the ~~amendment for~~three ~~filing~~months inended ~~July~~March ~~2005.~~31, ~~The~~2009, ~~amendment~~Daytrana® iscost of ~~expected~~products tosold ~~receive~~exceeded aNoven’s ~~six-month~~Daytrana® ~~review~~net revenues by ~~the FDA~~$0.7 million. NoAlthough Noven ~~assurance~~has ~~can~~implemented bethe ~~given~~new ~~that~~manufacturing ~~the~~processes ~~data~~and ~~obtained~~procedures ~~from~~described above, Noven expects the ~~additional~~peel ~~studies~~force ~~will~~issue into ~~fact~~continue to negatively affect margins as a result of increased ~~address~~Daytrana® ~~the~~manufacturing ~~FDA’s~~costs, ~~issues~~including orreimbursements ~~that~~to Shire for the ~~FDA~~AMI ~~may~~included in ~~not~~destroyed ~~raise~~product, ~~additional~~unless ~~issues~~and until the peel force issue is resolved.

~~Noven’s~~In ~~direct~~March 2009, ~~costs~~Shire ~~incurred~~initiated ina ~~pursuit~~voluntary recall of ~~approval~~certain ~~are~~lots ~~being~~of ~~deferred and offset against a~~Daytrana® ~~portion~~due ofto the ~~$25.0 million~~failure ~~deferred~~of ~~revenue~~some ~~previously~~of ~~received~~the ~~from~~patches ~~Shire.~~to ~~Such~~meet ~~expenses~~the ~~did not impact Noven~~product’s ~~research~~release ~~and~~liner ~~development expenses in 2004 or in the three and six months ended June~~removal ~~30,~~specification. ~~2005,~~Noven ~~although~~believes the ~~direct~~reserve ~~expenses~~established ~~incurred~~ in ~~pursuit~~2008 of($3.7 million ~~FDA~~at ~~approval~~March 31, ~~reduce our cash position~~2009) ~~and~~ will ~~have~~be ~~the~~sufficient ~~effect~~to ofcover ~~reducing~~Noven’s ~~the~~cost ~~amount~~related ofto ~~deferred~~this ~~revenues~~recall. ~~that~~Although ~~Noven~~the ~~may~~new ~~recognize in~~release ~~future~~testing ~~periods.~~is Asdesigned ofto ~~June 30,~~reduce ~~2005,~~ the ~~amount~~likelihood ofthat ~~available~~newly-manufactured ~~deferred~~product ~~revenues~~will ~~was~~be ~~$0.8 million~~withdrawn ~~(which~~or ~~excludes~~recalled in the ~~$5.0 million~~future, ofNoven ~~deferred~~cannot ~~revenues~~assure ~~related~~that toits ~~Shire’s~~predictive ~~repurchase~~release ~~right)~~testing ~~and~~will detect ~~Noven~~all ~~does~~production ~~not~~issues ~~expect~~or ~~its~~that ~~prospective~~there ~~cost~~will innot ~~pursuit~~be offuture ~~approval~~Daytrana® tomarket ~~exceed~~withdrawals or ~~this amount~~recalls.

~~Endo~~ In January 2009, Noven received from the FDA a list of observations on Form 483 following an on-site inspection of its manufacturing facilities. Like the warning letter and the prior Form 483, the majority of the observations in the Form 483 relate to the manufacture of Daytrana® product that exhibits high peel force characteristics, an issue which Noven and Shire continue to work to resolve. In February 2009, Noven submitted its response to the Form 483. Failure to adequately address the issues raised by the FDA in the warning letter as well as the production and other issues involving Daytrana® could result in additional regulatory action, including fines, recalls of products, injunctions, seizures, suspension of production or withdrawal of the approval of products. Any such regulatory action would be expected to have a material adverse effect on Noven, including the potential for litigation related to this matter, harm to Noven’s reputation and various costs associated with the foregoing.

In July 2003, we submitted an ANDA to the FDA seeking approval to market a generic version of Duragesic® (fentanyl transdermal system). Duragesic® is a transdermal patch containing fentanyl, an opioid analgesic and a Schedule II controlled substance, and is indicated for the management of chronic pain in patients who require continuous opioid analgesia and whose pain cannot be controlled by lesser means. Our ANDA was accepted for filing in October 2003 and is currently under review at the FDA. In the first quarter of 2004, we entered into an exclusive agreement with Endo pursuant to which we granted Endo the right to market our fentanyl patch in the United States and Canada. Johnson & Johnson’s patent and exclusivity status for Duragesic® expired in January 2005, after which the FDA approved the fentanyl transdermal system ANDA filed by a competitor. In April 2005, Endo returned the Canadian marketing rights to us for no consideration. We are exploring strategies to commercialize the product outside the United States.

If our ANDA is approved and the product is launched by Endo (the licensee of the product in the U.S.), we expect to receive a launch-related milestone payment ranging from $5.0 million to $10.0 million, which payment will be deferred and recognized as Noven license and contract revenues over the remainder of the 10-year period that began on the closing of the Endo license transaction in the first quarter of 2004. Under the terms of our agreement with Endo, we will

~~manufacture~~CONTRACT ~~and~~AND ~~supply~~LICENSE ~~Endo with finished product at our cost and will share in Endo’s profit~~AGREEMENTS: ~~generated from U.S. product sales.~~

WeNoven ~~manufactured~~is ~~initial~~obligated ~~launch~~to ~~quantities~~perform ofunder ~~our~~its ~~fentanyl~~contract ~~patch during the fourth quarter of 2004~~ and ~~first~~license ~~quarter of 2005~~agreements. ~~The~~In ~~product has a two-year shelf life. We have agreed with Endo~~certain to share the cost of any fentanyl inventory that cannot be sold by Endo in accordance with an agreed-upon formula. If we determine that all or a portion of our fentanyl inventory cannot be sold (due to failure to obtain approvalcircumstances, ~~insufficient~~Noven ~~remaining~~is ~~shelf-life~~required or otherwise), we would incur charges associated with that portion of fentanyl inventory deemed non-saleable. The amount of any such charge would be dependent on the date of fentanyl approval, if any, as well as the actual amount of inventory deemed non-saleable. As of June 30, 2005, we had $13.8 million in total fentanyl inventories. If the fentanyl patch were never approved and launched, the contractual formula would call for us to ~~bear~~indemnify upits tolicensees ~~$9.0 million of the production costs for the inventories deemed non-saleable, which we would record as a charge to income~~ from ~~operations.~~damages Ifcaused ~~the product were not launched~~ by the ~~end of 2005, the contractual formula would call for us to record charges~~products ~~aggregating~~Noven upmanufactures to $5.7 million (of the $9.0 million noted above) during the second half of 2005, reflecting our share of fentanyl inventories deemed non-saleable due to insufficient remaining shelf life. We could begin to incur such charges as ~~early~~well as ~~the~~claims ~~third quarter of 2005, and any such charges could materially and adversely impact our results of operations. If all~~ or ~~any~~losses ~~portion~~related ~~of existing launch quantities are not commercially saleable, we may manufacture additional fentanyl launch quantities prior~~ to ~~obtaining~~patent ~~FDA approval, which would further increase our exposure if the product is not ultimately approved by the FDA~~infringement.

OnCREDIT ~~July 14, 2005, the FDA issued a public advisory that it is investigating reports of death~~FACILITY: and other serious side effects from overdoses involving both the branded and generic fentanyl patches and we are aware that the FDA is considering such safety issues in its review of pending fentanyl ANDAs. The FDA has indicated that it will provide public updates as new information regarding the investigation becomes available. We are unable to predict the outcome or impact of this investigation. It could, however, materially and adversely affect the market for all fentanyl patch products, and could delay or prevent approval of pending ANDAs for fentanyl, including our pending application.

~~DEA~~ In ~~Quota~~July 2008, Noven entered into an agreement for a $15.0 million credit facility. In connection with the credit facility and in lieu of granting a security interest in Noven’s assets, Noven agreed not to pledge, grant any security interest in, or allow any lien or encumbrance in or on, certain of Noven’s financial assets. As of March 31, 2009, no borrowings were outstanding under this facility.

~~The DEA controls access to controlled substances (including fentanyl and methylphenidate) and we must annually apply to the DEA for procurement quota in order to obtain these substances~~15. ~~Pursuant~~ toSEGMENT ~~recent legislation, the DEA may not establish procurement quota following FDA approval~~DATA: of an NDA or ANDA for a controlled substance until after DEA reviews and provides public comment on the labeling, promotion, risk management plan and other documents associated with such product. No assurance can be given that the DEA review process will not result in delays in obtaining procurement quota for controlled substances, a reduction in the quota issued to us or an elimination of our quota entirely. Any delay by the DEA in establishing our procurement quota for controlled substances could delay our product launches or could interrupt trade supply for those products that have already been launched.

The accounting policies of Noven’s segments are the same as those described in Note 2 — “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in Noven’s Form 10-K. In the fourth quarter of 2008, as a result of management and organizational changes throughout 2008, Noven revised its presentation of reportable segments to reflect Novogyne as a reportable unit distinct from the manufacturing and licensing activities of Noven Transdermals. Noven evaluates segment performance for Noven Transdermals and Noven Therapeutics based on segment profit (loss) which consists of segment net revenues less cost of products sold and selling and marketing expenses. Noven evaluates segment performance for Novogyne based on Noven’s equity in earnings of Novogyne. Noven Transdermals’ net revenues include product revenues from sales to Novogyne of $7.7 million and $4.6 million for the three months ended March 31, 2009 and 2008, respectively. Noven defers the recognition of 49% of its profit on products sold to Novogyne until the products are sold by Novogyne to third party customers. There are no other inter-segment revenues.

~~Results~~ The oftable ~~Operations~~below presents segment information for the periods identified and reconciles segment profit (loss) to the applicable consolidated amounts. Segment disclosures for 2008 have been revised to conform to the current presentation (amounts in thousands):

Three and six months ended June 30, 2005 compared to the three and six months ended June 30, 2004


	Three Months Ended March 31,
	2009			2008
Net Revenues:
Noven Transdermals
Product revenues	$	14,777		$	10,491
License and contract revenues		6,289			5,286

		21,066			15,777

Noven Therapeutics
Product revenues	$	6,574		$	5,705

Net revenues	$	27,640		$	21,482


Segment profit (loss):
Noven Transdermals	$	11,681		$	6,310
Noven Therapeutics		(470	)		(960	)
Equity in earnings of Novogyne		7,545			8,267

Total segment profit	$	18,756		$	13,617


Reconciliation of segment profit to income before income taxes:
Segment profit	$	18,756		$	13,617
Research and development		(4,653	)		(3,319	)
General and administrative		(7,048	)		(7,022	)
Interest and other income, net		89			622

Income before income taxes	$	7,144		$	3,898

~~Revenues~~ Segment assets consisted of the following as of March 31, 2009 and December 31, 2008 (amounts in thousands):

Total revenues for the three and six months ended June 30, 2005 and 2004 are summarized as follows (dollar amounts in thousands):


	March 31,		December 31,
	2009		2008
Noven Transdermals	$	56,018	$	56,362
Noven Therapeutics		54,489		55,902
Novogyne		19,175		24,319
Assets not allocated to segments¹		165,348		164,983

Total Assets	$	295,030	$	301,566

	Three Months							Six Months
	2005		2004		% Change			2005		2004		% Change
Product revenues — Novogyne:
Product sales	$	4,714	$	4,886		(4	%)	$	9,692	$	10,694		(9	%)
Royalties		1,713		1,608		7	%		2,827		2,498		13	%
		6,427		6,494		(1	%)		12,519		13,192		(5	%)
Product revenues — third parties:
Product sales		3,858		3,489		11	%		7,823		6,327		24	%
Royalties		75		75		0	%		148		214		(31	%)
		3,933		3,564		10	%		7,971		6,541		22	%
Total product revenues		10,360		10,058		3	%		20,490		19,733		4	%
Contract and license revenues:
Contract		429		853		(50	%)		1,024		1,372		(25	%)
License		982		1,044		(6	%)		1,993		1,980		1	%
		1,411		1,897		(26	%)		3,017		3,352		(10	%)
Net revenues	$	11,771	$	11,955		(2	%)	$	23,507	$	23,085		2	%


¹		Assets not allocated to segments consist primarily of cash and cash equivalents, investments in auction rate securities and deferred income taxes.

Net Revenues

As described in more detail below, the slight decline in net revenues for the three months ended June 30, 2005 as compared to the same period in 2004 reflected declines in contract revenues and in sales to Novogyne, partially offset by an aggregate increase in sales of our international products.

As described in more detail below, the slight increase in net revenues for the six months ended June 30, 2005 as compared to the same period in 2004 reflected an aggregate increase in sales of our international products, partially offset by declines in sales to Novogyne and in contract revenues. In addition, royalties increased for the six months ended June 30, 2005 as compared to the same period in 2004 as a result of Novogyne’s higher sales of Vivelle® and Vivelle-Dot™.

Product Revenues — Novogyne

Product revenues – Novogyne consists of our sales of Vivelle®, Vivelle-Dot™/Estradot and CombiPatch® to Novogyne at a fixed price for resale by Novogyne primarily in the United States, as well as the royalties we receive as a result of Novogyne’s sales of Vivelle® and Vivelle-Dot™.

The $0.1 million decline in product revenues from Novogyne for the three months ended June 30, 2005 as compared to the same period in the prior year primarily related to a $0.6 million and

~~$0.5~~Item ~~million reduction in unit sales of CombiPatch® and Estradot, respectively, substantially offset by a $1~~2.~~0 million~~ ~~increase~~Management’s inDiscussion unit sales of Vivelle-Dot™. The decline in product revenues for the three months ended June 30, 2005 as compared to the same period in 2004 also reflects a $0.6 million reduction in allowances for returns recorded during the three months ended June 30, 2004 that was not repeated in the comparable period of 2005. Those return allowances were established in 2003 and ~~related~~Analysis ~~to product recalls. The decline in sales~~ of ~~CombiPatch®~~ ~~was~~Financial ~~primarily~~Condition ~~attributable to the ongoing effects of WHI~~ and ~~other~~Results ~~studies on combination therapy products. In addition, sales to Novogyne for the three months ended June 30, 2004 benefited from stocking orders~~ of ~~Estradot related to a planned transition from~~ ~~Vivelle® to Estradot in Canada. The increase in Vivelle-Dot™ unit sales was~~Operations ~~primarily attributable to increased demand from Novogyne due to increased prescription trends.~~

The ~~$0.7 million~~following ~~decline~~section inaddresses ~~product~~material ~~revenues~~aspects ~~from~~of ~~Novogyne~~our ~~for~~consolidated ~~the~~financial ~~six~~condition ~~months ended June 30, 2005~~ as ~~compared to the same period in the prior year primarily related to a $1.0 million and $0.7 million reduction in unit sales~~ of ~~Estradot and CombiPatch®~~ March 31, ~~respectively~~2009, ~~partially offset~~and byour aconsolidated ~~$0.8 million~~results ~~increase in unit sales~~ of ~~Vivelle-Dot™~~operations ~~and a $0.3 million increase in royalties. The decline in product revenues~~ for the ~~six~~three months ended ~~June~~March 3031, ~~2005 as~~ ~~compared~~2009 to (the ~~same~~“2009 ~~period~~Quarter”) inand ~~2004 also reflects the $0.6~~March ~~million~~31, ~~reduction~~2008 ~~in return allowances during~~ (the ~~2004~~“2008 ~~period discussed above~~Quarter”). The ~~declines~~contents ~~and increases in product revenues are primarily attributable to the same factors as above. The increase in royalties is a result~~ of ~~Novogyne’s~~ ~~higher~~this ~~sales of Vivelle® and Vivelle-Dot™.~~section include:

~~Product Revenues~~• —An ~~Third~~executive ~~Parties~~ summary of our consolidated results of operations for the 2009 Quarter; • A review of certain items that may affect the historical or future comparability of our consolidated results of operations; • An analysis of our consolidated results of operations and our liquidity and capital resources; and • An outlook that includes our current financial guidance for 2009.

~~Product~~This ~~revenues~~discussion –should ~~third~~be ~~parties~~read ~~consists~~in ~~primarily~~conjunction ofwith ~~sales~~Noven’s ofUnaudited ~~Menorest,~~Condensed ~~Estradot and~~Consolidated ~~Estalis®~~Financial toStatements ~~Novartis~~for ~~Pharma~~the atthree amonths ~~price~~ended ~~based~~March 31, on2009 aand ~~percentage~~2008 ofand ~~Novartis~~the ~~Pharma’s~~related ~~net~~notes ~~selling~~included ~~price~~elsewhere ~~(subject~~in tothis ~~certain~~Form ~~minima)~~10-Q, ~~for~~as ~~resale~~well ~~primarily~~as ~~outside~~ the ~~United~~section ~~States~~“Management’s Discussion and ~~Japan,~~Analysis ~~together~~of ~~with~~Financial ~~royalties~~Condition ~~generated~~and ~~from~~Results ~~Novartis Pharma’s sales~~ of ~~Vivelle®~~Operations” ~~and~~from ~~Estradot in~~our ~~Canada~~Form 10-K.

~~The~~Executive ~~$0.4 million increase in product revenues from third parties for the three months ended~~Summary June 30, 2005 as compared to the same period in the prior year primarily related to $1.3 million of higher unit sales, partially offset by $0.9 million in decreased revenue related to pricing. The increase in unit sales is mostly attributable to higher sales of Estalis®. Due to WHI and other studies, demand for combination therapy products has generally been declining. We believe the increase in Estalis® sales in comparison to the same period in prior year is attributable to the timing of orders to re-stock inventory in launched countries and not to an increase in underlying demand for this combination therapy product. The $0.9 million price decrease is primarily related to differences in the timing of the recognition of a price adjustment payment received from Novartis Pharma. Noven records such price adjustment payments from time to time upon Novartis Pharma’s determination that its actual sales price of our product entitles us to receive amounts in excess of the minimum transfer price. For 2004, Novartis Pharma made its determination during the second quarter and we recognized a price adjustment payment of $0.9 million in that period. However, in 2005, Novartis Pharma made its determination in the first quarter, and, accordingly, we recognized a $1.2 million price adjustment payment then.

The ~~$1.4 million~~following ~~increase~~Executive inSummary ~~product~~is ~~revenues~~qualified ~~from~~in ~~third~~its ~~parties~~entirety ~~for~~by the ~~six~~more ~~months~~detailed ~~ended June~~discussion ~~30,~~and ~~2005~~analysis asof ~~compared~~our tofinancial ~~the~~condition ~~same~~and ~~period~~results ~~in the prior year primarily related to $1.1 million~~ of ~~increased~~ ~~unit~~operations ~~sales~~appearing ~~and $0.3 million~~ in ~~increased~~this ~~revenue~~Item 2 ~~related~~as ~~to pricing. The increase in~~well ~~unit sales is mostly attributable to higher sales of Estalis®, due to the same factors~~ as ~~above.~~in ~~The~~our ~~$0.3 million~~Unaudited ~~price~~Condensed ~~increase~~Consolidated isFinancial ~~primarily~~Statements and related tonotes ~~the~~included ~~recognition~~in ~~of a higher~~this ~~price adjustment payment from Novartis Pharma during 2005, as discussed above~~Form 10-Q.

For the 2009 Quarter, we reported net income of $4.5 million ($0.18 diluted earnings per share), compared to net income of $2.6 million ($0.11 diluted earnings per share) for the 2008 Quarter. Our net revenues in the 2009 Quarter were $27.6 million, a 29% increase over the 2008 Quarter. Contributing to this comparative increase, net revenues in the 2008 Quarter were negatively affected by an equipment failure in transdermal manufacturing. The increase in net revenues in the 2009 Quarter also reflected higher license and contract revenues, primarily due to amortization of deferred revenue from the additional Daytrana^® sales milestone payment (received in the third quarter of 2008), as well as product sales of Stavzor^® (commercially launched in August 2008).

Gross margin, as a percentage of net product revenues, was 47% in the 2009 Quarter compared to 30% in the 2008 Quarter. Gross margin for the 2009 Quarter benefited from new manufacturing processes and procedures implemented in the fourth quarter of 2008 designed to improve efficiencies associated with transdermal production. Gross margin for the 2008 Quarter was negatively affected by the impact of the equipment failure in transdermal manufacturing, as well as increased quality assurance activities and expenses, primarily related to Daytrana^® production. Notwithstanding improvements following implementation of new manufacturing processes, we expect the peel force issue to continue to negatively affect margins unless and until this issue is resolved.

Research and development expenses in the 2009 Quarter increased $1.3 million, or 40%, compared to the 2008 Quarter, primarily reflecting expenses associated with the Mesafem^™ Phase 2 clinical study and additional research and development expenses to support our long-term growth objectives. Compared to the 2008 Quarter, selling and marketing expenses increased $0.2 million, or 4%, and general and administrative expenses remained substantially unchanged.

We recognized $7.5 million in equity in earnings of Novogyne in the 2009 Quarter, a decrease of 9% compared to the 2008 Quarter. Net revenues at Novogyne increased 2% to $40.2 million in the 2009 Quarter compared to the 2008 Quarter, reflecting higher gross sales of Vivelle-Dot^®, driven primarily by pricing and increased prescription demand, substantially offset by a decrease in sales volume resulting from inventory reductions in the distribution channel. The increase in gross revenues was also partially offset by higher sales deductions for product returns. Demand for Vivelle-Dot^® increased for the period, with new and total prescriptions for the product increasing 6% and 3%, respectively, compared to the 2008 Quarter. Novogyne’s gross margin percentage for the 2009 Quarter remained substantially unchanged at 80%. Novogyne’s selling, general and administrative expenses for the 2009 Quarter were $10.7 million, a 19% increase over the 2008 Quarter, primarily due to the timing of sample shipments and other expenses in support of Vivelle-Dot^®. Novogyne’s net income for the 2009 Quarter decreased 6% to $21.5 million compared to the 2008 Quarter.

~~Contract~~ At March 31, 2009, we had $72.2 million in cash and ~~License~~cash ~~Revenues~~equivalents and $11.8 million in investments in auction rate securities. This compares to $62.9 million in cash and cash equivalents and $15.5 million in investments in auction rate securities at December 31, 2008. Our investments in auction rate securities at March 31, 2009 had a fair value of $11.8 million, and all were classified as non-current on our balance sheet. We liquidated $3.7 million of these investments at par value in the 2009 Quarter. As of March 31, 2009, no amounts were outstanding under our $15.0 million revolving credit facility.

~~The~~Total ~~decrease~~prescriptions infor ~~contract~~Vivelle-Dot® ~~revenues~~increased of3% ~~$0.4 million~~in ~~and~~the ~~$0.3 million~~2009 ~~for~~Quarter compared to the ~~three~~2008 Quarter, and ~~six months~~total ~~ended~~prescriptions ~~June 30,~~for ~~2005~~Novogyne’s HT products, ~~respectively~~taken as a whole, ~~compared~~increased 1% toover the same ~~periods~~period. inBy ~~prior~~comparison, ~~year~~the ~~was~~United ~~primarily attributable~~States toHT ~~our~~market ~~recognition~~declined of5% ~~$0.8 million~~for ~~and~~the $1same period.~~2 million~~ inTotal ~~contract~~prescriptions ~~revenues~~for ~~recognized~~Daytrana® decreased 13% in the ~~three~~2009 ~~and~~Quarter ~~six~~compared ~~months~~to the ~~ended~~2008 ~~June 30~~Quarter, ~~2004,~~while ~~respectively,~~prescriptions ~~that~~for ~~were~~ADHD ~~not~~stimulant ~~repeated~~therapies inas ~~2005.~~a ~~These contract~~class ~~revenues~~increased ~~related~~9% toover the same ~~attainment~~period. ofTotal ~~certain~~prescriptions ~~product~~for ~~development~~Pexeva® ~~milestones~~decreased ~~under~~21% ~~our collaboration~~in ~~with~~the ~~P&G~~2009 ~~Pharmaceuticals.~~Quarter ~~The~~compared to ~~declines~~the ~~were~~2008 ~~partially~~Quarter, ~~offset~~while byfor ~~work performed during~~ the ~~three~~same ~~and~~period ~~six~~prescriptions ~~months~~for ~~ended~~the ~~June 30,~~selective ~~2005~~serotonin onre-uptake inhibitor ~~contracts~~(“SSRI”) ~~related~~class toincreased ~~other collaborations~~1%. ~~License~~ ~~revenues~~Reflecting ~~were~~ongoing ~~consistent~~generic ~~for~~substitution, ~~the~~total prescriptions ~~three~~for ~~and~~Lithobid® ~~six~~decreased ~~months~~32% ~~ended~~in ~~June 30,~~the ~~2005~~2009 asQuarter compared to the ~~same periods in 2004~~2008 Quarter.

~~Gross~~Certain ~~Margin~~Items that May Affect Historical or Future Comparability

~~Gross~~Set ~~margin~~forth ~~for~~below are certain items that may affect the ~~three~~historical or future comparability of our consolidated results of operations and ~~six~~financial ~~months~~condition. ~~ended~~Such ~~June 30,~~disclosure ~~2005~~is not intended to address every item that may affect the historical or future comparability of our consolidated results of operations or financial condition and ~~2004~~such ~~are~~disclosure ~~summarized~~should asbe read in conjunction with ~~follows~~the ~~(dollar~~discussion ~~amounts~~and analysis of our consolidated results of operations, liquidity and capital resources and outlook appearing elsewhere in ~~thousands):~~this Item 2.

	Three Months									Six Months
	2005			2004			% Change			2005			2004			% Change
Total product revenues	$	10,360		$	10,058			3	%	$	20,490		$	19,733			4	%
Cost of products sold		5,124			4,975			3	%		10,881			10,493			4	%
Gross profit (product revenues less cost of products sold)		5,236			5,083			3	%		9,609			9,240			4	%
Gross margin (gross profit as a percentage of product revenues)		51	%		51	%					47	%		47	%
Increase (decrease) in deferred profit on sales of product to Novogyne		148			(43	)		N/M			290			175			N/M
Gross margin excluding impact of deferred profit		52	%		50	%					48	%		48	%

Daytrana^®

~~N/M~~ Daytrana® —is ~~not~~our ~~meaningful~~transdermal methylphenidate system for the treatment of ADHD, which we have licensed globally to Shire. We and Shire have received reports from some consumers concerning the difficulty of removing the release liner from certain Daytrana® patches. In the first quarter of 2007, we, together with Shire, implemented enhancements to the Daytrana® release liner. While the enhanced release liner has reduced the level of consumer reports, some patients and caregivers continue to have difficulty in removing the release liner from some Daytrana® patches.

~~Noven’s~~In ~~cost~~July 2007, ofwe ~~products~~received ~~sold~~from ~~may~~the beFDA ~~affected in~~ a ~~given~~list ~~period~~of byobservations ~~changes in deferred profit~~ on ~~Noven’s~~Form 483 ~~sale~~following ofan ~~product to Novogyne. As a result of our 49% equity investment in~~on-site ~~Novogyne,~~inspection ~~we are required to defer 49%~~ of our ~~profit~~manufacturing ~~on product that we sell to Novogyne until that product is sold by Novogyne to trade customers~~facilities. ~~Since~~The ~~our~~majority ~~cost~~ of ~~products~~the ~~sold~~observations isin ~~adjusted~~the toForm 483 ~~reflect~~related ~~changes in deferred profit, our gross margin can vary from period~~ to ~~period based on~~ the ~~timing~~ ofDaytrana® ~~our~~patch ~~shipments to Novogyne~~ and ~~Novogyne’s~~difficulties ~~sale~~experienced ofby ~~our~~some ~~products~~patients toin ~~trade~~removing the ~~customers.~~release ~~If Novogyne~~liner, ~~sells~~including ~~more~~certain product ~~than~~lots wethat ~~provide~~utilize itthe inenhanced arelease ~~given period (i~~liner.~~e.,~~ ifIn ~~Novogyne’s inventories~~July ~~decline)~~2007, we ~~will~~submitted ~~defer less profit from sales~~ to ~~Novogyne. In light of~~ the ~~significant~~FDA ~~historic fluctuations in~~ our ~~deferred~~response ~~profit on sales of product~~ to ~~Novogyne, we have included our gross margin net of~~ the ~~changes in deferred profit on sales of product to Novogyne, which, Noven’s management believes, is useful to understanding Noven’s revenues as they relate to its cost of production~~Form 483.

~~Gross~~In ~~margin~~the ~~excluding~~third ~~the~~quarter ~~impact~~of 2007, Shire initiated two voluntary recalls of ~~deferred~~a ~~profit~~portion ~~modestly~~of ~~increased~~the Daytrana® ~~for~~product on the ~~three~~market ~~months ended~~primarily ~~June 30,~~in ~~2005~~response to feedback from patients and caregivers ~~was~~who ~~consistent~~experienced ~~for~~difficulty removing the ~~six~~release ~~months~~liner ~~ended~~from ~~June~~some Daytrana® patches. We paid Shire $3.3 ~~30,~~million ~~2005~~in asFebruary 2008 ~~compared~~related to ~~the~~those recalls. This payment was ~~same~~charged ~~period~~to operations in ~~2004~~2007.

~~The~~In ~~increase~~January 2008, we received a warning letter from the FDA in connection with the ~~deferred~~FDA’s ~~profit~~July 2007 oninspection ~~sales~~of our manufacturing facilities. In the warning letter, which is posted at the FDA’s website, the FDA cited Current Good Manufacturing Practice deficiencies related to: ~~Novogyne~~(i) peel force specifications for ~~the~~removal ~~three~~of Daytrana’s® release liner; and ~~six~~(ii) data ~~months~~supporting ~~ended~~the peel force characteristics ~~June~~of Daytrana’s® enhanced release liner throughout the product’s shelf life. We submitted our response to the warning letter on January 30, ~~2005~~2008, iswhich aremains ~~result~~under ofreview ~~increases~~by inthe ~~inventory at Novogyne~~FDA.

~~Operating~~ In ~~Expenses~~April 2008, a Noven stability protocol identified certain Daytrana® lots exhibiting high peel force characteristics. In June 2008, Shire initiated the voluntary recall of two lots of Daytrana® that did not meet the product’s release liner removal specification. In August 2008, Shire initiated the voluntary recall of two additional lots of Daytrana® that did not meet the product’s release liner removal specification. During 2008, we paid Shire $3.7 million related to its June and August 2008 recalls, of which approximately $3.1 million has been charged to general and administrative expenses, $0.4 million was recorded as a reduction in revenues and $0.2 million was charged to cost of products sold in 2008. For each of the recalls described above, the amount charged to general and administrative expenses represents amounts we are obligated to reimburse Shire for direct costs of the recalls, the amounts reflected as reductions of revenue represent the amounts recognized for product which is expected to be returned and the charge to cost of product sold represents the value of AMI included in such product for which we are required to reimburse Shire.

~~Operating~~In ~~expenses~~the ~~for~~fourth quarter of 2008, we implemented: (i) new product release testing intended to predict which Daytrana® lots are at risk of developing peel force issues during the product’s ~~three~~shelf life; and ~~six~~(ii) new ~~months~~manufacturing ~~ended~~processes ~~June 30~~and procedures that helped improve efficiencies associated with existing Daytrana® production. Product that fails to meet the predictive release test will be destroyed, ~~2005~~which will result in increased Daytrana® manufacturing costs, including reimbursements to Shire for the AMI included in the destroyed product. In the 2009 Quarter, Daytrana® cost of products sold exceeded our Daytrana® net revenues by $0.7 million. Although we have implemented new manufacturing processes and ~~2004~~procedures ~~are~~that ~~summarized~~helped improve efficiencies associated with existing Daytrana® production in the fourth quarter of 2008, we expect the peel force issue to continue to negatively affect margins as a result of increased Daytrana® manufacturing ~~follows~~costs, ~~(dollar~~including ~~amounts~~reimbursements to Shire for the AMI included in ~~thousands):~~destroyed product, unless and until the peel force issue is resolved.

	Three Months							Six Months
	2005		2004		% Change			2005		2004		% Change
Research and development	$	3,145	$	2,734		15	%	$	6,155	$	4,989		23	%
Marketing, general and administrative		4,189		3,762		11	%		8,244		7,666		8	%

In March 2009, Shire initiated a voluntary recall of certain lots of Daytrana^® due to the failure of some of the patches to meet the product’s release liner removal specification. We believe the reserve established in 2008 ($3.7 million at March 31, 2009) will be sufficient to cover our cost related to this recall. Although the new release testing is designed to reduce the likelihood that newly-manufactured product will be withdrawn or recalled in the future, we cannot assure that our predictive release testing will detect all production issues or that there will not be future Daytrana^® market withdrawals or recalls.

~~Research~~ In January 2009, we received from the FDA a list of observations on Form 483 following an on-site inspection of our manufacturing facilities. Like the warning letter and ~~Development~~the prior Form 483, the majority of the observations in the Form 483 relate to the manufacture of Daytrana® product that exhibits high peel force characteristics, an issue which Noven and Shire continue to work to resolve. In February 2009, we submitted our response to the Form 483.

~~The~~We ~~$0.4 million~~believe we have identified the root cause of the peel force issue, and $1are testing manufacturing solutions intended to address the issue.~~2 million~~ ~~increase~~Implementation inof ~~research~~a ~~and~~solution ~~development~~will ~~expenses~~require the ~~for~~prior agreement of the ~~three~~FDA. We estimate that the steps necessary to begin manufacturing ~~and~~commercial ~~six~~product ~~months~~incorporating ~~ended~~a ~~June 30~~solution, ~~2005~~including obtaining the FDA’s agreement, ~~respectively~~may carry over into 2010. We cannot assure, ashowever, ~~compared~~that towe will receive the ~~same~~FDA’s ~~period~~agreement inon ~~2004~~a ~~was~~timely ~~primarily~~basis ~~attributable~~or toat anall. ~~increase~~Noven’s inJanuary 2008 ~~non-clinical~~response ~~development~~to ~~expenses~~the ~~related~~warning toletter ~~our~~remains ~~fentanyl transdermal~~under ~~system~~review by the FDA.

~~Marketing~~ In March 2009, ~~General~~Shire announced its withdrawal of the European Marketing Authorization Application (“MAA”) for Daytrana®. Shire indicated that its decision to withdraw the MAA was based on the fact that European regulatory authorities had requested an additional clinical study for Daytrana® in a European patient population, and ~~Administrative~~that Shire planned to enter the European ADHD market through its previously-announced pending acquisition of an oral methylphenidate product that is already approved in Europe.

The $0.4 million increase in marketing, general and administrative expenses for the three months ended June 30, 2005 as compared to the same period in 2004 was primarily attributable to a $0.4 million increase in consulting and professional fees, and a $0.3 million increase in costs associated with expansion for anticipated new product launches, partially offset by a $0.2 million reduction in recall-related expenses.

The $0.6 million increase in marketing, general and administrative expenses for the six months ended June 30, 2005 as compared to the same period in 2004 was primarily attributable to a $0.5 million increase in costs associated with expansion for anticipated new product launches and $0.4 million increase in consulting and professional fees, partially offset by a $0.2 million reduction in recall related expenses.

Other Income and Expenses

Income Taxes

Our effective tax rate was approximately 36% for each of the three and six months periods ended June 30, 2005 and 2004. The provision for income taxes is based on the Federal statutory and state income tax rates. From time to time, we are subject to audits by taxing authorities covering a wide range of matters, and the Internal Revenue Service is currently auditing our federal income tax returns for certain open years. Such matters are subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to us. Since 2001, we have established accruals for pending matters that we believe are probable and reasonably estimable. As of June 30, 2005, we had $1.1 million in accruals related to these matters. Management believes that any liability that may ultimately result from the resolution of pending matters in excess of the amount accrued should not have a material adverse effect on our financial position, results of operations or cash flows.

~~Net~~Results ~~deferred income tax assets are measured using the average graduated tax rate for the estimated amount~~ of ~~annual taxable income in the years that the liability is expected to be settled~~Operations or the asset recovered. The effect of adjusting the expected tax rate related to the net deferred income tax assets is included in the provision for income taxes. As of June 30, 2005, we had a net deferred tax asset of $14.9 million. Realization of this deferred tax asset depends upon the generation of sufficient future taxable income. Although realization is not assured, we believe it is more likely than not that the deferred income tax asset will be realized based upon estimated future taxable income.

~~Equity~~ As discussed in ~~Earnings~~Note 15 — “Segment Data” to our Unaudited Condensed Consolidated Financial Statements, we operate in three segments distinguished along product categories and nature of the business unit: (i) Noven Transdermals, which currently engages in the manufacturing, licensing and sale to partners of prescription transdermal products; (ii) Novogyne, our women’s health joint venture with Novartis in which we own a 49% equity interest; and (iii) Noven Therapeutics, which currently engages in the marketing and sale of pharmaceutical products.

We2009 ~~share~~Quarter incompared ~~the earnings of Novogyne according~~ to an established formula after satisfaction of an annual preferred return of $6.1 million to Novartis. Our share of Novogyne’s earnings increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne produced sufficient income in the ~~first~~2008 ~~quarters of 2005 and 2004 to meet Novartis’ annual preferred return for those years~~Quarter and for us to recognize earnings from Novogyne under the formula. We report our share of Novogyne’s earnings as “Equity in earnings of Novogyne” on our unaudited Condensed Statements of Operations.

~~The financial results of Novogyne for the three and six months ended June 30, 2005 and 2004~~Revenues ~~are summarized as follows (dollar amounts in thousands):~~

	Three Months									Six Months
	2005			2004			% Change			2005			2004			% Change
Gross revenues(1)	$	35,211		$	35,015			1	%	$	62,545		$	60,149			4	%
Sales allowances		3,676			3,517			5	%		7,071			6,289			12	%
Sales returns allowances (reductions)		(401	)		(717	)		(44	%)		865			292			196	%
Sales and returns allowances		3,275			2,800			17	%		7,936			6,581			21	%
Net revenues		31,936			32,215			(1	%)		54,609			53,568			2	%
Cost of sales		5,762			6,697			(14	%)		10,317			11,532			(11	%)
Gross profit		26,174			25,518			3	%		44,292			42,036			5	%
Gross margin percentage		82	%		79	%					81	%		78	%
Selling, general and administrative expenses		7,770			6,937			12	%		16,440			14,562			13	%
Amortization of intangible asset		1,545			1,545			—			3,090			3,090			—
Income from operations		16,859			17,036			(1	%)		24,762			24,384			2	%
Interest income		42			13			223	%		135			53			155	%
Net income	$	16,901		$	17,049			(1	%)	$	24,897		$	24,437			2	%
Noven’s equity in earnings of Novogyne	$	8,101		$	8,228			(2	%)	$	9,013		$	8,865			2	%

Our revenues by segment and type for the 2009 Quarter and the 2008 Quarter are summarized as follows (dollar amounts in thousands):

(1) Novogyne’s gross revenues, which are calculated by adding sales allowances and sales returns allowances to net revenues, are discussed in this section because Noven’s management believes it is a useful measure to evaluate and compare Novogyne’s sales period to period in light of the significant historic fluctuations in Novogyne’s sales allowances and returns.


	Three Months Ended March 31,
	2009		2008		% Change
Noven Transdermals
Novogyne:
Product sales	$	5,480	$	2,431		125	%
Royalties		2,222		2,180		2	%

Product revenues — Novogyne		7,702		4,611		67	%

Third Parties:
Product sales		7,004		5,801		21	%
Royalties		71		79		-10	%

Product revenues — third parties		7,075		5,880		20	%

Total product revenues		14,777		10,491		41	%
License and contract revenues		6,289		5,286		19	%

Total Transdermals		21,066		15,777		34	%


Noven Therapeutics
Third Parties:
Product sales		6,574		5,705		15	%


Net Revenues	$	27,640	$	21,482		29	%

Net Revenues

As described in more detail below, our net revenues in the 2009 Quarter were $27.6 million, an increase of 29% compared to $21.5 million reported in the 2008 Quarter. The increase was primarily due to a $4.3 million increase in product revenues from our Noven Transdermals segment comprised primarily of a $2.9 million increase in sales of Vivelle-Dot^® and a $1.2 million increase in transdermal product revenues from third parties in the 2009 Quarter. This increase was also due to a $1.0 million, or 19%, increase in license and contract revenues and a $0.9 million increase in product revenues from our Noven Therapeutics segment compared to the 2008 Quarter.

Product Revenues — Novogyne

Product revenues — Novogyne consists of our sales of Vivelle-Dot^®/Estradot^® and CombiPatch^® to Novogyne at a fixed price for resale and product sampling by Novogyne primarily in the United States as well as the royalties we receive as a result of Novogyne’s sales of Vivelle-Dot^®.

The $3.1 million increase in Novogyne ~~Net~~product ~~Revenues~~revenues for the 2009 Quarter compared to the 2008 Quarter was primarily due to the impact of an equipment failure in transdermal manufacturing which negatively affected product revenues in the 2008 Quarter, as well as the timing of orders from Novogyne. By product, Vivelle-Dot® increased $2.9 million primarily due to the equipment failure in the 2008 Quarter and CombiPatch® increased $0.3 million primarily due to the timing of orders.

~~Novogyne’s~~Product ~~gross~~Revenues ~~revenues~~— ~~increased~~Third ~~$0.2 million~~Parties ~~for the three months ended June 30, 2005~~ compared to the same period in the prior year, primarily due to a $2.8 million increase in sales of Vivelle-Dot™ partially offset by a $1.2 million decrease in sales of Estradot to Novartis in Canada and a $0.9 million decrease in sales of CombiPatch®. In addition, unit sales of Vivelle®, our first generation estrogen patch, decreased by $0.5 million. Approximately $1.1 million of the Vivelle-Dot™ increase was due to increased unit sales based on increased trade demand, while the remaining $1.7 million increase related to price increases. Sales to Canada by Novogyne in the second quarter of 2004 benefited from stocking orders of Estradot related to a planned transition from Vivelle® to Estradot in Canada. The lower sales of CombiPatch® were due to a continuing decline in the market for combination therapies after the publication of the combination arm of the WHI study. The decline in unit sales of Vivelle® is primarily attributable to product maturity.

~~Novogyne’s~~Product ~~gross~~ revenues ~~increased~~— ~~$2.4 million~~third ~~for~~parties ~~the~~primarily ~~six~~consist ~~months~~of: ~~ended June~~(i) ~~30,~~sales ~~2005 compared~~of toEstradot® ~~the~~and Estalis® ~~same~~HT ~~period~~patches into ~~the~~Novartis ~~prior~~Pharma ~~year,~~at ~~primarily~~a ~~due~~price tobased ~~$7.5 million~~on ~~increase~~a inpercentage ~~sales~~ of Novartis ~~Vivelle-Dot™~~Pharma’s ~~partially~~net ~~offset~~selling byprice a(subject ~~$2.4 million~~to ~~decrease~~certain inminimum ~~sales~~amounts) offor ~~Estradot~~resale ~~to Novartis~~primarily inoutside ~~Canada~~the United States and aJapan, ~~$1.7 million~~together ~~decrease~~with inroyalties ~~sales~~generated offrom ~~CombiPatch®.~~Novartis InPharma’s ~~addition,~~sales of ~~Vivelle~~Estradot®, ~~our~~in ~~first~~Canada; ~~generation~~(ii) sales ~~estrogen~~of ~~patch,~~Daytrana® ~~decreased~~to ~~$1.0 million~~Shire infor ~~unit~~commercial ~~sales.~~resale ~~Approximately~~in ~~$4.7 million of~~ the ~~Vivelle-Dot™~~United ~~increase~~States; ~~was~~(iii) sales ~~due~~of toPexeva® ~~increased~~and ~~unit~~Lithobid® ~~sales based~~to ~~on increased~~ trade ~~demand~~ customers, ~~while~~including ~~the~~wholesalers, ~~remaining~~distributors ~~$2.8 million~~and ~~increase~~chain ~~related~~pharmacies; toand ~~price increases.~~(iv) beginning ~~The declines~~ in August 2008, sales of ~~Estradot~~Stavzor® to ~~Novartis~~trade incustomers, ~~Canada~~including wholesalers, ~~CombiPatch®~~distributors and ~~Vivelle®~~chain ~~are attributable to the same factors described in the preceding paragraph~~pharmacies.

~~Sales~~The ~~allowances~~$1.2 million ~~consist~~increase ofin ~~chargebacks,~~product ~~Medicaid~~revenues ~~rebates,~~— ~~managed~~third ~~healthcare~~parties ~~rebates,~~in ~~cash~~our Noven Transdermals ~~discounts~~segment ~~and~~for ~~other~~the ~~allowances,~~2009 ~~and~~Quarter ~~tend~~compared to ~~fluctuate~~the ~~based~~2008 onQuarter ~~changes~~primarily consisted of a $0.8 million increase in ~~gross~~unit ~~revenues~~sales and a $0.4 million ~~These~~ increase related to pricing. The increase in unit sales was ~~allowances~~primarily ~~were~~due ~~10%~~to the impact of ~~gross~~an ~~revenues~~equipment ~~for~~failure ~~each~~in oftransdermal manufacturing which occurred in the ~~three~~2008 ~~months~~Quarter, ~~ended~~as ~~June 30~~well as the timing of orders from Novartis Pharma. With respect to pricing, we ~~2005~~recognize ~~and~~the benefit from price increases for our third party HT product through periodic price ~~2004~~reconciliation ~~and~~payments ~~11%~~received ~~and~~from ~~10%~~Novartis Pharma. We receive such payments from time to time upon Novartis Pharma’s determination that its actual sales price of ~~gross~~our ~~revenues~~product ~~for~~entitles us to receive amounts in excess of the ~~six~~minimum ~~months~~transfer ~~ended~~price ~~June~~at which we initially sold the product to Novartis Pharma. We recognized $1.6 ~~30,~~million ~~2005~~and $1.2 million of such payments in the 2009 Quarter and ~~2004~~2008 Quarter, respectively.

~~Sales~~Noven ~~returns~~Therapeutics ~~allowances~~generated ~~consist~~$6.6 million of: ~~(i) allowances~~net ~~for~~revenues ~~returns~~in ofthe ~~expiring~~2009 ~~product~~Quarter from sales of Stavzor®, Pexeva® and ~~(ii)~~Lithobid® compared to $5.7 ~~allowances~~million ~~for~~of ~~returns~~net ~~for~~revenues ~~product~~in ~~recalls.~~the ~~The~~2008 ~~activity~~Quarter ~~for~~from sales ~~returns~~of ~~allowances~~Pexeva® ~~for~~and Lithobid®. By product, the ~~three~~ ~~and~~addition ~~six~~of ~~months~~Stavzor® ~~ended~~contributed ~~June~~to $0.7 30million of the increase, ~~2005~~Lithobid® ~~and~~increased ~~2004~~$0.5 million ~~was~~due to the timing of orders from trade customers as ~~follows:~~prescriptions have declined. The increase in net revenues was partially offset by a $0.3 million decrease in net revenues for Pexeva® primarily due to lower prescriptions.

	Three Months						Six Months
	2005			2004			2005			2004
Changes in allowances for returns of expiring product	$	(338	)	$	1,683		$	928		$	3,392
Changes in allowances for returns for product recalls		(63	)		(2,400	)		(63	)		(3,100	)
Net change in sales returns allowances	$	(401	)	$	(717	)	$	865		$	292
Actual returns for expiring product	$	(767	)	$	(2,186	)	$	(1,695	)	$	(4,459	)
Actual returns for product recalls		(40	)		(522	)		(40	)		(2,529	)
Actual returns for the period	$	(807	)	$	(2,708	)	$	(1,735	)	$	(6,988	)
Balance of sales returns allowances at June 30,							$	8,299		$	7,544

We sell Stavzor^® to pharmaceutical wholesalers and chain drug stores. These companies have the right to return Stavzor^® for up to one year after product expiration. As a result of the commercial launch of Stavzor^® in the third quarter of 2008, we do not yet have sufficient sales history to reasonably estimate product returns of Stavzor^®. Our customers are no longer permitted to return the product once it has been dispensed. Under SFAS No. 48, we cannot recognize revenue on product shipments until we can reasonably estimate returns relating to these shipments. In accordance with SFAS No. 48, we have deferred recognition of revenue on product shipments of Stavzor^® to our customers until such time as Stavzor^® units are dispensed through patient prescriptions. We estimate the volume of prescription units dispensed at pharmacies based on data provided by external, independent sources. These sources poll pharmacies, hospitals, mail order and other retail outlets for Stavzor^® prescriptions and project this sample on a national level. We will recognize revenue based on prescription units dispensed until we have sufficient sales history to reasonably estimate product returns. We recognized $0.7 million of net revenues for Stavzor^® in the 2009 Quarter, and $1.6 million of deferred product revenue relating to Stavzor^® was reflected on our Condensed Consolidated Balance Sheet as of March 31, 2009.

~~The~~License ~~decline in allowances for returns of expiring product for the three~~ and ~~six~~Contract ~~months ended~~Revenues ~~June 30, 2005 as compared to the same period in 2004, respectively, is primarily related to~~ lower expected returns as a result of a decline in actual returns of Vivelle® in the current period as compared to the same period in the prior year. The reduction in allowances for returns for product recalls for the three and six months ended June 30, 2004 was based on a review at the time of

License revenues consist of the recognition of non-refundable up-front, milestone and similar payments under license agreements. Contract revenues consist of the recognition of payments received as work is performed on research and development projects. The payments received may take the form of non-refundable up-front payments, payments received upon the completion of certain phases of development work and success milestone payments.

~~available~~ License ~~relevant~~and ~~information~~contract revenues increased $1.0 million for the 2009 Quarter compared to the 2008 Quarter, ~~including~~primarily ~~actual~~attributable ~~product~~to ~~returns~~a ~~and~~$1.3 million ~~future~~increase ~~expected~~in amortization of milestone payments ~~returns~~received ~~for~~from Shire related to the ~~2003~~license ~~recalls~~of Daytrana®, partially offset by a $0.4 million decrease in contract revenues during the 2009 Quarter due to the timing of work performed on research and development projects.

~~Novogyne~~ Gross ~~Margin~~to Net Revenues

~~Gross~~We ~~margin~~record ~~increased~~revenues ~~for~~net ~~the~~of ~~three~~sales ~~and~~allowances ~~six~~for ~~months~~rebates, ~~ended~~chargebacks, ~~June 30~~cash and other discounts, as ~~2005~~well as ~~compared~~sales toreturns ~~the~~allowances. We establish return allowances on product sold through our ~~same~~Noven ~~period~~Transdermals segment when it is probable that such product will be recalled or withdrawn. Sales returns allowances in ~~2004~~our ~~due~~Noven toTherapeutics ~~increased~~segment ~~sales~~represent ofallowances ~~Vivelle-Dot™,~~for ~~which~~estimated product ~~has~~returns abased ~~higher~~on ~~gross~~expiration dating and are estimated based on historical return rates, ~~margin~~current ~~than~~sales ~~the~~levels and other ~~products~~factors ~~sold~~on a product-by-product ~~Novogyne,~~basis. ~~coupled~~The ~~with~~following ~~decreased~~table ~~sales~~sets forth the reconciliation of ~~Estradot~~our gross revenues to ~~Novartis~~ innet ~~Canada,~~revenues ~~which~~for ~~typically~~the ~~have~~2009 aQuarter ~~lower~~and ~~gross~~2008 Quarter, ~~margin.~~respectively (dollar amounts in thousands):

Novogyne Selling, General and Administrative Expenses


	Three Months Ended March 31,
				% of						% of
				gross						gross
	2009			revenues			2008			revenues
Noven Transdermals:
Gross revenues	$	21,135			100	%	$	16,013			100	%
Sales returns allowances		(69	)		0	%		(236	)		1	%


Net revenues	$	21,066			100	%	$	15,777			99	%


Noven Therapeutics:
Gross revenues	$	9,531			100	%	$	9,508			100	%
Cash discounts		(172	)		2	%		(192	)		2	%
Medicaid, Medicare & State program rebates and credits including redemption offers		(2,038	)		21	%		(2,289	)		24	%
Chargebacks		(163	)		2	%		(267	)		3	%
Wholesaler fees		(389	)		4	%		(594	)		6	%
Sales returns allowances		(195	)		2	%		(461	)		5	%

Sales and returns allowances		(2,957	)		31	%		(3,803	)		40	%


Net revenues	$	6,574			69	%	$	5,705			60	%

~~Selling,~~The ~~general~~decrease ~~and~~in ~~administrative~~Medicaid, ~~expenses~~Medicare ~~for~~& ~~the~~state ~~three~~program ~~months~~rebates ~~ended~~and ~~June 30,~~credits ~~2005~~for Noven Therapeutics ~~increased~~(as ~~$0.8 million~~a ~~compared~~percentage toof ~~the~~gross ~~same~~revenues) ~~period~~is inattributable ~~2004,~~to ~~due~~our ~~primarily~~decision not to ~~increased~~renew ~~insurance~~unprofitable ~~costs~~managed ~~and~~care ~~increased~~contracts. ~~sales~~The ~~force~~decrease ~~expenses.~~in Insales ~~addition,~~returns ~~the~~allowances ~~three~~for ~~months~~Noven ~~ended~~Therapeutics ~~June 30,~~(as ~~2004~~a ~~benefited~~percentage ~~from~~of ~~the~~gross ~~reduction~~revenues) inwas ~~expenses~~primarily ~~associated~~attributable ~~with~~to ~~the~~a ~~co-promotion~~decrease ofin ~~Novartis’~~return ~~Famvir~~reserves for Lithobid® due to lower actual returns of product.

~~Selling,~~Gross ~~general~~Margin ~~and administrative expenses for the six months ended June 30, 2005 increased~~ ~~$1.9 million compared to the same period in 2004, due primarily to increased advertising and~~ promotional costs and increased sales force expenses, partially offset by a $0.5 million decrease in samples expense. In addition, the six months ended June 30, 2004 benefited from the reduction in expenses associated with the co-promotion of Novartis’ Famvir product.

~~Novogyne~~ This ~~Amortization~~section discusses gross margins relating to our product revenues: (i) across all of ~~Intangible~~our products ~~Asset~~(“Overall Gross Margin”); (ii) on our transdermal product revenues from Novogyne (“Gross Margin — Novogyne”), which for accounting purposes is considered a related party; (iii) on our transdermal product revenues from third parties (“Gross Margin — Third Parties”); and (iv) on our Noven Therapeutics products.

Novogyne amortized $1.5 million related to the acquisition cost for the CombiPatch® product for each of the three month periods ended June 30, 2005 and 2004, and $3.1 million for each of the six month periods ended June 30, 2005 and 2004. Our CombiPatch® product was licensed by Novogyne in March 2001.

Liquidity and Capital Resources

As of June 30, 2005 and December 31, 2004, we had the following (amounts in thousands):

	June 30, 2005		December 31, 2004
Cash and cash equivalents	$	33,333	$	93,958
Short-term investments		44,600		—
Working capital		95,879		97,349

~~Cash~~For ~~provided~~our byNoven ~~(used~~Transdermals ~~in) operating~~segment, ~~investing~~the allocation of manufacturing expenses impacts our determination of inventory costs and, ~~financing~~consequently, ~~activities~~gross margins for ~~the~~each ~~six~~of ~~months~~our products. ~~ended~~Manufacturing ~~June~~expenses, which totaled $7.0 30million and $7.9 million in the 2009 Quarter and the 2008 Quarter, ~~2005~~respectively, include compensation and ~~2004~~benefits, issupplies ~~summarized~~and astools, ~~follows~~equipment ~~(amounts~~costs, depreciation and amortization, and insurance costs, and represent a substantial portion of our inventory production costs. The allocation of manufacturing expenses among manufactured products requires us to make significant estimates that involve subjective and often complex judgments. Using different estimates would likely result in ~~thousands):~~materially different results for Gross Margin — Novogyne and Gross Margin — Third Parties than are presented in the gross margin table below.

	Six Months
	2005			2004
Cash flows:
Operating activities	$	(12,206	)	$	20,732
Investing activities		(49,423	)		(2,575	)
Financing activities		1,004			5,272

Our gross margins are summarized as follows (dollar amounts in thousands):

Operating Activities


	Three Months Ended March 31,
	2009				2008
Noven Transdermals
Novogyne:
Product revenues	$	7,702			$	4,611
Cost of products sold		3,648				3,326

Gross profit		4,054	53	%		1,285		28	%


Third parties:
Product revenues		7,075				5,880
Cost of products sold		5,737				5,947

Gross profit (loss)		1,338	19	%		(67	)	-1	%


Total Noven Transdermals:
Product revenues		14,777				10,491
Cost of products sold		9,385				9,273

Gross profit		5,392	36	%		1,218		12	%


Noven Therapeutics
Product revenues		6,574				5,705
Cost of products sold		2,031				2,036

Gross profit		4,543	69	%		3,669		64	%


Total Company
Product revenues		21,351				16,196
Cost of products sold		11,416				11,309

Gross profit	$	9,935	47	%	$	4,887		30	%

~~Net~~In ~~cash~~general, ~~used~~Noven inTherapeutics’ ~~operating~~products ~~activities~~have ~~for~~higher ~~the~~gross ~~six~~margins ~~months~~than ~~ended~~our ~~June 30,~~transdermal products ~~2005~~because ~~primarily resulted~~we ~~from~~sell ~~the~~Noven ~~timing~~Therapeutics’ ofproducts ~~certain~~directly ~~payments,~~to ~~including~~trade ~~payments~~customers ofat ~~$10~~wholesale and commercial prices.~~0 million~~ toOur ~~Shire~~sales ~~related~~ of HT products to ~~expenses~~Novogyne ~~incurred~~for resale in ~~pursuit~~the ofUnited ~~methylphenidate~~States ~~regulatory~~have ~~approval~~a higher gross margin than our other transdermal products, $3reflecting favorable pricing, larger production orders and other factors.~~1 million~~ Our sales of HT products to Novartis Pharma for resale in ~~payments~~international markets generally ~~made~~have ~~for~~lower ~~the~~gross ~~purchases~~margins than sales of ~~fentanyl,~~HT ~~$3.3 million~~products insold ~~payments~~to ~~for~~Novogyne ~~compensation~~due ~~and~~to, ~~related liabilities~~among other things, unfavorable ~~and~~pricing ~~$2.3 million~~environments in ~~insurance~~foreign ~~payments~~markets, ~~partially~~and ~~offset~~smaller byproduction $8orders.~~9 million~~ inOur gross ~~distributions~~margin ~~received~~on ~~from~~product ~~Novogyne~~sales of Daytrana® to Shire has been negatively affected by the factors described below.

Net cash provided by operating activities for the six months ended June 30, 2004 primarily resulted from the receipt of an $8.0 million license payment upon the closing of the Endo transaction in February 2004 and $12.3 million in distributions from Novogyne.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2005 was primarily attributable to $44.6 million in net purchases of short-term investments, as well as the purchase of $4.6 million in fixed assets to expand production capacity for future products. Beginning in the first quarter of 2005, Noven invested a portion of its cash in short-term investments, which primarily consist of investment grade, asset backed, variable rate debt obligations and municipal auction rate securities, which are categorized as available-for-sale under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investments in Debt and Equity Securities”.

Net cash used in investing activities for the six months ended June 30, 2004 was primarily attributable to the purchase of fixed assets to expand production capacity for future products and payment of patent development costs.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2005 and June 30, 2004 was primarily attributable to $1.1 million and $5.3 million, respectively, received in connection with the issuance of common stock from the exercise of stock options.

Short-Term and Long-Term Liquidity

Our principal sources of short-term liquidity are existing cash, cash generated from product sales, fees and royalties under development and license agreements and distributions from Novogyne. For the six months ended June 30, 2005, substantially all of our income before income taxes was comprised of equity in earnings of Novogyne, a non-cash item. Accordingly, our net income may not be reflective of our cash from operations. Although we expect to receive distributions from Novogyne, there can be no assurance that Novogyne will have sufficient profits or

~~cash~~ As ~~flow~~noted in the tables above, Overall Gross Margin increased in the 2009 Quarter compared to the ~~pay~~2008 ~~distributions~~Quarter. orImprovement ~~that~~in overall Gross Margin in the 2009 Quarter resulted primarily from: (i) the impact of inventory write-offs of $2.8 million which occurred in the 2008 Quarter due to an equipment failure in transdermal manufacturing (comprised of $1.8 million of write-offs of products manufactured for Novogyne’s ~~Management~~and ~~Committee~~$1.0 million ~~will~~of ~~authorize~~third ~~such~~party HT product write-offs), as well as ~~distributions~~additional manufacturing costs incurred in the 2008 Quarter to address this issue; (ii) the reduction of approximately $0.9 million in manufacturing expenses compared to the 2008 Quarter; and (iii) improved gross margins for our Noven Therapeutics products. Overall Gross Margin in the 2009 Quarter was negatively affected by inventory write-offs of approximately $0.8 million related to Daytrana® product, of which $0.3 million related to the peel force issue.

~~Our~~We ~~short-term~~sell ~~cash~~Daytrana® ~~flow~~finished isproduct ~~dependent~~to onShire ~~sales,~~at ~~royalties~~a ~~and~~fixed ~~license~~cost, ~~fees~~and ~~associated~~consequently, ~~with~~our ~~transdermal~~profit HTon ~~products.~~product ~~Any~~sales ~~decrease~~of inDaytrana® ~~sales~~depends ofon ~~those~~our ~~products~~ability byto usmanufacture orthe product efficiently and to fully utilize our ~~licensees~~facilities. orFor ~~any~~the 2009 Quarter, Daytrana® net ~~increase~~product inrevenues ~~returns~~were $2.9 million and cost of products sold related to ~~Novogyne~~Daytrana® ~~(including~~was $3.6 million, ~~any~~resulting ~~such~~in ~~changes~~negative ~~resulting~~gross ~~from~~margin for the ~~HT studies),~~product. ~~the~~This ~~further~~compares ~~decline~~with Daytrana® product revenues of ~~the~~$3.0 million HTand ~~market,~~cost orof ~~the~~products ~~inability~~sold orrelated ~~failure~~to Daytrana® of ~~Novogyne~~$3.3 million tofor ~~pay~~the 2008 Quarter. ~~distributions~~Although ~~would~~we have aimplemented ~~material~~new ~~adverse~~manufacturing ~~effect~~practices onand ~~our~~procedures ~~short-term~~in ~~liquidity~~the ~~and~~fourth ~~require~~quarter usof 2008 designed to ~~rely~~ onimprove ~~our~~efficiencies associated with existing ~~cash~~Daytrana® ~~balances~~production, orwe expect onthe ~~borrowings~~peel force issue to ~~support~~continue ~~our~~to ~~operations~~negatively affect margins as a result of increased Daytrana® manufacturing costs, including reimbursements to Shire for the AMI included in destroyed product, unless and ~~business~~until the peel force issue is resolved.

~~For~~We ~~the~~expect ~~six~~to ~~months~~continue ~~ended~~to ~~June 30,~~incur ~~2005,~~increased ~~$4.8 million~~quality inassurance ~~deferred~~costs ~~license revenues were used to offset development expenses~~ related to our ~~methylphenidate patch. As of June 30, 2005, $5.0~~continued ~~million~~efforts ~~remained payable~~ to ~~Shire,~~improve ~~which~~our ~~amount~~quality isassurance ~~expected~~systems and to beaddress ~~paid in~~ the ~~remainder~~issues ofraised ~~2005. Under our agreement with Shire, we will receive $50.0 million upon receipt of final marketing approval for our methylphenidate patch~~ by the FDA and ~~three installments of $25.0 million each upon~~a ~~Shire’s~~significant ~~achievement~~portion of ~~$25.0 million,~~these ~~$50.0 million~~continuing ~~and~~costs $75.0 million in annual net sales of our methylphenidate patch, respectively. Prior to any FDA approval of our methylphenidate patch, Shire has the right to require Noven to repurchase the product rights to our methylphenidate patch for $5.0 million under certain circumstances. We cannot assure that our methylphenidate patch will be ~~approved~~ byallocated ~~the~~to ~~FDA~~Daytrana®, ~~and~~which ~~there is no assurance that the recently submitted amendment to our methylphenidate NDA will address the issues raised in the not approvable letter~~ we ~~received from~~ ~~the~~expect ~~FDA~~to innegatively ~~2003~~affect ~~or that~~ the ~~FDA~~gross ~~may~~margin ~~not~~on ~~raise~~sales ~~additional issues in the review~~ of ~~the~~this ~~amended~~product ~~NDA. Additionally,~~for ~~even if~~ the ~~FDA~~remainder approves our methylphenidate patch, we cannot assure that Shire will generate sales at levels that would trigger our milestone payments; therefore, we cannot assure that we will receive any further payments from Shire with respect to our methylphenidate patch or that we will be able to recover our development expenses through sales of ~~the~~2009 ~~product~~and beyond.

AsOur ofexpectations ~~June 30, 2005, we had incurred $13.8 million~~ for ~~the~~gross ~~cost~~margins ~~of producing pre-launch inventories~~ for ~~our~~all ~~fentanyl patch. If approval is not ultimately received or is delayed, our agreement with Endo provides that the parties will share the cost~~ of ~~manufacturing~~2009 ~~product~~are ~~that cannot~~addressed ~~be sold by Endo in accordance with an agreed-upon formula. In such a case, we may be unable to recover our share of such costs, which could,~~ under ~~the~~“Outlook” ~~contractual formula, be up to approximately $9~~below.~~0 million. If existing launch quantities are~~ not commercially saleable, we may manufacture additional fentanyl launch quantities prior to obtaining FDA approval, which would further increase our exposure if the product is not ultimately approved by the FDA. If the product has not been approved within 120 days after the launch of the next generic fentanyl transdermal product, Endo may have the right to terminate the license.

~~Capital~~Operating ~~expenditures were $5.5 million in the first half of 2005, of which $0.9 million~~Expenses represented landlord-funded leasehold improvements to a leased facility. We expect that our capital expenditures will increase significantly in 2005 as compared to 2004 as we continue to expand our manufacturing and storage facilities for products under development, including those under development with Endo, Shire, P&G Pharmaceuticals and others. We expect to fund these capital expenditures from our existing cash balances. As a general matter, we believe that we have sufficient liquidity available to meet our operating needs and anticipated short-term capital requirements.

InOperating ~~February 2005,~~expenses ~~we entered into an Industrial Long-Term Lease (the “Lease”)~~ for ~~approximately~~ ~~73,000 square feet of newly constructed space located in close proximity to our manufacturing facility in Miami, Florida. We intend to use~~ the ~~leased~~2009 ~~space~~Quarter ~~for the storage~~ and~~, as~~ ~~needed,~~ the ~~manufacture~~2008 ofQuarter ~~new~~are ~~product.~~summarized ~~The~~as ~~lease~~follows ~~term is 10 years, which may be extended for~~(dollar upamounts toin ~~an additional 21 years pursuant to four renewal options of five years each and a one-time~~thousands): ~~option to renew for one year. The annual base rent is $6.40 per square foot. We also pay a monthly management fee equal to 1.5% of the base rent. The rent for the first year is discounted to $3.20 per~~


	Three Months
	Ended March 31,
	2009		2008		% Change
Research and development	$	4,653	$	3,319		40	%
Selling and marketing		5,013		4,823		4	%
General and administrative		7,048		7,022		0	%

Research and Development

Research and development expenses include costs associated with, among other things, product formulation, pre-clinical testing, clinical studies, regulatory and medical affairs, production for clinical and regulatory purposes, production related development engineering for developmental products, and the personnel associated with each of these functions. The $1.3 million increase in research and development expenses for the 2009 Quarter compared to the 2008 Quarter was primarily attributable to $0.8 million associated with Mesafem™ Phase 2 clinical trials and $0.5 million in additional research and development expenses to support our long-term growth objectives.

~~square~~Selling foot. The base rent is subject to annual increases of 3% during the initial 10-year term. After the initial term, the rent will be 95 percent of the fair market rate of the leased space as determined under the Lease. We are in the process of improving the leased space in order to prepare it for its intended use. The landlord was responsible for up to approximately $0.9 million of leasehold improvements, which were fully paid as of June 30, 2005. Any amounts paid to the general contractor in excess of this amount and ~~any other leasehold improvements will be our~~Marketing responsibility. For accounting purposes, we are amortizing the expected rental payments on a straight-line basis over the initial 10-year term of the Lease. The renewal terms have not been included for amortization purposes because we cannot reasonably estimate the rental payments after the initial term and we cannot assure that we will renew the Lease after the initial term. Any leasehold improvements will be recorded at cost and will be amortized on a straight-line basis over the shorter of the estimated useful life of the improvements or the remaining initial 10-year lease term. Leasehold improvements to the leased space paid by the landlord will be recorded by us as a deferred rent credit and will be amortized on a straight-line basis when incurred over the remaining initial 10-year lease term as a reduction of rent expense.

~~For~~The ~~our~~$0.2 million ~~long-term~~increase ~~operating~~in ~~needs,~~selling weand ~~intend~~marketing tocosts ~~utilize~~for ~~funds derived from~~ the ~~above~~2009 ~~sources, as~~Quarter ~~well~~compared ~~as funds generated through sales of products under development or products that we may license or acquire from others. We expect that such funds will be comprised of payments received pursuant~~ to ~~future development and licensing arrangements, as well as possible direct sales of our~~the ~~own~~2008 ~~products.~~Quarter Wewas ~~expect that our cash requirements will continue to increase,~~ primarily torelated ~~fund plant and equipment purchases~~ to ~~expand production capacity for new products. If our products under development with Shire, Endo, P&G Pharmaceuticals and others are successful, these expenditures, which may include~~ the ~~cost~~timing of ~~building~~sample anshipments ~~additional manufacturing plant, are expected~~ to bethe ~~significant~~sales force.

WeGeneral cannot assure that we will successfully complete the development of such products, that we will obtain regulatory approval for any such products, that any approved product may be produced in commercial quantities, at reasonable costs, and ~~be successfully marketed, or that we will~~Administrative successfully negotiate future licensing or product acquisition arrangements. Because much of the cost associated with product development and expansion of manufacturing facilities is incurred prior to product launch, if we are unsuccessful in out-licensing, or if we are unable to launch additional commercially-viable products that we develop or that we license or acquire from others, we will have incurred the up-front costs associated with product development or acquisition without the benefit of the liquidity generated by sales of those products, which could adversely affect our long-term liquidity needs. Factors that could impact our ability to develop or acquire and launch additional commercially-viable products are discussed under “Cautionary Factors that May Impact Future Results” as well as in our Annual Report on Form 10-K for the year ended December 31, 2004.

ToGeneral ~~the~~and ~~extent~~administrative ~~that~~expenses ~~capital~~remained ~~requirements~~substantially ~~exceed~~unchanged ~~available~~for ~~capital,~~the we2009 ~~will seek alternative~~Quarter ~~sources~~compared ~~of financing~~ to ~~fund~~the ~~our~~2008 ~~operations. No assurance can be given that alternative financing will be available~~Quarter, ifprimarily atdue ~~all,~~to in a ~~timely manner or on favorable terms~~$0.9 million Ifincrease wein ~~are~~salary ~~unable~~and ~~to obtain~~related ~~satisfactory alternative financing~~benefits, wewhich ~~may~~was beoffset ~~required~~by toa ~~delay~~$0.7 million ordecrease ~~reduce~~in ~~our~~audit ~~proposed expenditures, including expenditures for research~~ and ~~development~~accounting ~~and~~fees ~~plant~~ and ~~equipment,~~a ~~in order~~$0.2 tomillion ~~meet~~decrease ~~our~~in ~~future~~executive ~~cash~~recruiting ~~requirements~~fees.

~~New~~Other ~~Accounting~~Income ~~Standards~~and Expenses

InInterest November 2004, the FASB issued Statement of Financial Accounting Standard No. 151 “Inventory Costs — an amendment of ARB No. 43, Chapter 4” (“SFAS 151”), to clarify the accounting for abnormal amounts of idle facility expense, freight, or wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the “so abnormal” criterion outlined in Accounting Research Bulletin 43, Chapter 4, “Inventory Pricing”. SFAS 151 also introduces the concept of “normal capacity” and ~~requires~~Other ~~the~~Income

Interest and other income decreased $0.5 million for the 2009 Quarter compared to the 2008 Quarter. This decrease was primarily attributable to sales of $39.0 million of our investments in auction rate securities at par value during 2008 and reinvestment of the proceeds into lower-yielding, cash equivalent investments.

Income Taxes

Our effective tax rate was approximately 37% and 34% for the 2009 Quarter and 2008 Quarter, respectively. The provision for income taxes is based on the Federal statutory and state income tax rates. Net deferred income tax assets are measured using the average graduated tax rate for the estimated amount of annual taxable income in the years that the liability is expected to be settled or the asset recovered. The effect of adjusting the expected tax rate related to the net deferred income tax assets is included in the provision for income taxes. As of March 31, 2009 we had a net deferred tax asset of $72.0 million compared to $72.2 million at December 31, 2008. Realization of this deferred tax asset depends upon the generation of sufficient future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Noven Therapeutics files separate state income tax returns in states where it has determined that it is required to file state income taxes. As a result, state deferred tax assets relating to Noven Therapeutics are evaluated separately in determining whether the state deferred tax assets are realizable. Noven Therapeutics has historically reported taxable losses in these states and we expect that Noven Therapeutics will continue to incur state taxable losses in the next few years. These circumstances create negative evidence indicating the need for a valuation allowance at March 31, 2009. Our valuation allowance for state deferred tax assets was $3.5 million as of March 31, 2009 and December 31, 2008, due to uncertainty about our ability to realize these state deferred tax assets based on our projection of future state taxable income. If we determine, based on estimated future profitability of Noven Therapeutics, that these state deferred tax assets will more likely than not be realized, then the release of all, or part, of the related valuation allowance could result in an immediate income tax benefit in the period the valuation allowance is released.

Equity in Earnings of Novogyne

We share in the earnings of Novogyne according to an established formula after satisfaction of an annual preferred return of $6.1 million to Novartis. Our share of Novogyne’s earnings (a non-cash item) increases as Novogyne’s earnings increase, subject to a cap of 49%. Novogyne earned sufficient income in each of the 2009 Quarter and the 2008 Quarter to meet Novartis’ annual preferred return for those periods and for us to recognize earnings from Novogyne under the formula. We report our share of Novogyne’s earnings as “Equity in earnings of Novogyne” in our Condensed Consolidated Statements of Operations.

~~allocation~~ Novogyne ofrecords ~~fixed~~revenues ~~production~~net ~~overheads to inventory based on the normal capacity~~ of ~~the production~~sales ~~facilities.~~allowances ~~Unallocated overheads must be recognized as an expense in the period in which they are incurred. This statement is effective~~ for ~~inventory~~rebates, ~~costs~~chargebacks, ~~incurred~~cash ~~during~~and ~~fiscal~~other ~~years~~discounts ~~beginning~~and ~~after~~sales ~~June 15,~~returns ~~2005~~allowances. WeThe ~~are~~financial ~~currently~~results ~~assessing~~of ~~SFAS~~Novogyne ~~151~~for ~~and~~the we2009 ~~are~~Quarter ~~unable to~~and ~~estimate~~ the ~~impact~~2008 itQuarter ~~will~~are ~~have~~summarized onas ~~our~~follows ~~results~~(dollar ofamounts ~~operations~~in ~~and financial condition.~~thousands):

In December 2004, the FASB issued SFAS No. 123(R) “Share-Based Payment (Revised 2004)” that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award, which is generally over the vesting period. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as financial cash flows, rather than as operating cash flows as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future, the amount of such income tax benefits on exercise of stock options was $0.2 million and $2.7 million for the first half of 2005 and 2004, respectively. SFAS 123(R) replaces SFAS 123, “Accounting for Stock-Based Compensation”, and supersedes APB 25, “Accounting for Stock Issued to Employees”. For public companies such as Noven, the statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005 and accordingly, we anticipate adopting this statement in the first quarter of 2006.


	Three Months Ended March 31,
	2009		2008			% Change
Gross revenues	$	48,230	$	45,294			6	%
Sales allowances		6,666		5,853			14	%
Sales returns allowances		1,373		(85	)		N/M

Sales allowances and returns		8,039		5,768			39	%

Net revenues		40,191		39,526			2	%
Cost of sales		8,077		7,808			3	%

Selling, general and administrative expenses		10,711		9,012			19	%

Income from operations		21,403		22,706			-6	%

Interest income		94		267			-65	%

Net income	$	21,497	$	22,973			-6	%


Noven’s equity in earnings of Novogyne	$	7,545	$	8,267			-9	%

InN/M ~~December 2004,~~— ~~the~~Not FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets, An Amendment of APB Opinion No. 29” (“SFAS 153”). SFAS 153 eliminates the exception for exchange of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS 153 is effective for non-monetary assets and exchanges occurring in the first quarterly period beginning after June 15, 2005. As we have not and have no present intention to engage in exchanges of non-monetary assets, we do not anticipate that implementation of this statement will have a material impact on our results of operations and financial condition. Meaningful

~~In June 2005,~~Novogyne ~~the~~Net ~~FASB issued SFAS No. 154, Accounting~~Revenues Changes and Error Corrections (“SFAS 154”). SFAS 154 replaces APB Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle. SFAS 154 also requires that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. SFAS 154 is effective for accounting changes and correction of errors made in the first annual reporting period beginning after December 15, 2005. The implementation of SFAS 154 is not presently expected to have a material impact on our results of operations and financial condition.

~~Critical~~ Novogyne ~~Accounting~~sells ~~Estimates~~its products to trade customers, including wholesalers, distributors and chain pharmacies. As has historically been the case, the timing of purchases by trade customers is driven by the inventory needs of each customer and other factors, and does not necessarily track underlying prescription trends in any given period or coincide with Novogyne’s quarterly financial reporting periods. As a result, the timing of orders by trade customers is difficult to predict and can lead to significant variability in Novogyne’s quarterly results.

~~Our~~Novogyne’s ~~discussion~~gross ~~and~~revenues ~~analysis~~increased of$2.9 million ~~our~~for ~~financial~~the ~~condition~~2009 ~~and~~Quarter ~~results~~compared ofto ~~operations~~the ~~are based~~2008 ~~upon~~Quarter. ~~our~~By ~~financial statements~~product, ~~which~~Vivelle-Dot® ~~have~~and ~~been~~CombiPatch® ~~prepared~~increased in$2.6 million ~~accordance with accounting principles~~and ~~generally~~$0.3 million, ~~accepted in the United States~~respectively. The ~~preparation~~$2.6 million ofVivelle-Dot® ~~these~~increase ~~financial~~consisted ~~statements~~of ~~requires~~a us$4.0 tomillion ~~make~~increase ~~estimates~~related ~~and~~to ~~judgments that affect the reported amounts of assets~~pricing, ~~liabilities,~~partially ~~revenues and~~offset ~~expenses,~~by ~~and~~a ~~related~~$1.4 million ~~disclosure~~decrease ofin ~~contingent~~unit ~~assets and liabilities~~sales. ~~We base our estimates~~The ondecrease ~~historical~~in ~~experience~~unit ~~and~~sales onof ~~various~~Vivelle-Dot® ~~other~~relates ~~assumptions~~to ~~that~~a wereduction ~~believe~~of toinventory belevels ~~reasonable~~in ~~under~~ the distribution ~~circumstances~~channel, ~~the~~as ~~results~~total ofprescriptions ~~which~~have ~~form~~increased ~~the~~3% ~~basis~~ for ~~making judgments about~~ the ~~carrying values~~2009 ofQuarter ~~assets~~compared ~~and~~to ~~liabilities that are not readily apparent from other sources. Our critical accounting estimates are those which we believe require~~ the ~~most subjective or complex judgments,~~2008 ~~often~~Quarter. asThe a$0.3 million ~~result~~CombiPatch® ofincrease ~~the~~was ~~need~~primarily attributable to ~~make estimates about the effect of matters that are inherently~~pricing. ~~uncertain or which~~

Sales allowances consist of chargebacks, Medicaid rebates, managed healthcare rebates, cash discounts and other allowances, which tend to fluctuate based on changes in gross revenues. For the 2009 Quarter and the 2008 Quarter, these sales allowances were 14% and 13% of gross revenues, respectively.

~~involve~~ Sales ~~factors~~returns ~~that~~allowances ~~may~~consist ~~be beyond our control. In addition to the “critical accounting policies” discussed under “Management’s Discussion and Analysis~~ of ~~Financial~~allowances ~~Condition~~for ~~and~~returns ~~Results~~ of ~~Operations-Critical~~expiring ~~Accounting~~product. ~~Policies”~~The activity in ~~our~~the ~~Form~~sales ~~10-K~~returns allowances for the ~~year~~2009 ~~ended~~Quarter ~~December 31,~~and ~~2004, we~~the ~~have~~2008 ~~identified~~Quarter ~~the~~was ~~following~~ as ~~additional~~follows ~~critical accounting policies, estimates or~~(amounts ~~assumptions~~in thousands):

Inventories


	Three Months Ended March 31,
	2009			2008
Sales returns allowances included in net revenues	$	1,373		$	(85	)
Actual returns primarily for expiring product		(1,106	)		(610	)

Change in allowances for returns primarily for expiring product	$	267		$	(695	)

~~Inventories,~~The ~~which~~increase ~~include~~in ~~material,~~sales ~~labor~~returns ~~and~~allowances ~~manufacturing~~for ~~overhead, are stated at~~ the ~~lower of~~2009 ~~cost~~Quarter orcompared ~~market. Other than products produced for commercial sale, our policy is~~ to ~~immediately recognize as expense all inventory purchased for research and development purposes. In accordance with accounting principles generally accepted in~~ the ~~United~~2008 ~~States,~~Quarter ~~provisions have been made to~~is ~~reduce~~primarily ~~inventories~~attributable to ~~net~~a ~~realizable~~revision ~~value, including giving effect~~ to ~~reserves~~the ~~and~~return ~~charges~~accrual ~~related to~~rate ~~non~~for Vivelle-~~saleable~~Dot® ~~product~~in ~~due to insufficient remaining shelf life or otherwise. We manufactured initial launch quantities of our fentanyl patch during~~ the fourth quarter of ~~2004~~2008 ~~and~~due ~~first~~to ~~quarter of~~an ~~2005~~increase ~~and as of June 30, 2005, we had $13.8 million~~ in ~~total fentanyl inventories. We have estimated that if~~ the ~~fentanyl~~rate ~~patch were never approved and launched, we currently would be obligated to bear up to $9.0 million~~ of ~~the~~actual ~~production~~returns ~~costs~~ for the ~~inventories~~product. ~~deemed~~In ~~non-saleable~~addition, ~~based~~the on2008 aQuarter ~~contractual~~benefited ~~formula~~from ~~with Endo, which we would record as~~ a ~~charge~~reduction toin ~~income from~~allowance ~~operations.~~for Wereturns ~~have~~for ~~also~~prior ~~estimated that if the product were not launched by the end of 2005,~~periods wedue ~~would record charges aggregating up~~ to ~~$5.7 million~~lower ~~(of~~actual ~~the $9.0 million~~returns ~~noted~~at ~~above) during~~ the ~~second~~ ~~half of 2005, reflecting our share of fentanyl inventories deemed non-saleable due to insufficient remaining shelf life~~time. ~~Furthermore, our estimates of reserves and charges may prove to~~ ~~be incorrect, which would have a material adverse impact on our results of operations and financial position.~~

~~Outlook~~Novogyne Gross Margin

AGross ~~summary~~margin ofat ~~our~~Novogyne ~~current~~was ~~financial~~80% ~~guidance~~for isboth ~~provided~~the ~~below.~~2009 ~~This~~Quarter ~~forward-looking information is based on our current assumptions~~ and ~~expectations,~~the ~~many~~2008 ofQuarter ~~which~~as ~~are beyond our~~price ~~control~~increases ~~to achieve. In particular,~~ for ~~purposes~~all ofproducts ~~this~~in ~~guidance we have assumed that during~~ the ~~remainder~~ of2009 ~~2005~~Quarter ~~(except~~were asoffset ~~otherwise~~by ~~indicated~~higher ~~below)~~sales ~~there~~returns ~~will not be any material:~~allowances.

~~• transactions; • changes in Noven’s or~~ Novogyne’s ~~accounting or accounting principles or any of the estimates or judgments underlying its critical accounting policies; • regulatory~~Selling, ~~technological~~General orand ~~clinical~~Administrative study developments; • changes in the supply of, demand for, or distribution of our HT products (including any changes resulting from product recalls, competitive HT products, or new HT study results); • changes in our business relationships/collaborations; or • changes in the economy or the health care sector generally.Expenses

~~Financial~~Novogyne’s ~~guidance is inherently uncertain. Accordingly~~selling, wegeneral ~~cannot~~and ~~assure~~administrative ~~that~~expenses weincreased ~~will achieve results consistent with this guidance~~$1.7 million Iffor ~~our~~the ~~assumptions~~2009 Quarter orcompared ~~expectations~~to ~~concerning~~the ~~any of~~2008 ~~these~~Quarter ~~matters~~primarily ~~prove~~due to bea ~~incorrect,~~$0.6 million ~~our~~increase ~~actual~~in ~~financial~~sales ~~results~~force expenses ~~could~~related ~~differ~~to ~~materially~~re-alignment ~~from the~~to ~~expected~~target ~~results~~areas, ~~discussed~~a ~~below~~$0.5 million ~~For~~increase ain ~~discussion~~market ~~of certain factors that may impact our~~research ~~actual~~expenses ~~financial~~due ~~results~~to ~~for~~ the ~~periods~~timing ~~referenced~~of projects, ~~readers~~a ~~should~~$0.5 million ~~carefully~~increase ~~consider~~in ~~the~~sample ~~risks, uncertainties~~expenses ~~and~~due ~~cautionary~~to ~~factors discussed below under~~ the timing ~~caption~~of ~~“Factors~~shipments ~~Affecting~~by ~~Our Business~~Noven ~~and~~to ~~Prospects”~~Novogyne and ina ~~our~~$0.1 million ~~Annual~~increase ~~Report~~in onHT ~~Form~~litigation ~~10-K for the year ended December 31, 2004~~expenses.

Novogyne. Based on current prescription forecasts, our estimates of trade inventory levels and other factors, we believe that Novogyne’s revenues and net income for full-year 2005 should increase modestly over 2004 levels.

~~Potential~~Liquidity ~~Impact of Fentanyl Revenues. Our ANDA for our generic fentanyl patch is currently pending at the FDA,~~ and weCapital ~~are unable to predict when or if it will be approved and any impact that~~Resources the recently announced FDA investigation of reports of death and other serious side effects from overdoses allegedly involving transdermal fentanyl patches may have on the review or approval process. If our ANDA is approved and the product is launched by Endo, we expect to receive a launch-related milestone payment ranging from $5.0 million to $10.0 million, which payment will be deferred and recognized as Noven license and contract revenues over the remainder of the 10-year period that began on the closing of the Endo license transaction in the first quarter of 2004. Under the terms of our agreement with Endo, we will manufacture and supply Endo with finished product at our cost and will share in Endo’s profit generated from U.S. product sales. At this time, we do not have sufficient information regarding timing of approval, number of competitors, market share, product pricing and other factors necessary to forecast whether our fentanyl patch will contribute to our 2005 financial results or the magnitude of any contribution it may make. Our results of operations for the remainder of 2005 will be materially and adversely affected if, as a result of further delay in obtaining FDA approval of our fentanyl patch or otherwise, all or a portion of our fentanyl inventories are determined to be non-salable. See”—Certain Items That Affect of Could Affect Historical or Future Comparability – Endo.” Overhead and other expenses associated with the development and production of our fentanyl patch are expected to continue to adversely impact the profitability of our business unless and until our fentanyl patch is approved and launched.

HTAs ~~Product~~of ~~Revenues.~~March 31, We2009 ~~expect~~and ~~product~~December 31, ~~revenues~~2008, ~~from~~we ~~our~~had ~~hormone therapy~~the ~~products~~following ~~for~~(amounts ~~our~~in ~~full-year 2005 to approximate 2004 levels.~~thousands):

Contract and License Revenues. We expect contract revenues for 2005 to decline compared to 2004, primarily due to the receipt in 2004 of $4.4 million in payments from P&G Pharmaceuticals which are not expected to recur in 2005.


	March 31,		December 31,
	2009		2008
Cash and cash equivalents	$	72,174	$	62,875
Short-term investments		—		3,650
Working capital		57,109		50,644

~~Research and Development.~~ In ~~support~~addition ofto our ~~strategy~~cash toand ~~expand~~working ~~our~~capital, ~~product~~as ~~pipeline~~of March 31, 2009, we ~~expect~~owned toinvestments in ~~continue~~auction rate securities with a fair value of $11.8 million. Due to ~~invest~~the incurrent ~~research~~illiquid market conditions and ~~development~~failed inauctions ~~2005~~for atauction ~~levels~~rate ~~comparable~~securities, we continue to ~~2004.~~classify Inour ~~addition,~~investments wein ~~are~~auction ~~working~~rate tosecurities ~~formulate~~as ~~certain~~non-current ~~new~~assets. ~~transdermal~~During ~~products~~the ~~that~~2009 Quarter, ifwe ~~successfully~~received ~~formulated,~~proceeds ~~may enter~~of ~~human~~$3.7 million ~~studies~~from ~~during~~the ~~2005.~~redemption ~~These~~of ~~studies,~~an ifauction ~~initiated,~~rate ~~would~~security beinvestment ~~funded~~at bypar ~~Noven~~value. ~~and~~On ~~may cause~~a ~~our~~combined ~~research~~basis, our cash and ~~development~~cash ~~expense~~equivalents and investments in ~~2005~~auction torate ~~increase~~securities ~~substantially~~were ~~over~~as ~~2004~~follows ~~levels.~~(amounts in thousands):

Marketing, General and Administrative Expense. We expect Noven’s marketing, general and administrative expense in 2005 to increase over 2004 levels, with anticipated increases in costs associated with facility expansion, product liability insurance, professional services fees and other areas.


	March 31,		December 31,
	2009		2008
Cash and cash equivalents	$	72,174	$	62,875
Investments in auction rate securities:
Current		—		3,650
Non-current		11,810		11,810

Total cash and cash equivalents and investments	$	83,984	$	78,335

~~Capital~~Cash ~~Expenditures.~~provided Weby ~~expect~~(used ~~that~~in) ~~our~~operating, ~~capital~~investing ~~expenditures~~and ~~will~~financing ~~increase~~activities ~~significantly~~for inthe ~~2005~~2009 Quarter asand wethe ~~continue~~2008 toQuarter ~~expand~~is ~~our~~summarized ~~manufacturing~~as ~~and~~follows ~~storage~~(amounts ~~facilities~~ in ~~connection with products under~~thousands): ~~development with our industry partners.~~

Cautionary Factors that May Impact Future Results


	2009			2008
Cash flows:
Operating activities	$	9,954		$	(4,076	)
Investing activities		2,641			17,813
Financing activities		(3,296	)		(45	)

Net Cash Flows	$	9,299		$	13,692

~~Except~~Operating ~~for historical information contained herein, the matters discussed in this report are~~Activities “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our and our licensees’ respective plans, objectives, expectations, estimates, strategies, prospects, product approvals and development plans, and anticipated financial results. These statements are typically identified by the use of terms such as “anticipates,” “believes,” “estimates,” “hopes,” “expects,” “intends,” “may,” “plans,” “could,” “should,” “will,” “would” and similar words. These statements are based on our current expectations and beliefs concerning future events and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed herein. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law. In

Net cash provided by operating activities for the 2009 Quarter reflects the receipt of $12.7 million in distributions from Novogyne. Changes in working capital, including a $2.4 million decrease in accrued compensation and related liabilities and a $1.7 million increase in inventories partially offset the net cash provided by operating activities.

Net cash used in operating activities for the 2008 Quarter primarily resulted from the timing of certain payments, including inventory purchases of $6.2 million, $5.8 million in compensation and related liabilities and the payment to Shire of $3.3 million related to its 2007 withdrawal of certain Daytrana^® product. The net cash used was partially offset by the receipt of $10.9 million in distributions from Novogyne.

~~addition~~Investing ~~to the factors described elsewhere in this report and in our Form 10-K for the year~~Activities ended December 31, 2004 the risks and uncertainties in the following categories, among others, as well as our success at managing those risks, could cause our actual results to differ materially from those expressed in any forward-looking statements:

HTNoven ~~Market,~~has ~~risks~~invested ~~associated~~a ~~with~~portion ~~increased competition in the HT market; any further impact on our HT business due to the announcement~~ of ~~additional~~its ~~negative~~cash ~~clinical~~in ~~results or otherwise~~investments, ~~which could~~consisting ~~reduce or eliminate any profit contribution by Novogyne to us and/or sales~~ of ~~HT products~~investment ~~from~~grade, usauction torate ~~Novartis~~securities, ~~Pharma;~~which ~~uncertainties~~are ~~regarding~~categorized ~~any~~as ~~future~~available-for-sale ~~regulatory~~under ~~developments resulting from those studies;~~ the ~~risk~~provisions ~~that Novogyne may not be able to realize the full value~~ of ~~the~~ ~~marketing~~SFAS ~~rights~~No. 115 “Accounting for ~~our~~Certain ~~CombiPatch®~~Investments ~~product; the European HT market may be limited due to pricing pressures and delayed Estradot launches~~ in ~~certain~~Debt ~~countries due to labeling issues;~~ and ~~the~~Equity risk of product liability claims resulting from the use of HT products such as the lawsuits presently pending against Noven and Novartis with respect to our products, as well as any indemnification or contribution obligations that we may have to Novartis or Novogyne related to product liability claimsSecurities”.

~~Regulatory~~Net ~~Matters,~~cash ~~uncertainties~~provided ~~relating~~by toinvesting ~~actions~~activities ~~that~~for ~~may be taken against us by~~ the ~~FDA or~~2009 ~~other~~Quarter ~~regulators,~~was ~~whether~~primarily ~~relating~~attributable to ~~manufacturing processes, suppliers, commercialized~~ ~~products,~~$3.7 million ~~products~~from ~~in development or otherwise, and any related costs; uncertainties related to~~ the ~~FDA’s~~ redemption ~~discretion to approve or not approve a product; the timing~~ of ~~any~~an ~~FDA~~auction ~~approval~~rate ~~for~~security ~~any~~investment ofat ~~our products~~par ~~in development~~value, ~~which~~partially isoffset ~~outside~~by ~~our~~$0.8 million ~~control and which may impact the success of product~~in ~~launch~~equipment ~~and~~purchases ~~market penetration; and uncertainties related~~ to ~~our ability~~support ~~to comply with DEA regulations related to our purchase, storage and usage of controlled substances in products we may manufacture, including our developmental methylphenidate and fentanyl patch~~operations.

~~Production~~Net ~~Matters,~~cash ~~risks~~provided ~~related~~by toinvesting ~~our~~activities ~~reliance on suppliers~~ for the ~~availability~~2008 ~~and quality~~Quarter ofwas ~~raw~~primarily ~~materials~~attributable ~~used in our products; risks related~~ to ~~our reliance on a single supplier~~ ~~for~~$18.8 million ~~certain raw materials and compounds used~~ in ~~our~~sales products; risks related to obtaining procurement quota for controlled substances (including fentanyl and methylphenidate) from the DEA, including possible delays or failure to obtain such quota resulting from recent legislation that requires the DEA to review and provide public comment on the labeling, promotion, risk management plan and other documents associated with such product prior to establishing procurement quota for controlled substances; uncertainties regarding the timing and magnitude of ~~any~~short-term ~~product~~investments ~~recalls;~~at ~~the impact~~par of the recalls or related issues on Novartis’ or other partners’ strategy for the commercialization of our products; the possibility that our estimates of the impact of future returns and charges may prove inaccuratevalue, ~~incomplete~~partially oroffset ~~otherwise~~by ~~incorrect;~~$0.3 million ~~the impact of detected~~in orequipment ~~undetected~~purchases ~~product stability failures or other product defects on our ability~~ to ~~estimate~~support ~~our reserves for sales returns and other associated accounting consequences~~operations.

~~Our~~Financing ~~Partners, the risk that our development partners may have different or conflicting~~Activities priorities than ours which may adversely impact their ability or willingness to assist in the development and commercialization of our products or to continue the development programs in which they and we have partnered; uncertainties regarding our ability to attract additional development partners; the possibility that our technologies may not be approvable or suitable for use in additional therapeutic categories, including those categories addressed through products developed with our development partners; the possibility that we may be unsuccessful in achieving milestone objectives under our development programs and may not receive any further payments; the possibility that our development programs may not proceed on schedule or as expected, which could, among other things, prevent us from achieving milestone objectives under our development programs and/or cause delays or cancellations of programs; the possibility that our current development priorities could render us unable to advance our other development projects or increase the cost of advancing those projects; risks related to our dependence on Novartis to perform Novogyne’s

Net cash used in financing activities for the 2009 Quarter was primarily attributable to a $3.3 million sales milestone payment to Synthon, an obligation we assumed as part of the Noven Therapeutics acquisition.

Net cash used in financing activities for the 2008 Quarter was primarily attributable to payments on capital leases of $0.1 million.

Short-Term and Long-Term Liquidity

Our principal sources of short-term liquidity are existing cash and distributions from Novogyne. Additional sources of short-term liquidity include cash generated from product sales, license fees and royalties under development and license agreements.

Our short-term cash flow is significantly dependent on distributions from Novogyne and sales, royalties and license fees associated with our products. Any material decrease in sales of those products by us or our licensees, a material decline in the HT market, the introduction of a generic version of Vivelle-Dot^®, material increases in operating expenses, or the inability or failure of Novogyne to pay distributions, would have a material adverse effect on our short-term cash flow and require us to rely on our existing cash balances, investments, equity or debt offerings or on borrowings to support our operations and business.

During the 2009 Quarter, our cash and cash equivalents and investments in auction rate securities increased from $78.3 million to $84.0 million. The increase primarily resulted from the receipt of $12.7 million of distributions from Novogyne. The increase in cash was partially offset by certain cash outlays during the 2009 Quarter, including (i) a $3.3 million sales milestone payment to Synthon; (ii) $1.0 million for insurance premiums; (iii) $0.8 million for equipment purchases; and (iv) cash used to fund increases in inventory and other working capital items. In April 2009, we paid $3.2 million for income taxes as our first quarterly installment for 2009. We believe that our existing cash balances and expected collections of receivables, together with the available capacity under our credit facility (described below), will be sufficient to meet our operating needs and short-term capital requirements.

We received the first $25.0 million sales milestone payment from Shire relating to its sales of Daytrana^® in the first quarter of 2007, the second $25.0 million Daytrana^® sales milestone payment in the third quarter of 2007 and the third and final $25.0 million Daytrana^® sales milestone payment in the third quarter of 2008. We expect to pay income taxes related to the final Daytrana^® milestone payment of approximately $8.5 million during 2009.

As discussed elsewhere herein, we paid Shire $3.7 million related to Shire’s voluntary recalls of Daytrana^® product in 2008. In addition, we established a reserve in 2008 ($3.7 million at March 31, 2009) for certain previously-manufactured Daytrana^® lots that would not meet the new release testing standard and are probable of being voluntarily withdrawn or recalled from the market prior to expiration of their shelf life, and which therefore would require additional reimbursements to Shire.

~~financial,~~ In ~~accounting~~April 2008, ~~inventory, distribution, revenues and sales deductions functions (including any asset impairment decisions for Novogyne), including the risk that Novartis may perform these functions differently than~~ we ~~would~~made ~~have,~~a ~~inadequately~~$3.3 million ormilestone ~~incorrectly;~~payment ~~risks and uncertainties related~~ to ~~the~~Synthon ~~fact~~based ~~that~~on ~~Vivelle-Dot™~~our ~~comprises~~achieving specified anet ~~substantial~~sales ~~majority~~ of ~~Novogyne’s~~ ~~aggregate~~Pexeva® ~~total~~during ~~prescriptions;~~2007. ~~and~~In ~~the~~March 2009, ~~possibility~~we ~~that~~made ~~our~~a ~~financial results could~~$3.3 million ~~fluctuate~~milestone ~~from~~payment ~~period~~ to ~~period~~Synthon orbased ~~otherwise~~on beour ~~affected~~achieving byspecified ~~Novartis’~~net ~~monitoring~~sales of ~~trade inventory~~Pexeva® ~~levels~~during ~~for Novogyne and its decisions related thereto~~2008.

~~Methylphenidate Patch,~~As the possibility that the FDA will determine that our amended NDA for our methylphenidate patch does not support approval or that our methylphenidate patch may not ultimately be approved or commercialized; the timing of ~~the~~March 31, ~~FDA’s~~2009, ~~review~~we ofowned ~~any~~investments ~~amended~~in ~~NDA~~auction ~~for~~rate ~~our methylphenidate~~securities ~~patch~~with asa ~~well~~total aspar ~~any~~value ~~product approval~~ and ~~the~~fair ~~timing~~value of ~~any~~$12.3 million ~~DEA~~and ~~approval~~$11.8 million, ~~of a methylphenidate quota for Noven~~respectively, which ~~are~~subjects ~~outside~~us ~~Noven’s~~to ~~control and which may impact~~ the ~~success of~~liquidity ~~product~~risk ~~launch~~described ~~and~~in ~~market~~Part II ~~penetration;~~— ~~risks~~Item 7A “Quantitative and ~~uncertainties~~Qualitative ~~related~~Disclosures toAbout ~~the~~Market ~~2005~~Risk” ~~study~~in ~~by researchers~~our atForm ~~the M~~10-K.D. ~~Anderson~~During ~~Cancer~~2008, ~~Center~~we ~~that~~recorded ~~found adverse chromosomal effects on 12~~$0.5 ~~children~~million ~~treated with oral methylphenidate, including risks related to the timing~~ of ~~any~~other-than-temporary ~~FDA approval~~impairments ofon our ~~methylphenidate~~investments ~~patch,~~in ~~the~~auction ~~impact~~rate onsecurities ~~the~~which ~~market for methylphenidate products~~are ~~(including~~classified ~~our~~as ~~patch, if approved) and any follow~~available-onfor-sale orunder ~~related~~SFAS ~~study~~No. 115. ~~finding~~We ~~adverse~~redeemed ~~effects~~$3.7 million ~~from methylphenidate use; any exercise~~ of ~~Shire’s~~our ~~right~~investments toin ~~terminate~~auction ~~the~~rate ~~agreement,~~securities ~~including~~at ~~the~~par ~~risk~~value ~~that,~~during inthe ~~such~~2009 ~~event,~~Quarter. ~~our~~Due ~~right~~ to ~~receive~~continuing aauction ~~$50.0 million~~failures ~~approval~~beginning ~~milestone~~in ~~would terminate~~February 2008, ~~and~~we ~~that~~utilized wevaluation ~~may~~models ~~be unable or unwilling~~ to ~~proceed~~determine ~~with~~ the ~~project~~fair orvalues ~~may~~of beour ~~unable~~investments toin ~~license~~auction ~~our~~rate ~~methylphenidate~~securities. ~~patch~~The tofair avalues ~~third~~of ~~party~~our orinvestments towere acalculated ~~party~~based ~~with~~on the ~~resources~~following: of(i) the underlying ~~Shire~~structure onof ~~commercially reasonable~~each ~~terms~~security; (ii) the ~~possibility~~present ~~that~~value ~~our method~~ of ~~accounting~~future ~~for~~principal ~~the~~and ~~$25.0 million~~interest payments ~~received~~discounted ~~from Shire~~at ~~could~~rates ~~change~~considered ~~under~~to ~~certain~~reflect ~~circumstances,~~current ~~including~~market ifconditions; (iii) consideration of the ~~parties’~~probabilities ~~product~~of ~~strategy~~default, ~~changes or~~auction iffailure, ~~our~~or ~~methylphenidate~~repurchase ~~patch~~at ~~development~~par isfor ~~discontinued~~each period; and ~~the likelihood that our~~(iv) ~~development~~consideration ~~strategy~~of ~~would~~third ~~change~~party ifcredit ~~Shire~~enhancement. ~~were~~These toestimated ~~terminate~~fair ~~the~~values ~~agreement~~could ~~under certain~~change ~~circumstances,~~significantly orbased ifon ~~our~~future ~~methylphenidate~~market ~~patch were not ultimately approved or were abandoned~~conditions.

~~Fentanyl~~Changes ~~Patch, the risks and uncertainties associated with the FDA’s review of Noven’s fentanyl ANDA; the risks and uncertainties associated with the recent label change~~ to ~~the~~investments ~~product, including~~measured ~~risks~~at ~~related~~fair tovalue the delay in the approval of Noven’s fentanyl ANDA or the launch of our fentanyl patch; risks and uncertainties associated with the timing of any DEA approval of a fentanyl quota for Noven; risks related to the FDA’s recently issued public advisory that it is investigating reports of death and other serious side effects from overdoses involving both the branded and generic fentanyl patches, including the possibility that this investigation could materially and adversely affect the market for all fentanyl patch products and could delay or prevent approval of pending ANDAs for fentanyl, including our pending application; the possibility that milestone payments may be reduced and/or that Endo may exercise its contractual right to terminate the license agreement if the product launch is delayed for any reason, including delay in obtaining FDA approval; the possibility that we may be unable to recover from Endo their agreed upon portion of the production costs of the launch quantities of our fentanyl patch that we have produced; patent or other strategies by third parties could delay or prevent the launch of our fentanyl patch or other products; the possibility that we may be unable to recover significant costs to manufacture launch supplies of fentanyl patches prior to product launch if FDA approval is not obtained on a ~~timely~~recurring basis orusing atunobservable ~~all; the possibility that, even if approved, our fentanyl~~inputs ~~patch~~(Level or3) ~~other~~during ~~products~~the ~~may~~2009 ~~not~~Quarter bewere ~~successfully~~as ~~commercialized~~follows ~~due~~(amounts ~~to competitive market conditions or other factors, including physician/patient preferences for other therapies; and~~ in ~~recent periods, companies offering generic drug products have experienced significant~~thousands): ~~product pricing pressure, often earlier than expected in the product’s life cycle, which has negatively affected the profitability of certain of their generic products.~~

Other Matters, expected fluctuations in quarterly revenues and research and development expenses; uncertainties associated with our beliefs regarding the timing of trade customer orders. We caution that the foregoing list of factors is not exhaustive.


Balance at December 31, 2008	$	15,460
Redemptions of investments at par value		(3,650	)

Balance at March 31, 2009	$	11,810

As a result of failed auctions, our auction rate securities pay interest at rates as defined by the governing documents or indenture. Due to uncertainty regarding the timing of our future investment liquidations, we continue to classify our investments in auction rate securities as non-current assets as of March 31, 2009. As illiquid conditions persist in the auction market for these securities, it may become increasingly more likely that we will need to recognize additional other-than-temporary impairment charges in future periods. Such impairment charges could materially and adversely affect our consolidated financial condition and results of operations.

In July 2008, we entered into an agreement for a $15.0 million credit facility. In connection with the credit facility and in lieu of granting a security interest in our assets, we agreed not to pledge, grant any security interest in, or allow any lien or encumbrance in or on, certain of our financial assets. The facility expires in July 2009. As of the date of this report, no borrowings were outstanding under this facility and we have no long-term debt.

To the extent the sources of liquidity described above are insufficient to fund our operations, we would expect to seek to obtain funds through debt and/or equity financing. We cannot provide any assurance that such financing will be available, if at all, in a timely manner, or on favorable terms. If we are unable to obtain satisfactory financing, we may be required to delay or reduce our proposed expenditures, including plant and equipment purchases, research and development activities and strategic acquisitions. Furthermore, debt financing would likely require us to devote funds to service and ultimately repay such debt and could subject us to financial or operational covenants that could limit or hinder our ability to conduct our business.

Our strategic plan includes the acquisition of one or more products, technologies or businesses that we believe may be complementary to our business. We expect that we will be required to seek debt and/or equity financing to complete such an acquisition. Current conditions in the credit markets and equity markets could make it particularly difficult to raise funds on attractive terms, if at all. We cannot provide any assurance that such financing will be available, if at all, in a timely manner, or on favorable terms.

~~Item~~ Capital expenditures totaled $0.8 3million for the 2009 Quarter. ~~Quantitative~~We ~~and~~expect ~~Qualitative~~to ~~Disclosure~~fund ~~About~~our foreseeable ~~Market~~capital ~~Risk~~expenditures from our operating cash flows, existing cash, short-term investments and debt.

~~Not~~If ~~Applicable~~our transdermal products under development are successful, we may need to fund plant and equipment purchases to expand production capacity. For our long-term operating needs, we intend to utilize funds derived from the sources described above. To the extent available, we may use funds generated through sales of products under development and payments received pursuant to development and licensing arrangements. If such funds are insufficient, we may rely on debt and/or equity financing to fund such expansion. We cannot assure that we will successfully complete the development of such products, that we will obtain regulatory approval for any such products, that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed, or that we will successfully negotiate future licensing or product acquisition arrangements. Because much of the cost associated with product development and expansion of manufacturing facilities is incurred prior to product launch, if we are unsuccessful in out-licensing, or if we are unable to launch additional commercially-viable products that we develop or that we license or acquire from others, we will have incurred the up-front costs associated with product development or acquisition without the benefit of the cash generated by sales of those products, which could adversely affect our long-term liquidity needs. Factors that could impact our ability to develop or acquire and launch additional commercially-viable products are discussed in Part I — Item 1A “Risk Factors” of our Form 10-K.

~~Item 4.~~ For ~~Controls~~the 2009 Quarter and ~~Procedures~~the 2008 Quarter, our equity in earnings of Novogyne and the recognition of deferred license and contract revenues (both of which are non-cash items) contributed significantly to our income before income taxes. Accordingly, our net income may not be reflective of our cash flow in any given period.

~~Pursuant~~Aggregate toContractual ~~Exchange Act Rule 13a-15, as of the end of the quarterly period covered by this~~Obligations report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of the last evaluation. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Noven required to be included in our periodic Securities and Exchange Commission filings. However, that conclusion should be considered in light of the various limitations described below on the effectiveness of those controls and procedures, some of which pertain to most if not all business enterprises, and some of which arise as a result of the nature of our business. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all error and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of any system of controls also is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Furthermore, our level of historical and current equity participation in Novogyne may substantially impact the effectiveness of our disclosure controls and procedures. Because we do not control Novogyne, and all of Novogyne’s financial, accounting, inventory, distribution, revenues and sales deductions functions are performed by Novartis, our disclosure controls and procedures with respect to Novogyne are necessarily more limited than those we maintain with respect to ourselves. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the Chief Executive Officer’s and Chief Financial Officer’s evaluation.

~~Provided~~Since ~~with~~December 31, ~~this~~2008, ~~quarterly~~there ~~report~~have onbeen ~~Form~~no ~~10-Q~~material ~~are~~changes ~~certificates~~outside of ~~our Chief Executive Officer and Chief Financial Officer. We are required to provide those certifications by Section 302 of~~ the ~~Sarbanes-Oxley~~ordinary ~~Act~~course of ~~2002 and the Securities and Exchange Commission’s implementing~~ ~~regulations.~~our ~~This~~business ~~Item 4 of this quarterly report is the information concerning the evaluation referred~~ to inour ~~those~~aggregate ~~certifications,~~contractual ~~and~~obligations ~~you~~previously ~~should~~disclosed ~~read this information~~ in ~~conjunction~~our ~~with~~Form ~~those certifications for a more complete understanding of the topics presented~~10-K.

WeCritical doAccounting ~~not control Novogyne and Novartis performs all of Novogyne’s financial, accounting,~~Estimates inventory, sales and sales deductions functions. As previously disclosed, in the course of its audit of Novogyne’s financial statements for the year ended December 31, 2004, Novogyne’s independent registered public accounting firm identified what it believes is a significant deficiency in Novogyne’s internal controls which related to oversights by Novartis in connection with Novogyne’s accounting

For a discussion of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates”, which is included in our Form 10-K.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 2 — “Recent Accounting Pronouncements” in the Notes to Unaudited Condensed Consolidated Financial Statements.

Outlook

A summary of our current financial guidance is provided below. This financial guidance supersedes all financial guidance that we may have previously provided. Any financial guidance previously provided in areas not addressed below, whether in prior filings with the Securities and Exchange Commission, press releases, public conference calls or otherwise, is no longer current and is hereby withdrawn. The forward-looking information contained in this section is based on our current assumptions and expectations, many of which are based upon matters beyond our control. In particular, for purposes of this guidance we have assumed that, during the remainder of 2009, there will not be any material:

~~for~~• ~~certain~~acquisitions ~~rebate~~of ~~accruals.~~products, ~~These~~companies, ~~oversights~~or ~~resulted~~technologies inor another ~~immaterial~~transactions; ~~adjustment~~• atchanges ~~Novogyne~~ in ~~the~~Noven’s ~~fourth~~or ~~quarter~~Novogyne’s ofaccounting ~~2004.~~or Weaccounting ~~have~~principles ~~been~~or ~~advised~~any ~~that~~of the ~~Audit~~estimates ~~and~~or ~~Compliance~~judgments ~~Committee~~underlying ~~of Novartis~~our AGcritical ~~has~~accounting ~~engaged~~policies; ~~outside~~• ~~counsel~~regulatory ~~and~~or istechnological ~~conducting~~developments; an• ~~ongoing~~changes ~~internal~~in ~~investigation~~the supply of, ~~this matter.~~demand Itfor, isor ~~not~~distribution ~~possible~~of ~~for~~our usproducts to(including ~~predict~~any ~~what~~changes ~~impact,~~resulting iffrom ~~any~~competitive products, ~~Novartis’~~product ~~internal~~recalls/withdrawals ~~investigation may~~for which we have. Tonot ~~our~~already ~~knowledge~~established a reserve, ~~none~~or new study results); • negative actions with respect to our applications for methylphenidate quota or other disruptions in supplies of ~~the~~raw ~~issues~~materials; ~~that~~• ~~are~~adverse actions by the ~~subject~~FDA ofin connection with the ~~investigation~~observations ~~involves Noven~~on Form 483, ~~Noven’s~~the ~~accounting~~January ~~policies~~2008 warning letter or ~~practices,~~otherwise; • changes in our business relationships/collaborations; or ~~any~~• ofchanges ~~Noven’s~~in ~~officers~~the economy, ~~directors~~health care reimbursement policies or ~~employees~~ the health care sector generally.

Financial guidance is inherently uncertain. Accordingly, we cannot assure that we will achieve results consistent with this guidance, and our actual financial results could differ materially from the expected results discussed below. For a discussion of certain factors that may impact our actual financial results for the periods referenced, including additional risks and uncertainties related to Noven Therapeutics, readers should carefully consider the risks, uncertainties and cautionary factors discussed in Part I — Item 1A “Risk Factors” of our Form 10-K, as supplemented by the other information contained in this Form 10-Q and in other reports filed from time to time with the Securities and Exchange Commission.

Net revenues, gross margin, expenses, net income and other aspects of our financial results can vary substantially from quarter-to-quarter based upon a number of factors, including the timing of product orders by our licensees, the timing of release of manufactured product following quality control and quality assurance measures undertaken by Noven and/or its customers, the availability of raw materials, the timing of commencement of clinical studies, and other factors.

Net Revenues. We expect total net revenues for full year 2009 to be in the range of $110 million to $115 million, including license and contract revenues of approximately $26 million.

Gross Margin. We expect our overall gross margin, as a percentage of total net product revenues, to be in the low 40% range for full year 2009.

Research and Development Expense. We expect our consolidated research and development expense for full year 2009 to be in the low-to-mid $20 million range, reflecting (among other clinical projects) the cost of our ongoing Phase 2 study for Mesafem™. Estimates of research and development expenses for future periods are subject to substantial adjustment as each product advances through various stages of development.

Selling, General and Administrative Expense. We expect our consolidated selling, general and administrative expense for full year 2009 to be in the low-to-mid $50 million range.

Noven Therapeutics. We expect to improve the pre-tax contribution from our Noven Therapeutics segment by approximately $5 million in full year 2009 compared to 2008 levels.

Equity in Earnings of Novogyne. We expect our equity in earnings of Novogyne to be in the low-to-mid $50 million range for full year 2009.

Interest Income. We expect our interest income to be less than $0.5 million for full year 2009.

Effective Tax Rate. We estimate that our effective tax rate will be in the range of 34% to 36% for full year 2009.

~~PART~~ Earnings IIPer Share. ~~OTHER~~For ~~INFORMATION~~full year 2009, we expect to report diluted earnings per share in the range of $0.95 to $1.05.

~~Item~~ Cash. We expect to use less than $5 1million of cash in 2009, including capital expenditures, reflecting our continued funding of products in development intended to drive long-term growth, including Mesafem™. ~~Legal~~In ~~Proceedings~~2009, we expect to generate positive cash flow from operations.

~~In July~~Item 2004, an individual plaintiff and her husband filed a complaint in Superior Court of New Jersey Law Division, Atlantic County, against Noven, Novartis and others alleging liability in connection with personal injury claims allegedly arising from the use of HT products, including CombiPatch®3. ~~Aventis~~Quantitative ~~marketed CombiPatch® during the time period relevant to the plaintiffs’ claims~~ and ~~the~~Qualitative ~~parties~~Disclosures ~~agreed~~About inMarket ~~April 2005 to substitute Aventis for~~Risk ~~Noven and Novartis in this case and to dismiss Noven and Novartis without prejudice for a period of six months and with prejudice thereafter.~~

InFor ~~July 2005,~~a andiscussion ~~individual~~of ~~plaintiff~~quantitative ~~filed~~and ~~notice~~qualitative toimpact ~~add~~of ~~Noven,~~market ~~Novogyne~~risk ~~and~~see ~~Novartis~~Part II to— aItem 7A ~~complaint~~“Quantitative inand ~~Superior~~Qualitative ~~Court~~Disclosure ofAbout ~~New~~Market ~~Jersey~~Risk” ~~Law~~of ~~Division,~~our ~~Atlantic~~Form ~~County~~10-K, inas ~~which~~supplemented ~~the plaintiff~~by ~~claims personal injury allegedly arising from~~ the ~~use~~discussion of HTthe ~~products,~~liquidity ~~including Vivelle®.~~and ~~The~~other ~~plaintiff~~risks ~~claims~~associated ~~compensatory,~~with ~~punitive~~Noven’s ~~and~~investments ~~other damages~~ in anauction rate ~~unspecified~~securities ~~amount~~above.

In addition, Novartis has advised Noven that Novartis has been named as a defendant in at least 15 additional lawsuits that include approximately 26 plaintiffs that allege liability in connection with personal injury claims allegedly arising from the use of HT patches distributed and sold by Novartis and Novogyne, including Noven’s Vivelle®, Vivelle-Dot™ and CombiPatch® productsItem 4. ~~Novartis~~Controls ~~has indicated that it will seek indemnification from Noven~~ and ~~Novogyne to the extent permitted by law and by the agreements between and among Novartis,~~Procedures Novogyne and Noven. Novogyne’s accrual for expected legal fees and settlements of these lawsuits was $2.7 million as of June 30, 2005, for which there was a related insurance receivable of $1.7 million. This accrual represents Novartis management’s best estimate as of June 30, 2005. The ultimate outcome of these product liability lawsuits cannot be predicted.

Disclosure Controls and Procedures

As of the end of the period covered by this report, our management evaluated, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our CEO and CFO concluded that, as of March 31, 2009, our disclosure controls and procedures were effective in ensuring that information relating to Noven, including its consolidated subsidiaries, required to be disclosed in reports that it files or submits under the Exchange Act was: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. However, that conclusion should be considered in light of the various limitations described below on the effectiveness of those controls and procedures, some of which pertain to most if not all business enterprises, and some of which arise as a result of the nature of our business. Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of any system of controls also is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Furthermore, our level of historical and current equity participation in Novogyne may substantially impact the effectiveness of our disclosure controls and procedures. Because we do not control Novogyne, and Novogyne’s financial, accounting, inventory, sales and sales deductions functions are performed by Novartis, our disclosure controls and procedures with respect to our equity investment in Novogyne are necessarily more limited than those we maintain with respect to Noven.

Changes in Internal Control over Financial Reporting

No changes were made in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~Certifications

~~The~~Provided ~~following~~with ~~table~~this ~~provides~~quarterly ~~information~~report ~~with~~on ~~respect~~Form to10-Q are certifications of our ~~stock~~CEO ~~repurchases~~and ~~during~~CFO. We are required to provide those certifications by Section 302 of the Sarbanes-Oxley Act of 2002 and ~~second~~the ~~quarter~~SEC’s implementing regulations. This Item 4 of ~~2005:~~Part I of this quarterly report is the information concerning the evaluation referred to in those certifications, and you should read this information in conjunction with those certifications for a more complete understanding of the topics presented.

					Total Number of
					Shares		Approximate
					Purchased as		Dollar Value
					Part of		That May Yet
			Average Price		Publicly		be Purchased
	Total Number of		Paid		Announced		under the
	Shares Purchased		Per Share		Program		Program(1)
April 1, 2005 to April 30, 2005		—		—		—	$	23,711,040
May 1, 2005 to May 31, 2005		—		—		—	$	23,711,040
June 1, 2005 to June 30, 2005		—		—		—	$	23,711,040
Totals		—		—		—	$	23,711,040

PART II. OTHER INFORMATION

(Item 1~~) In March 2003, we announced a stock repurchase program authorizing the repurchase of up to $25~~.0 ~~million~~Legal ~~of our Common Stock. There is no expiration date specified for this program.~~Proceedings

Certain lawsuits and legal proceedings in which we are involved are described in Part I, Item 3 “Legal Proceedings” of our Form 10-K for the year ended December 431, 2008. ~~Submission~~Except ofas ~~Matters~~described below, there have been no material developments related to athe ~~Vote~~legal proceedings described in our Form 10-K during the period covered by this Form 10-Q, and through the filing of ~~Security~~this ~~Holders~~Form 10-Q. All proceedings described in our Form 10-K remain outstanding.

~~The~~In ~~following~~March 2009, ~~proposals~~a ~~were~~complaint ~~approved~~was atfiled ~~our~~in ~~Annual~~the ~~Meeting~~United States District Court, Southern District of Illinois ~~Stockholders~~against ~~held~~Wyeth onInc. ~~May 24~~and other named pharmaceutical companies, including Noven, Novogyne and ~~2005:~~Novartis. The complaint alleges liability in connection with personal injury claims allegedly arising from the use of HT products, including CombiPatch®. The plaintiff claims compensatory and other damages in an unspecified amount. Noven has not yet been served with the complaint.

1. See ~~Election~~Note of14 ~~Directors~~— “Commitments and Contingencies — Litigation, Claims and Assessments,” in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding legal proceedings.

	For		Withheld
Sidney Braginsky		20,364,456		1,141,507
John G. Clarkson, M.D.		20,361,322		1,144,641
Donald A. Denkhaus		21,290,551		215,412
Pedro P. Granadillo		20,400,385		1,105,578
Robert G. Savage		20,365,612		1,140,351
Robert C. Strauss		21,264,118		241,845
Wayne P. Yetter		21,170,582		335,381

Item 1A. Risk Factors

2 There have been no material changes or additions to the risk factors previously disclosed in our Form 10-K. ~~Ratification~~Readers are urged to carefully review our risk factors because they may cause our results to differ from the “forward-looking statements” made in this report or otherwise made by us or on our behalf. The risk factors are not necessarily listed in order of priority or probability and are not the ~~Appointment~~only ones we face. If any of ~~Deloitte~~these &risks ~~Touche~~actually ~~LLP~~occurs, asour ~~Noven’s~~business, ~~Independent~~financial condition ~~Registered~~and ~~Public~~results ~~Accounting~~of ~~Firm~~operations ~~for~~could ~~2005~~suffer. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business, financial condition and results of operations. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law.

		For				Against				Abstained
			21,410,565				79,021				16,377

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to our stock repurchases during the first quarter of 2009:


					Total Number of
					Shares		Approximate
					Purchased as		Dollar Value
					Part of		That May Yet
	Total Number of		Average Price		Publicly		be Purchased
	Shares		Paid		Announced		under the
	Purchased		Per Share		Program		Program¹
January 1, 2009 to January 31, 2009		—		—		—	$	19,876,238
February 1, 2009 to February 28, 2009		—		—		—		19,876,238
March 1, 2009 to March 31, 2009		—		—		—		19,876,238

Totals		—		—		—	$	19,876,238


1		In September 2007, we established a stock repurchase program authorizing the repurchase of up to $25.0 million of our common stock. During the third quarter of 2007, Noven repurchased 322,345 shares of its common stock at an aggregate price of approximately $5.1 million. There is no expiration date specified for this program.

Item 5. Other Information

From time to time, Noven’s directors, executive officers and employees may adopt trading plans intended to comply with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934. As of the date hereof, no Noven directors or executive officers have a Rule 10b5-1 trading plan in place.

Item 6. Exhibits

	31.1		Certification of ~~Robert~~Peter ~~C. Strauss~~Brandt, President, and Chief Executive Officer ~~and Chairman of the Board~~, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of ~~Diane~~Michael MD. ~~Barrett~~Price, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification of ~~Robert~~Peter ~~C. Strauss~~Brandt, President, and Chief Executive Officer ~~and Chairman of the Board~~, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	32.2		Certification of ~~Diane~~Michael MD. ~~Barrett~~Price, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*		Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit is furnished rather than filed with this Form 10-Q.

Signatures

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

	NOVEN PHARMACEUTICALS, INC.	~~NOVEN PHARMACEUTICALS, INC.~~
Date: August 5, 2005		By:	/s/ Diane M. Barrett
Date: May 11, 2009	By:	/s/ Michael D. Price
			Diane M. Barrett
		Michael D. Price
			Vice President and
		Vice President and Chief Financial Officer
			Chief Financial Officer

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