As filed with the Securities and Exchange Commission on May 20, 2005

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

RELIANT PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

2834

22-3740140

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

110 Allen Road

Liberty Corner, New Jersey 07938

(908) 580-1200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Ernest Mario, Ph.D.

Chief Executive Officer and Chairman of the Board

Reliant Pharmaceuticals, Inc.

110 Allen Road

Liberty Corner, New Jersey 07938

(908) 580-1200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

Michael A. Pucker, Esq.

Christopher D. Lueking, Esq.

Latham & Watkins LLP

233 S. Wacker Drive, Suite 5800

Chicago, Illinois 60606

(312) 876-7700

Robert R. Ferguson III

Chief Financial Officer

Michael J. Lerner, Esq.

Vice President of Legal Affairs

Reliant Pharmaceuticals, Inc.

110 Allen Road

Liberty Corner, New Jersey 07938

(908) 580-1200

Leslie N. Silverman, Esq.

Sandra L. Flow, Esq.

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

(212) 225-2000

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities

to be Registered

Proposed Maximum

Aggregate

Offering Price (1)(2)

Amount of

Registration Fee

Common Stock, par value $0.01 per share

300,000,000

35,310

(1)	Includes shares that may be purchased by the Underwriters pursuant to an option granted to the underwriters.

(2)	Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated , 2005.

LOGO

Common Stock

This is an initial public offering of shares of common stock of Reliant Pharmaceuticals, Inc.

Reliant Pharmaceuticals is offering shares to be sold in the offering. The selling stockholder identified in this prospectus is offering an additional shares. Reliant Pharmaceuticals will not receive any of the proceeds from the sale of the shares by the selling stockholder.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Reliant Pharmaceuticals intends to list the common stock on the New York Stock Exchange under the symbol “RRX.”

See “ Risk Factors” beginning on page 10 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to Reliant Pharmaceuticals	$	$
Proceeds, before expenses, to the selling stockholder	$	$

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from Reliant Pharmaceuticals at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2005.

Goldman, Sachs & Co.


Banc of America Securities LLC
	Deutsche Bank Securities
		JPMorgan



William Blair & Company		Lazard Capital Markets

Prospectus dated , 2005.

[Inside Front Cover Page Graphics

To Be Filed By Amendment]

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained in this prospectus. We and the selling stockholder are offering to sell shares of our common stock, and seeking offers to buy shares of our common stock, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of when this prospectus is delivered or when any sale of shares of our common stock occurs.

In this prospectus, we rely on and refer to information and statistics regarding our industry. We obtained this market data from independent industry publications or other publicly available information. In particular, we obtained market data for 2003, 2004 and 2005 including competitor revenue, market size and physician prescribing behavior, from the National Sales Perspective, National Prescription Audit Plus and Prescriber Profiler published by IMS Health Inc. in 2005. In addition, we obtained survey results of sales force quality and familiarity of various pharmaceutical companies for 2004-2005 from Sales Force Structures and Strategies published by Verispan, LLC in 2004. Although we believe that these sources are reliable, we have not independently verified and do not guarantee the accuracy and completeness of this information.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. On April 1, 2004, we converted from a Delaware limited liability company to a Delaware corporation. Unless otherwise specified or the context otherwise requires, references in this prospectus to “we,” “our” and “us” refer to Reliant Pharmaceuticals, Inc., including where applicable our predecessor entities Reliant Pharmaceuticals, LLC, Reliant Pharmaceuticals, Inc. and Bay City Pharmaceuticals, Inc. See “Corporate History and Restructuring.”

We are a pharmaceutical company with integrated sales, marketing and development expertise, and we market a portfolio of branded cardiovascular pharmaceutical products. We focus on marketing promotionally sensitive pharmaceutical products to the high prescribing primary care, cardiovascular and specialist physician markets in the United States. We acquire rights to branded pharmaceutical products that typically have regulatory exclusivity or patent protection. We enhance the value of our product portfolio by applying highly focused marketing campaigns and by implementing strategies to extend the life cycle of the products that we sell or market. In addition, we acquire rights to and develop product candidates in mid- to late-stage clinical development. This approach seeks to minimize many of the risks associated with early stage drug discovery.

We were founded in August 1999 and commenced commercial operations in the following year with the acquisition of rights to three marketed brands. Since then, we have successfully identified and acquired rights to an additional marketed brand, as well as three late-stage clinical development compounds, two of which recently received approval from the U.S. Food and Drug Administration, or FDA. In 2004, we recorded strong growth in the products for which we own the New Drug Application, or NDA (which we refer to as our owned products or our owned product portfolio), driven principally by DynaCirc CR and the Rythmol family of products. We continue to expand our cardiovascular product offerings with the February 2005 launch of Antara and the expected late 2005 launch of Omacor. In addition to sales of our owned products, we promote the Lescol family of products under a promotion agreement with Novartis. In 2004, we recorded $222.3 million in total revenues, of which $117.2 million was derived from net sales of our owned products and $105.1 million was promotion revenues, and we incurred a net loss of $106.2 million.

We employ nearly 1,000 sales professionals throughout the United States. As our product portfolio grows and we launch additional products, we intend to continue to expand our sales force. We believe that our sales force is highly effective relative to those of our peers, as evidenced in a recent independent survey conducted by Verispan. Compared to the specialty pharmaceutical companies that we consider our peers, we ranked second in sales force quality and familiarity among all physicians surveyed and second among cardiologists.

We acquire novel mid- to late-stage development compounds and advance them through clinical trials with the objective of obtaining FDA marketing approval. We also use product life cycle management strategies to extend the life and marketing exclusivity of our owned products. For example, we conduct clinical trials to obtain additional FDA-approved uses. We also develop product enhancements that improve safety, convenience or compliance to enhance therapeutic value.

Chief Operating Officer, Joseph S. Zakrzewski, served in various capacities over the past 17 years at Eli Lilly and Company, most recently as Vice President, Corporate Business Development. Many other members of our senior management team have also served in senior positions at leading pharmaceutical companies. Our Chief Financial Officer, Robert R. Ferguson III, also has significant public company experience, having served as Vice Chairman and Chief Executive Officer of Continental Airlines and as President, Chief Executive Officer and Chief Financial Officer of Continental Airlines Holdings, as well as Chairman and Chief Executive Officer of Midway Airlines.

Our Product Portfolio

We currently market five brands of cardiovascular products, four of which are primarily marketed to the high prescribing primary care and cardiovascular physician markets, while the Rythmol family of products is marketed to specialty cardiologists. In addition, we expect to launch Omacor in late 2005 and market it to primary care, cardiovascular and specialty physicians. We believe that our current focus on the cardiovascular market generates marketing synergies through increased sales force expertise and a high degree of overlap among the physicians we target. The following table summarizes our FDA-approved product portfolio:


Product Name	Approved Indication	Acquisition and/or Approval	Reliant Promotional Launch Date
DynaCirc DynaCirc CR	High blood pressure (hypertension)	Licensed U.S. rights from Novartis in July 2000 and acquired these rights in March 2003	July 2000

Rythmol Rythmol SR	Irregular heart rhythms (arrhythmia)	Acquired U.S. rights from Abbott in December 2003	February 2004

InnoPran XL	High blood pressure (hypertension)	Internally developed using a proprietary drug release system, the global rights to which were licensed from Eurand in January 2000; approved by FDA in March 2003	January 2004

Antara	Cholesterol management (dyslipidemia)	Jointly developed with Ethypharm; licensed North American rights from Ethypharm in May 2001; approved by FDA in November 2004	February 2005

Omacor	Very high triglyceride management (hypertriglyceridemia)	Acquired U.S. rights from Pronova in August 2004; approved by FDA in November 2004	Expected late 2005

Lescol Lescol XL	Cholesterol management (dyslipidemia)	Promotion agreement with Novartis commencing in November 2000; subsequently extended through December 2007	November 2000

DynaCirc and DynaCirc CR (a controlled release, once daily formulation) contain isradipine, a calcium channel blocker approved for the treatment of hypertension, an arterial disease characterized by abnormally high blood pressure. In 2004, total U.S. sales of calcium channel blockers were approximately $4.5 billion. In 2004, our net sales of the DynaCirc family of brands were $56.3 million, representing a 42% increase over 2003. We are currently developing an improved formulation of DynaCirc CR.

Rythmol and Rythmol SR (a sustained release, twice daily formulation) contain propafenone, an anti-arrhythmic approved for the treatment of an irregular heart rhythm known as atrial fibrillation in patients without structural heart disease. In 2004, total U.S. sales of anti-arrhythmics were approximately $366.0 million. In 2004, our net sales of the Rythmol family of products were $48.8 million, representing a 126% increase over net sales in the twelve months ended November 2003 prior to our acquisition of the brand.

InnoPran XL (an extended release formulation) contains propranolol, a beta blocker approved for the treatment of high blood pressure. In 2004, total U.S. sales of beta blockers were approximately $1.9 billion. We began to actively promote InnoPran XL in January 2004. In 2004, our net sales of InnoPran XL were $7.0 million.

Antara (a once daily formulation) contains fenofibrate, which is approved for the treatment of elevated cholesterol. In 2004, total U.S. sales of fibrates were approximately $972.0 million. We launched Antara in February 2005 following our national sales meeting. For the quarter ended March 31, 2005, our net sales of Antara were $4.4 million, primarily resulting from the wholesaler and retailer inventory stocking process typically associated with a product launch.

Omacor contains highly purified omega-3 acid ethyl esters, predominantly eicosapentaenoic acid (EPA) and docosahexaenoic acid (DHA), and was approved by the FDA in November 2004 as the first product in its class for the treatment of very high triglyceride concentrations in the blood (500 mg/dL and greater). We intend to launch Omacor in late 2005 and have plans to seek approval of additional uses of Omacor. We also plan to develop products that combine Omacor with other FDA-approved compounds. Omacor is actively marketed by others outside the United States. In 2004, total sales of Omacor in the European market were approximately $151.1 million, of which approximately $140.6 million were in Italy.

Lescol and Lescol XL (an extended release formulation) contain fluvastatin, a member of the statin class of drugs approved for the treatment of high cholesterol. In 2004, total U.S. sales of statins were approximately $15.7 billion. Since its launch in November 2000, we have focused our promotional efforts on Lescol XL. In 2004, we recorded promotion revenues of $105.1 million associated with the Lescol family of products, down 13% from 2003.

Our Strategy

Target the High Prescribing Primary Care, Cardiovascular and Specialist Physician Markets. We believe the primary care and cardiovascular physician markets represent a highly attractive opportunity for us. Primary care and cardiovascular physicians represent only 34% of all prescribing physicians, yet they write approximately 68% of all prescriptions in the United States. We target our sales force promotional efforts to reach these physicians on a frequent basis. Our experience has shown that primary care and cardiovascular physicians respond well to direct pharmaceutical product promotion and education. Access to this market requires a relatively large sales force and significant investment. In addition, we target high prescribing specialists through our cardiovascular specialty sales force, which provides additional marketing synergies among our various brands and an additional competitive advantage in seeking product opportunities.

develop, market and distribute Omacor in the United States while it was in late-stage registration with the FDA. In November 2004, Omacor received FDA approval for the treatment of very high triglycerides (500 mg/dL and greater). We expect to launch this product in late 2005.

Develop and Implement Life Cycle Management Strategies. We implement life cycle management strategies for currently or previously marketed brands. These strategies typically involve seeking to expand the FDA-approved uses for our owned products, as well as develop line extensions that improve safety (such as fewer side effects), convenience (such as once daily dosing) or compliance (such as liquid formulations) to enhance therapeutic value. In the case of InnoPran XL, for example, we combined the active pharmaceutical ingredient, propranolol, with a proprietary drug release system licensed from Eurand to produce the first night-time dosed beta blocker. This life cycle development strategy enhanced the therapeutic value of propranolol by providing peak levels of the drug during the early morning hours, resulting in a new, patent protected product with three years of FDA-granted marketing exclusivity. We are currently evaluating life cycle management strategies for DynaCirc CR and Antara.

Corporate Information

We were formed in August 1999 and commenced commercial operations in July 2000. Our principal executive offices are located at 110 Allen Road, Liberty Corner, New Jersey 07938. Our telephone number is (908) 580-1200. Our website is www.reliantrx.com. We have not incorporated by reference into this prospectus the information included on or linked from our website, and you should not consider it to be part of this prospectus.

Reliant Pharmaceuticals, the Reliant logo, DynaCirc, DynaCirc CR, InnoPran XL, Antara and Axid are trademarks of Reliant Pharmaceuticals, Inc. Lescol and Lescol XL are trademarks owned by Novartis AG. The Rythmol and Rythmol SR trademarks are sub-licensed to Reliant by Abbott Laboratories. Omacor is a trademark licensed to Reliant by Pronova BioCare, AS. Unless otherwise noted, all other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners.

THE OFFERING

Common stock offered by Reliant Pharmaceuticals

Common stock offered by the selling stockholder

Common stock to be outstanding after this offering

Option to purchase additional shares

Use of proceeds

We intend to use the net proceeds from this offering for (i) the acquisition of rights to additional pharmaceutical products and product candidates; (ii) increased promotional activities for our owned product portfolio; (iii) funding of clinical development projects; and (iv) general corporate purposes. See “Use of Proceeds.” We will not receive any proceeds from the sale of common stock by the selling stockholder.

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

Proposed New York Stock Exchange symbol

“RRX”

The number of shares of common stock to be outstanding after this offering includes the number of shares outstanding as of March 31, 2005 after giving effect to the automatic conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of common stock immediately prior to the consummation of this offering. This number excludes:

4,380,023 shares of common stock currently issuable upon exercise of options outstanding at a weighted-average exercise price of $18.42 per share, of which options to purchase 1,557,849 shares were exercisable at a weighted average exercise price of $15.93 per share;

833,334 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $0.01 per share, all of which are currently exercisable;

620,313 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $20.00 per share, all of which are currently exercisable;

up to 479,687 additional shares of common stock reserved for future issuance upon exercise of warrants that may be granted in the future to lenders under the third-lien term loan. See “Description of Indebtedness—Term Loan Credit Facilities;”

up to 2,393,480 additional shares of common stock reserved for future grants under the Reliant Pharmaceuticals, Inc. 2004 Equity Incentive Plan; and

an estimated additional shares of common stock which will be granted upon consummation of this offering to Ernest Mario, Ph.D., pursuant to the Reliant Pharmaceuticals,

Inc. Executive Stock Plan in accordance with anti-dilution provisions contained in our employment agreement with Dr. Mario, under which Dr. Mario will be granted additional shares of common stock at a purchase price of $.01 per share so that he will continue to hold 1% of our fully diluted capitalization (as calculated pursuant to the terms of his employment agreement) at all times during his employment with us as Chairman and Chief Executive Officer. See “Management—Employment Agreement” and “Management—Employee Plans—Executive Stock Plan.”

Except as otherwise indicated, information in this prospectus:

assumes the underwriters have not exercised their option to purchase additional shares; and

reflects the automatic conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of common stock immediately prior to the consummation of this offering.

SUMMARY FINANCIAL DATA

The following table presents a summary of our historical and pro forma financial information. You should read this information in conjunction with our financial statements and related notes, and the information under “Selected Financial Data,” “Pro Forma Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness” included elsewhere in this prospectus.

The unaudited pro forma loss per share data reflects the conversion of common units into shares of common stock upon our conversion on April 1, 2004 from a Delaware limited liability company to a Delaware corporation as if the conversion had taken place as of January 1, 2004.

The unaudited adjusted pro forma statement of operations data for the year ended December 31, 2004 and the three months ended March 31, 2005 reflects the effect of our three new term loan credit facilities, which we entered into on April 13, 2005, as if those financing transactions had occurred as of January 1, 2004.

The unaudited adjusted pro forma loss per share data reflects (i) our conversion on April 1, 2004 from a Delaware limited liability company to a Delaware corporation and the conversion of all outstanding common units and preferred units into shares of common stock and convertible, redeemable preferred stock as if the conversion had occurred as of January 1, 2004; (ii) the effect of the April 13, 2005 financing transactions, as if those financing transactions had occurred as of January 1, 2004; (iii) the automatic conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of common stock, as if the conversion had occurred as of the date of original issuance; and (iv) the reclassification of all of our shares of common stock subject to repurchase, which repurchase obligation will terminate upon consummation of this offering, as 1,100,362 shares of our common stock as if the repurchase obligation with respect to those shares had terminated as of January 1, 2004.

The unaudited adjusted pro forma balance sheet data below reflects (i) the effect of the April 13, 2005 financing transactions, as if those financing transactions had occurred as of March 31, 2005; (ii) the automatic conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of common stock immediately prior to the consummation of this offering as if the conversion had occurred as of March 31, 2005; and (iii) the reclassification of all of our shares of common stock subject to repurchase as 1,100,362 shares of common stock upon consummation of this offering as if the repurchase obligation with respect to those shares had terminated as of March 31, 2005.

The unaudited adjusted pro forma balance sheet data, as adjusted for the offering, further reflects the issuance and sale of shares of our common stock in this offering at the initial public offering price of $ per share, the mid-point of the range of the estimated initial public offering price of $ and $ set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and our receipt of the net proceeds from this offering.

Statements of Operations Data:

(in thousands, except share and per share data)


																Adjusted Pro Forma
	Year Ended December 31,									Three Months Ended March 31,						Year Ended December 31, 2004			Three months Ended March 31, 2005
	2002			2003			2004			2004			2005			Year Ended December 31, 2004			Three months Ended March 31, 2005
										(Unaudited)						(Unaudited)
Revenues:
Net product sales	$	105,890		$	29,342		$	117,224		$	33,997		$	30,503		$	117,224		$	30,503
Promotion revenues		71,465			142,412			105,108			21,128			10,146			105,108			10,146

Total revenues		177,355			171,754			222,332			55,125			40,649			222,332			40,649

Costs and expenses:
Cost of products sold		75,405			18,973			21,369			8,917			7,411			21,369			7,411
Cost of promotion revenues		104,663			164,268			88,129			24,259			22,191			88,129			22,191
Sales and marketing		46,149			40,327			113,307			25,775			34,224			113,307			34,224
General and administrative		19,732			21,189			35,711			7,126			6,253			35,711			6,253
Amortization of intangible assets		25,526			11,905			29,280			7,238			7,857			29,280			7,857
Research and development		26,044			18,016			37,728			6,179			6,845			37,728			6,845

Total costs and expenses		297,519			274,678			325,524			79,494			84,781			325,524			84,781

Loss from operations		(120,164	)		(102,924	)		(103,192	)		(24,369	)		(44,132	)		(103,192	)		(44,132	)
Other expense (income), net		351			(57,769	)		27			11			754			27			754
Interest expense		1,064			4,963			4,204			—			3,278			28,860			7,453
Interest income		(860	)		(602	)		(989	)		(239	)		(267	)		(989	)		(267	)

Loss before income tax provision (benefit)		(120,719	)		(49,516	)		(106,434	)		(24,141	)		(47,897	)		(131,090	)		(52,072	)

Income tax provision (benefit)		—			305			(267	)		106			8			(267	)		8

Net loss	$	(120,719	)	$	(49,821	)	$	(106,167	)	$	(24,247	)	$	(47,905	)	$	(130,823	)	$	(52,080	)

Dividend accretion on preferred stock and common stock subject to repurchase		(31,611	)		(38,620	)		(64,619	)		(14,564	)		(43,783	)		—			—

Net loss applicable to common stockholders	$	(152,330	)	$	(88,441	)	$	(170,786	)	$	(38,811	)	$	(91,688	)	$	(130,823	)	$	(52,080	)

Unaudited basic and diluted loss per share													$	(28.20	)

Unaudited weighted-average shares outstanding—basic and diluted														3,251,878

Unaudited pro forma basic and diluted loss per share							$	(60.88	)

Unaudited pro forma weighted-average shares outstanding—basic and diluted								2,805,405

Unaudited adjusted pro forma basic and diluted loss per share																$	(3.26	)	$	(1.30	)

Unaudited adjusted pro forma weighted-average shares outstanding—basic and diluted																	40,094,682			40,210,061

Balance Sheet Data:

(in thousands)


	As of December 31,						As of March 31, 2005
	2003			2004			Actual			Adjusted Pro Forma			Adjusted Pro Forma, As Adjusted for the Offering
										(unaudited)
Cash and cash equivalents	$	94,712		$	58,348		$	29,912		$	92,616		$
Cash and cash equivalents—restricted		—			—			—			7,869
Total current assets		135,085			118,910			82,427			153,056
Intangible assets, net		116,477			103,197			95,340			95,340
Total assets		259,623			239,902			196,881			269,611
Total current liabilities		105,122			96,354			100,275			101,398
Long-term debt		—			93,371			93,575			159,973
Common units/stock subject to repurchase		83			248			22,007			—
Convertible, redeemable preferred units/stock		632,934			699,654			721,595			—
Accumulated deficit		(481,927	)		(652,713	)		(744,401	)		(748,019	)
Total members’/ stockholders’ (deficit) equity		(482,328	)		(651,194	)		(742,499	)		6,312

RISK FACTORS

An investment in our common stock involves a substantial risk of loss. You should consider carefully the following risks and other information contained in this prospectus before you decide whether to purchase our common stock. Additional risks and uncertainties, including those affecting the market in which we operate or that we currently deem not material, may also impair our business and operations. If any such risks should actually occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose part or all of your investment.

Risks Related to Our Business

We currently do not generate operating income and may need additional capital in the future. If additional capital is not available, we may be unable to acquire rights to new products and new product candidates and may be forced to delay or curtail the development or marketing of existing products and product candidates.

Our business currently does not generate the cash that is necessary to finance our operations. We incurred a net loss of $47.9 million in the first quarter of 2005, $106.2 million in 2004, $49.8 million (which includes a one-time non-operating gain of $61.0 million) in 2003 and $120.7 million in 2002. We expect our negative cash flow from operations to continue and we cannot assure you that we will generate positive cash flow from operations. The development and approval of our product candidates and the acquisition of new products, as well as the expansion of our sales and marketing capabilities, will require the commitment of substantial funds. Our requirements for additional capital will depend on many factors, including:

revenue generated from sales of our owned products and promotion of Lescol brand products;

the cost to introduce, market and promote our products in highly competitive markets;

the cost to acquire rights to products and product candidates;

expenses related to development of our product candidates;

the cost to establish and protect our intellectual property rights; and

the regulatory approval process for our products.

To the extent our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds to market our owned product portfolio, acquire rights to new products and continue the development of our product candidates. We cannot assure you that funds will be available on favorable terms, if at all, for our business activities. To the extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in dilution to our stockholders. If we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay or curtail significantly our development and commercialization activities, including our acquisition of rights to marketed products and product development candidates, or ultimately, cease operations.

We have a history of operating losses and cash expenditures, and we may never become profitable.

Through March 31, 2005, we have incurred net losses of $564.4 million and we have expended $691.3 million in cash, which includes $345.0 million that we used to acquire and develop rights to products or intellectual property owned by others. As of March 31, 2005, we had an accumulated deficit of $744.4 million. Our losses to date have resulted principally from developing product candidates, hiring, training and deploying our sales force, product marketing and promotion expenses

and general and administrative costs. If we are unable to achieve or maintain profitability, we may not be able to utilize net operating loss carryforwards accumulated by and available to us, amounting to an estimated $194.4 million as of March 31, 2005, to offset future federal taxable net income, if any.

Our future profitability depends on our ability to:

promote, market and sell products;

obtain and maintain regulatory approval for our products in the United States;

enter into agreements to develop and commercialize products;

develop and expand our capacity to market products;

obtain adequate coverage and reimbursement for our products from insurance companies, government programs and other third-party payors;

avoid protracted and complex litigation;

retain intellectual property protections and market exclusivity for our products; and

maintain sufficient funds to finance our activities.

We may not achieve any or all of these goals and, as a result, we cannot assure you that we will ever become profitable. Even if we do achieve some or all of these goals, we may not become profitable.

Our substantial financial leverage and significant debt service obligations could adversely affect our financial condition or our ability to fulfill our obligations, which could adversely affect our ability to operate our business.

We are a highly leveraged company, and our financial performance could be affected by our significant indebtedness and our significant debt service obligations. As of March 31, 2005, our pro forma indebtedness was $168.4 million and we expect our annual interest expense to be approximately $28.0 million in 2005 and $35.9 million in 2006, which includes total cash payments of approximately $11.9 million in 2005 and $15.6 million in 2006. Our substantial level of indebtedness could have important negative consequences to you and us, including:

we may have difficulty satisfying our obligations with respect to our indebtedness;

we may have difficulty obtaining additional financing in the future for working capital, capital expenditures, acquisitions or other purposes;

we will need to use a substantial portion of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;

our substantial debt level increases our vulnerability to general economic downturns and adverse industry conditions;

our substantial debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general;

our substantial financial leverage could place us at a competitive disadvantage compared to our competitors that have relatively less debt;

our failure to comply with the financial and other restrictive covenants in our debt instruments, which, among other things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects; and

in the event that we are in default of our obligations to our lenders, we may be unable to cure the default or secure necessary waivers from our lenders, which could result in acceleration of our indebtedness and foreclosure by our lenders on our assets.

You should also be aware that a majority of our borrowings are and will continue to be at variable rates of interest, which exposes us to the risk of increasing interest rates. As of March 31, 2005, on a pro forma basis, the carrying value of our total debt would have been $168.4 million, of which $127.2 million, or approximately 76%, would have been subject to variable interest rates. If interest rates increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed would remain the same. We are obligated, if commercially reasonable, to enter into one or more interest rate swaps or other hedging arrangements by July 12, 2005 so that at least 50% of our aggregate principal amount of indebtedness outstanding under our term loan credit facilities is subject to a fixed rate interest rate to protect against exposure to interest rate fluctuations. In addition, no voluntary or mandatory prepayments are allowed on our term loan credit facilities prior to April 13, 2006. After such date, prepayments on any of the term loan credit facilities before April 13, 2008 are subject to a prepayment premium. We are required to pay 104% of the amounts to be repaid for any permitted prepayments made between April 13, 2006 to April 12, 2007 and 102% of the amount to be repaid for any permitted prepayments made between April 13, 2007 to April 12, 2008.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets, obtain additional equity capital or refinance all or a portion of our indebtedness. We cannot assure you as to the timing or feasibility of such asset sales, if any, or the amount of proceeds that we could realize from such sales. Further, we cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

Despite our substantial financial leverage, we may still be able to incur more indebtedness. This could increase the risks associated with our significant indebtedness.

We may be able to incur substantial additional indebtedness in the future. Although our credit facilities contain restrictions on the incurrence of additional indebtedness, those restrictions are subject to a number of qualifications and exceptions, and indebtedness incurred in compliance with those restrictions could be substantial. We are permitted, and in certain circumstances, may be required, to borrow up to an additional $29.625 million under our third-lien term loan. Further, subject to available collateral, we may borrow up to $25.0 million under our revolving credit facility. At March 31, 2005, we had borrowed $7.2 million under our revolving credit facility and an additional $5.1 million was available as of that date. We may incur additional debt to, among other things, finance future acquisitions, expand through internal growth, or fund our working capital needs. If new debt is added to our current debt levels, the related risks that we now face would likely increase.

We are subject to a number of restrictive covenants that may limit our operating and financial flexibility.

Our credit facilities impose, and the terms of any future indebtedness may impose, operating and other restrictions on us. Such restrictions will affect, and in many respects limit or prohibit, among other things, our ability to:

incur additional debt;

grant liens;

pay dividends and make distributions;

create subsidiaries;

make certain investments;

repurchase stock;

enter into transactions with certain affiliates;

conduct business other than as currently conducted;

enter into sale-leaseback transactions;

merge or consolidate; and

transfer or sell most assets.

In addition, our credit facilities include other more restrictive covenants and prohibit us from prepaying our other indebtedness while borrowings are outstanding under our credit facilities. Our credit facilities also require us to achieve certain financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios will be affected by certain events beyond our control.

If we are unable to comply with the covenants contained in the credit facilities and/or upon the occurrence of any event of default under the credit facilities, the lenders could:

declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable;

require us to apply all of our available cash to repay the borrowings; and

enforce any and all liens and security interests created under the credit facilities, including the forced sale of collateral securing our credit facilities, which constitutes substantially all of our assets.

Because we have a limited operating history, it is difficult to evaluate our business and prospects.

We began commercial operations in July 2000. As a result, we have a limited operating history from which you can evaluate our business and our prospects. We encounter risks and difficulties frequently experienced by early stage companies in rapidly evolving industries such as the pharmaceutical industry. Some of these risks relate to our ability to:

support, expand and develop our operations;

diversify our sources of revenue;

develop and maintain successful strategic relationships;

manage our spending as expenses increase due to clinical trials, regulatory approvals and commercialization;

raise additional capital;

successfully defend ourselves in litigation;

respond to technological changes and competition;

respond to regulatory changes or demands; and

respond to competitive market conditions.

If we are unsuccessful in addressing any of these risks or in executing our business strategy, our business, financial condition or results of operations may suffer.

Our quarterly results have fluctuated in the past and may in the future fluctuate significantly.

Our results of operations may vary from quarter to quarter due to a variety of factors, including sales of branded pharmaceutical products, expenditures incurred to acquire and promote additional products, changes to our customer base, interruptions in supply by third-party manufacturers, the introduction of new products by us or our competitors, the mix of products sold by us, changes in sales and marketing expenditures, competitive pricing pressures and general economic and industry conditions that affect customer demand.

In addition, buying patterns of wholesalers and distributors, who represent substantially all of our sales, may vary from time to time. In the event wholesalers and distributors with whom we do business limit their inventory of our products, sales of our products could be adversely affected. For example, in advance of an anticipated price increase, many wholesalers and distributors may order pharmaceutical products in larger than normal quantities. The ordering of excess quantities in any quarter could cause sales of some of our products to be lower in subsequent quarters.

We depend entirely on third parties to manufacture and supply our products.

Third parties manufacture all of our products. We do not have manufacturing facilities or the personnel to manufacture our products independently. Any failure by our third-party manufacturers to achieve, maintain or follow manufacturing standards could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could hurt our business. For example, with respect to DynaCirc CR, in the event of a batch failure, we currently bear a substantial portion of the replacement costs for the active pharmaceutical ingredient used in the manufacturing of the replacement product. In the first quarter of 2005, we expensed $1.6 million related to failed DynaCirc CR production batches. Our third-party manufacturers are subject to periodic and ongoing unannounced inspections by the FDA and other federal and state agencies to ensure strict compliance with current Good Manufacturing Practice, or cGMP, and other applicable government regulations. If our third-party manufacturers fail to comply with these regulatory requirements, they may not be able to continue the production of our products, and we could be subject to fines or sanctions or be precluded from marketing our products. Except for contractual rights and remedies that we have with our manufacturers, we have no direct control over our third-party manufacturers’ compliance with these regulations and standards, or the availability of our products or the quality of the products supplied to us.

In addition, we face the possibility of termination, interruption or non-renewal of our manufacturing agreements by third parties based on their own business priorities, as well as other external factors. Any termination or interruption may be costly or operationally disruptive to us. We currently do not maintain alternative manufacturing sources for any of our products, and we may not be able to locate alternative manufacturers on commercially acceptable terms or in a timely manner in the event of a manufacturing interruption or termination of an existing manufacturing agreement. The number of third-party manufacturers with the expertise and facilities to manufacture pharmaceutical products on a commercial scale is limited. In addition, a change in manufacturer requires formal approval by the FDA before the new manufacturer may produce commercial supplies of our products. We do not currently have business interruption insurance with respect to adverse events that could occur at third-party manufacturers’ facilities. An interruption in the supply of our products could adversely affect our ability to generate revenue from our marketed products or to proceed with clinical trials of products under development.

We are dependent on third parties for the availability of DynaCirc CR, and any interruptions in production or shortages in our supply of DynaCirc CR could adversely affect our financial condition and results of operations.

Our supply agreement with Novartis provides for Novartis to deliver a fixed quantity of DynaCirc CR through March 2006. We are in the process of transitioning the production of DynaCirc CR from

Novartis to Patheon Pharmaceuticals, Inc. and Novartis Consumer Health, Inc. In March 2004, we signed a five year supply and manufacturing agreement with Novartis Consumer Health to granulate the active pharmaceutical ingredient, isradipine, and to package the bulk product. In April 2004, we entered into a five year manufacturing services agreement with Patheon to press the granulated isradipine into tablets. We cannot assure you that our new manufacturers will be able to manufacture sufficient quantities of DynaCirc CR to meet the anticipated demand for the product. Any shortage would adversely affect our ability to meet demand and generate sales of DynaCirc CR, which could adversely affect our financial condition and results of operations. For example, sales of DynaCirc CR decreased from $10.6 million in the first quarter of 2004 to $6.5 million in the corresponding period in 2005 due primarily to inventory supply shortages of DynaCirc CR as a result of manufacturing difficulties.

We also depend on Novartis to supply the active pharmaceutical ingredient, isradipine, used to manufacture DynaCirc CR, which is purchased on an ad hoc basis. Novartis is the only FDA-approved manufacturer of isradipine for use in DynaCirc CR. We are in the process of replacing Novartis with Austin Shasun, LLC as our supplier of isradipine. In September 2003, we entered into a seven year supply agreement with Shasun to supply isradipine for use in DynaCirc CR, subject to Shasun receiving FDA approval as an alternative source of isradipine for DynaCirc CR. If Shasun does not receive FDA approval, we will be unable to realize anticipated cost savings and our margins will be reduced, which could adversely affect our financial condition and results of operations. In addition, Novartis may not supply sufficient quantities of isradipine, either currently or in the future, as necessary to meet the anticipated demand for DynaCirc CR, which could adversely affect our results of operations and financial condition.

We rely on third parties to conduct our clinical trials.

Although we design and manage our current preclinical studies and clinical trials, we do not have the ability to conduct clinical trials for our product candidates. In addition to our collaborative partners, we rely on contract research organizations, medical institutions, clinical investigators and contract laboratories to recruit and enroll patients in our clinical trials, perform data collection and analysis and other aspects of our clinical trials. We also rely on third parties to assist with our preclinical studies, including studies regarding biological activity, safety, absorption, metabolism and excretion of product candidates.

Our preclinical development activities or clinical trials may be delayed, suspended or terminated if:

these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines;

the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to our clinical protocols or for other reasons; or

these third parties need to be replaced.

If the quality or accuracy of the clinical data obtained by contract research organizations, medical institutions and clinical investigators is compromised, we may not be able to obtain regulatory approval for, or successfully commercialize, our drug candidates. We may not be able to enter into replacement arrangements without undue delays or excessive expenditures. Third parties failure to perform will increase our development costs and may delay our ability to obtain regulatory approval and prevent the commercialization of our drug candidates, which could adversely affect our results of operations and financial condition.

Antara, the fenofibrate product we licensed from Ethypharm SA, could be found to infringe certain patents, in which case we may not be able to continue to market this product and may be liable for substantial damages.

On November 30, 2004, the FDA approved our New Drug Application, or NDA, for Antara, the fenofibrate product we licensed from Ethypharm. In June 2004, we filed a complaint in the United States District Court for the District of Delaware seeking a judicial determination that the manufacture, importation and sale of Antara would not infringe any valid claim of four patents owned by Laboratoires Fournier S.A. and licensed to Abbott, which we refer to as the Fournier Patents. The complaint also seeks a determination that the Fournier Patents are either invalid or unenforceable against us because of the inventors’ inequitable conduct in obtaining the patents in proceedings before the United States Patents and Trademark Office. In January 2005, Abbott and Fournier filed an answer to the complaint as well as a counterclaim alleging that Antara infringes two of the Fournier Patents. Additionally, Abbott and Fournier are continuing to prosecute a number of additional patents related to fenofibrate which, if issued, could also be included in their infringement counterclaim. The trial in this matter has been scheduled for August 2006. A hearing to determine the scope of the claims of the Fournier Patents has been scheduled for April 2006. We have incurred and expect to continue to incur substantial expenses in connection with this litigation and it may divert the time and effort of our management. An adverse outcome in this litigation could result in our being unable to continue to market Antara, which could have a material adverse impact on our financial performance. In addition, as a result of our decision to launch Antara prior to resolution of the litigation, we could be subject to substantial liability for damages if the lawsuit is not resolved in our favor.

A judicial determination that the Fournier Patents are invalid would allow our competitors to introduce fenofibrate products that compete with Antara.

In connection with our complaint filed in the United States District Court for the District of Delaware seeking a judicial determination that the manufacture, importation and sale of Antara would not infringe the Fournier Patents, we anticipate presenting evidence that the Fournier Patents are invalid and unenforceable. Five other actions by our competitors involving the validity and/or enforceability of the Fournier Patents are also pending. Although judicial determination that all of the Fournier Patents are invalid or unenforceable will enable us to continue to manufacture, import and sell Antara, such a determination would also allow our competitors to introduce fenofibrate products that compete with Antara, which could have a material adverse effect on our business, financial condition and results of operations.

Our revenue depends and will likely continue to depend on a limited number of products.

We currently market five brands of products and derive a substantial portion of our revenue from sales of these products. In 2004 and the first quarter of 2005, sales of DynaCirc CR and the Rythmol family of products combined to account for 71% and 66% of our net product sales, respectively, while the Lescol family of products accounted for all of our promotion revenues. We believe that sales of a limited number of products will continue to constitute a significant portion of our revenue for the foreseeable future. Accordingly, any factor adversely affecting sales of any of these products could also have a material adverse effect on our business, financial condition and results of operations.

Concentration of our customers may have a material adverse impact on our business, financial condition and results of operations.

Our revenue is currently dependent upon a small number of customers. Our top three wholesalers together accounted for 71%, 70%, 74% and 77% of gross product sales in 2002, 2003, 2004 and the first quarter of 2005, respectively, and 90%, 76% and 74% of the gross accounts receivable balance at December 31, 2003 and 2004 and March 31, 2005, respectively. Our largest customer accounted for 33%, 26%, 31% and 44% of gross product sales in 2002, 2003, 2004 and the first quarter of 2005, respectively, and 20%, 12% and 23% of the gross accounts receivable balance as

of December 31, 2003 and 2004 and March 31, 2005, respectively. The loss of any one of these customers could have a material adverse effect on our business, financial condition and results of operations.

The large wholesalers are also requiring manufacturers of pharmaceutical products to enter into distribution service agreements pursuant to which the pharmaceutical manufacturers pay to the wholesalers a fixed percentage of sales in exchange for certain distribution related services. The failure to enter into an agreement with any of the large wholesalers may result in the wholesaler determining not to buy or distribute our products, which could have a material adverse effect on our business, financial condition and results of operations.

Consolidation among distributors or retailers could reduce their inventory levels of our products.

The distribution network for pharmaceutical products has in recent years been subject to increasing consolidation. As a result, a limited number of large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as a result of consolidation of the retail market. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses, thereby stimulating product returns to us. Further consolidation or financial difficulties of our customers could also lead our customers to reduce their inventory levels, or otherwise reduce purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations.

If we cannot acquire rights to marketed products or product development candidates, the ability to develop our business could be reduced significantly.

An important component of our business strategy is to acquire rights to marketed products or product development candidates from other pharmaceutical firms, biotechnology companies or academic research laboratories. Competition for such opportunities can be intense. If we are not able to identify and enter into commercially reasonable agreements for such products or development candidates, our ability to grow our business could be adversely affected.

Any difficulties we encounter in integrating the marketed products or product development candidates we acquire or develop could damage our business.

Once we acquire a marketed product or development candidate, we must integrate the newly acquired product or development candidate into our existing business. The process of integrating any new acquisition could be expensive and time-consuming. In addition, we may not be able to integrate any new product acquisition successfully. Once we have obtained rights to or developed a pharmaceutical product, we may not be able to generate sales sufficient to create a profit or otherwise avoid a loss. If we are not able to generate sufficient sales or our sales subsequently decline, we may need to record a write-off of the intangible value allocated to acquired products. In addition, our marketing strategy, distribution channels and levels of competition with respect to acquired products may be different than those of our current products, and we may not be able to compete favorably in those product categories. Any difficulties in integrating the marketed products or product development candidates we develop or acquire could damage our business.

We may have difficulties managing our growth.

We may need to expand and effectively manage our operations to successfully facilitate additional collaborations and pursue future product acquisition and drug development opportunities, and further our promotional and developmental efforts for existing and future products. If our growth accelerates, it may place a strain on us, our management and our resources. Our ability to effectively

manage our operations, growth and various projects requires us to continue to improve our operational, financial and management controls, reporting systems and procedures and to attract and retain sufficient number of talented employees. We may not be able to successfully implement these tasks on a larger scale and, accordingly, we may not achieve our development and commercialization goals. If we fail to improve our operational, financial and management information systems, or fail to effectively monitor or manage our new and future employees, our business could suffer significantly.

If we purchase inventory in excess of demand, our results of operations and cash flows may be adversely affected.

We must estimate demand prior to ordering our inventory. As a result, it is possible that we could purchase inventory quantities in excess of realized demand. This purchase of excess inventory could have a material adverse effect on our results of operations and cash flows.

Third parties may own or control intellectual property that our products may infringe.

We may encounter future litigation by third parties based on claims that our products or activities infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others. If any litigation or claims are resolved against us, we may be required to do one or more of the following:

cease selling, incorporating or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue and costs, or both;

obtain a license from the holder of the infringed intellectual property right, which might be costly or might not be available on reasonable terms, if at all; or

redesign our products to make them non-infringing, which would be costly and time-consuming and may require additional clinical trials or may not be possible at all.

Because patent applications can take many years to issue, there may be pending applications, unknown to us, that may later result in issued patents that our drug candidates or technologies may infringe. These patent applications may have priority over patent applications filed by us. Disputes may arise regarding the ownership or inventorship of our inventions. It is difficult, if not impossible, to determine how such disputes would be resolved.

Furthermore, because of the substantial amount of discovery required in connection with this kind of litigation, there is a risk that some of our confidential information could be required to be publicly disclosed. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our securities.

An inability to protect our intellectual property could harm our competitive position.

Our success will depend in part on our and our partners’ ability to obtain patents and maintain adequate protection of other intellectual property for our technologies and products in the United States. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate our competitive advantage.

The patent positions of pharmaceutical and biotechnology companies, including our patent positions, involve complex legal and factual questions, and as a result, the validity and enforceability of our patent positions cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. In order to protect or enforce our intellectual property rights, we may initiate actions against third parties. The prosecution of actions involving disputes

related to intellectual property is costly and could divert technical and management personnel from their normal responsibilities. In addition, we will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that we cover our proprietary technologies, products and product candidates with valid and enforceable patents. We may fail to apply for patents on important technologies or products in a timely fashion, if at all, and in any event, the applications we do file may be challenged and may not result in issued patents. Any patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patented technologies or products. In addition, if challenged, our patents may be declared invalid. Even if valid, our patents may fail to provide us with any competitive advantages.

We also rely upon trade secret protection for our confidential and proprietary information. We have taken measures to protect our proprietary information; however, these measures may not provide adequate protection. We seek to protect our proprietary information by entering into confidentiality agreements with our employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may disclose our proprietary information, and we may not be able to meaningfully protect our trade secrets. We may also hire scientific personnel formerly employed by other companies, and either we or these individuals may become the subject of allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.

We also engage in collaborations, sponsored research agreements, and other arrangements with academic researchers and institutions that have received and may receive funding from U.S. government agencies. As a result of these arrangements, the U.S. government or other third parties may have rights in inventions developed during the course of the performance of such collaborations and agreements as required by law or such agreements. Several legislative bills affecting patent rights have been introduced in the U.S. Congress. These bills address various aspects of patent law, including publication, patent term, re-examination of subject matter and enforceability. It is not certain whether any of these bills will be enacted into law or what form such new laws may take. Accordingly, the effect of such potential legislative changes on our intellectual property estate is uncertain.

If we fail to meet certain milestones under our license agreements, we may lose our exclusive marketing rights to Antara and Omacor.

We license from other pharmaceutical companies commercialization rights to products and technologies that are important to our business. Our license agreements for Antara and Omacor require us to develop the markets for the products we license. If we do not develop these markets, we may lose exclusive marketing rights, and if we breach these license agreements, the licensors may be entitled to terminate these license agreements. For example, we license the North American rights to Antara from Ethypharm. In order to maintain the exclusivity of our rights, we must achieve minimum annual sales in the United States and Canada until February 2012 or pay amounts to Ethypharm to compensate for any shortfall.

If clinical trials for our product candidates are unsuccessful or regulatory approvals are delayed, our timely development and commercialization of such candidates would be impaired significantly.

Some of the product candidates we acquire rights to are in mid- to late-stage clinical development. To obtain regulatory approvals for commercial sale, we must complete the formulation and development of these product candidates and demonstrate through well-controlled clinical trials, and to the satisfaction of the FDA and other regulatory authorities in the United States and abroad, that

they are safe and effective for use in humans. In addition, if we choose to make claims of superiority over currently marketed competitive products, we must support such claims with scientific evidence from our trials. Conducting clinical trials is a complicated, time-consuming and expensive process. In the event we incorrectly design or carry out human clinical trials or such trials fail to demonstrate clinical significance, we will not likely be able to obtain FDA approval for product candidates.

We do not know whether planned clinical trials will begin on time, will need to be restructured or will be completed on schedule, if at all. The commencement and rate of completion of clinical trials for the product candidates we are developing may be delayed by many factors, including:

unforeseen safety issues;

lack of demonstrated efficacy in the trials;

slower than expected rate of patient recruitment and enrollment;

inability to monitor patients adequately during or after treatment;

delays in obtaining regulatory approvals to commence a study; or

changes in regulatory policy.

In addition, all of our product candidates are prone to the risks of failure inherent in drug development. The results from preclinical animal testing of our product candidates may not be predictive of results obtained in later human clinical trials. Further, although a new product may show promising results in early human trials, it may subsequently prove unfeasible or impossible to generate sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical studies is susceptible to varying interpretations that may delay, limit or prevent regulatory approval. In addition, the administration of any product we develop may produce undesirable side effects or safety issues that could result in the interruption, delay or suspension of clinical trials, or the failure to obtain FDA approval for any or all targeted indications. We may encounter regulatory delays or rejections as a result of many factors, including results that do not support our claims, defects in the design of the trials and changes in the regulatory environment. Although we may spend funds to acquire rights to a product candidate or even receive FDA approval for a product candidate, we may not be able to commercialize a product candidate successfully. Our business, financial condition and results of operations may be materially adversely impacted by any delays in, or termination of, our trials, or a determination by the FDA that the results of our trials are inadequate to obtain regulatory approval. We may discontinue the development of any of our products under development at any time.

If we do not successfully attract and retain collaborative partners, or if our collaborative partners do not satisfy their obligations to us, we may be unable to develop some or all of our product candidates.

Our business strategy includes entering into collaborations with third parties for the research, development and commercialization of some of our product candidates. For example, we have entered into collaborative arrangements with Eurand, Ethypharm, Pronova and various clinical research organizations. These arrangements may not be commercially successful. The untimely termination of any of these arrangements might adversely affect our ability to develop, commercialize and market our product candidates.

The success of these collaborative partnerships depends heavily on the efforts and cooperation of our collaborative partners, which have significant discretion in determining the resources they will apply to their collaborations. The risks we face include the following:

collaboration agreements are, or are expected to be, for fixed terms and subject to termination under various circumstances, including, in many cases, on short notice without cause;

collaboration agreements may prohibit us from conducting specified types of research and development in the field that is the subject of our partnership;

collaborative partners may develop and commercialize, either alone or with others, products that are similar to or competitive with the products covered by our agreements with them; and

collaborative partners may change the focus of their development and commercialization efforts, which in turn would impact our ability to develop and commercialize our product candidates on a timely basis.

Conflicts may arise in our collaborations due to one or more of the following:

disputes with respect to payments we or our collaborative partners believe are due under a collaboration agreement;

disagreements with respect to ownership of intellectual property rights;

unwillingness of our collaborative partners to keep us informed regarding the progress of their development and commercialization activities, or to permit public disclosure of these activities;

financial difficulties of collaborative partners, which prevent them from having available funds to contribute to our collaborations;

delay of a collaborative partners’ development or commercialization efforts with respect to our drug candidates; or

termination or non-renewal of the collaboration.

Conflicts arising with our collaborators could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

The growth of our business and development of additional product candidates may require that we seek additional collaborative partners. We cannot assure you that we will be able to enter into agreements with collaborative partners on terms acceptable to us. Our inability to enter into such agreements or our failure to maintain such arrangements could limit the number of product candidates that we could develop and ultimately decrease our sources of future revenue.

Our executive officers and other key personnel are critical to our business and our future success depends on our ability to retain them.

We are highly dependent on the principal members of our management team, including Ernest Mario, Ph.D., our Chairman and Chief Executive Officer, Joseph S. Zakrzewski, our Chief Operating Officer and Robert R. Ferguson III, our Chief Financial Officer. Employment agreements with these executives are short-term in nature and can be terminated by either party on short notice. Due to intense competition for personnel from other companies, government entities and other organizations, we may be unsuccessful in attracting and retaining key personnel. We do not carry key man life insurance. If we lose any of our key personnel, or are unable to attract and retain qualified replacements in a timely manner, our business, financial condition and results of operations may be materially and adversely affected.

We may be required to take actions that are inconsistent with our business objectives to avoid being deemed an investment company under the U.S. Investment Company Act of 1940.

The U.S. Investment Company Act of 1940, commonly known as the Investment Company Act, provides generally that a company is an investment company that must register as an investment company under the Investment Company Act and comply with its regulations if:

the company is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities; or

more than 40% of the value of the company’s total assets is represented by investment securities.

The Investment Company Act contains substantive regulations with respect to investment companies, including restrictions on their capital structure, operations, transactions with affiliates and other matters. Compliance with these regulations would not be compatible with our operations.

As a result of this offering, we will own securities and/or cash having a value exceeding 50% of the value of our total assets on either a consolidated or unconsolidated basis, and investment securities may comprise more than 40% of our assets. Nevertheless, as a company engaged in the sale, marketing and development of pharmaceutical products, we do not consider ourselves to be “engaged in the business” of investing, reinvesting or trading in securities within the meaning of the Investment Company Act. We intend, therefore, to rely on a safe harbor exemption from the Investment Company Act for so-called “transient investment companies.”

Consistent with the “transient investment company” safe harbor, we will have to reduce our holdings of “investment securities” (within the meaning of the Investment Company Act) to not more than 40% of our total assets as soon as is reasonably possible and in any event within one year from the closing of the offering. This reduction could be attempted in a number of ways, including the disposition of securities and the acquisition of other assets that would not constitute investment securities for purposes of the Investment Company Act. If we are required to sell securities, we may sell them sooner than we otherwise would, the sales may be at depressed prices, and we may never realize anticipated benefits from, or may incur losses on, those investments. We may not be able to sell some investments due to contractual or legal restrictions or the inability to locate a suitable buyer. We may also incur tax liabilities when we sell our assets. If we decide to try to acquire additional assets that would not constitute investment securities, we may not be able to identify and acquire suitable assets.

If the steps described above do not achieve a sufficient reduction in our holdings of investment securities within the prescribed period, we will be forced to liquidate some of our securities holdings and invest the proceeds in U.S. Government securities and cash items, with a resulting loss in yield, pending our use of such proceeds to acquire additional non-investment assets.

Our assets reflect substantial intangible assets, and it is possible that we may never realize their value.

Our total assets reflect substantial intangible assets. As of March 31, 2005, the book value of net intangible assets represented approximately 48% of our total assets. The intangible asset value represents the excess of cost over the fair value of the separate assets acquired by us since we began commercial operations in July 2000. There can be no assurance that we will ever realize the value of such assets. These intangible assets are amortized on a straight-line method over three to seven years. We evaluate on a regular basis whether events and circumstances have occurred that indicate that all or a portion of the carrying amount of these assets may no longer be recoverable, in which case a charge to earnings could become necessary. Any determination requiring the write-off of a significant portion of unamortized intangible assets would adversely affect our results of operations and financial condition.

We could be forced to pay substantial damage awards if product liability claims are brought against us successfully and our sales may be adversely affected if product recalls or withdrawals occur.

The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims whether or not the drugs are actually at fault for causing an injury. Furthermore, our products may cause, or may appear to have caused, adverse side effects (including death) or potentially dangerous drug interactions that we may not learn about or understand fully until the drug has been administered to a large patient population for some time. As our products are used more widely and by patients with varying medical conditions, the likelihood of an adverse drug reaction, unintended side effect or incidence of misuse will increase. Product liability claims can be expensive to defend and may result in large judgments or settlements against us, which would adversely affect our financial performance. Even if a product liability claim is not successful, the adverse publicity and time and expense of defending such a claim may interfere with our business.

We currently have product liability insurance coverage with a $25.0 million aggregate limitation, subject to a deductible of $50,000 per occurrence. From time to time, the pharmaceutical industry has experienced difficulty in obtaining product liability insurance coverage for certain products or coverage in the desired amounts or with the desired deductibles. We cannot assure you that we will be able to obtain the levels or types of insurance we would otherwise have obtained prior to these market changes or that the insurance coverage we do obtain will not contain large deductibles or fail to cover certain liabilities or that it will otherwise cover all potential losses.

Product recalls, product field alerts and product market withdrawals may be issued at our discretion, at the direction of the FDA, other government agencies or, in some cases, at the discretion of the companies from which we license rights to a particular product. From time to time, we may recall products for various reasons, including failure of our products to meet specifications or maintain their stability through their expiration dates. We may also withdraw a product from the market for safety or other reasons. Any recall or product field alert has the potential of damaging the reputation of the product. Any significant recalls could materially affect our sales or the prescription trends for the products and damage the reputation of the products. Any market withdrawals of a product would preclude future sales of the product and could result in significant returns of the product as well as product liability claims being filed against us. In any of these cases, our business, financial condition, results of operations and cash flows could be materially adversely affected.

If our products are not accepted by the market or if users of our products are unable to obtain adequate coverage of and reimbursement for our products from government and other third-party payors, our revenues and potential profitability will suffer.

Our products may not gain or maintain market acceptance among physicians, patients, healthcare payors or the medical community at large. The degree of market acceptance of any of our products depends on a number of factors including:

demonstration of clinical safety and efficacy;

cost effectiveness;

potential advantages over alternative therapies;

coverage and reimbursement policies of government and other third-party payors; and

effectiveness of our marketing, promotion and distribution efforts.

The commercial success of our products will depend in significant part on the availability of reimbursement from third-party payors, including government health administrators under programs including Medicare and Medicaid, managed care organizations (MCOs) and private health insurers. Third-party payors are increasingly challenging the pricing of pharmaceutical products. We cannot assure you that third-party payors will consider our products cost-effective or provide coverage of and reimbursement for our products in whole or in part.

Uncertainty exists as to the coverage and reimbursement status of newly approved healthcare products and newly approved indications for new and existing products. Third-party payors may conclude that our products are less safe, less effective or less cost-effective than existing products. Therefore, third-party payors may not approve our products for coverage and reimbursement. If third-party payors do not approve our products for coverage or reimbursement or fail to reimburse them adequately, physicians may limit how much or under what circumstances they will prescribe or administer them. Such reduction or limitation in use of our products could cause our sales to suffer. Even if third-party payors make reimbursement available, reimbursement levels may not be sufficient to make the sale of these products profitable to us.

The market for our products also depends significantly on access to formularies, which are lists of medications for which third-party payors, such as government and private health insurers and MCOs, provide reimbursement. These formularies are increasingly restricted and pharmaceutical companies face significant competition in their efforts to place their products on them. This increased competition has created a trend of downward pricing pressure in the industry. In addition, many third-party payors, in particular MCOs, are pursuing various ways to reduce pharmaceutical costs and are considering formulary contracts primarily with those pharmaceutical companies that can offer a full line of products for a given therapeutic category or disease state. Our products might not be included in the formularies of third-party payors, and downward pricing pressure in the industry generally may negatively impact our results of operations.

If our products do not achieve significant market acceptance, we are not likely to generate significant revenues and attain profitability.

Changes in stock option accounting treatment may adversely affect our results of operations.

Changes in stock option accounting treatment, which are effective for annual periods beginning after June 15, 2005, will require us to account for employee stock options as compensation expense in our financial statements. In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS 123R, which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options or other equity instruments or by incurring liabilities to an employee or other supplier in amounts based, at least in part, on the price of the entity’s shares or other equity instruments or that require or may require settlement by issuing the entity’s equity shares or other equity instruments. We are required to implement SFAS 123R in our first quarter of 2006. We are currently evaluating the expected impact that the adoption of SFAS 123R will have on our consolidated financial position and results of operations. However, the implementation of SFAS 123R could materially and adversely affect our reported results of operations and our timing to achieve profitability.

Effective as of January 1, 2006, we or Novartis may terminate our promotion agreement for Lescol and Lescol XL without cause upon 90 days’ advance written notice. If the promotion agreement is terminated, our profitability with respect to the Lescol family of brands may be reduced significantly.

In April 2005, we and Novartis agreed to extend the term of our promotional efforts on Lescol and Lescol XL through December 31, 2007. Under the terms of the agreement, either party has the right to terminate the promotion agreement without cause upon 90 days’ advance written notice with effect from or after January 1, 2006. If the promotion agreement is terminated, our profitability with respect to the Lescol family of brands may be reduced significantly.

Novartis controls the managed care contracting, pricing and distribution of Lescol and Lescol XL.

Although we have the exclusive right to promote and market Lescol and Lescol XL (other than with respect to Novartis), Novartis controls the pricing and distribution of these products, and we do not have any right to challenge Novartis on its decisions relating to managed care contracting, pricing and distribution matters. Since our promotion revenues are based on net sales of Lescol and Lescol XL, actions by Novartis regarding managed care access, pricing and distribution of Lescol or Lescol XL may negatively impact the amount of our promotion revenues, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Risks Related To Our Industry

We operate in a highly competitive market, and we may not be able to compete effectively.

We compete with other pharmaceutical companies, including large global pharmaceutical companies with financial resources, marketing capabilities and experience in obtaining regulatory approvals substantially greater than ours, for products, product line acquisitions and market share. For example, our DynaCirc products compete with Norvasc and Plendil, which are manufactured by Pfizer and AstraZeneca PLC, respectively. Norvasc and Plendil together accounted for approximately 59% of U.S. calcium channel blocker sales in 2004. Antara competes with Tricor, which is manufactured by Abbott, and with generic forms of gemfibrozil. Tricor accounted for approximately 88% of U.S. fenofibrate sales in 2004. We also compete with other pharmaceutical companies for new product acquisitions and licensing opportunities. Some of these competitors include Forest Laboratories, Inc., Shire Pharmaceuticals Group plc, Kos Pharmaceuticals, Inc., King Pharmaceuticals, Inc., and First Horizon Pharmaceutical Corporation.

Our products may later compete with products currently under development by others. For example, several companies are planning to introduce additional fenofibrate products using the same active pharmaceutical ingredient and targeting the same indication as Antara. Products now in use, under development or acquired by other pharmaceutical companies may be safer, more effective or offered at lower prices than our current or future products. Competitors may also be able to complete the regulatory process sooner and therefore may begin to market their products in advance of our products. Even if our products under development prove to be more effective than those developed by other entities, our competitors may be more successful than we are in marketing their products because of their greater financial resources, stronger sales and marketing efforts and other factors. We believe that competition in product sales is based on, among other things, safety, product efficacy, reliability, availability and price. We cannot assure you that (i) we will be able to acquire commercially attractive pharmaceutical products, (ii) additional competitors will not begin to compete with our products or (iii) competition for products and product line acquisitions will not have a material adverse effect on our business, financial condition and results of operations.

If we do not obtain regulatory approvals for our products or comply with other regulatory requirements, it could prevent or delay us from selling our products.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, export, marketing, and distribution of our products are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable governmental authorities in foreign countries. We are dependent on obtaining timely regulatory approvals before our products can be sold. The FDA approval process for a particular drug candidate can take several years and requires us to dedicate substantial resources to securing approvals, and we cannot assure you that we will receive regulatory approval for our drug candidates. In order to receive approval from the FDA for each drug candidate, we must demonstrate that a new drug product is safe and effective for its intended use, and

that our manufacturing processes for that drug candidate complies with cGMPs. In addition, we must demonstrate to the FDA that each generic drug candidate is equivalent to a drug previously approved by the FDA. The FDA may delay or deny approval of our product candidates for these and other reasons. The FDA also has the authority to revoke drug approvals previously granted and remove these products from the market for a variety of reasons, including, among others, a failure to comply with applicable regulations or the discovery of previously unknown problems with the product. Further, the FDA may condition approval of our product on the completion of additional post-marketing clinical studies. These post-marketing studies may suggest that our product causes undesirable side effects or safety issues. If data we collect from post-marketing studies suggest that one of our approved products may present a risk to safety, the FDA could withdraw our product approval, suspend production or place other marketing restrictions on our products. Other manufacturers may also conduct clinical trials that could lead to the publication of results that suggest safety concerns involving our products. For example, we are aware of multiple third-party clinical studies with Omacor and other products containing omega-3 acid ethyl esters. We do not control the design, administration or data analysis of these trials. If the results of these studies suggest that products containing omega-3 acid ethyl esters present a risk to safety, FDA could temporarily or permanently withdraw Omacor from the market or impose other regulatory or marketing restrictions.

We and our third-party manufacturers must also comply with the FDA’s cGMP regulations, which include requirements related to production processes, quality control and assurance and recordkeeping. Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, delays in or denials of new product approvals, warning letters, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales, and criminal prosecution. Any of these or other regulatory actions could materially adversely affect our business and our financial condition.

We face generic and other competition that could reduce our sales volumes and revenues.

Upon loss of patent protection or FDA-granted marketing exclusivity, most branded prescription pharmaceutical products experience competition from lower cost generic drugs. This most often results in the reduction or discontinuation of promotional activities in support of the branded products. Government agencies, third-party payors and pharmacies often put pressure on patients to purchase generic or other products instead of branded products as a way to reduce healthcare costs. Third-party payors usually require substitution and pharmacists can substitute generic or other competitive products for our branded products even when prescribed by physicians. An increase in the amount of generic or other competition against any one or more of our products could reduce our sales volumes and adversely impact our revenues. For example, net sales of Axid in 2001 totaled $202.0 million. After losing patent protection in April 2002 and marketing exclusivity in July 2002, net sales of Axid decreased to $64.7 million in 2002 and negative $11.0 million in 2003 resulting from product returns. In addition, DynaCirc, the predecessor to DynaCirc CR, lost patent protection in August 2003. As a result, a generic equivalent of DynaCirc may be introduced in the near future. To date, no generic isradipine products have been approved by the FDA, but we recently became aware that an Abbreviated New Drug Application, or ANDA, was filed for isradipine in November 2004. Net sales of DynaCirc in 2004 totaled approximately $22.3 million. If a generic equivalent of DynaCirc is introduced, it will have a negative impact on the net sales of DynaCirc and potentially could have a negative impact on the net sales of DynaCirc CR.

Rythmol SR has FDA-granted marketing exclusivity through September 2006 under the Hatch-Waxman Act. In addition, it is protected by a formulation patent that expires in October 2014. DynaCirc CR is protected by formulation patents, the last of which expires in July 2008. Lescol and Lescol XL have patent exclusivity through December 2011. InnoPran XL has FDA-granted marketing exclusivity under the Hatch-Waxman Act through March 2006 and is covered by a formulation patent that expires

in October 2021. Antara does not have any FDA-granted marketing exclusivity but is protected by a formulation patent which expires in August 2007. Omacor, being a new chemical entity, has FDA-granted marketing exclusivity through November 2009 and is protected by formulation patents, the last of which expires in August 2014. Our competitors may be able to design around these patents, and therefore, may be able to introduce competitive products. In addition, generic versions of our products may be introduced upon expiration of the patents covering these or other products containing the same active pharmaceutical ingredient or prior to expiration upon a judicial determination of non-infringement or invalidity. For example, in May 2005, Teva obtained final FDA approval to market a generic version of Abbott’s 160 mg tablet, which contains the same active pharmaceutical ingredient as Antara. Three other companies have also filed ANDAs seeking approval to manufacture generic versions of Abbott’s 160 mg Tricor tablet and two companies have filed a less-burdensome form of an NDA called a 505(b)(2) NDA with the FDA seeking to market branded 160 mg versions of fenofibrate, one of which received approval in May 2005. The marketing of such a generic or branded version could reduce our net sales of Antara and adversely impact our revenues.

The Medicare Prescription Drug Improvement and Modernization Act of 2003, also known as the Medicare Act, modified the rules governing the timing of generic drug approval, as well as eligibility for marketing exclusivity periods. Previously, the FDA required that generic applicants claiming patent invalidity or non-infringement give us notice each time either an ANDA, was submitted or amended to claim invalidity or non-infringement of newly listed patents. If we filed a patent infringement suit against the generic applicant within 45 days of receiving such notice, the FDA was barred from approving the ANDA for 30 months unless specific events occurred sooner. To avoid multiple 30-month stays for the same branded drug, the Medicare Act modified the relevant provisions of the Hatch-Waxman Act so that a 30-month stay will only attach to patents that are listed in the FDA’s Orange Book at the time an ANDA is filed. Although the ANDA filer is still required to certify against a later-listed patent and the NDA holder can still bring suit based upon infringement of that patent, any patent infringement suit we bring would no longer trigger an additional 30-month stay of FDA approval of the ANDA. As a result, generic substitutes of our branded pharmaceutical products could be approved sooner.

If we do not keep pace with rapid technological change, we will be unable to capture and sustain a meaningful market position.

The pharmaceutical industry is subject to significant and rapid technological change. Changes in technology may require us to make substantial investments to maintain our competitive position and may provide opportunities for new competitors to enter our market. In addition, developments by others may render our products or technologies obsolete or noncompetitive. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective than ours, which could have a material adverse effect on our business.

The Medicare prescription drug coverage law and regulations and future legislative or regulatory changes to the healthcare system may affect our ability to sell our products profitably.

In the United States, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to market and sell our products profitably. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system. For instance, on December 8, 2003, President Bush signed into law the Medicare Act, which changes significantly the way that Medicare will cover and reimburse pharmaceutical products, including by establishing a new prescription drug benefit. Under the Medicare Act, beginning January 1, 2006, Medicare beneficiaries may obtain subsidized prescription drug coverage from private sector providers through this prescription drug benefit. In the interim, in 2005, the Centers for Medicare and Medicaid Services, or CMS, which is the agency within the Department of Health and Human Services that administers the Medicare program, established a

temporary drug discount card program through which beneficiaries may obtain cost savings on their prescription medications. The Medicare Act permits private sector providers participating in the prescription drug benefit program, as well as in the temporary drug discount card program, to limit the number of prescription drugs that will be covered in each therapeutic category and class on their formularies. Each of our products, with the exception of Omacor, is included on formularies under the drug discount card program. However, we cannot predict whether our products will be placed on any or all formularies of private sector providers participating in the prescription drug benefit program in 2006 and beyond. As with formularies of other third-party payors, if our products are not placed on the formularies of these private sector providers, this may negatively impact our results of operations. Further, because many governmental and private third-party payors rely on Medicare policies as a guideline in setting their own policies, treatment of our products under the new prescription drug benefit may result in lack of coverage or inadequate or no reimbursement not only for Medicare beneficiaries, but also for other insured patients.

It remains difficult to predict the impact that the Medicare Act will have on us and our industry. The expanded access to prescription medications afforded by Medicare coverage of prescription drugs may increase the volume of pharmaceutical sales. However, this potential sales volume increase may be offset by increased downward pricing pressures resulting from the enhanced purchasing power of the private sector providers that will negotiate pharmaceutical pricing on behalf of Medicare beneficiaries.

In addition to changes to the Medicare program affecting our products, there have been and likely will continue to be legislative and regulatory proposals at the state and federal level that could bring about significant changes to the Medicaid drug rebate program and other federal pharmaceutical pricing programs and agreements in which we also participate. The Medicaid drug rebate program was established by the Omnibus Budget Reconciliation Act of 1990 and amended by the Veterans Health Care Act of 1992. Under this program, we are required to provide a rebate for each unit of our products that is reimbursed by the Medicaid program. Rebate amounts for our products are statutorily set at a minimum 15.1% of the average manufacturer price, or AMP, of the product, or, if it is greater, the difference between AMP and the best price available from us to any customer. These amounts are adjusted for inflation if AMP increases faster than inflation. Rebate amounts are calculated on a quarterly basis, and calculation of rebates involves interpretation of relevant statutes and regulations, which are subject to challenge or change in interpretation. While we believe we are in compliance in all material respects with applicable Medicaid statutory and regulatory requirements, we cannot provide any assurance that current or future administrative or judicial interpretations of existing laws or legislative enactment of new laws will not have a material adverse effect on our business. Under the terms of our Medicaid drug rebate agreements, we are to adjust rebate payments reported in previous quarters if a correction is necessary. Any such adjustment could result in an overage or underage in our rebate liability for previous quarters, depending upon whether the adjusted rebate payments are greater or less than those previously reported. In addition to retroactive rebates, if we were found to have knowingly submitted false information to the government, civil monetary penalties could be assessed in the amount of $100,000 per item of false information.

Recent developments regarding the Medicaid program that may affect our ability to market and sell our products include the following:

Many states are seeking rebates in excess of the amounts required by federal law. A number of states are participating in multi-state pooling supplemental rebate agreements in an effort to increase purchasing power to generate larger rebates and discounts from pharmaceutical companies. Other cost-containment measures, such as restrictions on access to certain medications, have been proposed and, in some instances, enacted by states.

There have been and we expect there will continue to be federal legislative proposals to modify current Medicaid rebates.

The Medicare Act requires that, beginning January 1, 2006, individuals who are jointly eligible for Medicare and Medicaid are to obtain their prescription medications through the Medicare prescription drug benefit, rather than through the Medicaid program.

We are required by federal law to provide rebates and discounts under other pharmaceutical pricing programs and agreements as well. Participation in the Medicaid drug rebate program requires that we provide comparable discounts for pharmaceutical products under the Public Health Service, or PHS, pharmaceutical pricing program. The PHS pricing program extends these discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as to “disproportionate share” hospitals that serve a high percentage of low-income Medicare beneficiaries. We are also required to provide minimum discounts based off of a defined “non-federal average manufacturer price” for purchases by certain federal government entities, such as the U.S. Department of Defense and the U.S. Department of Veterans Affairs.

There is considerable political pressure to allow the importation into the United States of prescription drugs that are marketed outside the United States and sold at prices regulated by the governments of various countries. If any such proposals were to be enacted or adopted, the resulting potential for importation of lower-priced drugs from foreign sources may limit or erode our product sales.

Our results of operations could be materially and adversely affected by implementation of the Medicare Act, by the possible effect of the Medicare Act on coverage and reimbursement of our products by private third-party payors and by other healthcare reforms including, but not limited to, those changing state Medicaid drug rebate laws, that may be enacted or adopted in the future. Efforts of federal, state and local governments to contain or reduce the cost of health care or otherwise reform the health care system are likely to continue, and such legislation and regulations, if enacted or adopted, may adversely affect the demand for our products, as well as the way we conduct business, which, in turn, may negatively impact our results of operations.

Government investigations or litigation related to average wholesale price of pharmaceutical products could impact our business.

The federal government, certain state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies alleging that the reporting of prices for pharmaceutical products has resulted in a false and overstated average wholesale price, which in turn is alleged to have improperly inflated the reimbursement paid by Medicare beneficiaries, insurers, state Medicaid programs, medical plans and others to health care providers who prescribed and administered those products. These same payors are also alleging that companies are not reporting their “best price” to the states under the Medicaid program. We are currently a named defendant in eight of these cases related to our sales of Axid between January 2001 and July 2002, the outcome of which we do not expect to have a material adverse effect on our operating results or financial condition; however, we may become a party to other investigations and legal proceedings related to the average wholesale price of products or other pricing issues, which could have an adverse effect on our operating results and financial condition.

The manufacture and storage of pharmaceutical and chemical products is subject to a range of environmental, health and safety laws and regulations, and failure of our third-party manufacturers and warehousemen to comply with these laws and regulations could result in suspension of their operations and impair our ability to satisfy the market demand for our products.

Because of the chemical ingredients used in the manufacture of pharmaceutical products and the nature of the manufacturing processes, the pharmaceutical industry is subject to extensive environmental regulation and can incur significant costs to manage and respond to environmental

problems. The industry is also subject to health and safety laws. If our third-party manufacturers fail to comply with environmental, health and safety laws or regulations, fail to manage, use, or dispose of hazardous materials properly, or otherwise fail to comply with the conditions attached to their operating licenses and permits, their licenses and permits could be revoked, and they could be subject to civil or criminal sanctions and/or substantial liability or could be required to suspend or modify their operations. Such circumstances could impair our ability to meet the market demand for our products.

Our efforts to comply with federal and state fraud and abuse laws could be costly, and, if we are unable to fully comply with such laws, we could face substantial penalties.

We are subject to extensive federal fraud and abuse laws and regulations. If our operations, including activities conducted by our sales force, are found to be in violation of these laws, we may be subject to significant civil and criminal penalties, damages, fines, exclusion from third-party payor programs such as Medicare and Medicaid, and the curtailment or restructuring of our operations. In addition, many states have adopted laws similar to federal fraud and abuse laws. Some of these state prohibitions apply to the referral of patients for health care services reimbursed by any source, not only the Medicare and Medicaid programs or other governmental payors. Moreover, certain states also have adopted compliance obligations for pharmaceutical companies which require compliance with the industry’s voluntary guidelines and related federal government compliance guidance. Our ongoing efforts to comply with these laws may be costly, and our failure to comply with these laws could have a material adverse effect on our business, financial condition and results of operations.

Risks Related To This Offering

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could delay the development of our product candidates, delay acquisition of rights to additional marketed brands, and result in financial losses that could have a material adverse effect on our business and cause the price of our common stock to decline.

You will incur immediate and substantial dilution in the book value of your investment.

Purchasers of our common stock in this offering will pay a price per share that substantially exceeds the per share value of our tangible assets after subtracting our liabilities. Accordingly, assuming an initial public offering price of $ per share, you will experience immediate and substantial dilution of approximately $ per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the assumed initial public offering price. Further dilution will result from the grant of additional shares of common stock to Dr. Mario at a purchase price of $0.01 per share pursuant to the Executive Stock Plan in accordance with his employment agreement so that he will continue to hold 1% of our fully diluted capitalization (as calculated pursuant to the terms of his employment agreement) at all times during his employment as our Chairman and Chief Executive Officer. In addition, the exercise of options and warrants may result in further dilution. For additional information regarding the dilution effects of this offering, see “Dilution.”

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Based on shares

outstanding as of March 31, 2005, upon completion of this offering and assuming no exercise of the underwriters’ overallotment option, we will have shares of common stock outstanding, including shares of common stock granted to Dr. Mario, upon the consummation of this offering pursuant to the Executive Stock Plan in accordance with certain anti-dilution provisions contained in our employment agreement with Dr. Mario and shares of common stock to be sold in this offering. Of these outstanding shares, all of the shares of our common stock sold in this offering will be freely tradable in the public market. The remaining shares, or % of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold in the near future as set forth below.


Number of Shares and Percent of Total Outstanding		Date Available for Sale Into Public Market
shares, or %		181 days after the date of this prospectus due to lock-up agreements between the holders of these shares and the underwriters. However, the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time.

shares, or %		Between 181 and 365 days after the date of this prospectus, depending on the requirements of the federal securities laws.

Moreover, after this offering, holders of an aggregate of 39,302,978 shares of our common stock, including shares issued upon the exercise of outstanding warrants, will have rights, subject to some conditions, to request that we file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our employee benefit plans. Shares we sold under these registration statements can be freely sold in the public market, subject to the lock-up agreements described in “Underwriting.” In addition, 4,380,023 shares of common stock reserved for issuance pursuant to outstanding options, if exercised, 2,393,480 shares available for grant under our Equity Incentive Plan as of May 19, 2005, if granted, and 1,933,334 shares outstanding or reserved for issuance pursuant to outstanding warrants, if exercised, will become eligible for sale in the public market once permitted by provisions of various vesting agreements, lock-up agreements and Rule 144, as applicable. In addition, Dr. Mario has anti-dilution protection such that at all times during his employment with us as chairman and chief executive officer he will be granted additional shares of common stock at a purchase price of $.01 per share so that he will continue to hold 1% of our fully diluted capitalization (as calculated pursuant to Dr. Mario’s employment agreement). See “Shares Eligible for Future Sale.”

If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital. See “Shares Eligible for Future Sale” for a description of sales that may occur in the future.

Our stock price is likely to be volatile, and you may not be able to resell shares of our common stock at or above the price you paid.

Prior to this offering, our common stock has not been traded in a public market. We cannot predict the extent to which a trading market will develop or how liquid that market might become. The initial public offering price may not be indicative of prices that will prevail in the trading market. The trading price of our common stock following this offering is therefore likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:

failure of any of our products to achieve commercial success;

unsatisfactory results of clinical trials for our products under development and results of clinical trials of our competitors;

the regulatory status of our products and product candidates;

developments concerning our competitors and their products;

success of competitive products and technologies;

regulatory developments in the United States;

developments or disputes concerning our patents or other proprietary rights;

our ability to supply our products;

public concern over our products;

litigation involving our company, our industry or both;

future sales of our common stock;

changes in the structure of healthcare payment systems, including developments in price control legislation;

departure of key personnel;

period-to-period fluctuations in our financial results or those of companies that are perceived to be similar to us;

changes in estimates of our financial results or recommendations by securities analysts;

investors’ general perception of us; and

general economic, industry and market conditions.

In addition, the stock market in general, and the market for pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Such fluctuations may be even more pronounced in the trading market shortly following this offering. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

After this offering, our major stockholders will continue to have substantial control over us and will maintain the ability to control all matters submitted to stockholders for approval.

As of May 1, 2005, PharmBay Investors, L.L.C., Bay City Capital, LLC and Alkermes, Inc. beneficially owned in the aggregate approximately 60.1% of our outstanding common stock on an as-converted basis. Following this offering, these stockholders will beneficially own, in the aggregate, approximately % of our common stock. If some or all of these principal stockholders act together, they will be able to exert a significant degree of influence or actual control over our management and affairs and over matters requiring stockholder approval, including the election of directors, the merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. The interests of this concentration of ownership may not always coincide with our interests or the interests of our other stockholders. For instance, this concentration of ownership may have the effect of delaying or preventing a change in control of us otherwise favored by our other stockholders and could depress our stock price.

Provisions in our charter documents may prevent or discourage third parties or our stockholders from attempting to replace our management or influencing significant decisions.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors. These provisions include, among others, requiring advance notice for raising business matters or nominating directors at stockholders’ meetings and authorizing preferred stock. Our board of directors may issue, in its sole discretion and without stockholder approval, one or more series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including convertible securities with no limitation on conversion, as our board of directors may determine, including rights to dividends and proceeds in a liquidation that are senior to our common stock.

We may incur increased costs as a result of recently enacted changes in laws and regulations relating to corporate governance matters.

Recently enacted changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the SEC and by the New York Stock Exchange, will result in increased costs to us as we evaluate the implications of these laws and regulations and respond to their requirements. These laws and regulations could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict the amount or timing of additional costs we may incur responding to their requirements.

If we are unable to favorably assess the effectiveness of our internal controls over financial reporting, or if our independent auditors are unable to provide an unqualified attestation report on our assessment, our stock price could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2006, our management will be required to report on, and our independent auditors to attest to, the effectiveness of our internal controls over financial reporting as of December 31, 2006. The rules governing the standards that must be met for management to assess our internal controls over financial reporting are new and complex, and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal controls over financial reporting. In connection with this effort we will likely incur increased expenses and diversion of management’s time and other internal resources. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal controls over financial reporting. In addition, in connection with the attestation process by our independent auditors, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. If we cannot favorably assess the effectiveness of our internal controls over financial reporting, or if our independent auditors are unable to provide an unqualified attestation report on our assessment, investor confidence and our stock price could be adversely affected.

We do not intend to pay dividends on our common stock for the foreseeable future.

We have never declared or paid any cash dividend on our common stock. In addition, the payment of cash dividends is restricted by the covenants in our credit facilities. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, levels of activity, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

general economic and business conditions;

our ability to become cash flow positive and to service our indebtedness;

our ability to successfully market our products;

our ability to successfully complete pre-clinical and clinical development of our product candidates on expected timetables;

the ability of our third-party manufacturers to timely manufacture and supply sufficient quantities of our product to meet demand;

our ability to obtain coverage and reimbursement from third-party payors for our owned products or any of our product candidates and the extent of such coverage;

our ability to obtain and protect our intellectual property and market exclusivity related to our owned products and product candidates;

claims that our products or product candidates infringe third-party patents;

the outcome of pending and any future litigation;

changes in governmental laws and regulations relating to the development and commercialization of pharmaceutical products;

competition in our industry;

our arrangements with and the financial health of our collaborative partners;

the other risks described under “Risk Factors” in this prospectus.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of these statements in light of new information or future events.

USE OF PROCEEDS

We estimate that we will receive approximately $ million in net proceeds from the sale of our common stock in this offering, or approximately $ million if the underwriters’ option to purchase additional shares is exercised in full, based on an assumed initial offering price of $ per share, the midpoint of the range of the estimated initial public offering price of $ and $ set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholder.

We currently intend to use the estimated net proceeds from this offering for (i) the acquisition of rights to additional pharmaceutical products and product candidates; (ii) increased promotional activities for our owned product portfolio; (iii) funding of clinical development projects; and (iv) general corporate purposes. Pursuant to the terms of our term loan credit facilities, we are required to apply the net proceeds from the offering toward investments in “productive assets,” which are assets of the general type used in our business.

The amount and timing of our actual expenditures will depend on numerous factors, including our ability to identify products and product development candidates to acquire rights to and our ability to negotiate acceptable terms. We currently do not have any understandings, commitments or agreements with respect to the acquisition of rights of new products or with respect to the acquisition of any businesses. We cannot assure you that we will complete any acquisitions or that, if completed, any such acquisition will be successful.

We will retain broad discretion in the allocation and use of the remaining net proceeds of this offering. Pending application of the net proceeds, as described above, we intend to invest the net proceeds in short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

We have never declared nor paid cash dividends on our common stock. In addition, the payment of cash dividends is restricted by the covenants in our credit facilities. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments and such other factors as our board of directors deems relevant.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2005:

on an actual basis;

on a pro forma basis to give effect to (i) the effect of our three new term loan credit facilities, which we entered into on April 13, 2005, as if we had entered into these facilities as of March 31, 2005; (ii) the automatic conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of common stock immediately prior to the consummation of this offering; and (iii) the reclassification of all of our shares of common stock subject to repurchase, which repurchase obligation will terminate upon consummation of this offering, as 1,100,362 shares of our common stock as if the repurchase obligation with respect to those shares had terminated as of March 31, 2005; and

on a pro forma as adjusted basis to further give effect to the receipt of the net proceeds from the sale of shares of common stock by us in this offering at an assumed initial public offering price of $ per share, the midpoint of the range of the estimated initial public offering price of $ and $ set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this capitalization table together with our financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information included in this prospectus.


	March 31, 2005
	Actual		Pro Forma		Pro Forma As Adjusted
	(in thousands)
	(unaudited)

Long-term debt, including current portion	$	93,575	$	161,173	$	161,173

Common stock subject to repurchase, 1,100,362 shares outstanding and subject to repurchase; no shares subject to repurchase on a pro forma and pro forma as adjusted basis		22,007		—		—

Convertible, redeemable preferred stock:
Series A; convertible, redeemable preferred stock; $0.01 par value, 425,000 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		6,168		—		—
Series B; convertible, redeemable preferred stock; $0.01 par value, 14,250,000 shares authorized and 13,499,998 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		195,713		—		—
Series C; convertible, redeemable preferred stock; $0.01 par value, 8,211,047 shares authorized and 8,057,625 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		209,795		—		—


	March 31, 2005
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands)
	(unaudited)
Series D; convertible, redeemable preferred stock; $0.01 par value, 19,172,842 shares authorized and 13,685,692 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		309,919			—			—
Stockholders’ deficit:
Preferred stock; $0.01 par value; none authorized issued or outstanding actual and pro forma; shares authorized and no shares issued or outstanding pro forma as adjusted		—			—			—
Common stock; $0.01 par value; 100,000,000 shares authorized and 3,580,548 shares issued and outstanding, actual; 100,000,000 shares authorized and 40,349,225 shares issued and outstanding, pro forma; shares authorized and shares issued and outstanding, pro forma as adjusted		36			403
Additional paid-in capital		3,871			755,933
Subscriptions and loans receivables		(2,005	)		(2,005	)		(2,005	)
Accumulated deficit		(744,401	)		(748,019	)		(748,019	)

Total stockholders’ (deficit) equity		(742,499	)		6,312

Total capitalization	$	94,678		$	167,485		$

The table above does not include:

4,380,023 shares of common stock currently issuable upon the exercise of options outstanding at a weighted-average exercise price of $18.42 per share, of which options to purchase 1,557,849 shares were exercisable as of that date at a weighted average exercise price of $15.93;

833,334 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $0.01 per share;

620,313 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $20.00 per share;

up to 2,393,480 additional shares of common stock reserved for future grants under the Reliant Pharmaceuticals, Inc. 2004 Equity Incentive Plan; and

an estimated additional shares of common stock which will be granted upon consummation of this offering to Dr. Mario, pursuant to the Reliant Pharmaceuticals, Inc. Executive Stock Plan in accordance with anti-dilution provisions contained in our employment agreement with Dr. Mario, under which Dr. Mario will be granted additional shares of common stock at a purchase price of $.01 per share so that he will continue to hold 1% of our fully diluted capitalization (as calculated pursuant to the terms of his employment agreement) at all times during his employment with us as chairman and chief executive officer. See “Management—Employment Agreement” and “Management—Employee Plans—Executive Stock Plan.”

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share, after giving effect to the offering. The historical net tangible book value of our common stock as of March 31, 2005 was approximately $(837.8) million, or approximately $(178.99) per share, based on 4,680,910 shares of common stock outstanding, inclusive of 1,100,362 shares subject to repurchase, as of March 31, 2005. Our pro forma net tangible book value as of March 31, 2005 was approximately $(94.2) million, or approximately $(2.34) per share, based on 40,349,225 shares of our common stock outstanding, after giving effect to the conversion of all of our currently outstanding shares of convertible, redeemable preferred stock to common stock upon the consummation of this offering and the reclassification of all of our shares of common stock subject to repurchase, which repurchase obligation will terminate upon consummation of this offering, into 1,100,362 shares of our common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding before giving effect to this offering. After giving effect to our issuance of shares of common stock at an assumed initial public offering price of $ per share, the midpoint of the range of the estimated initial offering price of $ and $ set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value as adjusted as of March 31, 2005, will be approximately $ million, or approximately $ per pro forma share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors in this offering. If the initial public offering price is higher or lower than $ per share, the dilution to new stockholders will be higher or lower. The following table illustrates this per share dilution:


Assumed initial public offering price per share				$
Historical net tangible book value per share as of March 31, 2005	$	(178.99	)
Increase attributable to the conversion of convertible redeemable preferred stock		176.65

Pro forma net tangible book value per share as of March 31, 2005		(2.34	)
Increase per share attributable to new investors

Pro forma net tangible book value per share after this offering

Dilution per share to new investors				$

Dilution per share to new investors is determined by subtracting pro forma net tangible book value per share after this offering from the initial public offering price per share paid by a new investor. If any shares are issued in connection with outstanding options or warrants or the underwriters’ over-allotment option, you will experience further dilution.

The following table summarizes as of March 31, 2005, on the pro forma basis described above, the number of shares purchased from us, the total consideration paid and the average price per share paid by our existing stockholders and by the investors purchasing shares in this offering with respect to the number of shares purchased from us at an assumed initial offering price of $ per share, the mid-point of the range of the estimated initial public offering price of $ and $ set forth on the cover page of this prospectus, and before deduction of underwriting discounts and commissions and estimated expenses payable by us:


	Shares Purchased			Total Consideration			Average Price Per Share
	Number	Percent		Amount	Percent		Average Price Per Share
Existing stockholders			%	$		%	$
New investors							$

Totals		100	%	$	100	%

The discussion and tables above are based on 40,349,225 shares of common stock issued and outstanding as of March 31, 2005 and giving effect to the conversion of all outstanding shares of convertible, redeemable preferred stock into 35,668,315 shares of our common stock upon the consummation of this offering. This number excludes:

833,334 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $0.01 per share, all of which are currently exercisable;

620,313 shares of common stock issuable upon exercise of warrants outstanding at an exercise price of $20.00 per share, all of which are currently exercisable;

up to 2,393,480 additional shares of common stock reserved for future grants under the Reliant Pharmaceuticals, Inc. 2004 Equity Incentive Plan; and

If the underwriters’ option to purchase additional shares is exercised in full, the shares held by existing stockholders will decrease to % of the total number of shares of common stock outstanding after this offering, and the number of shares held by new investors will increase to , or %, of the total number of shares of common stock outstanding after this offering.

SELECTED FINANCIAL DATA

The selected financial data should be read in conjunction with “Pro Forma Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Indebtedness” and our financial statements and the related notes appearing elsewhere in this prospectus. The statements of operations data for the fiscal years ended December 31, 2000 and 2001 and the balance sheet data as of December 31, 2000, 2001 and 2002 are derived from our audited financial statements which are not included in this prospectus. The statements of operations data for the fiscal years ended December 31, 2002, 2003 and 2004 and the balance sheet data as of December 31, 2003 and 2004 are derived from our audited financial statements appearing elsewhere in this prospectus. The statements of operations data for the three months ended March 31, 2004 and 2005 and the balance sheet data as of March 31, 2005 are derived from our unaudited financial statements appearing elsewhere in this prospectus and which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. The historical results are not necessarily indicative of the results to be expected in any future period.

Statements of Operations Data:

(in thousands, except share and per share data)


	Year Ended December 31,															Three Months Ended March 31,						Adjusted Pro Forma
	2000			2001			2002			2003			2004			2004			2005			Year Ended December 31, 2004			Three months ended March 31, 2005
																(unaudited)						(unaudited)
Revenues:
Net product sales	$	68,817		$	234,113		$	105,890		$	29,342		$	117,224		$	33,997		$	30,503		$	117,224		$	30,503
Promotion revenues		1,837			42,552			71,465			142,412			105,108			21,128			10,146			105,108			10,146

Total revenues		70,654			276,665			177,355			171,754			222,332			55,125			40,649			222,332			40,649
Costs and expenses:
Cost of products sold		39,702			174,705			75,405			18,973			21,369			8,917			7,411			21,369			7,411
Cost of promotion revenues		10,874			102,591			104,663			164,268			88,129			24,259			22,191			88,129			22,191
Sales and marketing		32,674			90,084			46,149			40,327			113,307			25,775			34,224			113,307			34,224
General and administrative		9,755			17,840			19,732			21,189			35,711			7,126			6,253			35,711			6,253
Amortization of intangible assets		13,183			37,748			25,526			11,905			29,280			7,238			7,857			29,280			7,857
Research and development		5,341			49,745			26,044			18,016			37,728			6,179			6,845			37,728			6,845

Total costs and expenses		111,529			472,713			297,519			274,678			325,524			79,494			84,781			325,524			84,781

Loss from operations		(40,875	)		(196,048	)		(120,164	)		(102,924	)		(103,192	)		(24,369	)		(44,132	)		(103,192	)		(44,132	)
Other expense (income), net		—			—			351			(57,769	)		27			11			754			27			754
Interest expense		1,683			3,852			1,064			4,963			4,204			—			3,278			28,860			7,453
Interest income		(1,419	)		(1,879	)		(860	)		(602	)		(989	)		(239	)		(267	)		(989	)		(267	)

Loss before income tax provision		(41,139	)		(198,021	)		(120,719	)		(49,516	)		(106,434	)		(24,141	)		(47,897	)		(131,090	)		(52,072	)
Income tax provision (benefit)		—			—			—			305			(267	)		106			8			(267	)		8

Net loss	$	(41,139	)	$	(198,021	)	$	(120,719	)	$	(49,821	)	$	(106,167	)	$	(24,247	)	$	(47,905	)	$	(130,823	)	$	(52,080	)

Dividend accretion on preferred stock and common stock subject to repurchase		—			(1,367	)		(31,611	)		(38,620	)		(64,619	)		(14,564	)		(43,783	)		—			—

Net loss applicable to common stockholders	$	(41,139	)	$	(199,388	)	$	(152,330	)	$	(88,441	)	$	(170,786	)	$	(38,811	)	$	(91,688	)	$	(130,823	)	$	(52,080	)

Unaudited basic and diluted loss per share																			$	(28.20	)

Unaudited weighted-average shares outstanding—basic and diluted																				3,251,878

Unaudited pro forma basic and diluted loss per share													$	(60.88	)

Unaudited pro forma weighted-average shares outstanding—basic and diluted														2,805,405

Unaudited adjusted pro forma basic and diluted loss per share																						$	(3.26	)	$	(1.30	)

Unaudited adjusted pro forma weighted-average shares outstanding—basic and diluted																							40,094,682			40,210,061

Balance Sheet Data:

(in thousands)


	As of December 31,										As of March 31, 2005
	2000		2001		2002		2003		2004		Actual		Adjusted Pro Forma
											(unaudited)
Cash and cash equivalents	96,171		66,109		32,219		94,712		58,348		29,912		92,616
Cash and cash equivalents—restricted	—		—		—		—		—		—		7,869
Total current assets	155,844		155,993		68,595		135,085		118,910		82,427		153,056
Intangible assets, net	90,971		48,408		22,882		116,477		103,197		95,340		95,340
Total assets	247,465		208,326		109,495		259,623		239,902		196,881		269,611
Total current liabilities	151,069		164,687		92,081		105,122		96,354		100,275		101,398
Long-term debt	—		—		60,200		—		93,371		93,575		159,973
Common units/stock subject to repurchase	17		17		17		83		248		22,007		—
Convertible, redeemable preferred units/stock	—		286,018		326,850		632,934		699,654		721,595		—
Accumulated deficit	(41,776	)	(241,156	)	(393,486	)	(481,927	)	(652,713	)	(744,401	)	(748,019	)
Total members’/stockholders’ (deficit) equity	96,379		(242,396	)	(393,974	)	(482,328	)	(651,194	)	(742,499	)	6,312

PRO FORMA FINANCIAL STATEMENTS

As of March 31, 2005, our gross outstanding indebtedness consisted of $95.0 million in outstanding borrowings under our credit and guaranty agreement with Goldman Sachs Credit Partners L.P. as lender and Credit Suisse First Boston as collateral agent, which we refer to as the existing term loan, and $7.2 million in outstanding borrowings under our revolving credit facility with Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc. See “Description of Indebtedness—Revolving Credit Facility.”

On April 13, 2005, we concurrently entered into three separate secured term loan credit facilities. See “Description of Indebtedness—Term Loan Credit Facilities.” The significant terms of these transactions are as follows:

First-Lien Term Loan

We entered into a first-lien term loan of $120.0 million. The first-lien term loan matures on June 30, 2008. A substantial portion of the proceeds from the first-lien term loan was used to repay the outstanding indebtedness as well as all accrued and unpaid interest under the existing term loan.

Beginning on June 30, 2005, we are required to make principal payments of $300,000 per quarter. Additionally, we have the option to select the interest rate to be applied against the unpaid balance or a portion thereof based on either (i) LIBOR, adjusted for reserves, if any, plus 9.5% per annum or (ii) the greater of the prime rate or the federal funds effective rate plus 0.5%, plus 8.5% per annum. We deposited in an interest reserve account an amount equal to the interest due on the first-lien term loan for the first six-month period, equal to approximately $7.9 million, which we pledged to secure the first-lien term loan.

Pursuant to the first-lien term loan we are also required, if commercially reasonable, by July 12, 2005, to enter into one or more interest rate swaps or other hedging arrangements so that at least 50% of our aggregate principal amount outstanding under the term loan credit facilities are subject to a fixed interest rate to protect against exposure to interest rate fluctuations. The pro forma financial statements do not reflect any impact from these interest rate swap arrangements.

Second-Lien Term Loan

We entered into a second-lien term loan with various lenders for $30.0 million. The second-lien term loan matures on September 30, 2008. All amounts outstanding under the second-lien term loan will bear interest at a fixed rate of 17% per annum, compounded quarterly, due and payable upon maturity of the loan.

Third-Lien Term Loan

We entered into a third-lien term loan with certain of our existing shareholders and certain other lenders. The third-lien term loan provides for a term loan of up to $49.625 million. On April 13, 2005 we borrowed $20.0 million against the third-lien term loan. The remaining $29.625 million will remain available for borrowing until December 30, 2007, unless earlier terminated, at which time such commitments will terminate. The third-lien term loan matures on December 30, 2008. All amounts outstanding under the third-lien term loan will bear interest at a fixed rate of 14% per annum, compounded quarterly, due and payable upon maturity of the loan.

On April 13, 2005 we issued to the lenders under the third-lien term loan, pro rata in accordance with their respective commitments, 620,313 in detachable stock warrants. The detachable stock warrants are exercisable at $20.00 per share at any time on or prior to April 13, 2015.

Additionally, on the earliest to occur of (i) the consummation of a change of control transaction, as defined, and (ii) the maturity date of the third-lien term loan, we will issue to the lenders, pro rata in

accordance with their respective commitments, warrants, which we refer to as the additional warrants, to acquire that number of shares of our common stock sufficient to generate a compound annual return to the lenders of 19% which we refer to as the target return, under the third-lien term loan (including, without limitation, the interest rate received thereunder and any applicable call premium) and including the intrinsic value of the warrants they were issued on April 13, 2005. The negative difference, if any, between the target return and the annual return generated in the preceding sentence is referred to as the shortfall.

In the event that the number of shares of common stock underlying the warrants issued on April 13, 2005 plus the additional warrants exceeds 1,100,000, the number of additional warrants shall be automatically reduced to bring the total number down to 1,100,000. To the extent we are free to make cash payments to the warrant holders, our Board of Directors, in its discretion, may elect to make up all or a portion of the shortfall in cash.

Pro Forma Financial Information

The following presents certain unaudited pro forma financial information as of and for the three month period ended March 31, 2005 and for the year ended December 31, 2004. The unaudited pro forma statement of operations was prepared as if the term loan credit facilities were entered into on January 1, 2004, and the unaudited pro forma balance sheet was prepared as if the secured term loan credit facilities were entered into on March 31, 2005. The unaudited pro forma financial statements give effect to (i) the net cash proceeds received from the secured term loan credit facilities, (ii) the deferred financing and prepaid financing fees incurred in connection with the term loan credit facilities, (iii) the incurrence of additional debt associated with the secured term loan credit facilities, (iv) the issuance of the warrants to the third-lien term loan lenders on April 13, 2005, (v) the repayment of outstanding borrowings and accrued and unpaid interest under the existing term loan, and (vi) the write-down of the unamortized original issue discount and deferred/prepaid financing fees associated with the existing term loan. The adjusted pro forma financial statements further give effect to the automatic conversion of our outstanding shares of convertible, redeemable preferred stock into an aggregate of 35,668,315 shares of common stock and the reclassification of 1,100,362 shares of our common stock subject to repurchase to common stock upon the consummation of this offering.

The historical pro forma net loss per share data for the year ended December 31, 2004 reflects the conversion of common units into common shares of common stock upon our conversion on April 1, 2004 from a Delaware limited liability company to a Delaware corporation as if the conversion had taken place as of January 1, 2004.

The unaudited pro forma financial information set forth below reflects pro forma adjustments that are based upon available information and certain assumptions that we believe are reasonable. The unaudited pro forma financial information does not purport to represent our results of operations or financial position that would have resulted had the transactions to which pro forma effect is given been consummated as of the date or for the periods indicated.

The unaudited pro forma financial statements and accompanying notes should be read in conjunction with the historical consolidated financial statements, included elsewhere herein.

Reliant Pharmaceuticals, Inc.

Consolidated Pro Forma Balance Sheet

March 31, 2005

(In thousands, except for share amounts)

(unaudited)


	Historical			Pro Forma Adjustments for Financing Transactions			Pro Forma Balance Sheet			Pro Forma Adjustments for Conversion of Preferred Stock and Common Stock Subject to Repurchase(8)			Adjusted Pro Forma Balance Sheet
Assets
Current assets:
Cash and cash equivalents	$	29,912		$	62,704	(1)	$	92,616		$	—		$	92,616
Cash and cash equivalents—restricted		—			7,869	(2)		7,869			—			7,869
Accounts receivable, net of allowance for doubtful accounts of $269 as of March 31, 2005		14,650			—			14,650			—			14,650
Inventory, net of reserves of $13,655 as of March 31, 2005		24,677			—			24,677			—			24,677
Promotion revenue receivable		4,063			—			4,063			—			4,063
Prepaid expenses and other current assets		9,125			87	(3)
					(31	)(6)		9,181			—			9,181

Total current assets		82,427			70,629			153,056			—			153,056

Fixed assets, net of accumulated depreciation of $4,028 as of March 31, 2005		9,117			—			9,117			—			9,117
Intangible assets, net of accumulated amortization of $65,567 as of March 31, 2005		95,340			—			95,340			—			95,340
Other long-term assets		9,997			4,263	(3)
					(2,162	)(6)		12,098			—			12,098

Total assets	$	196,881		$	72,730		$	269,611		$	—		$	269,611

Liabilities, convertible, redeemable preferred stock and stockholders’ deficit
Current liabilities:
Short-term borrowings	$	7,239		$	—		$	7,239		$	—		$	7,239
Current portion of long-term debt		—			1,200	(4)		1,200			—			1,200
Accounts payable		22,837			—			22,837			—			22,837
Accrued expenses		48,618			(852	)(7)
					775	(3)		48,541			—			48,541
Deferred revenue		10,707			—			10,707			—			10,707
Other current liabilities		10,874			—			10,874			—			10,874

Total current liabilities		100,275			1,123			101,398			—			101,398

Long-term debt		93,575			1,425	(6)
					(95,000	)(7)
					168,800	(4)
					(8,827	)(5)		159,973			—			159,973
Other long-term liabilities		1,928			—			1,928			—			1,928
Commitments and contingencies:
Common stock subject to repurchase (1,100,362 shares subject to repurchase at March 31, 2005 and on a pro forma basis and no shares subject to repurchase on a pro forma as adjusted basis at March 31, 2005)		22,007			—			22,007			(22,007	)		—
Convertible, redeemable preferred stock:
Series A convertible, redeemable preferred stock; 425,000 shares issued and outstanding at March 31, 2005 (liquidation preference—$6,457)		6,168			—			6,168			(6,168	)		—
Series B convertible, redeemable preferred stock; 13,499,998 shares issued and outstanding at March 31, 2005 (liquidation preference—$197,100)		195,713			—			195,713			(195,713	)		—
Series C convertible, redeemable preferred stock; 8,057,625 shares issued and outstanding at March 31, 2005 (liquidation preference—$212,082)		209,795			—			209,795			(209,795	)		—
Series D convertible, redeemable preferred stock; 13,685,692 shares issued and outstanding at March 31, 2005 (liquidation preference—$309,057)		309,919			—			309,919			(309,919	)		—

Total convertible, redeemable preferred stock		721,595			—			721,595			(721,595	)		—

Stockholders’ deficit:
Common stock; $.01 par value; 100,000,000 shares authorized; 3,580,548 shares issued and outstanding at March 31, 2005 and on a pro forma basis and 40,349,225 shares issued and outstanding on a pro forma as adjusted basis		36			—			36			367			403
Additional paid-in capital		3,871			8,827	(5)		12,698			743,235			755,933
Subscription and loans receivables		(2,005	)		—			(2,005	)		—			(2,005	)
Accumulated deficit		(744,401	)		(3,618	)(6)		(748,019	)		—			(748,019	)

Total stockholders’ deficit		(742,499	)		5,209			(737,290	)		743,602			6,312

Total liabilities, convertible, redeemable preferred stock and stockholders’ deficit	$	196,881		$	72,730		$	269,611		$	—		$	269,611

See accompanying notes.

Reliant Pharmaceuticals, Inc.

Consolidated Pro Forma Statement of Operations

For the year ended December 31, 2004

(In thousands, except for share and per share amounts)

(unaudited)


	Historical			Pro Forma Adjustments for Financing Transactions Adjustment			Pro Forma Statement of Operations			Pro Forma Adjustments for Conversion of Preferred Stock and Common Stock Subject to Repurchase (11)		Adjusted Pro Forma Statement of Operations
Revenues:
Net product sales	$	117,224		$	—		$	117,224		$	—	$	117,224
Promotion revenues		105,108			—			105,108			—		105,108

Total revenues		222,332			—			222,332			—		222,332

Costs and expenses:
Cost of products sold		21,369			—			21,369			—		21,369
Cost of promotion revenues		88,129			—			88,129			—		88,129
Sales and marketing		113,307			—			113,307			—		113,307
General and administrative		35,711			—			35,711			—		35,711
Amortization of intangible assets		29,280			—			29,280			—		29,280
Research and development		37,728			—			37,728			—		37,728

Total costs and expenses		325,524			—			325,524			—		325,524

Loss from operations		(103,192	)		—			(103,192	)		—		(103,192	)

Other expense (income), net		27			—			27			—		27
Interest expense		4,204			28,738	(9)
					(4,082	)(10)		28,860			—		28,860
Interest income		(989	)		—			(989	)		—		(989	)

Loss before income tax benefit		(106,434	)		(24,656	)		(131,090	)		—		(131,090	)

Income tax benefit		(267	)		—			(267	)		—		(267	)

Net loss	$	(106,167	)	$	(24,656	)	$	(130,823	)	$	—	$	(130,823	)

Dividend accretion on preferred stock and common stock subject to repurchase		(64,619	)		—			(64,619	)		64,619		—

Pro forma net loss applicable to common stockholders	$	(170,786	)	$	(24,656	)	$	(195,442	)	$	64,619	$	(130,823	)

Unaudited pro forma basic and diluted net loss per share	$	(60.88	)				$	(69.67	)

Unaudited pro forma weighted-average shares outstanding—basic and diluted		2,805,405						2,805,405

Unaudited adjusted pro forma basic and diluted net loss per share (11)												$	(3.26	)

Unaudited adjusted pro forma weighted-average shares outstanding—basic and diluted (11)													40,094,682

See accompanying notes.

Reliant Pharmaceuticals, Inc.

Consolidated Pro Forma Statement of Operations

For the three months ended March 31, 2005

(In thousands, except for share and per share amounts)

(unaudited)


	Historical			Pro Forma Adjustments for Financing Transactions Adjustment			Pro Forma Statement of Operations			Pro Forma Adjustments for Conversion of Preferred Stock and Common Stock Subject to Repurchase (11)		Adjusted Pro Forma Statement of Operations
Revenues:
Net product sales	$	30,503		$	—		$	30,503		$	—	$	30,503
Promotion revenues		10,146			—			10,146			—		10,146

Total revenues		40,649			—			40,649			—		40,649

Costs and expenses:
Cost of products sold		7,411			—			7,411			—		7,411
Cost of promotion revenues		22,191			—			22,191			—		22,191
Sales and marketing		34,224			—			34,224			—		34,224
General and administrative		6,253			—			6,253			—		6,253
Amortization of intangible assets		7,857			—			7,857			—		7,857
Research and development		6,845			—			6,845			—		6,845

Total costs and expenses		84,781			—			84,781			—		84,781

Loss from operations		(44,132	)		—			(44,132	)		—		(44,132	)

Other expense (income), net		754			—			754			—		754
Interest expense		3,278			7,350	(9)
					(3,175	)(10)		7,453			—		7,453
Interest income		(267	)		—			(267	)		—		(267	)

Loss before income tax provision		(47,897	)		(4,175	)		(52,072	)		—		(52,072	)

Income tax provision		8			—			8			—		8

Net loss	$	(47,905	)	$	(4,175	)	$	(52,080	)	$	—	$	(52,080	)

Dividend accretion on preferred stock and common stock subject to repurchase		(43,783	)		—			(43,783	)		43,783		—

Pro forma net loss applicable to common stockholders	$	(91,688	)	$	(4,175	)	$	(95,863	)	$	43,783	$	(52,080	)

Basic and diluted net loss per share	$	(28.20	)				$	(29.48	)

Weighted-average shares outstanding—basic and diluted		3,251,878						3,251,878

Unaudited adjusted pro forma basic and diluted net loss per share (11)												$	(1.30	)

Unaudited adjusted pro forma weighted-average shares outstanding—basic and diluted (11)													40,210,061

See accompanying notes.

Notes to Unaudited Consolidated Pro Forma Financial Statements

March 31, 2005

(in thousands, except shares)

(unaudited)

Consolidated Balance Sheet

The historical financial statements have been adjusted for the items set forth below:

(1) Reflects the net cash proceeds received on April 13, 2005 from the term loan credit facilities. Amount consists of $170,000 in gross proceeds from the term loan credit facilities, less $7,869 of restricted cash deposited into an interest reserve fund, $3,575 of prepaid and deferred financing costs paid at closing and $95,852 representing the repayment of all outstanding indebtedness, as well as all accrued but unpaid interest, on the existing term loan.

(2) To record the interest reserve fund deposit of $7,869.

(3) To record prepaid and deferred financing fees relating to the term loan credit facilities. Amounts consist of prepaid administrative agent fees, legal fees, and placement fees paid and accrued for in connection with the term loan credit facilities.

(4) To record the current and long-term portions of amounts borrowed on the term loan credit facilities at April 13, 2005. The current portion of long-term debt represents the $300 in quarterly principal payments required by the first-lien term loan for the four consecutive quarters beginning on June 30, 2005.

(5) To record the fair value of the warrants issued to the third-lien term loan lenders on April 13, 2005.

(6) To record the write-down of unamortized prepaid and deferred financing fees and the unamortized original issue discount with the existing term loan.

(7) To record the repayment of outstanding indebtedness and accrued but unpaid interest on the existing term loan.

(8) Represents the pro forma adjustment to reflect the automatic conversion of our outstanding shares of convertible redeemable preferred stock into an aggregate of 35,668,315 shares of common stock immediately prior to the completion of this offering, and the reclassification of all of our shares of common stock subject to repurchase as 1,100,362 shares of common stock upon the consummation of this offering.

Consolidated Statement of Operations

(9) Represents interest expense for 2004 and the first quarter of 2005, associated with the secured term loan credit facilities as if such transactions took place on January 1, 2004. Amount consists of interest, using initial interest rates, the amortization of deferred financing fees and the amortization associated with the debt discount resulting from the warrants issued to the third-lien term loan lenders on April 13, 2005.

(10) To reverse interest expense associated with the existing term loan during 2004 and the first quarter of 2005. Amount consists of interest, the amortization of deferred financing fees and the amortization of the debt discount.

(11) Represents the pro forma effects on preferred dividends, net loss applicable to common stockholders, basic and diluted loss per share and weighted-average shares outstanding of the automatic conversion of outstanding, convertible, redeemable preferred stock into shares of our common stock effective upon the closing of this offering, as if such conversion had occurred on the original date of issuance and the reclassification of all of our shares of common stock subject to repurchase as common stock as if the reclassification of those securities took place on January 1, 2004.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this prospectus. This discussion may contain forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

General

We were founded in August 1999 and commenced commercial operations in the following year with the acquisition of rights to three marketed brands: DynaCirc, Axid and Lescol. Within our first six months of operations, these brands facilitated the establishment of a sales force of more than 750 sales professionals. Since then, we have successfully identified and acquired rights to an additional marketed brand, Rythmol. To support the marketing of the Rythmol brand, we established our cardiovascular specialty sales force, which today consists of approximately 110 sales professionals who target specialty cardiologists. We have also received FDA approval for and market InnoPran XL and Antara, which we began promoting in January 2004 and February 2005, respectively. Additionally, we have received FDA approval for Omacor, which we expect to launch in late 2005.

Our sales infrastructure has grown with our product portfolio and is now comprised of nearly 1,000 sales professionals throughout the United States. As our product portfolio grows and we launch additional products, we intend to continue to expand our sales force. We also acquire mid- to late-stage development compounds and advance them through clinical trials with the objective of obtaining FDA marketing approval. In addition, we use product life cycle management strategies to extend the life and marketing exclusivity of our owned product portfolio. For example, we conduct clinical trials to obtain additional FDA-approved uses. We further develop product enhancements that improve safety, convenience or compliance to enhance therapeutic value.

In 2004, we recorded $222.3 million in total revenues, of which $117.2 million was derived from net sales of our owned products and of which $105.1 million was promotion revenues, and we incurred a net loss of $106.2 million. Since 2003, our net product sales have represented an increasing portion of our revenues, and we expect this trend to continue in the near future.

Principal Drivers Affecting Our Business

We derive our revenues from the following:

net product sales, which are based on the volume and the average net unit selling price of our owned products; and

promotion revenues received for our marketing efforts pursuant to promotion agreements.

Our costs and expenses primarily consist of:

cost of products sold, which includes royalties owed on certain of our products;

cost of promotion revenues, which is the cost associated with the products we market pursuant to promotion agreements;

sales and marketing, which is the cost associated with the sale of our owned products;

general and administrative expenses;

amortization of intangibles;

research and development; and

interest expense.

We currently market four owned product brands from which we derive a substantial portion of our revenue. The primary drivers of our net product sales are the level of prescription demand and the average net unit selling price of our owned products. The absolute level of our average net unit selling price is impacted by the amount of rebates we are required to pay under Medicaid, managed care and other commercial contractual programs and the amount of chargebacks, returns, and coupons and co-pay assistance debit cards issued in respect of our products. Our top three wholesalers accounted for 74% and 77% of gross product sales in 2004 and the first quarter of 2005. We believe that sales of a limited number of products and sales to a limited number of wholesalers will continue to constitute a significant portion of our revenues for the foreseeable future.

Promotion revenues for 2004 and the first quarter of 2005 constituted 47% and 25% of our revenues, which was derived from our marketing efforts pursuant to our current promotion agreement with Novartis. Novartis records the net sales for the Lescol brands and we receive promotion revenues equal to a substantial percentage of the net sales of the Lescol brands.

We market products that we believe are promotionally sensitive, and we believe that our revenues are driven by the success and level of our promotional activities. These promotional activities represent a significant expense to us. Costs related to sales and marketing increased by 181% to $113.3 million in 2004 compared to $40.3 million in 2003, while cost of promotion revenues decreased by 46% to $88.1 million in 2004 compared to $164.3 million in 2003. In the aggregate, sales and marketing expenses and cost of promotion revenues decreased by 2% to $201.4 million in 2004 compared to $204.6 million in 2003. For the first quarter of 2005, cost of promotion revenues were $22.2 million and sales and marketing expenses were $34.2 million. We expect our spending in sales and marketing efforts to increase as we introduce additional products into the marketplace. We plan to add approximately 200 sales professionals in preparation for the launch of Omacor in late 2005.

The cost of products that we sell is also one of our primary expenses. Third-parties manufacture all of our products, and we do not have manufacturing facilities, personnel or the active pharmaceutical ingredients to manufacture our products independently. Changes in the price of raw materials and manufacturing costs could adversely affect the gross margins realized on the sale of our products. Any disruptions in supply could adversely affect our ability to meet demand and generate sales of our products.

Research and development also represents another component of our expenses. To develop our drug candidates, we use in-house expertise as well as third-party proprietary drug delivery systems, formulation technologies and clinical patient recruitment and monitoring services. Upfront and milestone payments made to third-parties in connection with research and collaborative arrangements are expensed as incurred up to the point of product regulatory approval. Conducting clinical trials is a complicated, lengthy and expensive process and may not always result in FDA approval. Our research and development expenses were approximately $37.7 million in 2004 and approximately $6.8 million for the first quarter of 2005. We expect to incur significant costs related to development projects in the near term. Additionally, we have in the past sought, and may continue to seek, to acquire rights to product candidates in mid- to late-stage clinical development and/or promotionally sensitive pharmaceutical products. To acquire these rights, we may be required to expend significant financial resources and may incur increased amortization expense or one-time charges related to in-process research and development.

We are a highly leveraged company, and our financial performance could be affected by our significant indebtedness and our significant debt service obligations. As of March 31, 2005, our pro forma indebtedness was $168.4 million, and we expect our annual interest expense to be approximately $28.0 million in 2005 and $35.9 million in 2006. Of this interest expense, we expect to pay $11.9 million in 2005 and $15.6 million in 2006 in cash. These payments will reduce the amount of money available to finance our operations and other business activities.

The following factors impacting our business environment have had a material impact on our historical performance or are reasonably likely to have material effects in the future:

Competition: Most of our products compete directly with products of large global pharmaceutical companies with financial resources substantially greater than our own. Our ability to compete effectively with these companies is driven in part by our selection of products for marketing or development. We believe products with proven safety, demonstrated efficacy and differentiated features and benefits are more likely to be more successful than the products against which they will compete.

Patent Protection and FDA-Granted Marketing Exclusivity: Upon loss of patent protection and/or FDA-granted marketing exclusivity for our products, we are potentially subject to competition from generic versions of our branded products. These generics are typically priced at lower levels and may substantially erode the dispensed prescriptions and sales of our products. Our product acquisition strategy focuses on products that have FDA-granted marketing exclusivity and the potential for line extensions that extend FDA-granted marketing exclusivity and may also be eligible for patent protection.

Price Pressures: We are subject to price pressures resulting from increasingly restricted formularies that third-party payors use to determine which products will be reimbursed and the potential for importation of lower-priced drugs from foreign sources. The U.S. healthcare industry is subject to various government-imposed laws and regulations that are intended to limit the prices paid by government programs and entities for pharmaceutical products, and these laws and regulations could have an adverse impact on our ability to market and sell our products profitably. In order to combat this price pressure, in our promotion campaigns, we increasingly stress the benefits of our products versus their cost. We and the industry continue to educate the public on the benefits of innovative pharmaceutical research.

New Drug Discovery: The discovery of innovative and improved pharmaceuticals can make older drug therapies obsolete. We must continually seek and gain access to new discoveries. Our systematic approach to drug search and development focuses on companies around the world that are a continuous source of innovation.

For a more detailed discussion of the risks we face, see “Risk Factors.”

Our Product Portfolio

The following table sets out a breakdown of our revenues for each of our products, including the percentage increase/(decrease) in the product revenue from the previous period, for the periods indicated:


	Years Ended December 31,													Three Months Ended March 31,
	2002				2003					2004				2004				2005
	(in millions and in percentages)
														(unaudited)
Net Product Sales:
DynaCirc CR	$	14.6	186	%	$	15.9		9	%	$	34.0	114	%	$	10.6	152	%	$	6.5	(38	)%
DynaCirc		26.6	(2	)		23.8		(11	)		22.3	(6	)		6.9	(12	)		2.9	(58	)
Rythmol SR											26.1	—			6.6	—			11.4	73
Rythmol											22.7	—			8.3	—			2.1	(75	)
InnoPran XL						0.7		—			7.0	900			0.7	—			3.0	329
Antara																			4.4	—
Axid		64.7	(68	)		(11.0	)	—			5.1	—			0.9	550			—	(100	)
Axid OS																			0.2	—

Subtotal	$	105.9	(55	)%	$	29.4		(72	)%	$	117.2	299	%	$	34.0	188	%	$	30.5	(10	)%

Promotion Revenues:
Lescol and Lescol XL	$	68.0	60	%	$	121.5		79	%	$	105.1	(13	)%	$	21.1	(35	)%	$	10.1	(52	)%
Other		3.5	—			20.9		497	%		—	(100	)%		—	(100	)%		—	—

Subtotal	$	71.5	68	%	$	142.4		99	%	$	105.1	(26	)%	$	21.1	(41	)%	$	10.1	(52	)%

Total Revenues	$	177.4	(36	)%	$	171.8		(3	)%	$	222.3	29	%	$	55.1	16	%	$	40.6	(26	)%

DynaCirc and DynaCirc CR

In July 2000, we acquired from Novartis an exclusive license to market, sell and distribute the DynaCirc family of antihypertensive products (DynaCirc and DynaCirc CR) in the United States for $47.6 million. Net sales in the United States by Novartis of the DynaCirc family of products in 1999 were approximately $35.0 million. Net sales in the United States by Novartis of DynaCirc CR, the brand we currently promote, were approximately $3.0 million in 1999. Pursuant to our manufacturing and distribution agreement with Novartis, we were required to purchase, at predetermined prices, all of our requirements for DynaCirc brand products and product samples from Novartis during the license term. We were also granted an option to acquire the brand for $12.5 million. We exercised this option and completed the acquisition of the DynaCirc family of products in March 2003.

Net sales of the DynaCirc family of products were $56.3 million in 2004 and $9.4 million in the first quarter of 2005. Net sales of the promoted product, DynaCirc CR, were $34.0 million in 2004 and $6.5 million in the first quarter of 2005. DynaCirc CR prescription demand increased by 65% in 2004 compared to 2003 and 97% in the first quarter of 2005 compared to the corresponding period in 2004. The patent applicable to isradipine, the active ingredient used in the DynaCirc products, expired in August 2003. As a result, we no longer actively promote DynaCirc and we expect sales of DynaCirc to continue to decline. To date, no competing generic isradipine products have been approved by the FDA. However, we recently became aware that a third party filed an ANDA for isradipine in November 2004. We continue to actively promote DynaCirc CR, which has four formulation patents, three of which expire in October 2007 and one of which expires in July 2008. Our gross profit for the brand averaged 79% over the three most recent fiscal years. We are currently formulating the next generation of DynaCirc CR.

Rythmol and Rythmol SR

In December 2003, we acquired the U.S. rights to the Rythmol product family of anti-arrhythmics (Rythmol and Rythmol SR) from Abbott for $93.0 million. Rythmol has been marketed for more than 12 years. The peak sales in the United States for Rythmol, prior to losing its marketing exclusivity, were approximately $116.3 million in 2000. Net sales of Rythmol in the 12 months preceding our acquisition were $21.6 million. Rythmol SR, a sustained release formulation, was approved by the FDA in September 2003, and we began promoting Rythmol SR in February 2004. Net sales of the Rythmol family of products were $48.8 million in 2004 and $13.5 million in the first quarter of 2005. Net sales of the promoted product, Rythmol SR, were $26.1 million in 2004 and $11.4 million in the first quarter of 2005. Rythmol SR is protected by a formulation patent, which expires in October 2014 and has Hatch-Waxman exclusivity expiring in September 2006.

InnoPran XL

We received FDA approval in March 2003 for InnoPran XL, an internally developed extended release formulation of propranolol, for the treatment of high blood pressure. However, largely due to our co-promotion activities, we were unable to commit meaningful sales force resources to launch InnoPran XL until January 2004. Net sales of InnoPran XL were $7.0 million in 2004 and $3.0 million in the first quarter of 2005. Prescription demand increased by 518% in 2004 compared to 2003 and 155% in the first quarter of 2005 compared to the corresponding period in 2004.

InnoPran XL has three years of FDA-granted marketing exclusivity under the Hatch-Waxman Act through March 2006 and is protected by a formulation patent through October 2021. Additional patents are pending.

Antara

In November 2004, we received FDA approval to market Antara, a fenofibrate product we license from Ethypharm. To date, we have paid Ethypharm milestone and license payments totaling $1.3 million and expect to pay Ethypharm an additional $0.9 million in milestone and license payments within the next 18 months. We launched Antara in February 2005. Net sales for the first quarter of 2005 were $4.4 million, primarily resulting from the wholesaler and retailer inventory stocking process typically associated with a product launch. At the time of approval, Antara did not receive any FDA-granted marketing exclusivity but is protected by a formulation patent that expires in August 2007. Additional patents are pending.

Omacor

In August 2004, we acquired U.S. rights to Omacor, omega 3 acid ethyl esters, predominantly EPA and DHA, from Pronova. To date, we have paid Pronova $25.0 million and may be required to pay up to an additional $35.0 million, less certain reimbursements for product development costs, upon the achievement of certain milestones. Under the terms of the agreement, we have exclusive marketing and distribution rights in the United States and Puerto Rico and maintain the NDA. In November 2004, Omacor was approved by the FDA in connection with a healthy diet for the reduction of triglycerides in adult patients with very high triglycerides (500 mg/dL and greater). We intend to launch Omacor in late 2005. Omacor is entitled to five years of FDA-granted marketing exclusivity in the United States under the Hatch-Waxman Act, which will expire in November 2009. Omacor is also protected by method of use and formulation patents, the last of which expires in August 2014.

Lescol and Lescol XL

In November 2000, we entered into a five year promotion agreement with Novartis to acquire marketing rights to the Lescol family of cholesterol management products (Lescol and Lescol XL) in the United States, for $40.0 million. Net sales of the Lescol family of products as reported by Novartis were $284.0 million in 2004, a decline of $22.5 million from 2003, due in large part to the publication of clinical results demonstrating the benefits of higher potency statins, as well as the significant promotion spending by Pfizer (in support of the statin market leader, Lipitor), AstraZeneca (in support of Crestor) and Merck/Schering-Plough (in support of Vytorin). In the first quarter of 2005, Novartis reported net sales of the Lescol family of products of $43.2 million. Prescription demand for Lescol XL, the brand we actively promote, increased by 2% in 2004 compared to 2003 and decreased 7% in the first quarter of 2005 compared to the corresponding period in 2004. Under our promotion agreement, for the years 2000 through 2005, Novartis records the sales for the Lescol brands and we receive promotion revenues equal to a substantial percentage of the sales of the Lescol brands above contractually specified minimum sales levels. Promotion revenues we earned under this agreement amounted to $105.1 million in 2004 and $10.1 million in the first quarter of 2005. The percentage of Lescol brand net sales of Novartis that we received as promotion revenues in 2004 and the first quarter of 2005 were 37% and 23%, respectively.

In April 2005, we agreed to extend the term of our promotional efforts on the Lescol family of products through December 31, 2007. Under the terms of the agreement, we will continue to promote Lescol XL with our primary care and specialty sales forces. Either party has the right to terminate the promotion agreement without cause with 90 days advance written notice with effect beginning January 1, 2006. Beginning on January 1, 2006, Novartis is obligated to reimburse us for all promotional and selling and marketing expenses related to our promotion of the Lescol family of products. Also, beginning on January 1, 2006, we will receive a residual payment equal to 20% of Lescol brand net sales in 2006 and 10% of such net sales in 2007. The patent exclusivity applicable to the Lescol products, expires in December 2011.

Other Promotion Activities

In October 2002, we entered into a co-promotion agreement with Biovail Pharmaceuticals, Inc. in which we agreed to promote five of its brands. From October 2002 to December 2003, we promoted those brands and received royalties based upon the net sales for those brands. Those royalties totaled $3.5 million for 2002 and $20.9 million for 2003. Our cost to promote the brands totaled $8.1 million in 2002 and $69.3 million in 2003. Effective December 31, 2003, the parties mutually agreed to terminate this agreement. As a result of the termination, we received a one-time payment of $61.0 million from Biovail, which was included in other income in 2003.

Axid and Axid Oral Solution

In October 2000, we acquired from Lilly exclusive U.S. rights to certain patents, trademarks and copyrights for the Axid brand for $20.0 million. Net sales in the United States by Lilly of Axid in 1999 were approximately $239.2 million. We were also required to purchase from Lilly certain minimum quantities of samples, as well as certain minimum quantities of the product at a cost of 95% of the estimated net selling price of the product, subject to certain purchase price adjustments for volumes above the specified minimums.

Our net sales of Axid were $202.0 million in 2001 but declined to $64.7 million in 2002 with the loss of patent protection in April 2002 and marketing exclusivity in July 2002 resulting from the FDA’s denial of our request for an additional six months of pediatric exclusivity. Net sales of Axid in 2003 and 2004 were not significant. Due to the amount and expiration dating of inventory estimated to be held by wholesalers and retailers we have been recording a full product return reserve on all shipments of Axid beginning in the second quarter of 2004, and we expect to continue to do so until October 2005, by which time we anticipate newly dated product will be shipped.

As part of our product life cycle management strategy, we developed Axid OS, a liquid formulation of nizatidine, the active pharmaceutical ingredient in Axid capsules. We filed an NDA with the FDA in April 2002 and received approval to market the product in May 2004 with three years of marketing exclusivity under the Hatch-Waxman Act. We commenced marketing of Axid OS in the third quarter of 2004. Since Axid OS is primarily prescribed by pediatricians, which are outside our target audience, we anticipate divesting the product in 2005.

We filed a patent application covering the formulation of Axid OS in July 2002 for which a notice of allowance was received in April 2005. Additional patent applications for the product were filed in January 2005 and May of 2005, each of which is currently pending.

Product Development Projects

To develop our product candidates, we use in-house expertise as well as third-party proprietary drug delivery systems, formulation technologies and clinical patient recruitment and monitoring services. Our research and development expenses were approximately $37.7 million in 2004 and approximately $6.8 million in the first quarter of 2005. We expect to incur approximately $32.0 million in costs related to research and development projects during 2005, which include:

Antara label expansion;

Rythmol observational registry;

Omacor label expansions/drug interactions studies;

Omacor-statin fixed dose combinations;

Omacor-fenofibrate fixed dose combinations;

DynaCirc CR reformulation;

Propranolol LA; and

RP-606.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to form a basis for making judgments about the carrying values of assets and liabilities and disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. Actual results could differ from these estimates.

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this prospectus, we believe that the following reflect our most critical accounting policies and judgments and estimates used in the preparation of our financial statements:

Revenue Recognition

We recognize revenue in accordance with the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by Staff Accounting Bulletin No. 104, Revenue Recognition (together, “SAB 101”) and Statement of Financial Accounting Standards (“SFAS”) No. 48, Revenue Recognition When Right of Return Exists (“SFAS 48”). We generally recognize revenue at the time products are shipped to the customer. In the case of shipments made to wholesalers that do not meet the revenue recognition criteria of SFAS 48 and SAB 101, we do not recognize revenue upon shipment of product. For these product sales, we invoice the wholesaler and record deferred revenue at gross invoice sales price. We recognize the deferred revenue (net of discounts, rebates, sales allowances and accruals for returns) when the inventory is utilized by the end-user, as quantified using data from third-party information sources. We continue to recognize revenue on these shipments on this basis until such time as all of the revenue recognition criteria of SFAS 48 and SAB 101 are met. We did not record deferred product revenue until the year ended December 31, 2004. The deferred product revenue in 2004 related to shipments of Axid OS. As of December 31, 2004 and March 31, 2005, deferred product revenue for Axid OS was $0.9 million and $0.5 million respectively.

Promotion revenues, which are based on sales reported by third-parties, are recognized once contractual sales performance measures have been met. As of December 31, 2003 and 2004 and March 31, 2005, we had deferred promotion revenues of $10.0 million related to Lescol, which will be recognized on December 31, 2005.

Accruals for Rebates, Returns, Chargebacks, Coupons and Debit Cards

Accrued rebates include amounts we may be required to pay under Medicaid, managed care and other commercial contractual programs. We accrue for rebates in the same period the related sale is recognized. The accruals reduce revenues and are included in accrued expenses. We estimate accrued rebates based on a percentage of selling price determined from historical experience. We evaluate these estimates based on our historical rebate payments by product as a percentage of historical sales, product pricing and current contracts. At the time of rebate payments, which generally occur after the related sales, we record a reduction to accrued expenses and, at the end of each quarter, adjust accrued expenses for any differences between estimated and actual payments. Medicaid pricing programs involve particularly difficult interpretations of relevant statutes and regulatory guidance, which are complex and, in certain respects, ambiguous. Moreover, prevailing interpretations of these statutes and guidance can change over time.

We accrue for returns in the same period the related sale is recognized. The accruals reduce revenues and are included in accrued expenses. We accrue for returns based on historical experience, projected future prescriptions of the products and the amount and expiry of inventory estimated to be in the distribution channel.

We accrue for chargebacks in the same period the related sale is recognized. The accruals reduce revenues and are recorded as contra-accounts receivable. Our chargeback accruals are based on an estimate of claims not yet submitted by customers, using historical experience.

We accrue for coupons and debit cards when they are issued. The accruals reduce revenues and are included in accrued expenses. We accrue for coupons and debit cards based on historical redemption rates for similar programs.

Each reporting period we evaluate these estimates and adjust them as necessary.

Inventory

Inventory is valued at the lower of first-in, first-out cost or market. We estimate the market value or net sales value based on current realization trends. If, on a product basis, the projected net realizable value is less than cost, a provision is made to reflect the lower value of the inventory. This methodology recognizes projected inventory losses at the time the losses are evident rather than at the time the goods are actually sold.

We consider projected demand for our products and product expiry dates in calculating the amount of our inventory reserves. Product demand is projected by estimating future prescriptions based on current and historical trends, market conditions, competitive products and other relevant information.

Volume-based purchase price adjustments were recorded as contra-inventory and recognized as a reduction to cost of product sales in the period the product was sold.

Intangible Assets

When we purchase products or acquire product licenses, we classify the excess of the purchase price over the tangible net assets acquired, if any, as intangible assets. This excess purchase price is allocated to intangible assets, including patents and licenses, based on their estimated fair values. We estimate the useful lives of the assets by factoring in the characteristics of the products such as: patent protection, competition by products prescribed for similar indications, estimated future introductions of competing products and other similar issues, and we amortize the intangibles over the relevant periods. The factors that drive the estimate of the life of the asset are inherently uncertain.

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

When we determine that the carrying value of intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we first perform an assessment of the asset’s recoverability. Recoverability is determined by comparing the carrying amount of an intangible asset against an estimate of the undiscounted future cash flows expected to result from its use and eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the intangible asset, an impairment loss is recognized based on the excess of the carrying amount over the estimated fair value of the intangible asset. As of March 31, 2005, the book value of net intangible assets represented approximately 48% of our total assets. Any determination requiring the write-off of a significant portion of unamortized intangible assets could adversely affect our results of operations and financial condition.

Deferred Tax Assets

Our deferred tax assets are comprised primarily of net operating loss carryforwards for losses incurred since June 29, 2003, the effective date of our election to be treated as a corporation for federal income tax purposes. At March 31, 2005, we had net operating loss carryforwards for federal income tax purposes of an estimated $194.4 million. These loss carryforwards may be used to offset taxable income in future periods, reducing the amount of taxes we might otherwise be required to pay. We establish a valuation allowance to reduce our deferred tax assets to the amounts we expect to realize. Due to a lack of a history of generating taxable income, we record a valuation allowance equal to 100% of our net deferred tax assets. In the event that we are able to generate taxable earnings in the future and determine it is more likely than not that we can realize our deferred tax assets, an adjustment to the valuation allowance would be made that would increase income in the period that such determination is made.

Stock-Based Compensation

We grant stock options to our employees under our Equity Incentive Plans. We account for our stock-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations including SFAS Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—An Interpretation of APB Opinion No. 25. Accordingly, compensation expense is recorded on the date of grant of an option to an employee or member of the Board of Directors only if the market price of the underlying stock on the date of grant exceeds the exercise price.

Pursuant to his employment agreement, Dr. Mario, our Chairman and Chief Executive Officer, is entitled to receive grants of common stock at a price of $0.01 per share so that he or his relevant transferees, at all relevant times, hold common shares of Reliant equal to 1% of the fully diluted shareholder interests of Reliant (as calculated pursuant to the terms of his employment agreement). Accordingly, as a result of this offering, Dr. Mario will receive additional shares of common stock. Upon the issuance of these shares, we will record a charge to earnings equal to the difference between the market price of the shares granted and $0.01 per share. We have estimated that based on additional shares of common stock granted to Dr. Mario upon consummation of this offering at the initial public offering price of $ per share, the mid-point of the range of the estimated initial public offering price of $ and $ set forth on the cover page of this prospectus, the charge would be $ .

Results of Operations

Comparison of the three months ended March 31, 2005 and 2004.

Revenues. Total revenues for the first quarter of 2005 decreased by 26% to $40.6 million compared to the first quarter of 2004. The components of total revenues for these periods were as follows:


	Quarter Ended March 31,
	2004		2005
	(in millions)
Net Product Sales	$	34.0	$	30.5
Promotion Revenues		21.1		10.1

Total Revenues	$	55.1	$	40.6

Net product sales for the first quarter of 2005 decreased $3.5 million, or 10%, to $30.5 million compared to the first quarter of 2004. The decrease in net product sales is primarily attributable to an $8.1 million decrease in net product sales of the DynaCirc brand, partially offset by $4.4 million of net

product sales of Antara, primarily resulting from the wholesaler and retailer inventory stocking process typically associated with a product launch. Sales of the DynaCirc brand were lower in the first quarter of 2005 due primarily to inventory supply shortages of DynaCirc CR as a result of manufacturing difficulties. Additionally, shipments of the DynaCirc brand were higher in the first quarter of 2004 as a result of lower than anticipated shipments in the fourth quarter of 2003 as a result of manufacturing difficulties.

Lescol brand promotion revenues for the first quarter of 2005 decreased $11.0 million, or 52%, to $10.1 million compared to the first quarter of 2004. This decrease in Lescol revenues was attributable to lower sales of the Lescol brand by Novartis, which decreased by $18.4 million in the first quarter of 2005 compared to the first quarter of 2004. We believe that the lower Lescol sales are attributable to a reduction in wholesaler inventory levels. Additionally, Lescol brand prescription demand has been lower as a result of the publication of clinical results demonstrating the benefits of higher potency statins, as well as the significant promotional spending by Pfizer (in support of the statin market leader, Lipitor), AstraZeneca (in support of Crestor) and Merck/Schering-Plough (in support of Vytorin), which has continued to erode the market share of competing statins, including the Lescol brand.

Gross Margin. Gross margin on net product sales for the first quarter of 2005 and the first quarter of 2004 was 76% and 74%, respectively, and was calculated as follows:


	Quarter Ended March 31,
	2004			2005
	(in millions)
Net Product Sales	$	34.0		$	30.5
Cost of Product Sales		8.9			7.4

Gross Margin on Net Product Sales	$	25.1		$	23.1

Gross Margin as a Percentage of Net Product Sales		74	%		76	%

The increase in the gross margin in 2005 as compared to 2004 was favorably impacted by increased sales of the high margin Rythmol SR brand, partially offset by the negative impact of $4.2 million in charges resulting from returns and accruals for expected returns for short dated Axid inventories held by wholesalers and retailers. The DynaCirc CR brand generated a gross margin of 27% and 84% for the first quarter of 2005 and the first quarter of 2004, respectively. The lower margin in the first quarter of 2005 was driven by (1) the write-off of $1.6 million of DynaCirc CR inventory that did not meet quality specifications during the first quarter of 2005; (2) higher net sales adjustments of $1.4 million in the first quarter of 2005, primarily due to increased Medicaid and managed care rebates; and (3) the absence of the receipt of a distribution fee in the first quarter of 2005 versus the receipt of a fee of $0.9 million received in the first quarter of 2004.

Cost of Promotion Revenues. Cost of promotion revenues for the first quarter of 2005 decreased $2.1 million, or 9%, to $22.2 million compared to the first quarter of 2004. The decrease was due to a reduction in promotional spending in anticipation of the extension of the Lescol agreement with Novartis, which reduces the contractually required promotional spending in 2005 by $10 million.

Sales and Marketing. Sales and marketing expenses for the first quarter of 2005 and the first quarter of 2004 were $34.2 million and $25.8 million, respectively. The increase of $8.4 million, or 33%, is attributable to an increase in promotional spending in connection with the launch of Antara, partially offset by a decrease in spending on other brands. We incurred a total of $17.3 million in sales and marketing expenses for Antara during the first quarter of 2005. The sales and marketing expenses for all other brands decreased by 35% to $16.9 million for the first quarter of 2005 from $25.8 million for the corresponding period for 2004.

General and Administrative. General and administrative expenses for the first quarter of 2005 and the first quarter of 2004 were $6.3 million and $7.1 million, respectively. The decrease of $0.8 million, or 11%, was attributable to lower costs associated with the DynaCirc CR manufacturing site transfer.

Amortization of Intangible Assets. Amortization of intangible assets for the first quarter of 2005 and the first quarter of 2004 was $7.9 million and $7.2 million, respectively. The increase of $0.7 million, or 10%, was attributable to the amortization of the Omacor and Antara intangible assets, resulting from milestone payments in November 2004.

Research and Development. Research and development expense for the first quarter of 2005 and the first quarter of 2004 was $6.8 million and $6.2 million, respectively. The increase of $0.6 million, or 10%, was primarily related to increased spending on the development of Omacor ($1.5 million), Rythmol SR ($1.3 million) and the DynaCirc CR reformulation ($0.3 million), partially offset by decreased spending on RP-606 ($2.4 million).

Other Expense, Net. Other expense, net for the first quarter of 2005 and the first quarter of 2004 was $0.8 million and approximately zero, respectively. We recorded other expense, net of $0.8 million in the first quarter of 2005 for a termination fee payment to be made to Cipher Pharmaceuticals Ltd. resulting from the termination of the distribution and supply agreement relating to Cipher’s fenofibrate product in February 2005.

Interest Expense. Interest expense for the first quarter of 2005 was $3.3 million. Interest expense incurred during the first quarter of 2005 primarily consisted of interest attributable to the $95.0 million term loan agreement entered into in September 2004. We did not record any interest expense in the first quarter of 2004.

Interest Income. Interest income for the first quarter of 2005 and the first quarter of 2004 was $0.3 million and $0.2 million, respectively.

Income Tax Provision. Prior to June 29, 2003, we were taxed as a partnership for income tax purposes, with profits or losses allocated to and reported on the tax return of each member. Effective June 29, 2003, we elected to be treated as a corporation for federal and state income tax purposes. As of March 31, 2005, we had estimated net operating losses for federal and state income tax purposes of $194.4 million, which for federal income tax purposes begin to expire in 2023 and for state income tax purposes expire in various years through 2024. Similar carryforwards with varying expiration dates are available for state income tax purposes. Income taxes were accounted for using the liability method with a valuation allowance established reducing the deferred tax assets attributable to the above carryforwards to zero as of March 31, 2005. An income tax provision of approximately zero and $0.1 million was recorded for the first quarter of 2005 and the first quarter of 2004, respectively, for certain state taxes.

Net Loss. As a result of the items discussed above, we incurred a net loss of $47.9 million for the first quarter of 2005 and $24.2 million for the first quarter of 2004, and a net loss applicable to common stockholders of $91.7 million for the first quarter of 2005 and $38.8 million for the first quarter of 2004.

Comparison of the fiscal years ended December 31, 2004 and 2003.

Revenues. Total net revenues in 2004 increased by 29% to $222.3 million compared to 2003. The components of total revenues for these periods were as follows:


	Year Ended December 31,
	2003		2004
	(in millions)
Net Product Sales	$	29.4	$	117.2
Promotion Revenues		142.4		105.1

Total Revenues	$	171.8	$	222.3

Net product sales for 2004 increased $87.8 million, or 299%, to $117.2 million compared to 2003. The increase in net product sales in 2004 was primarily due to the net product sales of the Rythmol brand of $48.8 million in 2004, which was acquired by us in December 2003 and launched in February 2004, as well as an $18.1 million, or 114%, increase in net product sales of DynaCirc CR to $34.0 million in 2004 compared to 2003. Net product sales in 2004 were positively impacted by the reversal of a previously accrued Medicaid liability of $4.2 million, as payment of such liability is no longer probable. Net product sales for 2003 were negatively impacted by $24.0 million in charges resulting from returns and accruals for expected returns of short-dated InnoPran XL and Axid held by wholesalers.

Promotion revenues for 2004 decreased $37.3 million or 26% to $105.1 million compared to 2003. The components of promotion revenues for these periods were as follows:


	Year Ended December 31,
	2003		2004
	(in millions)
Promotion Revenue—Lescol	$	121.5	$	105.1
Promotion Revenue—Other		20.9		—

Total Promotion Revenue	$	142.4	$	105.1

Lescol brand promotion revenue for 2004 decreased $16.4 million, or 13%, to $105.1 million compared to 2003. The decrease in Lescol revenues was attributable to lower net sales of the Lescol brand, which decreased $22.5 million in 2004 compared to 2003, resulting in part from the publication of clinical results demonstrating the benefits of higher potency statins, as well as significant promotional spending by Pfizer, AstraZeneca, and Merck/Schering-Plough, which continued to erode the market share of competing statins, including Lescol.

We did not record any promotion revenues for 2004 with respect to the Biovail co-promotion agreement, which was terminated effective December 31, 2003.

Gross Margin. Gross margin on net product sales for 2004 and 2003 was 82% and 35%, respectively, and was calculated as follows:


	Year Ended December 31,
	2003			2004
	(in millions)
Net Product Sales	$	29.3		$	117.2
Cost of Product Sales		19.0			21.4

Gross Margin on Net Product Sales	$	10.3		$	95.8

Gross Margin as a Percentage of Net Product Sales		35	%		82	%

Gross margin on product sales was negatively impacted by charges for returns and accruals for expected returns of short-dated inventory, primarily related to Axid and InnoPran XL, of $5.0 million in 2004 and $8.3 million in 2003. The improvement in gross margin in 2004 compared to 2003 was attributable to the addition of the Rythmol brand to the portfolio in February 2004, which yielded a gross margin on net sales of 90% in 2004. Additionally, the gross margin for the DynaCirc brands improved to 84% in 2004 compared to 78% in 2003 with the transfer of manufacturing of DynaCirc from Novartis to another third-party manufacturer and lower inventory costs for DynaCirc CR.

Cost of Promotion Revenues. Cost of promotion revenues for 2004 decreased $76.2 million, or 46%, to $88.1 million compared to 2003. The decrease was primarily due to a $69.3 million

decrease in costs associated with our co-promotion agreement with Biovail, which was terminated effective December 31, 2003, as well as a $6.8 million reduction in costs to promote Lescol XL as a result of the shift of promotion spending from Lescol XL to our owned brands.

Sales and Marketing. Sales and marketing expenses for 2004 and 2003 were $113.3 million and $40.3 million, respectively. The increase of $73.0 million, or 181%, was attributable to the redeployment of sales force efforts from promoting Biovail products in 2003 to promoting our owned products in 2004, additional sales calls as a result of an expanded sales force and a shift in sales force efforts from promoting Lescol XL to our owned brands.

General and Administrative. General and administrative expenses for 2004 and 2003 were $35.7 million and $21.2 million, respectively. The increase of $14.5 million, or 68%, was primarily attributable to additional costs associated with the DynaCirc manufacturing site transfers ($4.1 million), increased personnel ($3.9 million), provisions for shareholder loans receivable ($2.1 million) and increased legal costs ($1.8 million).

Amortization of Intangible Assets. Amortization of intangible assets for 2004 and 2003 was $29.3 million and $11.9 million, respectively. The increase of $17.4 million, or 146%, was attributable primarily to the amortization of the Rythmol brand intangible assets acquired in December 2003 and the amortization of the Omacor and Antara intangible assets resulting from the milestone payments made as a result of its FDA approval in November 2004.

Research and Development. Research and development expense for 2004 and 2003 was $37.7 million and $18.0 million, respectively. The increase of $19.7 million, or 109%, was primarily related to a licensing payment of $10.0 million made in September 2004 prior to product approval to acquire the rights to market, sell and distribute Omacor in the United States and Puerto Rico, as well as increased clinical trial costs to develop RP-606 and Propranolol LA.

Other (Income) Expense, Net. Other expense, net for 2004 was approximately zero as compared to other income, net of $57.7 million for 2003. Other income, net in 2003 represented a one-time termination fee of $61.0 million recognized in December 2003 upon termination of the co-promotion agreement with Biovail, partially offset by a contractual minimum royalty charge of $3.3 million on new formulations of Axid.

Interest Expense. Interest expense for 2004 and 2003 was $4.2 million and $5.0 million, respectively. Interest expense incurred in 2004 primarily consisted of interest attributable to the $95.0 million term loan agreement entered into in September 2004. Interest expense incurred in 2003 was related to long-term debt outstanding in 2003 and certain bridge loans issued and outstanding in 2003 prior to the initial closing of our Series D financing in September 2003. All 2003 debt was paid down or converted into Series D convertible, redeemable preferred units in late 2003 following receipt of the initial proceeds from our Series D preferred financing and the termination fee from Biovail.

Interest Income. Interest income for 2004 and 2003 was $1.0 million and $0.6 million, respectively. The increase was attributable to higher average cash and cash equivalents.

established reducing the deferred tax assets attributable to the above carryforwards to zero as of December 31, 2004. An income tax benefit of $0.3 million was recorded in 2004 for certain state taxes.

Net Loss. As a result of the items discussed above, we incurred a net loss of $106.2 million in 2004 and $49.8 million in 2003, and a net loss applicable to common stockholders of $170.8 million in 2004 and $88.4 million in 2003.

Comparison of the fiscal years ended December 31, 2003 and 2002.

Revenues. Total revenues for 2003 decreased by 3% to $171.8 million compared to 2002. The components of total revenues for these periods were as follows:


	Year Ended December 31,
	2002		2003
	(in millions)
Net Product Sales	$	105.9	$	29.4
Promotion Revenues		71.5		142.4

Total Revenues	$	177.4	$	171.8

Net product sales for 2003 decreased $76.5 million or 72% to $29.4 million compared to $105.9 million in 2002. Net product sales for 2003 were negatively impacted by a $75.7 million decline in Axid net product sales following the loss of marketing exclusivity in July 2002 and the concurrent discontinuation of promotional activities.

Promotion revenues for 2003 increased $70.9 million, or 99%, to $142.4 million compared to 2002. The components of promotion revenues for these periods were as follows:


	Year Ended December 31,
	2002		2003
	(in millions)
Promotion Revenue—Lescol	$	68.0	$	121.5
Promotion Revenue—Other		3.5		20.9

Total Promotion Revenue	$	71.5	$	142.4

Lescol brand promotion revenue for 2003 increased $53.5 million, or 79%, to $121.5 million compared to 2002. The increase in Lescol revenues was attributable to increased net sales of the Lescol brand by Novartis, which increased $50.3 million in 2003 compared to 2002.

Promotion revenues for 2003 with respect to a co-promotion agreement increased $17.4 million compared to 2002, reflecting a full year of promotion in 2003 compared to three months of promotion in 2002.

Gross Margin. Gross margin on product sales for 2003 and 2002 was 35% and 29%, respectively, and was calculated as follows:


	Year Ended December 31,
	2002			2003
	(in millions)
Net Product Sales	$	105.9		$	29.4
Cost of Product Sales		75.4			19.0

Gross Margin on Net Product Sales	$	30.5		$	10.4

Gross Margin as a Percentage of Net Product Sales		29	%		35	%

Overall gross margins in 2003 and 2002 were negatively affected by charges taken for product returns and short-dated and excess inventories, particularly with respect to Axid. Improvement in gross margin in 2003 was the direct result of a decline in sales of lower margin Axid and an increase in sales of the DynaCirc brand whose gross margin improved to 78% in 2003 compared to 77% in 2002.

Cost of Promotion Revenues. Cost of promotion revenues for 2003 increased $59.6 million, or 57%, to $164.3 million compared to 2002. The increase is due to a $61.3 million increase in costs associated with a co-promotion agreement reflecting a full year of promotion in 2003 compared to three months of promotion in 2002. The costs to promote Lescol XL in 2003 were relatively consistent with 2002, decreasing $1.7 million in 2003 compared to 2002.

Sales and Marketing. Sales and marketing expenses for 2003 and 2002 were $40.3 million and $46.1 million, respectively. The decrease of $5.8 million, or 13%, is attributable to the discontinuation of promotional activities in support of Axid following its loss of marketing exclusivity in July 2002, resulting in decreased sales and marketing expense of $17.1 million, as well as a decrease in sales and marketing spend on the DynaCirc family of products of $7.9 million due to the reallocation of sales force for the co-promotion of products in late 2002 and 2003, which were partially offset by an increase of $18.0 million in sales and marketing expense incurred in 2003 in support of the launch of InnoPran XL.

General and Administrative. General and administrative expenses for 2003 and 2002 were $21.2 million and $19.7 million, respectively. The increase of $1.5 million, or 8%, was primarily attributable to increased non-capitalizable consulting fees associated with the implementation of a spend management system, tax consulting costs related to our conversion from a limited liability company to a corporation, costs associated with the DynaCirc CR manufacturing site transfer and increased maintenance and depreciation resulting from our acquisition of a fractional interest in an aircraft.

Amortization of Intangible Assets. Amortization of intangible assets for 2003 and 2002 was $11.9 million and $25.5 million, respectively. The decrease of $13.6 million, or 53%, was attributable to a decrease of $15.2 million in amortization associated with the acquisition of an exclusive U.S. license for the DynaCirc family of products, which license expired in December 2002, partially offset by one month of amortization of Rythmol brand intangible assets, which we acquired in December 2003.

Research and Development. Research and development expense for 2003 and 2002 was $18.0 million and $26.0 million, respectively. The decrease of $8.0 million, or 31%, was primarily related to the completion or termination of development projects in support of Axid line extensions.

Other (Income) Expense, Net. Other income, net for 2003 was $57.7 million as compared to other expense, net of $0.4 million for 2002. The other income, net in 2003 represented a one-time termination fee of $61.0 million recognized in December 2003 upon termination of the co-promotion agreement with Biovail, partially offset by a contractual minimum royalty charge on new formulations of Axid of $3.3 million.

Interest Expense. Interest expense for 2003 and 2002 was $5.0 million and $1.1 million, respectively. The increase in interest expense in 2003 was attributable to the issuance of long-term debt in 2002 and 2003 and certain bridge loans issued in 2003 prior to the initial closing of our Series D financing in September 2003. All debt was subsequently paid down or converted into Series D convertible, redeemable preferred units in late 2003 following receipt of the initial proceeds from our preferred Series D financing and the termination fee from Biovail. The lower interest expense in 2002 was attributable to the exchange of borrowings under a bridge loan for Series C convertible, redeemable preferred units in December 2001.

Interest Income. Interest income for 2003 and 2002 was $0.6 million and $0.9 million, respectively.

Net Loss. As a result of the items discussed above, we incurred a net loss of $49.8 million in 2003 and $120.7 million in 2002, and a net loss applicable to common stockholders of $88.4 million in 2003 and $152.3 million in 2002.

Liquidity and Capital Resources

Since our inception in August 1999, we have financed our operations primarily through the sales of preferred equity interests supplemented from time to time with various forms of debt. We have received a total of $574.1 million from these private offerings.

We incurred a net loss of $47.9 million in the first quarter of 2005, $106.2 million in 2004, $49.8 million (which includes a one-time non-operating gain of $61.0 million) in 2003 and $120.7 million in 2002. As of March 31, 2005, we had an accumulated deficit of $744.4 million. We plan to continue our investments in the licensing or acquisition of new products and product development candidates, as well as to continue to develop product candidates with patent protection and marketing exclusivity.

At March 31, 2005, our principal sources of liquidity consisted of $29.9 million in cash and cash equivalents and $5.1 million available for borrowing under a revolving credit facility. In addition, on April 13, 2005, we concurrently entered into three separate financing transactions (see discussion under “Term Loans” below). These transactions resulted in $170.0 million in new borrowings. A substantial portion of the proceeds from these borrowings were used to repay the $95.0 million in indebtedness incurred in September 2004. As a result of these transactions we received net proceeds of $62.4 million, net of amounts deposited in the interest reserve fund and deferred financing costs paid at closing, and have an additional $29.625 million available for borrowing under a third-lien term loan.

Our management believes that our existing capital resources, including the net proceeds of this offering, in combination with the net proceeds from our financing activities in April 2005 and $29.625 million available for borrowing under our third-lien term loan and up to an additional $25.0 million under our revolving credit facility will be sufficient to maintain and grow our current operations. Our longer-term liquidity and capital requirements will depend upon numerous factors including our operating performance, significant economic, regulatory, product supply and competitive uncertainties in addition to the cost to license or acquire new products or product development candidates, the expansion of our sales force and related infrastructure and the conduct of clinical trials in support of development projects. If required, we may raise such additional funds through public or private debt or equity financings or other arrangements. There can be no assurance that such financing will be available on terms acceptable to us, if at all, or that such financing will not be dilutive to our stockholders.

Summary of Cash Flows


	Year Ended December 31,									Three Months Ended March 31,
	2002			2003			2004			2004			2005
	(in millions)									(in millions)
Cash (used in) provided by:
Operating activities	$	(102.1	)	$	(30.4	)	$	(117.9	)	$	(46.8	)	$	(24.5	)
Investing activities		(2.2	)		(107.5	)		(20.3	)		(1.9	)		(1.6	)
Financing activities		70.4			200.4			101.9			0.9			(2.3	)

Net (decrease)/increase in cash and cash equivalents	$	(33.9	)	$	62.5		$	(36.3	)	$	(47.8	)	$	(28.4	)

Cash used in operating activities was $24.5 million and $46.8 million for the first quarter of 2005 and the first quarter of 2004, respectively. Cash used in operating activities during the first quarter of 2005 was primarily the result of a net loss of $47.9 million. Cash used in operating activities during the first quarter of 2004 was primarily the result of a net loss of $24.2 million and an increase in accounts receivable of $17.3 million primarily driven by extended payment terms provided upon the launch of the Rythmol brands. Cash used in operating activities was $117.9 million, $30.4 million and $102.1 million for 2004, 2003 and 2002, respectively. Cash used in operating activities during 2004, 2003 and 2002 was primarily the result of the net loss incurred in each corresponding year.

Cash used in investing activities was $1.6 million and $1.9 million for the first quarter of 2005 and the first quarter of 2004, respectively. Cash used in investing activities during the first quarter of 2005 was primarily for capital expenditures to support the expansion of our training, sales, and marketing facilities and computer software upgrades. Cash used in investing activities during the first quarter of 2004 was primarily the result of capital expenditures to support our new sales training center. Cash used in investing activities was $20.3 million, $107.5 million and $2.2 million in 2004, 2003 and 2002, respectively. Cash used in investing activities during 2004 was the result of licensing payments for Omacor and Antara as well as capital expenditures to support our new sales training center, computer software upgrades and the transfer of the manufacturing of DynaCirc CR from Novartis to Patheon. Cash used in investing activities in 2003 was for the acquisition of the exclusive U.S. rights to the Rythmol brands from Abbott for $93.0 million in December 2003 and $12.5 million for the acquisition of the DynaCirc brand in March 2003.

Cash used in financing activities was $2.3 million for the first quarter of 2005 as compared to cash provided by financing activities of $0.9 million for the first quarter of 2004. Cash used in financing activities during the first quarter of 2005 was primarily for the repayment of borrowings under the revolving credit facility. Cash provided by financing activities during the first quarter of 2004 was primarily from the issuance of Series D convertible, redeemable preferred units. Cash from financing activities was $101.9 million, $200.4 million and $70.4 million in 2004, 2003 and 2002, respectively. Cash provided by financing activities in 2004 was primarily from proceeds received upon entering a $95.0 million term loan in September 2004, as well as borrowings under the revolving credit facility. Cash provided by financing activities in 2003 was primarily from the initial and interim closings of the Series D financing round of $199.7 million. This financing, together with the Biovail termination payment of $61.0 million, served to eliminate all debt by December 31, 2003, including the payment of $64.4 million in principal and interest outstanding under the credit facility. The balance outstanding of approximately $19.1 million under this credit facility was converted into Series D convertible, redeemable preferred stock. This credit agreement was terminated in December 2003. Cash provided by financing activities in 2002 was primarily from the issuance of long-term debt of $60.2 million and $9.2 million of additional proceeds from the completion of the Series C financing round.

Credit Facilities

We entered into a $25.0 million syndicated revolving credit facility arranged by Merrill Lynch Capital on August 19, 2004, secured by a lien on our accounts receivable and proceeds therefrom. Amounts available for borrowing under the revolving credit facility are based on 85% of our eligible accounts receivable, as defined in the credit facility, reduced by reserves, if any, established by Merrill Lynch Capital in its commercially reasonable credit judgment. The revolving credit facility contains a number of negative covenants restricting, among other things, indebtedness, liens, restricted payments (including dividends), mergers and acquisitions, sales and purchases of assets, modifications to material contracts, transactions with affiliates, conduct of business, and bank accounts. The revolving credit facility also contains a financial covenant that requires our average monthly total revenues, calculated on a trailing twelve month basis, to not equal less than $11.6 million per month for a period

of three consecutive months. As of March 31, 2005, there was $7.2 million outstanding under the revolving credit facility and $5.1 million available for borrowing. The revolving credit facility accrues interest at LIBOR plus 3.0%. All borrowings under the revolving credit facility will mature on August 19, 2007.

We entered into three secured term loan credit facilities on April 13, 2005, secured by liens on substantially all of our assets: (1) a $120.0 million syndicated first-lien term loan, with $120 million outstanding, accruing interest, at our option, at either the greater of the prime rate or the federal funds effective rate plus 0.5% plus 8.50% (subject to adjustment) or LIBOR plus 9.50% (subject to adjustment) per annum, and having a final maturity date of June 30, 2008; (2) a $30.0 million syndicated second-lien term loan, with $30.0 million outstanding, accruing interest at a fixed rate equal to 17% per annum compounded quarterly, all such interest of which is due at final maturity and having a final maturity date of September 30, 2008; and (3) a third-lien term loan in an amount up to $49.625 million, with $20.0 million outstanding, accruing interest at a rate per annum equal to 14% per annum compounded quarterly, all such interest of which is due at final maturity and having a final maturity date of December 30, 2008. Additionally, the third-lien term loan holders will receive additional compensation via warrants, cash or both to produce a target return of 19% per annum. The first-lien term loan credit facility contains financial covenants that require us to maintain minimum consolidated total revenues, as defined in the first-lien term loan, measured quarterly, and an inventory ratio, as defined in the first lien credit facility, shipped to total number of doses prescribed. Pursuant to the terms of the third-lien term loan, if our liquidity (as defined in the third-lien term loan) falls below $30.0 million for more than 30 days, we will be required to borrow additional amounts under the third-lien term loan in increments of $5.0 million to meet the liquidity requirements.

We also issued to the lenders under the third-lien term loan, pro rata in accordance with their respective commitments, detachable warrants to purchase 620,313 shares of our common stock. The warrants are exercisable at $20.00 per share at any time on or prior to the tenth anniversary of the closing date of the third-lien term loan. Additionally, on the earliest to occur of (1) the consummation of a change of control (as defined in the third-lien term loan) and (2) the maturity date of the third-lien term loan, we will issue to the third-lien term loan lenders, pro rata in accordance with their respective commitments, additional warrants that will include a cashless exercise feature to acquire that number of shares of common stock sufficient to generate a compound annual return to such lenders of 19% after taking into account the fixed rate and any applicable call premium and the value of the warrants issued on the closing date; provided that in the event that the number of shares of common stock underlying the closing date warrants plus the additional warrants exceeds 1,100,000, the number of additional warrants shall be automatically reduced to bring the total amount of warrants issued to such lenders to 1,100,000. The additional warrants will be exercisable at any time on or prior to the tenth anniversary of the closing date of the third-lien term loan at a price to be determined by the board of directors at the time of issuance. To the extent we are permitted under our credit facilities to make cash payments to the holders of warrants, the board of directors may, in its discretion, elect to make cash payments to such lenders to provide them with the 19% compound annual return referred to above in lieu of issuing the additional warrants.

No voluntary or mandatory prepayments are allowed on the term loan credit facilities prior to the first anniversary of the closing date. Subject to certain exceptions, no prepayments may be made on the second-lien term loan unless there are no amounts outstanding under the first-lien term loan. Any permitted prepayments on any of the term loan credit facilities made after the first anniversary of the closing date, but on or prior to the second anniversary of the closing date are to be made at a price equal to 104% of the amounts to be repaid. Any permitted prepayments on any of the term loan credit facilities made after the second anniversary of the closing date, but on or prior to the third anniversary of the closing date are to be made at a price equal to 102% of the amounts to be repaid. Prepayments on any of the term loan credit facilities after the third anniversary of the closing date through the respective maturity date shall not be subject to any prepayment premium. We are required to make

mandatory prepayments on the term loan credit facilities (subject to the restrictions referenced herein and certain exceptions) upon receipt of (1) net asset sale proceeds, in excess of the greater of the net proceeds from the sale of Axid OS, if any , and $7.5 million, which are not reinvested in productive assets; (2) net insurance/condemnation proceeds which are not reinvested in productive assets; (3) cash proceeds from a capital contribution to, or the issuance of any capital stock, except for (a) equity securities issued in an initial public offering, (b) capital stock issued in connection with warrants outstanding as of December 31, 2004 or issued to lenders under the third-lien term loan, and (c) capital stock or options issued pursuant to any employee stock arrangement, stock option compensation plan, employment agreement or similar such plans; (4) cash proceeds from the issuance of debt; and (5) any consolidated excess cash flow (as defined) for any fiscal year, provided that only an amount equal to 50% of such consolidated excess cash flow shall be required to repay borrowings under the term loan credit facilities.

Summary Disclosures about Contractual Obligations

The following table reflects a summary of our contractual obligations at March 31, 2005 and has been adjusted to reflect the effects of the April 13, 2005 financing transactions:


	Due In
	Total		Remainder of 2005		2006		2007		2008		2009		2010 to 2012
	(in thousands)
Contractual Obligations:
Long-term debt (1)	$	256,353	$	12,049	$	16,703	$	16,549	$	211,052	$	—	$	—
Operating leases (2)		20,625		3,098		3,384		3,169		3,032		3,072		4,870
Purchase/contractual commitments (3)		85,050		82,669		2,381		—		—		—		—
Stand-by letter of credit (4)		1,957		—		1,957		—		—		—		—

Total	$	363,985	$	97,816	$	24,425	$	19,718	$	214,084	$	3,072	$	4,870

(1)

In April 2005, we concurrently entered into three separate financing transactions resulting in the prepayment of the $95.0 million term loan entered into in September 2004 and the issuance of $170.0 million in new long-term debt consisting of a $120.0 million first-lien term loan, a $30.0 million second-lien term loan and a $20.0 million third-lien term loan. The first-lien term loan matures on June 30, 2008 and requires quarterly principal payments of $0.3 million beginning on June 30, 2005. The second-lien term loan matures on September 30, 2008 and the third-lien term loan matures on December 30, 2008. The amounts in the table include the estimated interest payable on these loans using the interest rates currently in effect on our variable interest rate debt, which is described above under “—Credit Facilities.”

(2)	We lease office space, vehicles, office equipment and other assets used in the operation of the business under operating leases.

(3)

The purchase and contractual commitments consist of the following: (i) an obligation to provide at least $35.0 million (subsequently reduced to $25 million in April 2005) of promotional, selling and marketing support for the Lescol brands in 2005; (ii) contractual arrangements and purchase commitments totaling $43.3 million for (a) trade products and samples, (b) arrangements with pharmaceutical product development companies, clinical research organizations and other research service providers to design formulations and perform and service clinical trials with respect to both compounds under development and approved products; and (c) non-Lescol brand marketing services, other sales and marketing and general and administrative services; (iii) a contractual fee for the termination of a distribution and supply agreement of $0.8 million; and (iv) a contractual liability for the elimination of the royalty on net sales of Axid OS of $6.0 million.

(4)	In 2003, we entered into a letter of credit arrangement in which a bank issued a letter of credit in the amount of $1.9 million in favor of our landlord.

In addition to the aggregate minimum commitments noted above, we are contractually obligated to pay $47.6 million over time upon the achievement of specific milestones for certain clinical research and development programs.

Pursuant to our licensing and supply agreement with Pronova, we are obligated to purchase minimum quantities of inventory from Pronova during the twelve month period following the first commercial sale of Omacor and each twelve month period thereafter. Such quantities amount to $3.0 million in year one, $9.5 million in year two, $15.0 million in year three and each year thereafter until 2014 and $6.0 million in years beyond 2014.

In July 2000, we entered into liquidity option agreements with certain of our investors that were subsequently amended in 2003, 2004 and 2005. These agreements provide the holder with the right, beginning on January 1, 2005, to require us to purchase up to one-third of the holder’s then vested shares, in each of the three consecutive years beginning in 2005, at a purchase price per share equal to the fair market value on the date notice is given. Notice may only be delivered during the month of January in each of 2005, 2006 and 2007. In the event notice is not provided during the month of January in each of the years indicated above, the right to require us to repurchase the shares will expire with respect to one-third of such holder’s shares. At March 31, 2005, there were 1,100,362 shares of common stock and 943,000 shares of Series B convertible, redeemable preferred stock subject to these agreements. Pursuant to our term loan credit facilities, the holders of these rights have agreed that they will receive no payment for any shares sold to us upon exercise of these rights until such time as full or partial payment is permitted under our credit facilities or all outstanding debt under the three credit facilities entered into in April 2005 (and any refinancings thereof) is paid in full. These agreements will terminate upon consummation of this offering.

Off-Balance Sheet Entities

As of December 31, 2004 and March 31, 2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Quantitative and Qualitative Disclosure About Market Risk

Our exposure to market risk is confined to our cash and cash equivalents. We invest in high-quality, highly liquid financial instruments, primarily money market funds, with original maturities of three months or less, which we believe are subject to limited credit risk. Due to the short-term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments.

We are exposed to interest rate risk primarily through our borrowing activities, which are described in Note 24(b) to the Consolidated Financial Statements and “Description of Indebtedness.” Our borrowings under the revolving facility and first-lien term loan are subject to variable rate interest. We do not currently hedge our interest rate exposure; however, under the terms of the first-lien term loan, we are required, if commercially reasonable, to enter into one or more interest rate swaps or other hedging arrangements by July 12, 2005 so that at least 50% of our aggregate principal amount outstanding under the term loan credit facilities are subject to a fixed interest rate to protect against exposure to interest rate fluctuations.

As of March 31, 2005, on a pro forma basis, we had gross variable interest rate debt totaling $127.2 million and gross fixed interest rate debt of $50.0 million. Our variable rate debt consists of $120.0 million in borrowings under our first-lien term loan and $7.2 million in borrowings under our revolving credit facility. Our fixed interest rate debt consists of $30.0 million in borrowings under our second-lien term loan and $20.0 million in borrowings under our third-lien term loan. If interest rates were to increase or decrease by one percentage point, the annual interest expense on our variable rate debt would increase or decrease by approximately $1.3 million. If interest rates were to increase or decrease by one percentage point, the fair value on our fixed rate debt would increase by or decrease by approximately $1.4 million. The fair value of our fixed rate debt was determined using pricing models reflecting one percentage point shifts in the appropriate yield curves.

Most of our transactions are conducted in U.S. dollars, although we do have some development and commercialization agreements with vendors located outside the United States. Transactions under certain of these agreements are conducted in United States dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency.

A significant portion of our sales are to wholesalers in the pharmaceutical industry. We continuously monitor the creditworthiness of customers to whom we grant credit, and we have not experienced significant credit losses. Our top three wholesale customers together accounted for 71%, 70%, 74% and 77% of our gross product sales in 2002, 2003 and 2004 and the first quarter of 2005, respectively, and 90%, 76% and 74% of our gross accounts receivable balance at December 31, 2003 and 2004 and March 31, 2005, respectively. Our largest customer accounted for 33%, 26%, 31% and 44% of gross product sales in 2002, 2003, 2004 and the first quarter of 2005, respectively, and 20%, 12% and 23% of the gross accounts receivable balance as of December 31, 2003 and 2004 and March 31, 2005, respectively.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which requires companies to measure and recognize compensation expense for all stock-based payments at fair value. SFAS 123R applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options or other equity instruments or by incurring liabilities to an employee or other supplier in amounts based, at least in part, on the price of the entity’s shares or other equity instruments or that require or may require settlement by issuing the entity’s equity shares or other equity instruments. SFAS 123R is effective for fiscal years beginning after June 15, 2005 for public companies. We have not yet adopted this pronouncement and are currently evaluating the expected impact that the adoption of SFAS 123R will have on our consolidated financial position and results of operations. However, implementation of SFAS 123R could materially and adversely affect our reported results of operations and our timing to achieve profitability.

In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions (“SFAS 153”). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(B) of APB Opinion No. 29, Accounting for Nonmonetary Transactions, and it replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have an impact on our consolidated financial position, results of operations or cash flows.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs: an Amendment of ARB No. 43, Chapter 4 (“SFAS 151”). This Statement is effective for inventory costs incurred during annual periods beginning after June 15, 2005. SFAS 151 requires that abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) be treated as current-period costs. In addition, SFAS 151 states that a facility’s fixed production overhead costs should be allocated to inventory based on the normal capacity of the production facilities. The adoption of SFAS 151 is not expected to have an impact on our consolidated financial position, results of operations or cash flows.

BUSINESS

Overview

We are a pharmaceutical company with integrated sales, marketing and development expertise, and we market a portfolio of branded cardiovascular pharmaceutical products. We focus on marketing promotionally sensitive pharmaceutical products to the high prescribing primary care, cardiovascular and specialist physician markets in the United States. We acquire rights to branded pharmaceutical products that typically have regulatory exclusivity or patent protection. We enhance the value of our product portfolio by applying highly focused marketing campaigns and by implementing strategies to extend the life cycle of the products we sell or market. In addition, we acquire rights to and develop product candidates in mid- to late-stage clinical development. This approach seeks to minimize many of the risks associated with early stage drug discovery.

We were founded in August 1999 and commenced commercial operations in the following year with the acquisition of rights to three marketed brands: DynaCirc, Axid and Lescol. Within our first six months of operations, these brands permitted the establishment of a sales force of more than 750 sales professionals. Since then, we have successfully identified and acquired rights to an additional marketed brand, Rythmol. To support the marketing of the Rythmol brand, we established our cardiovascular specialty sales force, which today consists of approximately 110 sales professionals who target specialty cardiologists. We have also received FDA approval for and market InnoPran XL and Antara, which we launched in January 2004 and February 2005, respectively. Additionally, we have received FDA approval for Omacor, which we expect to launch in late 2005.

Our sales infrastructure has grown with our product portfolio and is now comprised of nearly 1,000 sales professionals throughout the United States. As our product portfolio grows and we launch additional products, we intend to continue to expand our sales force. We believe that our sales force is highly effective relative to those of our peers, as evidenced in a recent independent survey conducted by Verispan. Compared to the specialty pharmaceutical companies that we consider our peers, we ranked second in sales force quality and familiarity among all physicians surveyed and second among cardiologists.

In addition to our marketing and promotion efforts, we use product life cycle management strategies to extend the life and marketing exclusivity of our owned products. For example, we conduct clinical trials to obtain additional FDA-approved uses. We also develop product enhancements that improve safety, convenience or compliance to enhance therapeutic value.

In 2004, we recorded strong growth in our owned product portfolio, driven principally by DynaCirc CR and the Rythmol family of products. We continue to expand our cardiovascular product offerings with the launch of Antara and the expected launch of Omacor. In addition to our owned products, we promote the Lescol family of products under a promotion agreement with Novartis. In 2004, we recorded $222.3 million in total revenues, of which $117.2 million was derived from net sales of our owned products and $105.1 million was promotion revenues, and we incurred a net loss of $106.2 million.

We believe that the experience, expertise and industry relationships of our senior management are vital to our success. Our Chief Executive Officer, Ernest Mario, Ph.D., served as Deputy Chairman and Chief Executive of Glaxo plc and Chairman and CEO of Alza Corporation. In addition, our Chief Operating Officer, Joseph S. Zakrzewski, served in various capacities over the past 17 years at Eli Lilly and Company, most recently as Vice President, Corporate Business Development. Many other members of our senior management team have also served in senior positions at leading pharmaceutical companies. Our Chief Financial Officer, Robert R. Ferguson III, also has significant public company experience, having served as Vice Chairman and CEO of Continental Airlines, as President, CEO and CFO of Continental Airlines Holdings, as well as Chairman and CEO of Midway Airlines.

Our Strategy

Target the High Prescribing Primary Care, Cardiovascular and Specialist Physician Markets. We believe the primary care and cardiovascular physician markets represent a highly attractive opportunity for us. Primary care and cardiovascular physicians represent only 34% of all prescribing physicians, yet they write approximately 68% of all prescriptions in the United States. We target our sales force promotional efforts to reach these physicians on a frequent basis. Our experience has shown that primary care and cardiovascular physicians respond well to direct pharmaceutical product promotion and education. Access to this market requires a relatively large sales force and significant investment. In addition, we target high prescribing specialist physicians through our cardiovascular specialty sales force, which provides additional marketing synergies among our various brands and an additional competitive advantage in seeking product opportunities.

Acquire, Develop and Market Novel Compounds in Mid- to Late-Stage Development. To expand our owned product portfolio, we typically seek to acquire and develop product candidates in mid- to late-stage clinical development. This strategy seeks to minimize many of the risks associated with the early stage drug discovery process. These development opportunities typically originate with smaller pharmaceutical firms, biotechnology companies or international pharmaceutical companies having limited or no U.S. presence and that do not have the infrastructure necessary to take a drug through the FDA approval process or to market a product in the United States. For example, in August 2004, we acquired an exclusive license to develop, market and distribute Omacor in the United States, while it was in late-stage registration with the FDA. Omacor received FDA approval in November 2004 for the treatment of very high triglycerides (500 mg/dL and greater), and we expect to launch this product in late 2005.

Acquire Rights to Under-Promoted, Patent-Protected, Branded Pharmaceutical Products. We seek to acquire rights to FDA-approved pharmaceutical products with well-established safety and efficacy profiles and annual sales potential of between $100 million and $500 million. Large pharmaceutical companies often view such products as having insufficient market potential to justify the time required and the investment necessary to promote these products. With our industry expertise, broad industry relationships and the capital from this offering, we expect to continue to have the ability to identify and act upon these acquisition opportunities. Once we acquire rights to a product, we endeavor to increase its sales by launching highly focused marketing campaigns that utilize our extensive sales force and marketing expertise.

Develop and Implement Life Cycle Management Strategies. We implement life cycle management strategies for currently or previously marketed brands. These strategies typically involve seeking to expand the FDA-approved uses for our owned products, as well as develop line extensions that improve safety (such as fewer side effects), convenience (such as once daily dosing) or compliance (such as liquid formulations) to enhance therapeutic value. In the case of InnoPran XL, for example, we combined the active pharmaceutical ingredient, propranolol, with a proprietary drug release system licensed from Eurand to produce the first night-time dosed beta blocker. This life cycle development strategy enhanced the therapeutic value of propanolol by providing peak levels of the drug during the early morning hours, resulting in a new, patent protected product with three years of FDA-granted marketing exclusivity. We are currently evaluating life cycle management strategies for DynaCirc CR and Antara.

Our Product Portfolio


Product Name	Approved Indication	Acquisition and/or Approval	Reliant Promotional Launch Date
DynaCirc DynaCirc CR	High blood pressure (hypertension)	Licensed U.S. rights from Novartis in July 2000 and acquired these rights in March 2003	July 2000

Rythmol Rythmol SR	Irregular heart rhythms (arrhythmia)	Acquired U.S. rights from Abbott in December 2003	February 2004

InnoPran XL	High blood pressure (hypertension)	Internally developed using a proprietary drug release system, the global rights to which were licensed from Eurand in January 2000; approved by FDA in March 2003	January 2004

Antara	Cholesterol management (dyslipidemia)	Jointly developed with Ethypharm; licensed North American rights from Ethypharm in May 2001; approved by FDA in November 2004	February 2005

Omacor	Very high triglyceride management (hypertriglyceridemia)	Acquired U.S. rights from Pronova in August 2004; approved by FDA in November 2004	Expected late 2005

Lescol Lescol XL	Cholesterol management (dyslipidemia)	Promotion agreement with Novartis commencing in November 2000; subsequently extended through December 2007	November 2000

DynaCirc and DynaCirc CR (isradipine)

Product Overview. DynaCirc and DynaCirc CR (a controlled release, once daily formulation) contain isradipine, a dihydropyridine calcium channel blocker approved for the treatment of high blood pressure. Calcium channel blockers work by interrupting the movement of calcium into heart and blood vessel tissue, thereby reducing blood pressure. Isradipine has been proven to be an effective calcium channel blocker with a low incidence of side effects. DynaCirc CR, the product we actively promote, incorporates a patented drug delivery system that ensures accurate and consistent drug delivery over a 24-hour period. In addition, DynaCirc CR has been shown to reduce the risk of edema, or swelling of the legs and ankles, and is also well-tolerated in patients on multiple drug regimens.

In 2004, total U.S. sales of calcium channel blockers were approximately $4.5 billion, consistent with 2003 sales levels. The market leaders are Pfizer’s Norvasc (amlodipine) and AstraZeneca’s Plendil (felodipine). Total U.S. sales of Norvasc and Plendil in 2004 were approximately $2.4 billion and $216 million, respectively.

In 2004, our net sales of the DynaCirc family of products were $56.3 million, representing a 42% increase over 2003. As a result of our promotional efforts, DynaCirc CR posted a 114% increase to $34.0 million in sales in 2004. Total U.S. prescriptions for DynaCirc CR grew 65% as compared to a 5% gain for Norvasc and 18% decline for Plendil in 2004 as compared to 2003.

Product Background. DynaCirc was launched by Sandoz (a predecessor to Novartis) in 1991, but as a late market entrant with the relative disadvantage of twice daily dosing, its sales peaked in 1993 at $78.0 million. In 1996, DynaCirc CR was introduced as a once-a-day formulation. By 2000, net sales of the DynaCirc family of products had fallen to a combined total of $34.5 million, representing less than a 1% share of total prescriptions for the calcium channel blocker market. We believe that this decline was due primarily to the failure to manufacture and supply the product on a consistent basis causing periodic disruptions of trade and sample product, which resulted in a lack of promotional focus and support.

In July 2000, we acquired from Novartis an exclusive license to market, sell and distribute the DynaCirc family of products in the United States, with an option to purchase the brand. In March 2003, we completed the acquisition of the U.S. rights to DynaCirc and DynaCirc CR from Novartis. We now own all the NDAs and trademarks for, and sublicense the other intellectual property related to, DynaCirc CR. Other related intellectual property is licensed through Novartis. The composition of matter patent applicable to the DynaCirc products expired in August 2003. To date, no generic isradipine products have been approved by the FDA, but, we recently became aware that an ANDA was filed for isradipine in November 2004. DynaCirc CR has four formulation patents, three of which expire in October 2007 and one which expires in July 2008. We are currently in the early stages of formulating a line extension for the DynaCirc CR brand.

As discussed in “Business—Manufacturing,” we are in the process of transitioning the manufacture of DynaCirc CR from Novartis to Patheon Pharmaceuticals and Novartis Consumer Health. While Novartis is obligated to manufacture DynaCirc CR until the requirements under our supply agreement have been met, we expect Patheon and Novartis Consumer Health to manufacture DynaCirc CR going forward.

Product Differentiation. DynaCirc CR has a number of favorable characteristics when compared to the market leading calcium channel blockers, Norvasc and Plendil. Two clinical studies in 2002, one with Norvasc published in The Journal of Clinical Hypertension and one with Plendil published in Congestive Heart Failure, established the superior efficacy of DynaCirc CR at 10 mg doses versus these two products. In those studies, patients who had been taking Norvasc or Plendil for a minimum of four to six months were given DynaCirc CR for six weeks and then returned to their original medications. These studies showed that:

DynaCirc CR was more effective than Norvasc and Plendil in lowering systolic blood pressure; and

Patients’ blood pressure returned to higher levels after returning to Norvasc and Plendil from DynaCirc CR.

DynaCirc CR was also observed to result in a reduced incidence of edema or swelling of the ankles and legs, consistent with the findings of a clinical study published in the British Journal of Pharmacology, which showed reduced incidence of edema with DynaCirc CR at 5 mg doses compared to Norvasc.

Rythmol and Rythmol SR (propafenone)

Product Overview. Rythmol and Rythmol SR (a sustained release, twice daily formulation) contain propafenone, an anti-arrhythmic approved for the treatment of an irregular heart rhythm known as atrial fibrillation in patients without structural heart disease. In atrial fibrillation, abnormal electrical

impulses cause spasms in the upper chambers of the heart that result in irregular and rapid beating of the heart. As a result, the heart pumps less efficiently, reducing blood flow to the body and to the heart muscle. Anti-arrhythmic drugs, with a local anesthetic effect, act as a stabilizing agent on the fibrillating membranes.

Unlike our other products, which are promoted to primary care and cardiovascular physicians generally, the Rythmol products are marketed to a small base of doctors, consisting mainly of the highest prescribing cardiologists and electro-physiologists. Our cardiovascular specialty sales force of approximately 110 sales professionals is promoting Rythmol SR in addition to our other products. We believe that our cardiovascular specialty sales force can effectively promote these products due to its expertise in promoting drugs that target cardiovascular disease. Rythmol SR is currently the only actively promoted drug in the anti-arrhythmic market.

In 2004, total U.S. sales of anti-arrhythmics were approximately $366 million, down 14% from 2003. The anti-arrhythmic market consists primarily of lower-priced generic drugs. Total prescriptions for anti-arrhythmic drugs grew 1% in 2004 compared to 2003.

In 2004, our net sales of the Rythmol family of products were $48.8 million, representing a 126% increase over net sales in the twelve months ended November 2003 prior to our acquisition of the brand. Total U.S. prescriptions for the Rythmol family of products decreased by 8.3% in 2004 compared to 2003. We launched Rythmol SR in February 2004 and recognized net sales of $26.1 million in 2004.

Product Background. On December 3, 2003, we acquired the U.S. rights to the Rythmol family of products from Abbott for $93 million and entered into long term supply agreements with Abbott for the manufacture and supply of Rythmol and Rythmol SR. Rythmol is an anti-arrhythmic that has been marketed for over 12 years. Rythmol’s marketing exclusivity expired in November 2000. Rythmol SR, a sustained release formulation, was approved by the FDA in September 2003. We began promoting Rythmol SR in February 2004.

Rythmol SR has FDA-granted marketing exclusivity until September 2006 in the United States under the Hatch-Waxman Act and is protected by a formulation patent until October 2014.

Product Differentiation. Rythmol SR is approved for the treatment of irregular heart rhythms in patients without structural heart disease. Rythmol SR provides greater convenience with twice daily dosing versus the three-times daily dosing of the original Rythmol. Repeated dosing with Rythmol SR leads to less fluctuation of blood levels versus the original Rythmol. According to the prescribing information for Rythmol SR, no liver function monitoring is required.

In 2003, Abbott completed the Rythmol SR Atrial Fibrillation Trial (RAFT) and European Rythmol SR Atrial Fibrillation Trial (ERAFT). The results of the RAFT and ERAFT studies, which are included in the product labeling for Rythmol SR, showed that Rythmol SR significantly increased the time to recurrence of irregular heart rhythms at all dosage levels studied.

In the RAFT study, the largest clinical evaluation of Rythmol SR, there were no reported incidences of proarrhythmia, a common side effect of anti-arrhythmics that is characterized by the more frequent occurrence of the existing irregular heart rhythm or the appearance of a new irregular heart rhythm that is as bad as or worse than the condition being treated, and which side effect is required to be included in the Rythmol SR label.

InnoPran XL (propranolol)

Product Overview. InnoPran XL is an extended release once daily formulation of propranolol, a beta blocker approved for the treatment of high blood pressure. Beta blockers reduce heart rate and blood pressure by blocking the effects of adrenaline.

In 2004, total U.S. sales of beta blockers were approximately $1.9 billion, a 20% increase over 2003 sales. The market leader is AstraZeneca’s Toprol XL (metoprolol). Total U.S. sales of Toprol XL in 2004 were approximately $1.2 billion. We began active promotion of InnoPran XL in January 2004 and reported net sales of $7.0 million in 2004.

Product Background. Propranolol, the first FDA-approved beta blocker, was originally developed for the treatment of high blood pressure, angina and migraine headaches. Inderal LA, a long acting once-a-day version of propranolol, is dosed in the morning. We submitted the NDA for InnoPran XL to the FDA in November 2001. On March 12, 2003, we received FDA approval for InnoPran XL. Shipments of the product commenced in the second quarter of 2003. Largely due to our existing obligations under our co-promotion agreements, as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we were unable to commit the sales force resources necessary to meaningfully launch InnoPran XL until January 2004.

InnoPran XL has FDA-granted marketing exclusivity in the United States under the Hatch-Waxman Act until March 2006 and is protected by a formulation patent until October 4, 2021. Additional patents are pending.

Product Differentiation. InnoPran XL is the first and only beta blocker designed to provide 24-hour control of blood pressure and heart rate with additional protection in the early morning hours. We developed InnoPran XL as an extended release formulation that enables patients to take a single nightly dose of the drug. This formulation incorporates a proprietary drug release system that delivers the highest concentrations of the drug and results in maximum anti-hypertensive protection during the early morning period. The Sixth Report of the Joint National Committee on Prevention, Detection, Evaluation and Treatment of High Blood Pressure from the National Institutes of Health published in November 1997 noted that a risk of heart attack and stroke exists during the early morning period due to abrupt increases in blood pressure after rising from overnight sleep.

Antara (fenofibrate)

Product Overview. Antara is a once daily formulation of fenofibrate approved for use in combination with a diet restricted in saturated fat and cholesterol to reduce elevated low-density lipoprotein cholesterol (LDL or “bad” cholesterol), triglyceride and Apolipoprotein B (free floating fats in the blood) levels, and to increase high-density lipoprotein cholesterol (HDL or “good” cholesterol) in adult patients with high cholesterol or an abnormal concentration of lipids in the blood. Fenofibrates work primarily to lower triglycerides and increase HDL cholesterol, which makes the drugs an attractive alternative for those patients whose LDL cholesterol is well controlled. Antara is approved and marketed in a 43 mg and 130 mg dose.

In 2004, total U.S. sales of fibrates were approximately $972 million, a 31% increase over 2003 sales. The market leader is Abbott’s Tricor (fenofibrate). According to IMS, total U.S. sales of Tricor in 2004 were approximately $854 million, up 37% from 2003. The remaining market for fibrates consists primarily of the branded and generic forms of gemfibrozil, which had U.S. sales of approximately $111 million in 2004. Sales of Antara for the quarter ended March 31, 2005 were $4.4 million, primarily resulting from the wholesaler and retailer inventory stocking process typically associated with a product launch.

Product Background. We licensed the North American rights to Antara from Ethypharm in May 2001 and received FDA approval of our NDA in November 2004. In order to maintain the exclusivity of our rights, we must achieve minimum annual sales in the United States and Canada until February 2012 or pay amounts to Ethypharm to compensate for any shortfall. The license term expires in

February 2020 and, absent notice of termination by either party, automatically renews for additional two year periods. Under the terms of the agreement, at our option, Ethypharm is obligated to either manufacture and deliver to us finished fenofibrate product or deliver bulk product to us for encapsulation and packaging. Ethypharm’s fenofibrate is protected through a formulation patent that expires in August 2007. As part of our life cycle management strategy, we have filed a utility patent for Antara. In addition, Ethypharm has filed two additional formulation patents for the product. If issued, we believe these patents may provide Antara with up to 20 years of additional patent protection. We also believe that these patents would be eligible for listing in the Orange Book. Additionally, we are evaluating clinical development strategies and possible acquisitions of line extensions for Antara.

In May 2005, Teva obtained final FDA approval to market a generic version of Abbott’s Tricor 160 mg tablet, which contains the same active pharmaceutical ingredient as Antara. In addition, three other companies have filed ANDAs seeking approval to manufacture generic versions of Abbott’s 160 mg Tricor tablet. The Teva product as well as the other generic products for which ANDAs have been filed are the subject of pending patent infringement actions, involving non-infringement, validity and/or enforceability of the Fournier Patents. We are also aware of two other companies who have filed 505(b)(2) applications with the FDA seeking approval to market 160 mg branded fenofibrate products. The FDA granted final approval in May 2005 for one of these branded products, which we expect to launch later this year, and the FDA granted tentative approval for the other product pending the earlier of the expiration of a 30 month stay imposed under Hatch-Waxman, to occur in March 2006, and a judgment of non-infringement or invalidity of the Fournier Patents.

Prior to receiving FDA approval, in June 2004, we filed a complaint in the United States District Court for the District of Delaware seeking a judicial determination that the manufacture, importation or sale of Antara would not infringe any valid claim of the Fournier Patents, which are licensed to Abbott. The complaint also seeks a determination that the Fournier Patents are unenforceable against us because of the inventors’ inequitable conduct in obtaining the patents in proceedings before the United States Patents and Trademark Office. In January 2005, Abbott and Fournier filed an answer to the complaint as well as a counterclaim alleging that Antara infringes two of the Fournier Patents. Additionally, Abbott and Fournier are continuing to prosecute a number of patents related to the Fournier Patents which, if issued, could also be included in their infringement counterclaim. The trial in this matter has been scheduled for August 2006. See “Business—Legal Proceedings.”

Product Differentiation. Antara is the lowest therapeutic dose fenofibrate currently available with equivalent blood levels of the drug and efficacy equal to the market leader, Tricor. Antara is distributed in 130 mg and 43 mg formulations as compared to 145 mg and 48 mg formulations of Tricor. In clinical studies of patients with elevated triglyceride levels, Antara has proven to:

reduce triglycerides on average by 36% versus a 1% increase with placebo;

increase HDL cholesterol on average by 15% versus a 2% increase with placebo; and

reduce LDL cholesterol on average by 20% versus a 7% decrease with placebo.

Omacor (omega-3 acid ethyl esters, predominantly EPA and DHA)

Product Overview. Omacor is a highly purified and distilled formulation of the ethyl esters of a range of omega-3 acids, predominantly EPA and DHA, and approved by the FDA for the treatment of very high triglycerides (500 mg/dL and greater). According to the American Heart Association, evidence suggests that the consumption of EPA and DHA supplements significantly reduces the risk of death caused by cardiovascular disease. We believe that Omacor will be the only FDA-approved prescription omega-3 product available to physicians with demonstrated safety and efficacy.

Based on data included in the National Cholesterol Education Program (NCEP) expert panel on “Detection, Evaluation and Treatment of High Blood Cholesterol in Adults (Adult Treatment Panel III),” approximately 2.5% to 3.0% (5 to 6 million) of the adult U.S. population have levels of triglycerides of 500 mg/dL or higher. The same report estimates that 13% to 14% (25 to 27 million) of the adult U.S. population have levels of triglycerides greater than or equal to 200 mg/dL and less than 500 mg/dL.

Product Background. Pronova developed Omacor through a patented manufacturing process yielding very pure extracts of EPA and DHA. In the United States, Abbott pursued the primary indication for elevated triglycerides pursuant to an agreement with Pronova, which was subsequently terminated. We entered into an exclusive license and supply agreement with Pronova in August 2004 for the U.S. rights to Omacor, which expires 15 years from the first commercial sale of the product. Omacor was approved by the FDA for the treatment of very high triglycerides (500 mg/dL and greater) in November 2004. Following the approval, the NDA was transferred to us. We also received a letter from the FDA citing the requirements that must be met for Omacor to be approved for the treatment of high triglycerides (from 200 mg/dL to 499 mg/dL). Omacor has previously been approved by relevant regulatory bodies and is actively marketed by others outside the United States, including Pfizer, SPA, Sigma Tau, Solvay and AstraZeneca.

We have entered into a long-term supply agreement with Pronova for the active pharmaceutical ingredients. In order to maintain the exclusivity of our rights, we must purchase minimum annual levels of active pharmaceutical ingredient following the first commercial sale of Omacor or pay amounts to Pronova to compensate for any shortfall. We have also entered into a manufacturing agreement with Cardinal to encapsulate and package the finished product, and we are currently validating the manufacturing process in anticipation of our planned commercial launch of Omacor in late 2005.

Omacor has FDA-granted marketing exclusivity in the United States under the Hatch-Waxman Act through November 2009 and is protected by method of use and formulation patents, the last of which expires in August 2014.

Product Differentiation. As the only FDA-approved omega-3 product, Omacor has the following advantages over the omega-3 products available in the nutritional supplement category:

the active pharmaceutical ingredient is manufactured under a patented process that yields extracts of omega-3 acid ethyl esters with a minimum of 90% purity levels and an absence of contaminants;

Omacor has prescribing information with therapeutic claims supported by clinical data;

the contents of an Omacor capsule are identified on the label and manufactured with consistent quantities and concentrations that are regulated and monitored by the FDA; and

Omacor improves patient convenience by delivering more omega-3 acids in fewer capsules.

In the clinical studies of patients with elevated triglyceride levels, compared to placebo, Omacor has been proven to have the following favorable effects:

reduce triglycerides up to 51.6%;

reduce non-HDL cholesterol up to 10.2%;

increase HDL (“good”) cholesterol up to 9.1%; and

reduce very-low-density-lipoprotein cholesterol (VLDL-C) up to 40.8%.

Utilization of Omacor for the treatment of very high triglyceride levels may result in elevations in LDL cholesterol in some individuals.

We are aware of multiple third-party clinical studies with Omacor and other omega-3 products that have been completed or are ongoing. These studies seek to identify additional

indications and uses for the product. We do not control the design, administration or data analysis of these trials. In some of these trials we may not have access to the clinical results for use in seeking FDA approvals for the use of Omacor. As part of our life cycle management strategy for the brand, we will continue to evaluate the merits and utility of the data from these trials.

The Gruppo Italiano per lo Studio della Sopravvivenza nell’Infarto miocardio (GISSI-Prevenzione) trial was completed in 1999. This 11,324 patient study demonstrated that Omacor reduced overall mortality by 20% and sudden death by 45% compared to the control group. This study and related analysis were published in the August 7, 1999 issue of Lancet and April 23, 2002 issue of Circulation. We believe this study is a major factor in the rapid growth of omega-3 product utilization. Despite the strong scientific credentials, it may not be possible to obtain an indication for secondary prevention of cardiac events based on this study alone. We believe that one or more of the clinical studies ongoing in Europe or that we may initiate could be the basis for a FDA filing for these indications.

According to an article published in the September 5, 2002 issue of the New England Journal of Medicine, substantial progress has been made with omega-3 nutritional supplements along with other modes of treatment, including ACE inhibitors and oral corticosteroids, in preventing IgA Nephropathy, a progressive kidney disease often resulting in the need for dialysis and kidney transplantation. According to the article, IgA Nephropathy may affect up to 1.3% of the population. Prior to our acquisition of the product, the FDA did not approve an NDA which had been filed seeking approval for this indication. We are evaluating the response from the FDA and exploring options for obtaining FDA approval for this indication.

Lescol and Lescol XL (fluvastatin)

Product Overview. Lescol and Lescol XL, which contain fluvastatin, are members of the statin class of drugs approved for the treatment of high cholesterol. Statins are compounds that inhibit the liver enzyme HMG-CoA reductase, which is used in the body’s manufacture of cholesterol, and are effective in the reduction of cholesterol levels. Statins reduce levels of LDL cholesterol and triglycerides and increase levels of HDL cholesterol. Fluvastatin is a synthetic statin that has favorable safety and side-effect profiles.

In 2004, total U.S. sales of statins were approximately $15.7 billion, a 13.0% increase over 2003 sales. The market leaders are Pfizer’s Lipitor (atorvastatin) and Merck’s Zocor (simvastatin). U.S. sales of Lipitor and Zocor in 2004 were approximately $7.7 billion and $4.6 billion, respectively. The statin market became increasingly competitive as a result of the publication of clinical results demonstrating the benefits of higher potency statins, as well as the significant promotion spending by Pfizer (in support of the statin market leader, Lipitor), AstraZeneca (in support of Crestor) and Merck/Schering-Plough (in support of Vytorin).

In 2004, U.S. net sales of the Lescol family as publicly reported by Novartis were $284.0 million, a 9% decrease over 2003 sales. We earned promotion revenues attributed to the Lescol brand of $105.1 million in 2004, a decrease of 13% compared to 2003. Since its launch in 2001, we have focused our promotional efforts on Lescol XL because of its significant increase in efficacy versus the original Lescol. Total prescriptions for Lescol XL grew by only 2% in 2004 compared to 2003 due primarily to increased competition.

Product Background. In November 2000, we acquired an exclusive license (other than with respect to Novartis) from Novartis to promote and market Lescol and Lescol XL in the United States. Under this agreement, we are entitled to receive a substantial percentage of Lescol and Lescol XL sales above certain contractually specified minimum sales levels through 2005. We have exceeded

these minimum sales levels during each of the last four years. In 2006 and 2007, we are entitled to receive residual payments equal to 20% and 10% of Novartis’ net sales as reported to us, respectively.

In April 2005, we and Novartis extended the term of our promotion agreement with respect to the Lescol brand of products through December 31, 2007. Under the terms of the agreement, we will continue to promote the Lescol brand of products with our primary care and cardiovascular specialty sales forces. We will be compensated for our sales, marketing and promotional efforts at agreed levels. Under the agreement, beginning in January 2006, Novartis will be permitted to develop and independently promote products containing fluvastatin. In addition, both parties have the right to terminate the extended promotion agreement without cause upon 90 days advanced written notice with effect beginning as of January 1, 2006.

Patent exclusivity for Lescol expires in December 2011.

Product Differentiation. The market research we conducted just prior to the launch of Lescol XL indicated that approximately two-thirds of cholesterol management prescriptions are written for patients requiring 30% to 40% reductions in LDL cholesterol. The FDA-approved product labeling for the once daily tablet formulation of Lescol XL shows that it reduces LDL cholesterol by a median of 35% to 38% which is comparable to the twice daily Lescol 40mg tablet formulation required to be taken twice a day. In addition to its convenient once daily dosing, Lescol XL has a well characterized safety and tolerability profile with low potential for drug to drug interaction and a low risk of muscle pain.

In 2002, Novartis completed the Lescol Intervention Prevention Study (LIPS). It was subsequently published in the June 26, 2002 issue of the Journal of the American Medical Association (JAMA). This was the first prospective outcomes study of high-risk post-angioplasty patients. In the LIPS study, patients treated with Lescol as compared with placebo exhibited:

a 22% reduction in the risk of recurrent major adverse cardiac events (MACE) post angioplasty;

a 34% reduction in risk for MACE for patients with multi-vessel disease; and

a 47% reduction in risk for MACE for patients with diabetes.

Based upon the LIPS results, the FDA approved in May 2003 the use of Lescol and Lescol XL in patients with coronary heart disease for secondary prevention of cardiovascular events.

Axid and Axid Oral Solution (nizatidine)

In October 2000, we acquired from Lilly rights to Axid (nizatidine) for the treatment of acid reflux disease. In April 2002, Axid’s patent protection expired, and in July 2002, the first generic version of nizatidine entered the market. As a result, we no longer actively market this product. We also internally developed Axid OS, which received FDA approval in July 2004. Since Axid OS is primarily prescribed by pediatricians, which are outside our target audience, we intend to divest the product in 2005.

Product Development Projects

In addition to promoting our currently marketed products, we are pursuing several product development projects. To develop our product candidates, we use in-house expertise as well as third-party proprietary drug delivery systems, formulation technologies and clinical patient recruitment and monitoring services. Our research and development expenses were $37.7 million in 2004 and $6.8 million for the quarter ended March 31, 2005. The following table summarizes projects that we have in various stages of development and that we expect will serve as the basis for our future marketed products:


Projects	Potential Indication	Status
Antara label expansion	Cholesterol management in the pre-diabetic population	Ÿ Supplemental NDA filed with the FDA in December 2004
Rythmol observational registry	No additional indication being sought	Ÿ Initiated physician and patient enrollment in second quarter of 2005
Omacor label expansion/drug interaction	Co-therapy with a statin	Ÿ Drug interaction studies initiated in first quarter 2005
Omacor label expansion/drug interaction	Co-therapy with a fenofibrate	Ÿ Drug interaction studies to begin in the second half of 2005
Omacor-statin fixed dose combination	Reduction of non-HDL cholesterol and triglycerides	Ÿ Pre-clinical—formulation development underway
Omacor-fenofibrate fixed dose combination	Reduction of high triglycerides	Ÿ Pre-clinical—formulation development underway
DynaCirc CR reformulation	Hypertension	Ÿ Pre-clinical—formulation development underway
Propranolol LA	Generic product for high blood pressure, angina, and migraines	Ÿ Bioequivalency trials underway
RP-606	Shingles and the subsequent pain (post-herpetic neuralgia)	Ÿ Evaluating clinical development strategies and other alternatives

Antara Label Expansion

In 2004, we completed a clinical trial entitled “Triglyceride Reduction in Metabolic Syndrome” (TRIMS Study) patients. According to NCEP guidelines, Metabolic Syndrome is defined as a collection of frequently associated cardiovascular risk factors that tend to aggregate in selected patient populations that increase coronary and cardiovascular mortality. The TRIMS Study looked at the effect, if any, of food on the efficacy of Antara. The data from the TRIMS Study is scheduled to be presented in June 2005 at the meeting of the American Association of Clinical Endocrinologists and published in the June issue of Clinical Therapeutics. In December 2004, we filed a Supplemental NDA with the FDA seeking revisions to the Antara label incorporating the results of the TRIMS Study. The statutory deadline for FDA action on the Supplemental NDA is October 23, 2005.

Rythmol Observational Registry

In the second quarter of 2005, we initiated a physician education program and observational registry for patients with atrial fibrillation known as the AFFECTS Registry. We anticipate that approximately 500 physicians will participate in the program with a target enrollment of 5,000 patients. The program is expected to continue through late 2006.

Omacor Related Projects

We believe that Omacor is a platform product. Clinical studies published in the scientific literature demonstrate that Omacor has potential beyond hypertriglyceridemia, creating a tangible basis for new indications and line extensions in the future. Additionally, we believe the development of combination products will expand the addressable market for this brand.

Omacor Label Expansion Projects

Ÿ Co-therapy with a statin: In November 2004, concurrent with the FDA approval of Omacor for treatment of very high triglyceride levels of 500 mg/dL and greater, the FDA issued a letter citing the requirements that must be met for Omacor to be approved for the treatment of patients with triglyceride levels from 200 mg/dL to 499 mg/dL. According to the NCEP guidelines, the treatment of LDL cholesterol and non-HDL cholesterol are the primary treatment objectives in this patient group. In the correspondence with the FDA, the FDA indicated that these patients have a high likelihood of being treated with a statin. The FDA requested additional data regarding the safety and efficacy of the combined use of Omacor and a statin. Although Omacor when taken on its own reduced triglyceride levels in this patient group, a 25% mean reduction as compared to baseline, the NDA originally submitted to the FDA only contained the data from one relatively small study of Omacor used together with a statin. We have initiated post approval clinical studies to pursue a label expansion for this treatment option.

Ÿ Co-therapy with a fenofibrate: For patients with high triglycerides, the use of a fenofibrate on a stand-alone basis may not provide the necessary efficacy to reach the treatment goal. We believe that a treatment program that includes Omacor taken in combination with a fenofibrate may be appropriate. We have developed a clinical program and intend to commence clinical trials in the second half of 2005 to pursue a label expansion for this treatment option. We are also exploring the effects of Omacor-fenofibrate co-therapy on other aspects of cholesterol management.

Omacor Combination Product Projects

Ÿ Omacor-statin fixed dose combination: We believe a portion of the patients currently prescribed for a statin to reduce their LDL cholesterol are not able to reduce their triglyceride levels further by adding a fibrate to their regimen due to the elevated risks of side effects. We believe that an Omacor-statin combination product may reduce the risk of side effects, while offering additional efficacy, dosing convenience and reduced out-of-pocket costs. As a result, we are currently developing an Omacor-statin fixed dose formulation.

Ÿ Omacor-fenofibrate fixed dose combination: In patients with high levels of triglycerides, the typical reduction of these levels by fibrates may not be enough to achieve the desired goals. We believe that an Omacor-fenofibrate fixed dose combination product may offer additional efficacy, dosing convenience and reduced out-of-pocket costs to these patients compared to taking each of these products on their own. As a result, we are currently developing an Omacor-fenofibrate fixed dose formulation.

DynaCirc CR Reformulation

As part of our life cycle management strategy for the DynaCirc CR brand, we are currently developing an improved controlled release isradipine formulation that would also allow for a more reliable manufacturing process that could be less expensive to produce. We are exploring the possibility of a broader range of available dosage strengths (6 mg, 12 mg and 18 mg), while remaining within the approved dosage range for controlled release isradipine of 5 mg to 20 mg per day.

If we are successful in developing the new formulation, demonstrating clinical efficacy and receiving FDA approval for this new formulation, we would receive three years of Hatch-Waxman marketing exclusivity. We are also exploring the potential for additional indications for the new formulation, such as chronic stable angina. We filed a provisional patent application in March 2005 covering the formulation and method of administration for this new formulation of DynaCirc CR.

Propranolol LA

While formulating InnoPran XL in 2000, an extended release formulation of propranolol, we began developing a generic equivalent of the branded, off-patent Inderal LA, a long-acting form of propranolol. Inderal LA, marketed by Wyeth, is a long-acting beta blocker, approved for the treatment of high blood pressure, angina and migraines.

We are continuing to develop a formulation of the generic equivalent to Inderal LA and expect to begin clinical trials to demonstrate bioequivalency. We expect to complete these clinical trials in 2006. If successful, we intend to file an ANDA seeking approval of this product. If approved by the FDA, we believe that, upon introduction, Propranolol LA would likely be the only generic form of Inderal LA that could be directly substituted at the pharmacy for prescriptions of Inderal LA.

While this product does not fit with our stated focus of developing and promoting branded prescription pharmaceuticals, U.S. sales of Inderal LA in 2004 were in excess of $220 million, and we believe this market represents a unique opportunity to generate cash flow.

RP-606

In February 2002, we entered into a license agreement with Medivir AB, to acquire the rights to develop, market and distribute RP-606, then known as MIV-606, in the United States and Canada. RP-606, a valomaciclovir stearate, is a broad spectrum, oral antiviral for the treatment of herpes zoster, commonly called shingles, and for the reduction of pain associated with shingles. The FDA has proposed that additional Phase II clinical trials should be performed before Phase III clinical trials may commence. Reliant and Medivir are currently investigating whether the request for additional Phase II clinical trials could be satisfied by a combined Phase II/III clinical trial. If Phase III clinical trials are commenced, we are required to finance them pursuant to the terms of our agreement with Medivir AB. We are currently in the process of evaluating our clinical development strategy and other strategic alternatives with respect to this compound.

Sales & Marketing

We have established a sales force consisting of nearly 1,000 full-time sales professionals, including approximately 90 sales force managers. We have organized our sales force into four groups to manage the national reach of our marketing and promotion efforts and to maximize calling frequency. The first and largest group, consisting of approximately 390 sales professionals, targets primary care and cardiovascular physicians on a national basis. The second group, consisting of approximately 380 sales professionals, increases the frequency of contact with high prescribing primary care and cardiovascular physicians that have already been called on by the first sales group. The third group, consisting of approximately 110 sales professionals, calls on specialty cardiologists, such as electrophysiologists and other high prescribers of our products. The fourth group consists of approximately 20 sales professionals that focus exclusively on managed-care, government and pharmaceutical benefit management organizations.

A recent independent survey conducted by Verispan entitled “Sales Force Structures and Strategies: Ranking Tables Study: 2004-2005” asked 7,250 doctors to rate the effectiveness of prescription pharmaceutical sales forces based upon the quality of their presentations and the physician’s overall familiarity with the sales representative. Sixty companies, including the largest pharmaceutical firms in the world, were mentioned by the physicians surveyed and included in the

rankings. As noted in the report, we ranked 33^rd overall in sales force quality and familiarity among all physicians surveyed; 30^th among general practitioner and family medicine physicians, our largest target audience; and 17^th among cardiologists, our current specialist focus.

Compared to the specialty pharmaceutical companies that we consider our peers, we ranked second overall in sales force quality and familiarity among general practitioner and family medicine physicians and second among cardiologists. The identified peer group included Allergan, Andrx, Biovail, Elan, First Horizon, Forest Laboratories, Ivax, King Pharmaceuticals, Kos Pharmaceuticals, Sepracor, Shire Pharmaceuticals, and Watson Labs.

We have established a fully-integrated marketing strategy and sales support department consisting of over 50 professionals responsible for brand management, market research and sales operations. Our marketing strategy team develops and tests the brand-specific positioning messages that demonstrate the safety and efficacy advantages of our products and identifies and targets the high prescribing universe of primary care, cardiovascular and specialist physicians. Our sales operations group provides training, promotional material production, logistical support and management development for our sales force.

We also use third-party vendors, such as advertising agencies, market research firms and suppliers of marketing and other sales support related services.

Medical and Scientific Affairs Department

We have a Medical and Scientific Affairs Department consisting of approximately 20 professionals, which provides scientific and medical information regarding our products and related medical issues to the health care community. This information is communicated through a broad variety of channels in three functional areas, consisting of Medical Information, Medical Education and Medical Science Liason. The Medical Information group addresses unsolicited scientific and medical inquiries from physicians and other health care professionals. The Medical Education group educates physicians and other health care professionals regarding our products and related scientific and medical issues. The Medical Science Liason Group interacts with key opinion leaders in cardiovascular medicine and key decision makers in managed care.

Product Acquisition Model

We are focused on acquiring rights to branded pharmaceutical products and mid- to late-stage clinical development candidates. We do not conduct basic research for the creation or discovery of novel chemicals with the potential for development as new drug therapies. Instead, we replace the traditional drug research process with a drug search process. We typically focus on products that are either in the process of gaining FDA approval or are already FDA-approved.

We believe that our strong presence and track record in the primary care, cardiovascular and specialty physician markets, coupled with a national sales force, uniquely position us as an attractive partner for large- and mid-sized pharmaceutical companies, as well as biotech or international companies that lack U.S. marketing presence and expertise. We believe that we are becoming a logical business partner for many in the pharmaceutical and biotech industries because:

consolidation within the pharmaceutical industry has caused large, multi-national pharmaceutical companies to focus on “blockbuster” products, resulting in smaller, under-promoted products becoming available for partnering, both at the commercial and developmental level; and

biotechnology companies are often unable to afford the high cost of marketing their own products after conducting costly clinical trials and therefore seek to partner these products, and the lack of presence in and knowledge of the U.S. market leads international pharmaceutical companies to partner their products in lieu of spending the necessary capital.

Our business development group has successfully negotiated for the rights to four marketed brands, two promotion agreements and three late-stage clinical development compounds. We are currently evaluating multiple opportunities across several therapeutic categories.

Competition

The pharmaceutical industry is highly competitive and characterized by a number of established, large pharmaceutical companies, as well as smaller emerging companies. Our products compete with a number of products manufactured and marketed by major pharmaceutical companies, biotechnology companies and manufacturers of generic drugs. Some of these companies have financial resources, marketing capabilities and experience in obtaining regulatory approvals for products, product-line acquisitions and market share substantially greater than ours. Our products may also compete with new products currently under development by others, as well as alternate therapies during the period of patent protection and thereafter from generic equivalents. We believe that competition in product sales is based on, among other things, product safety, efficacy, reliability, availability and price. For a discussion of specific products that compete with our products, we refer you to the product descriptions included in “Business” above.

In addition, the marketing of pharmaceutical products is increasingly affected by the growing role of managed care organizations and pharmaceutical benefit management companies in the provision of health services. Such organizations negotiate with pharmaceutical companies for highly competitive prices for pharmaceutical products in equivalent therapeutic categories, including certain of our marketed products. Failure to be included or to have a preferred position in a managed care organization’s drug formulary could result in decreased prescriptions of our products.

We also compete with other specialty pharmaceutical companies for new product acquisitions and licensing opportunities. Some of these competitors include Forest Laboratories, Shire Pharmaceuticals, Kos Pharmaceuticals, King Pharmaceuticals and First Horizon.

Patents and Proprietary Rights

We actively seek, when appropriate and available, protection for our products and proprietary information by means of domestic, and where applicable, foreign, patents, trademarks, trade secrets, copyrights and contractual arrangements. Patent protection in the pharmaceutical field, however, can involve complex legal and factual issues. Moreover, broad patent protection for new formulations or new methods of use of existing chemical entities is sometimes difficult to obtain, primarily because the active ingredient and many of the formulation techniques have been public for some time. Consequently, some patents claiming new formulations or new methods of use for old drugs may not provide meaningful protection against competition. Nevertheless, we intend to seek patent protection when appropriate and available and otherwise to rely on regulatory-related exclusivity and trade secret law to protect certain of our products, technologies and other scientific information. There can be no assurance, however, that any steps taken to protect such proprietary information will be effective.

Existing Patents and Patent Applications, Trademarks and Trademark Applications

In the United States, we own or have licensed rights to 27 issued patents and 22 pending applications. We also own or have licensed rights to 14 registered U.S. trademarks and 11 pending trademark applications.

In general, the U.S. patents and patent applications owned by or licensed to us are directed to the formulation of the products as well as the drug delivery technologies incorporated in the products. Patent protection is no longer available for the chemical entities that comprise the active ingredients in DynaCirc, Rythmol, Antara, InnoPran XL, Axid and Omacor. The active pharmaceutical ingredients in each of these products, with the exception of DynaCirc, are all currently sold in generic formulations, other branded pharmaceutical products or in the case of Omacor, as nutritional supplements. The following table sets forth each of the material patents issued by the U.S. Patent and Trademark Office for each of our products that we actively promote:


Product	U.S. Patent	Expiration Date
DynaCirc CR	4816263 4946687 4950486 5030456	October 2, 2007 October 2, 2007 October 2, 2007 July 9, 2008
Rythmol SR	5681588	October 28, 2014
InnoPran XL	6500454	October 4, 2021
Antara	4800079	August 10, 2007
Omacor	5502077 5656667 5698594	March 26, 2013 August 12, 2014 August 4, 2009

Protection of Intellectual Property

Because the patent positions of pharmaceutical companies are highly uncertain and involve complex legal and factual questions, the patents we own and license, or any future patents we may own or license, may not prevent other companies from developing similar or therapeutically equivalent products or ensure that others will not be issued patents that may prevent the sale of our products or require licensing and the payment of significant fees or royalties. Furthermore, to the extent that any of our future products or methods are not patentable, infringe upon the patents of third parties, or in the event our patents or future patents fail to give us an exclusive position in the subject matter claimed by those patents, our business could be adversely affected. We may be unable to avoid infringement of third-party patents and may have to obtain a license, defend an infringement action, or challenge the validity of the patents in court. A license may be unavailable on terms and conditions acceptable to us, if at all. Patent litigation is costly and time consuming, and we may be unable to prevail in any such patent litigation or devote sufficient resources to even pursue such litigation. If we do not obtain a license under such patents, are found liable for infringement, or are not able to have such patents declared invalid, we may be liable for significant money damages, encounter significant delays in bringing products to market, or be precluded from participating in the manufacture, use, or sale of products or methods of treatment requiring such licenses.

We also rely on trade secrets and other unpatented proprietary information in our product development activities. To the extent we maintain a competitive technological position by relying on trade secrets and unpatented know-how, such competitive technological position may be compromised if others independently develop the same or similar technologies. We seek to protect our trade secrets and proprietary knowledge in part through confidentiality agreements with our employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of such information. If our employees, consultants, advisors, or collaborative partners develop inventions or processes independently that may be applicable to our products under development, disputes may arise about ownership or proprietary rights to those inventions and processes. Such inventions and processes will not necessarily become our property, but may remain

the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain patent and trade secret protection, for any reason, could have a material adverse effect on our business.

We engage in collaborations, sponsored research agreements, and other arrangements with academic researchers and institutions that have received and may receive funding from U.S. government agencies. As a result of these arrangements, the U.S. government or other third parties may have rights in inventions developed during the course of the performance of such collaborations and agreements as required by law or such agreements. Several legislative bills affecting patent rights have been introduced in the U.S. Congress. These bills address various aspects of patent law, including publication, patent term, re-examination of subject matter, and enforceability. It is not certain whether any of these bills will be enacted into law or what form such new laws may take. Accordingly, the effect of such potential legislative changes on our intellectual property estate is uncertain.

Manufacturing

Third parties manufacture all of our products, and we do not have manufacturing facilities or personnel to independently manufacture our products or active pharmaceutical ingredients. The following is a description of our manufacturing and supply arrangements for our owned products that we actively promote:

DynaCirc CR: We currently obtain DynaCirc CR from Novartis pursuant to a supply agreement, which is scheduled to expire upon the earlier of March 2006 and the fulfillment by Novartis of its contractual obligations to supply specified quantities under our supply agreement. We are in the process of transitioning the manufacturing of DynaCirc CR from Novartis to Patheon and Novartis Consumer Health. To that end, in March 2004, we signed a five year supply and manufacturing agreement with Novartis Consumer Health to granulate the active pharmaceutical ingredient, isradipine, and to package the bulk product. In addition, in April 2004, we entered into a five year manufacturing services agreement with Patheon to press the granulated isradipine into tablets. Novartis Consumer Health is currently the FDA-approved manufacturer. The FDA approved Patheon to manufacture the 5 mg dosage form of DynaCirc CR in February 2005, which Patheon is currently providing. The FDA approved Patheon to manufacture the 10 mg dosage form of DynaCirc CR in April 2005. While Novartis will continue to manufacture DynaCirc CR until the requirements under the supply agreement have been met, we expect Patheon and Novartis Consumer Health to manufacture DynaCirc CR going forward.

Rythmol SR: Pursuant to a manufacturing agreement, Abbott GmbH & Co. KG manufactures our Rythmol SR product. This agreement is scheduled to expire in December 2008, with an option to extend the agreement for up to four additional years at our discretion.

InnoPran XL: Eurand manufactures InnoPran XL pursuant to the terms of a development, license and supply agreement, which expires in May 2013.

Antara: Pursuant to a development, license and supply agreement, Ethypharm manufactures our Antara product. This agreement expires in February 2020.

Omacor: We utilize Cardinal Health to encapsulate and package Omacor, the raw materials for which are supplied by Pronova pursuant to a 15 year supply agreement. Our manufacturing agreement with Cardinal Health expires fifteen years after our first commercial sale of the product in the United States.

Except for any contractual rights and remedies that we may have against our manufacturers, we have no control over the availability of our products or the quality of the products supplied to us. We rely solely on the manufacturers listed above to manufacture our actively promoted products and we do not have alternative manufacturing sources for any of such products. We may not be able to locate alternative manufacturers on commercially acceptable terms in the event of a manufacturing

interruption or termination of an existing manufacturing agreement. In addition, a change in manufacturer requires formal approval by the FDA before the new manufacturer may produce commercial supplies of our products. An interruption in the supply of our products will adversely affect, and has from time to time adversely affected, our ability to generate revenue and will adversely affect our ability to proceed with clinical trials of products we are developing.

Government Regulation and Patent Law

As a pharmaceutical company, our activities are governed by two principal areas of the law in the United States: patent law and the laws, rules and regulations promulgated and administered by the FDA. Among the laws administered by the FDA, two statutes, the Federal Food, Drug and Cosmetic Act, which we refer to as the FDC Act, and the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, are most important to us and our activities. The FDC Act and its implementing regulations set forth, among other things, the procedures and requirements for the clinical development, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our drug products. The Hatch-Waxman Act amended the FDC Act and is intended to promote the development of new drugs, including both novel drugs and generic equivalents to branded drugs. The Hatch-Waxman Act also promotes the development of new usages of existing drugs, as well as the procedures we are required to follow to gain approval for new formulations of existing drugs.

Both the Hatch-Waxman Act as well as the body of patent law may provide us and other pharmaceutical companies with certain legal and regulatory protections from competition. In the case of the Hatch-Waxman Act, this protection comes in the form of FDA-granted marketing exclusivity, which is a period of time during which the FDA prohibits others from, among other things, manufacturing and marketing a drug for which we have gained FDA approval to treat a particular disease. The FDA also grants marketing exclusivity when a pharmaceutical company develops and gains approval for a novel compound, or new chemical entity, which is a drug that has not previously been approved by the FDA. Pursuant to the Hatch-Waxman Act, you are entitled to receive five years of marketing exclusivity upon first approval of a New Chemical Entity for a drug in which neither the active ingredient nor any salt or ester of the drug has previously been approved as a new drug (New Chemical Entity) and three years of marketing exclusivity for any new dosage form or indication of a previously approved drug where the approval is based on new clinical data. In the case of patent law, this protection comes in the form of a legally defined period of time during which others may not infringe upon our intellectual property through, for example, the copying and subsequent sale of products for which we have been granted patents by the United States Patent and Trademark Office.

The following table describes when our FDA-marketing exclusivity expires under the Hatch-Waxman Act for each of our products which are owned or licensed by us:


Product		Hatch-Waxman Act Exclusivity Expiration Date
DynaCirc CR		—
Rythmol SR		September 2006
InnoPran XL		March 2006
Antara		—
Omacor		November 2009
Axid OS		May 2006

Federal Food, Drug and Cosmetic Act

Under the FDC Act, all new and generic drugs are subject to extensive pre- and post-market regulation by the FDA, including regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising and promotion of such products. FDA approval is

required before any new drug or dosage form, including a generic equivalent of a previously approved drug, can be marketed in the United States. There are three types of applications that we can submit to the FDA in order to gain approval for our products. The type of application that we file will depend on the compound for which we are seeking approval, whether it has previously received approval from the FDA, whether it has any remaining patent protection, the extent to which we have conducted our own safety and efficacy trials and the disease indications for which we are seeking approval. All applications for FDA approval must contain, among other things, information relating to pharmaceutical formulation, stability, manufacturing, processing, packaging, labeling, and quality control.

New Drug Applications

The FDA must approve a new drug application, or NDA, before a new drug that is not equivalent to a previously approved drug may be marketed in the United States. NDAs require extensive studies and submission of a large amount of data by the applicant.

The process of obtaining approval of an NDA principally involves the following steps:

Completion of extensive pre-clinical toxicology and pharmacology studies performed in compliance with FDA’s current Good Laboratory Practice, or cGLP, regulations. Pre-clinical studies generally include laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological animal studies, to assess the quality and safety of the new product. These studies provide the basis for the design of the human clinical trials.

Submission to the FDA of an Investigational New Drug, or IND, application, which must become effective before human clinical trials can commence. Once the pre-clinical studies are completed, the applicant submits the results (including the chemistry, manufacturing and control information) along with pharmacology and toxicology data to support its proposed clinical study design, to the FDA as a part of an IND. The FDA must review the IND prior to the commencement of human clinical trials. Unless the FDA raises concerns (such as concerns that human research subjects will be exposed to unreasonable risks), the IND will become effective 30 days following its receipt by the FDA.

Performance of adequate and well-controlled human clinical trials to establish the safety and effectiveness of the product for each proposed indication. Such trials are typically conducted in three overlapping studies, which may overlap:


Phase I:		Studies are initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients.

Phase II:		Studies are generally conducted in a limited patient population to identify possible adverse effects and safety risks, to determine the efficacy of the product for specific targeted indications and to determine dose tolerance and optimal dosage.

Phase III:		These are commonly referred to as pivotal studies. When Phase II evaluations demonstrate that a dose range of the product is effective and has an acceptable safety profile, Phase III trials are undertaken in large patient populations to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites.

Submission of an NDA to the FDA;

Satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to assess compliance with cGMP regulations; and

FDA review and approval of the NDA prior to any commercial sale or shipment of the product.

The conduct of the clinical trials is subject to extensive regulation, including compliance with good clinical practice, or GCP, regulations, obtaining informed patient consent, sponsor monitoring and auditing of the clinical, laboratory and product manufacturing sites, and review and approval of each study by an independent Institutional Review Board, or IRB, for each medical center proposing to conduct the clinical trial. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Once the FDA accepts an NDA for filing, by law the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data and/or an additional pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and FDA may interpret data differently than we or our collaborators interpret data. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety problems occur after the product reaches the market. In some cases, the FDA may condition approval of an NDA on the completion, within a specified time period, of additional clinical studies referred to as Phase IV clinical studies. The FDA may require such studies, also called post-marketing studies, to obtain additional safety and efficacy data, to detect potential new uses for or abuses of a drug, or to determine effectiveness for the approved indications under conditions of widespread usage. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new or supplemental NDA, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

Section 505(b)(2) New Drug Applications

Another, less-burdensome, form of an NDA is the so-called “505(b)(2) NDA”, which applicants submit pursuant to Section 505(b)(2) of the FDC Act. A Section 505(b)(2) NDA presents an alternate path to FDA approval of modifications to formulations of products previously approved by the FDA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Act and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The 505(b)(2) NDA is similar to a full NDA, except that, under conditions prescribed by the FDA, it may be supported in whole or in part by one or more animal and human study investigations in the originator NDA or those published in scientific literature in lieu of the applicant’s clinical trials. We filed with the FDA, and subsequently gained approval for, a 505(b)(2) NDA covering InnoPran XL, which is a new formulation of a previously approved compound (propranolol). We have also filed and received FDA approval for our NDA for Antara, which was filed pursuant to Section 505(b)(2). We intend to submit this type of NDA application to market potential product line extensions or new uses of already-approved products that are manufactured by other pharmaceutical companies.

To the extent that a Section 505(b)(2) NDA relies on studies conducted for a previously approved drug product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book. Specifically, the applicant must certify that (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid is known as a Paragraph IV certification. If the applicant does not challenge the listed patents, the Section 505(b)(2) application will not be approved until all the listed patents claiming the referenced

product have expired. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product, has expired.

If the applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a legal challenge to the Paragraph IV certification. Under the FFDCA, the filing of a patent infringement lawsuit within 45 days of their receipt of a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. Alternatively, if the listed patent holder does not file a patent infringement lawsuit within the required 45-day period, the applicant’s NDA will not be subject to the 30-month stay.

Generic Drug Approval

The Hatch-Waxman Act established abbreviated FDA approval procedures for drugs that are no longer protected by patents and which are shown to be equivalent to proprietary drugs previously approved by the FDA through its New Drug Application, or NDA, process. Approval to market and distribute these drugs is obtained by filing an abbreviated new drug application, or ANDA, with the FDA. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data, and quality control procedures. Pre-market applications for generic drugs are termed abbreviated because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in order to gain approval from the FDA for an ANDA, an applicant must establish that its product is bioequivalent to an existing approved drug and that it is identical to the approved drug with respect to the active ingredient(s), route of administration, dosage form, strength, and conditions of use recommended on the product’s labeling. A product is considered bioequivalent to an existing approved drug if testing demonstrates that the rate and extent of absorption of the proposed generic drug is not significantly different from the rate and extent of absorption of the existing approved drug when administered under similar experimental conditions. In certain situations, an applicant may obtain ANDA approval of a generic product with a strength or dosage form that differs from a referenced innovator drug pursuant to the filing and approval of an ANDA Suitability Petition. The FDA will approve the generic product as suitable for an ANDA application if it finds that the generic product does not raise new questions of safety and effectiveness as compared to the innovator product. A product is not eligible for ANDA approval if the FDA determines that it is not equivalent to the referenced innovator drug or if it is intended for a different use. However, such a product might be approved under an NDA, with supportive data from clinical trials. Upon completion of bioequivalency studies of Propranolol LA, and assuming these studies are successful, we intend to apply for approval to market Propranolol LA pursuant to an ANDA. The patents on the previously approved product, Inderal LA, have expired.

Similar to the rules governing Section 505(b)(2) NDAs, any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book before expiration of the referenced patent(s), must certify to the FDA that (1) no patent information on the drug product that is the subject of the ANDA has been submitted to the FDA; (2) that such patent has expired; (3) the date on which such patent expires; or (4) that such patent is invalid or will not be infringed by the manufacture, use, or sale of the drug product for which the ANDA is submitted. Before the enactment of the Medicare Prescription Drugs Improvement and Modernization Act of 2003, also known as the Medicare Act, which amended the Hatch-Waxman Act, if the NDA owner or patent holder asserted a

patent challenge within 45 days of its receipt of notice of the ANDA applicant’s Paragraph IV certification, the FDA was prevented from approving that ANDA until the earlier of 30 months from the patent owner’s receipt of the notice of the Paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent was favorably decided in an ANDA applicant’s favor, or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In some cases, NDA owners and patent holders have obtained additional patents for their products after an ANDA had been filed but before that ANDA received final marketing approval, and then initiated a new patent challenge, which resulted in more than one 30-month stay.

The Medicare Act amended the Hatch-Waxman Act to eliminate certain unfair advantages of patent holders in the implementation of the Hatch-Waxman Act. As a result, the NDA owner remains entitled to an automatic 30-month stay if it initiates a patent infringement lawsuit within 45 days of its receipt of notice of a Paragraph IV certification, but only if the patent infringement lawsuit is directed to patents that were listed in the Orange Book before the ANDA was filed. An ANDA applicant is now permitted to take legal action to enjoin or prohibit the listing of certain of these patents as a counterclaim in response to a claim by the NDA owner that its patent covers its approved drug product.

If an ANDA applicant is the first to file an ANDA with a Paragraph IV certification and provides appropriate notice to the FDA, the NDA holder, and all patentees for a particular generic product, the applicant may be awarded a 180-day period of marketing exclusivity against other companies that subsequently file ANDAs for that same product. The Medicare Act also modified the rules governing when generic products are eligible for 180-day marketing exclusivity periods and when the 180-day marketing exclusivity period is triggered or forfeited. Prior to the legislation, the 180-day marketing exclusivity period was triggered upon the first commercial marketing of the ANDA or a court decision holding the patent invalid, unenforceable, or not infringed. For ANDAs filed after the effective date of the Medicare Act (December 2003), the marketing exclusivity period is only triggered upon the first commercial marketing of the ANDA product, but that exclusivity may be forfeited under certain circumstances, including, if the ANDA is not marketed within 75 days after a final and nonappealable court decision by the first-to-file or other ANDA applicant, or if the FDA does not tentatively approve the first-to-file applicant’s ANDA within 30 months.

Manufacturing Requirements

We and our third-party manufacturers must comply with applicable FDA regulations relating to cGMP requirements. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. A failure to comply with these regulations could result in sanctions being imposed the manufacturer, including fines, injunctions, civil penalties, suspension or withdrawal of FDA approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions. While we periodically monitor the FDA compliance of our third-party manufacturers, we cannot be certain that our present or future third-party manufacturers will be able to comply with the cGMP regulations and other ongoing FDA regulatory requirements. If our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the drug product at issue.

Other Regulatory Requirements

Any products manufactured or distributed by us or our collaborators pursuant to FDA approvals are subject to continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences associated with the drug. The FDA closely regulates the post-approval marketing

and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use.

Foreign Regulatory Approval

At this time, we focus primarily on the U.S. marketplace. However, we have rights to develop and register certain of our products outside the United States. If we elect to develop a product for a market outside the United States, we must obtain approval by governmental regulatory authorities similar to the FDA in those countries prior to the commencement of clinical trials and subsequent marketing. The approval procedure varies from country to country, and the time required may be longer or shorter than that required for U.S. FDA approval.

Third-Party Payor Coverage and Reimbursement

Sales of pharmaceutical products depend in significant part on the availability of coverage and reimbursement from government and other third-party payors, including the Medicare and Medicaid programs. Third-party payors are increasingly challenging the pricing of pharmaceutical products and may not consider our products cost-effective or may not provide coverage of and reimbursement for our products in whole or in part. In the United States, there have been and we expect there will continue to be a number of legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business. For instance, on December 8, 2003, President Bush signed into law the Medicare Act, which, among other things, establishes a new prescription drug benefit beginning January 1, 2006. It remains difficult to predict the impact that the Medicare Act will have on us and our industry. Furthermore, we cannot predict the impact on our business of any legislation or regulations that may be enacted or adopted in the future.

Anti-Kickback and Fraud Laws

We are subject to various federal and state laws pertaining to health care “fraud and abuse.” The federal Anti-Kickback Statute makes it illegal for any person, including a pharmaceutical company (or a party acting on its behalf) to knowingly and willfully solicit, offer, receive or pay any remuneration, directly or indirectly, in exchange for, or to induce, the referral of business, including the purchase, order or prescription of a particular drug, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. In 1996, under the Health Insurance Portability and Accountability Act (HIPAA), the Anti-Kickback Statute was expanded to be made applicable to most federal and state health care programs. The definition of “remuneration” has been broadly interpreted to include anything of value, such as gifts, discounts, the furnishing of supplies or equipment, credit arrangements, cash payments, and waivers of payments. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal health care programs.

The broad language of the Anti-Kickback Statute has been interpreted by the courts and governmental enforcement agencies in a manner which could impose liability on health care providers for engaging in a wide variety of business transactions that would otherwise be considered lawful

practices outside of the health care industry. Limited regulatory “safe harbors” exempt certain practices from enforcement action under the Anti-Kickback Statute prohibitions. There are safe harbors available for certain discounts to purchasers, and other relationships. However, safe harbor protection is only available for transactions that fall entirely within the narrowly defined safe harbor provisions applicable to the particular remunerative relationship. Conduct and business arrangements that do not strictly comply with all the provisions of an applicable safe harbor, while not necessarily illegal, face an increased risk of scrutiny by government enforcement authorities and an ongoing risk of prosecution.

In addition, many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to referral of patients for healthcare services reimbursed by any source, not only the Medicare and Medicaid programs or other governmental payors. Certain states also have adopted compliance obligations for pharmaceutical companies which require compliance with the industry’s voluntary guidelines and related federal government compliance guidance to prevent fraud and abuse. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could find that such arrangements violate these laws, which could have a material adverse effect on our business, results of operations and financial condition.

HIPAA created two new federal crimes: health care fraud, and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal and state health care programs such as Medicare and Medicaid. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment. Additionally, HIPAA granted expanded enforcement authority to HHS and the U.S. Department of Justice (DOJ) and provided enhanced resources to support the activities and responsibilities of the OIG and DOJ by authorizing large increases in funding for investigating fraud and abuse violations relating to health care delivery and payment.

False Claims Laws

Under separate statutes, the submission of false or fraudulent claims for payment may lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicare, Medicaid and other federally funded health care programs. These false claims statutes include the federal False Claims Act, which allows the federal government or private individuals to bring suit alleging that an entity o

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