10-K

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

FORM 10-K

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

For the fiscal year ended December 31, 2002 Commission File Number 0-17254

NOVEN PHARMACEUTICALS, INC.

Incorporated under the laws of the
State of Delaware I.R.S. Employer Identification Number
59-2767632

11960 S.W. 144th Street, Miami, Florida 33186
305-253-5099

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, Par Value $.0001

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes x No o

     As of March 1, 2003, there were 22,580,100 shares of Common Stock outstanding.

     The aggregate market value of the voting stock held by non-affiliates of the registrant on March 1, 2003, was approximately $244 million.

     The aggregate market value of such voting stock held by non-affiliates of the registrant was approximately $573 million (computed by reference to the price at which the voting stock was last sold on June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter).

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Portions of registrant’s Proxy Statement for its 2003 Annual Meeting of Shareholders.

TABLE OF CONTENTS

PART I
	Item 1. Business.
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
	Item 6. Selected Financial Data.
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10. Directors and Executive Officers of the Registrant.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management.
	Item 13. Certain Relationships and Related Transactions.
	Item 14. Controls and Procedures.
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
SIGNATURES
	INDEPENDENT AUDITORS’ REPORT
	Balance Sheets
	Statements of Operations
	Statements of Stockholders’ Equity
	Statements of Cash Flows
	NOTES TO FINANCIAL STATEMENTS
Report of Independent Accountants
	Balance Sheet
	Statement of Operations
	Statement of Members’ Capital
	Statement of Cash Flows
	Notes to Financial Statements
EX-10.25 Trasaction Agreement
EX-11 Computation of Earnings Per Share
EX-21 Subsidiaries of the Registrant
EX-23.1 Consent of Deloitte & Touche LLP
EX-23.2 Consent of PricewaterhouseCoopers LLP
EX-99.1 Certification of Chief Executive Officer
EX-99.2 Certification of Chief Financial Officer

NOVEN PHARMACEUTICALS, INC.

Annual Report on Form 10-K
for the year ended December 31, 2002

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	23
	PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	24
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	56
Item 8.	Financial Statements and Supplementary Data	56
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
	PART III
Item 10.	Directors and Executive Officers of the Registrant	57
Item 11.	Executive Compensation	57
Item 12.	Security Ownership of Certain Beneficial Owners and Management	57
Item 13.	Certain Relationships and Related Transactions	57
Item 14.	Controls and Procedures	57
	PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	58

2

PART I

Item 1. Business.

General

     Noven Pharmaceuticals, Inc. is a leader in the development and manufacture of advanced transdermal drug delivery technologies and prescription transdermal products. We were incorporated in Delaware in 1987, and our principal executive offices are located at 11960 S.W. 144th Street, Miami, Florida 33186; our telephone number is (305) 253-5099.

     Our principal commercialized products are transdermal drug delivery systems for use in menopausal hormone therapy. Our first product was an estrogen patch for the treatment of menopausal symptoms marketed under the brand name Vivelle® in the United States and Canada and under the brand name Menorest® in Europe and certain other markets. In May 1999, our second generation estrogen patch, the smallest transdermal estrogen patch ever approved by the United States Food and Drug Administration (“FDA”), was launched in the United States under the brand name Vivelle-Dot®. This product was launched in several foreign countries in 2002 and is expected to be launched in additional countries in 2003 under the brand name Estradot®. We also developed a combination estrogen/progestin transdermal patch for the treatment of menopausal symptoms, which is marketed under the brand name CombiPatch® in the United States and under the brand name Estalis® in Europe and certain other markets. See “Transdermal Drug Delivery — Products” below for a more complete description of our transdermal products and their marketing status.

     In June 2002, we filed a New Drug Application (“NDA”) with the FDA for our once-daily transdermal methylphenidate delivery system for the treatment of Attention Deficit Hyperactivity Disorder (“ADHD”), which is intended to be marketed under the trade name MethyPatch®. We believe that this product will address several serious issues associated with existing therapies and, if approved, will compete in the over $1.4 billion market for drugs that treat ADHD in the United States. In February 2003, we signed an agreement to license the exclusive global rights to market MethyPatch® to Shire Pharmaceuticals Group plc (“Shire”) for payments of up to $150 million and ongoing manufacturing revenue. See “Transdermal Drug Delivery — Products” below for a more complete description of MethyPatch® and the Shire transaction.

     We have an active research and development program investigating a broad range of products and therapeutic categories. Two of our projects are currently in active clinical development. We have completed early clinical trials for other products for which we intend to seek development partners before pursuing further trials. In addition, significant pre-clinical research is ongoing as we select new candidates for possible independent and joint development. See “Research and Development” below for a more complete description of our product development program.

Novogyne Pharmaceuticals

     In May 1998, we formed a joint venture limited liability company with Novartis Pharmaceuticals Corporation (“Novartis”) called Vivelle Ventures LLC to market and sell women’s prescription healthcare products. The joint venture does business under the name Novogyne Pharmaceuticals (“Novogyne”), and markets Vivelle®, Vivelle-Dot® and CombiPatch® in the United

3

States. In 2002, Novogyne’s sales and marketing efforts resulted in the Vivelle® family of products becoming the most dispensed product family in the transdermal estrogen replacement therapy (“ERT”) category, with a 38% share of monthly total prescriptions dispensed as of December 2002. In 2002, our equity in earnings of Novogyne, a non-cash item, represented 66% of our income before income taxes.

     Novogyne is managed by a committee of five members, three appointed by Novartis and two appointed by us. Pursuant to the joint venture operating agreement, certain significant actions require a supermajority vote of the committee members. The President of Novogyne is Robert C. Strauss, who also serves as President, Chief Executive Officer and Chairman of the Board of Noven.

     The establishment of Novogyne modified a prior relationship in which we had licensed to Novartis the exclusive right to market Vivelle® in the United States and Canada and had received royalties from Novartis based upon Novartis’ sales. We initially invested $7.5 million in return for a 49% equity interest in Novogyne. Novartis contributed its rights to Vivelle® to Novogyne and also licensed to Novogyne the right to use the Vivelle® trademark in return for a 51% equity interest in Novogyne. Under the terms of the joint venture agreements, we manufacture and supply Novogyne with Vivelle®, Vivelle-Dot® and CombiPatch®, perform marketing, sales and promotional activities, and receive royalties from Novogyne based on Novogyne’s sales of certain of the products. Novartis distributes Vivelle®, Vivelle-Dot® and CombiPatch® and provides certain other services to Novogyne, including marketing to the managed care sector, regulatory, accounting and legal services. Neither the operating agreement for Novogyne nor any other agreement between Novartis and us prohibits Novartis from developing, marketing, selling or promoting any product or family of products. Novartis and its affiliates sell competing products, both in the United States and abroad, and it is possible that Novartis will promote its other competitive products at our expense. Any reduction in the level of support and promotion that Novartis provides to our products, whether as a result of Novartis’ focus on other products or otherwise, could have a material adverse effect on our business, results of operations, financial condition and prospects.

     Novogyne’s Management Committee has the authority to distribute cash to Novartis and us based upon a contractual formula. The joint venture agreements provide for an annual preferred return of $6.1 million to Novartis and then an allocation of income between Novartis and us depending upon sales levels attained. Our share of income increases as product sales increase, subject to a maximum of 49%.

     Novogyne acquired the exclusive United States marketing rights to CombiPatch® in March 2001 in a series of transactions involving Novogyne, Novartis, Aventis Pharmaceuticals, the U.S. pharmaceuticals business of Aventis Pharma AG (“Aventis”), and us. Prior to the transaction, Aventis had been our exclusive licensee for CombiPatch® in the United States. The transaction was structured as (a) a direct purchase by Novogyne from Aventis of certain assets for $25.0 million, which was paid at closing, (b) a grant-back by Aventis to us of certain intellectual property rights relating to CombiPatch®, and (c) a simultaneous license by us to Novogyne of these intellectual property rights. The consideration payable by us to Aventis, and by Novogyne to us, was $40.0 million, which was due in four quarterly installments of $10.0 million each with the final payment made in March 2002. As a consequence of the transaction and under the terms of our existing license agreement with Aventis, we received $3.5 million from Aventis, which amount was deferred and recognized as license revenue over ten years beginning in the first quarter of 2001.

4

     In a related transaction, Novartis Pharma AG (“Novartis AG”) acquired from Aventis the development and marketing rights to future generations of our combination estrogen/progestin patch in all markets other than Japan. Novogyne expects to sublicense the United States rights to these product improvements from Novartis AG. We cannot assure that Novartis AG will agree to sublicense the product to Novogyne upon commercially reasonable terms or at all. If any future generation combination products are commercialized and sublicensed to Novogyne, Novogyne expects that it will pay a royalty to Novartis AG on the United States sales of such products. We manufacture and supply CombiPatch® and expect to manufacture and supply any future combination products to Novogyne and to Novartis AG. We expect that Novogyne’s product line will be expanded in the future, although no assurance can be given that Novogyne will add additional products or that such products will be successfully marketed, and any such expansion would be subject to the approval of Novartis.

     Either party may dissolve the joint venture in the event that Novogyne does not achieve certain financial results. We expect that the applicable financial targets will be achieved, although we cannot assure that unexpected events will not affect Novogyne’s financial performance. Dissolution may also result from a change in control of Noven if the acquirer is a top ten pharmaceutical company (as measured by annual dollar sales). Upon dissolution, Novartis would reacquire the rights to market Vivelle® and Vivelle-Dot® subject to the terms of Novartis’ prior arrangement with us, and Novogyne’s other assets would be liquidated and distributed to the parties in accordance with their capital account balances as determined pursuant to the joint venture operating agreement. The operating agreement also has a buy/sell provision which allows either party to compel either the purchase of the other party’s interest in Novogyne or the sale of its own interest at a price set by the party triggering the buy/sell provision. Novartis is a larger company with greater financial resources, and therefore may be in a better position to be the purchaser if the provision is triggered.

Strategy

     Our strategy for continued growth and profitability is to utilize our proprietary transdermal drug delivery technology to establish a leadership position in this field. In pursuing this strategy, we intend to focus on developing products in a range of therapeutic areas, including hormone therapy and central nervous system conditions, such as ADHD and pain management. On a long-term basis, we may seek to (i) form new strategic alliances with other pharmaceutical companies, (ii) expand our transdermal technology base, (iii) establish our own sales force to market certain of our independently developed products and potentially to acquire products to market through our own sales force, and (iv) capitalize on the opportunity presented by our collaboration with Novartis through Novogyne by licensing certain of our women’s health products to Novogyne and by expanding Novogyne’s product range beyond transdermal products. No assurance can be given that we will successfully implement all or part of our long-term strategy or that our strategy will be successful.

HRT Market Overview

     There are more than 40 million post-menopausal women in the United States, and this group is expected to grow 50% by 2020. We estimate that, in 2002, worldwide sales of all menopausal

5

hormone replacement therapy (“HRT”) products, including those delivered transdermally, were over $3.5 billion and that worldwide transdermal HRT product sales were over $500 million.

     Menopause begins when the ovaries cease to produce estrogen, or when both ovaries are removed surgically prior to natural menopause. The most common acute physical symptoms of natural or surgical menopause are hot flashes and night sweats, which can occur in up to 85% of menopausal women. Another common problem is vaginal dryness. This condition, which affects an estimated 25% of women, usually begins within five years after menopause. Moderate-to-severe menopausal symptoms can be treated by replacing the estrogen that the body can no longer produce. Estrogen replacement therapy relieves hot flashes and night sweats effectively, and prevents drying and shrinking of the reproductive system.

     Another condition related to the inability to produce estrogen is osteoporosis, a progressive deterioration of the skeletal system through the loss of bone mass. The loss of estrogen in menopause causes increased skeletal resorption and decreased bone formation. Osteoporosis currently affects over 20 million women and contributes to approximately 1.5 million fractures annually in the United States. Morbidity and suffering associated with these fractures are substantial. Estrogen replacement prevents the loss of bone mass and reduces the incidence of vertebral and hip fractures in older women. There are, however, other approved therapies for osteoporosis and, in light of the HRT studies described below, hormone replacement may no longer be considered by physicians as first line therapy for this condition.

HRT Studies

     In July 2002, the National Institutes of Health (“NIH”) released data from its Women’s Health Initiative (“WHI”) study on the risks and benefits associated with long-term use of oral HRT by healthy women. The NIH announced that it was discontinuing the arm of the study investigating the use of oral estrogen/progestin combination HRT products after an average follow-up period of 5.2 years because the oral HRT product used in the study was shown to cause an increase in the risk of invasive breast cancer. The study also found an increased risk of stroke, heart attacks and blood clots and concluded that overall health risks exceeded benefits from use of the orally delivered combined estrogen plus progestin product among healthy postmenopausal women. Also in July 2002, results of an observational study sponsored by the National Cancer Institute (“NCI”) on the effects of ERT were announced. The main finding of the study was that postmenopausal women who used ERT for 10 or more years had a higher risk of developing ovarian cancer than women who never used HRT. In October 2002, a significant HRT study being conducted in the United Kingdom was also halted. Our transdermal HRT products differ from the products used in the WHI study and the primary products observed in the NCI and United Kingdom studies. There are, however, no studies comparing the safety of our products against other HRT therapies.

     Although the range of consequences of these studies cannot be predicted, it is possible that they could result in a significant permanent decrease in the market for our HRT products, either as physicians withdraw their patients from HRT or as women elect to discontinue HRT on their own. In addition, the market growth that would have been expected if HRT had been found safe and effective to treat additional indications, such as heart disease, is now unlikely to materialize. In January 2003, the FDA announced that marketers of HRT products, including Novogyne, are required to modify their HRT product labels to include additional safety information and warnings.

6

Among other things, the labels must indicate that HRT should be used for short-term therapy only and that, in the absence of clinical studies demonstrating that HRT products other than the oral product studied in the WHI are safe, physicians should assume that all HRT products carry the same risks. Novartis has informed us that it intends to submit proposed revised labeling to the FDA and to begin using the revised label at the time it reaches agreement with the FDA on the label’s language. Healthcare regulators also could delay the approval of new HRT products, such as those we are presently developing with Novartis AG (see Products — Transdermal Combination Estrogen/Progestin Delivery System below), or require that any new HRT products be subject to more extensive or more rigorous study and testing prior to being approved. The FDA has mandated that all companies engaged in clinical development of HRT products inform study subjects of the risks identified in the referenced studies. Further, because these studies show that certain uses of certain HRT products may result in a higher likelihood of certain adverse health effects, it is possible that we could be named as a defendant in product liability lawsuits relating to our HRT products.

     Other studies evaluating HRT are currently underway or in the planning stages. In particular, the estrogen-only arm of the WHI study is ongoing. We are unable to predict the effect of new study results, once available, on the short and long-term prospects for the HRT market or for the market for our transdermal HRT products. Since publication of the WHI and NCI study data, United States prescriptions have declined for substantially all HRT products, including our products, and prescriptions in Europe have also declined. The WHI safety board re-evaluates the risk/benefit profile of the estrogen-only arm as frequently as twice per year. If the estrogen-only study or any other currently ongoing HRT study is halted, the market for HRT products, including ours, both in the United States and abroad, could be further adversely impacted. The HRT label changes mandated by the FDA may also negatively impact our products, particularly with physicians and patients who now believe that transdermal HRT products are safer than orally delivered HRT products. Currently, our liquidity, results of operations and business prospects are almost entirely dependent on sales, royalties and license fees associated with transdermal HRT products. Accordingly, any further adverse change in the market for HRT products (including any adverse changes resulting from the foregoing studies) could have a material adverse impact on our liquidity, results of operations and business prospects.

Transdermal Drug Delivery

Description

     Transdermal drug delivery systems utilize an adhesive patch containing medication which is administered through the skin and into the bloodstream over an extended period of time. Transdermal drug delivery systems may offer significant advantages over conventional oral and parenteral dosage forms, including non-invasive administration, controlled delivery, improved patient compliance, reduced abuse potential, flexible dose duration, and avoidance of certain adverse side-effects.

     Our most advanced patches utilize our patented DOT Matrix™ patch technology. DOT Matrix™ is a highly efficient class of diffusion-based drug-in-adhesive patch technology that can often deliver more drug through less patch area than competitive patches, without using irritating skin permeation enhancers and without compromising adhesion.

7

     DOT Matrix™ patches, such as Vivelle-Dot®/Estradot®, CombiPatch®/Estalis® and MethyPatch®, utilize a patented blend of silicone, acrylic and drug. This blend causes thousands of microscopic pockets of concentrated drug to be formed and uniformly dispersed throughout the patch’s drug/adhesive layer. The resulting high concentration gradient between each drug pocket and the skin works to enhance the diffusion of drug from the patch, through the skin and into the bloodstream. This inherent delivery efficiency minimizes the need for skin permeation enhancers. Precise ratios of silicone, acrylic and drug regulate the rate of DOT Matrix™ drug delivery and help assure therapeutic blood levels over the intended course of therapy.

     We believe that our technology enables us to develop patient-friendly transdermal systems that improve a patient’s quality of life by reducing skin irritation sometimes associated with transdermal drug delivery systems, by improving adhesion and by minimizing patch size. Our transdermal drug delivery systems are capable of being modified to deliver a wide variety of chemical entities. With DOT Matrix™ technology, molecules previously believed unsuitable for transdermal delivery can be administered at efficacious doses with minimal irritation. Reduced patch size can have a beneficial effect on patient preference and provide a competitive advantage over patches that deliver similar compounds through a larger patch. DOT Matrix™ technology may also permit us to develop patient-friendly patches in cases where, due to the nature of the compound, competitors’ products could not deliver a proper dose without making the patch objectionably large.

Products

First Generation Transdermal Estrogen Delivery System

     Our first generation transdermal estrogen delivery system (marketed as Vivelle®, Menorest®, and Femiest®) is available by prescription and utilizes our adhesive matrix technology. This product delivers estradiol, the primary estrogen produced by the ovaries, through a patch that is applied twice weekly. This product offers five dosage strengths, thereby allowing physicians to maintain patients on the appropriate dose of estrogen.

     This product has been approved for marketing by the FDA, as well as by regulatory authorities in many foreign countries, for the treatment of menopausal symptoms and the prevention of osteoporosis. Marketing rights to this product are held by Novogyne in the United States, by Aventis in Japan, and by Novartis AG in all other territories. Novartis AG is selling this product under the brand name Menorest® in over 10 foreign countries. Novogyne and Novartis AG’s Canadian affiliate market this product under the brand name Vivelle® in the United States and Canada, respectively, and Aventis markets this product under the brand name Femiest® in Japan.

     Pursuant to license and supply agreements with Novartis AG, Novogyne and Aventis, we manufacture Vivelle®, Menorest® and Femiest® for these parties and receive fees based on their sales of the products. The supply agreements for Menorest® and Femiest® are long-term agreements. The supply agreement for Vivelle® (and Vivelle-Dot®) expired in January 2003, and the parties are currently negotiating an extension to the agreement. Since the expiration of the Vivelle® supply agreement, the parties have continued to operate in accordance with the supply agreement’s commercial terms, and we expect that the supply agreement will be extended on satisfactory terms. However, we cannot assure that the agreement will be extended on satisfactory terms or at all. Failure to extend the supply agreement could have a material adverse effect on our business, results

8

of operations, financial condition and prospects. Designation of a supplier and approval of a new supply agreement require the affirmative vote of 4 of the 5 members of Novogyne’s Management Committee. Accordingly, Novartis and we must both agree on Novogyne’s supplier.

Second Generation Transdermal Estrogen Delivery System

     Our continued efforts to improve our matrix patch technology have resulted in the successful development of a second generation transdermal estrogen delivery system called Vivelle-Dot®. This second generation system, utilizing our proprietary DOT Matrix™ technology, is one-third the area of a Vivelle® or Menorest® system at any given dosage level, yet provides the same delivery of drug over the same period. This system is more flexible and comfortable to wear than the first generation product, with a lower potential for skin irritation. This product is bioequivalent to our first generation product and is available in the United States in five dosage strengths. The lowest dosage strength is approved only for osteoporosis, and in light of the HRT studies described above and the expected label changes, many physicians may consider alternative treatments for osteoporosis which would adversely affect the market for that dosage strength.

     Novogyne markets Vivelle-Dot® in the United States and Aventis has marketing rights for Vivelle-Dot® in Japan. In November 2000, we entered into an exclusive license agreement with Novartis AG pursuant to which we granted Novartis AG the right to market Vivelle-Dot® under the name Estradot® in all countries other than the United States, Canada and Japan. The agreement also grants Novartis AG marketing rights in the same territories to any product improvements and future generations of estrogen patches developed by us. We received an up-front license payment of $20.0 million upon execution of the agreement. For accounting purposes, that payment was deferred and is being recognized as license revenue over 10 years beginning in the fourth quarter of 2000. We subsequently received a $5.0 million milestone payment that is being recognized as license revenue beginning in the first quarter of 2002 through the fourth quarter of 2010. Under the terms of the agreement, Novartis AG is responsible for seeking approval to market Estradot® in its territories. The product has been approved for marketing in over 30 foreign countries and the regulatory authorities of other countries are reviewing Novartis AG’s registration applications. Novartis AG has launched the product in Germany and a number of smaller European countries. However, Novartis AG has informed us that pricing and reimbursement issues are adversely impacting its launch plans in many countries, including the United Kingdom, France, Spain and Italy. Accordingly, there can be no assurance that Novartis AG will be successful in effecting additional registrations of Estradot® or that Novartis AG will launch Estradot® in any particular country. In some countries, including the United Kingdom and France, Novartis AG is seeking a marketing partner to launch the product but to date has been unsuccessful. We cannot assure that Novartis AG will be successful in securing a marketing partner or in launching Estradot® in those countries.

     Novartis AG markets several other estrogen patches in addition to our products. The growth of Estradot® sales depends, in part, on Novartis AG’s willingness and ability to convert sales of its existing patches to Estradot®. We cannot assure that Novartis AG will choose to actively convert sales of its existing patches to Estradot®.

     Pursuant to license and supply agreements with Novartis AG and Novogyne, we manufacture the product for these parties and receive fees based on their sales of the product. The supply agreement for Estradot® is a long-term agreement and Vivelle-Dot® is supplied under the same

9

agreement as Vivelle®. As discussed above, although we expect that the United States supply agreement will be extended, we cannot assure that it will be extended on satisfactory terms or at all.

Transdermal Combination Estrogen/Progestin Delivery System

     We also developed the first combination transdermal therapy system approved for marketing by the FDA, a combination patch containing estradiol and a progestin, norethindrone acetate. Benefits of estrogen replacement therapy include menopausal symptom control and osteoporosis prevention. For women who have an intact uterus (non-hysterectomized), estrogen-only replacement therapy has been associated with an increased risk of endometrial cancer. To address this situation, a combination therapy of estrogen and progestin may be prescribed. Using both products together has been shown to reduce the risk of endometrial cancer while continuing to produce the benefits of estrogen replacement therapy. Further, studies have shown that continuous use of both estrogen and low dose progestin may be effective for many women in eliminating the monthly menstrual cycle or irregular bleeding.

     Novogyne acquired marketing rights to the product in March 2001 from Aventis (which was then our exclusive worldwide licensee for the product) and markets the product under the brand name CombiPatch® in two dosage strengths in the United States, where it is the only available combination HRT patch. Novogyne had been unable to increase CombiPatch® prescriptions after acquiring and relaunching the product, and since publication of the HRT studies described above, CombiPatch® prescriptions and sales have declined significantly.

     Novartis AG also holds the right to market this product outside of the United States and Japan and is marketing this product under the brand name Estalis® in a number of foreign countries. Estalis® is presently approved in only one dosage strength in most European countries. Novartis AG has advised us that it filed an application for approval of a second dosage strength in Sweden in December 2002, but no assurance can be given that approval will be obtained, and launch timing in any given country cannot be predicted. We expect that growth in Estalis® sales will be limited unless and until a second dosage strength is approved and launched.

     In June 2001, we entered into a development agreement with Novartis AG relating to future generations of combination estrogen/progestin patch products. In the fourth quarter of 2002, we received a $1.0 million milestone payment from Novartis AG in connection with ongoing development under this agreement. The payment is being recognized as income as the specific performance criteria are achieved.

     Pursuant to license and long-term supply agreements with Novartis AG and Novogyne, we manufacture the combination product for these parties and receive fees based on their sales of the product.

Transdermal Methylphenidate Delivery System

     We have developed a once-daily transdermal methylphenidate patch for the treatment of ADHD. ADHD is the most commonly diagnosed and the most widely studied behavioral disorder in children in the United States. ADHD is characterized by developmentally inappropriate levels of attention, concentration, activity, distractibility and impulsivity symptoms. The disorder typically

10

causes functional impairment that can limit success and create hardship in school, and in social and familial relationships. As children age, the symptoms can lead to serious conduct disorders, criminal behavior, substance abuse and accidental injuries. Methylphenidate is a stimulant and designated as a Schedule II controlled substance by the United States Drug Enforcement Administration (“DEA”).

     While prevalence rates can vary dramatically from study to study, it is widely reported that ADHD affects about 3 to 7% of school-aged children in the United States, over 2 million children nationwide. Prevalence rates vary among studies because of differences in diagnostic criteria. Stimulant therapies, including methylphenidate, are the most prescribed drug type for the treatment of ADHD. ADHD symptoms often persist into adolescence and adulthood. Some studies have reported that ADHD will persist into adulthood in up to 60% of individuals. Industry analysts estimate that annual United States sales of ADHD medications exceed $1.4 billion, with as many as 1.5 million children receiving pharmacological treatment for ADHD.

     Presently, all ADHD medications approved in the United States are delivered orally, and a significant number of patients require more than one dose per day. We expect that our patch, worn under clothing, would eliminate the stigma that many children suffer when receiving oral medication during the school day, and may reduce the drug diversion and abuse issues that may be associated with many oral formulations. We also believe that our product will provide physicians with broad dosing flexibility, because dosing can be discontinued by simply removing the patch.

     In the first quarter of 2002, we completed a second Phase III clinical trial for MethyPatch®, and our review of the primary efficacy data from the trial indicates that MethyPatch® reduces the symptoms of ADHD. We filed an NDA with the FDA in June 2002.

     In February 2003, we signed an agreement to license the exclusive global rights to market MethyPatch® to Shire for payments of up to $150 million and ongoing manufacturing revenue. Consideration for the transaction is payable as follows: (a) $25 million payable upon closing of the transaction; (b) $50 million upon receipt of final marketing approval for MethyPatch® by the FDA; and (c) three installments of $25 million each upon Shire’s achievement of $25 million, $50 million and $75 million in annual net sales of MethyPatch®, respectively. Shire’s annual net sales will be measured quarterly on a trailing 12-month basis, with each milestone payment due 45 days after the end of the first quarter during which trailing 12-month sales exceed the applicable threshold. For accounting purposes, all payments (other than manufacturing revenue) will be deferred and recognized as revenue over a period of years. Closing of the transaction is conditioned on, among other things, the expiration of any regulatory waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, and is expected to take place in April 2003.

     Under the terms of the transaction, we remain responsible for securing final regulatory approval for MethyPatch® from the FDA. If we receive a non-approval letter from the FDA or if FDA approval has not been granted within two years of the closing date, Shire may require us to repurchase the product rights for $5 million. Shire has agreed that it will not sell any other product containing methylphenidate as an active ingredient until the earlier of (a) five years from the closing date or (b) payment of all of the sales milestones.

11

     On the closing date, we will enter into a long-term supply agreement under which we will manufacture and supply MethyPatch® to Shire. The agreement will give Shire the right to qualify a second manufacturing source and purchase a portion of its requirements from the second source.

     We cannot assure that the product will be approved by the FDA. The FDA will examine efficacy data from the recently completed Phase III study together with safety and other data from this and other MethyPatch® studies we sponsored, and we cannot assure that the FDA will deem all of such data sufficient to approve the product for marketing or to authorize the product’s use in the manner we described. We believe that MethyPatch® is the first transdermal ADHD product submitted to the FDA for approval, and we cannot assure that the FDA will not have questions or raise objections that could delay or prevent an approval. Additionally, we cannot assure that the FDA will not place conditions or restrictions on any approval that it may grant, which conditions or restrictions could adversely affect the market potential of MethyPatch®.

     The market for ADHD drugs is highly competitive, with a product mix that includes generic methylphenidate, long-acting formulations, other stimulant medications, medications not containing Schedule II controlled substances, and a variety of other drug types. Shire currently markets non-methylphenidate products for treatment of ADHD, and we cannot assure that Shire will market MethyPatch® aggressively or effectively. There are several other once-daily ADHD medications on the market. Other products which may have improved safety and efficacy profiles are also in development. We cannot assure that Shire will successfully commercialize the product or that it will compete effectively against extended release oral formulations of methylphenidate and/or other ADHD medications, especially those not involving controlled substances. Some of the companies marketing competitive products are substantially larger and have greater financial resources than Shire does. In particular, Johnson & Johnson markets Concerta®, the market-leading methylphenidate product, and Novartis and Eli Lilly & Company (“Lilly”) market competitive ADHD products. A recent entrant to the market is Strattera™, a non-stimulant, non-controlled substance therapy marketed by Lilly. We are unable to predict the impact of Strattera™ on the ADHD market. If Strattera™ or other therapies in development by other companies become recognized as therapeutically superior to stimulants, or are preferred by physicians, parents and/or patients, the market for MethyPatch® would be adversely affected.

Dependence on Licensees and Joint Venture

     During 2002, 54% and 42% of our revenues were generated from sales to, and contract revenue, fees and royalties received from, Novogyne and Novartis AG, respectively, and 66% of our income before income taxes was attributable to our equity in Novogyne’s earnings, a non-cash item. Going forward, we expect to be dependent on sales to Novartis AG, Novogyne and Shire, as well as fees, milestone payments and royalties generated from their sales of our transdermal delivery systems, for a significant portion of our expected revenues. No assurance can be given regarding the amount and timing of such revenues. Failure of these parties to successfully market our products would cause the quantity of products purchased from us and the amount of fees, milestone payments and royalties ultimately paid to us to be reduced and would therefore have a material adverse effect on our business and results of operations. We expect to be able to influence the marketing of Vivelle®, Vivelle-Dot® and CombiPatch® in the United States through our participation in the management of Novogyne, but the Management Committee of Novogyne is comprised of a majority of Novartis representatives, and we will not be able to control those matters. With respect to

12

Novartis AG’s and Shire’s marketing efforts, our agreements with these companies impose certain obligations on them, but there can be no assurance that such agreements will provide us with any meaningful level of protection or cause these companies to perform at a level that we deem satisfactory. Further, these companies and their affiliates sell competing products, both in the United States and abroad, and it is possible that they will promote their other competitive products at our expense. Any reduction in the level of support and promotion that these companies provide to our products, whether as a result of their focus on other products or otherwise, could have a material adverse effect on our business, results of operations, financial condition and prospects.

     We expect that a significant portion of our earnings for at least the next several years will be generated through our interest in Novogyne, and no assurance can be given regarding Novogyne’s future profitability. Novogyne’s sales force is significantly smaller than the sales forces promoting several competitive products, and there can be no assurance that Novogyne’s sales force will be successful. Prior to the publication of the HRT study data described above, CombiPatch® prescription trends had not improved significantly since Novogyne acquired marketing rights in March 2001. Since the HRT study data was published, CombiPatch® prescriptions have, like most HRT products, declined, and we cannot assure that Novogyne’s sales force will be successful in growing CombiPatch® sales. Failure of Novogyne to successfully market Vivelle®, Vivelle-Dot® or CombiPatch® would have a material adverse effect on our business and results of operations. See “Competition” below for a more complete description of the competitive factors affecting us and our business.

Transmucosal Lidocaine Delivery System

     Our first transmucosal delivery system, DentiPatch® is a patented, proprietary technology consisting of a thin, solid state multi-laminate construction with a drug-bearing bio-adhesive that delivers lidocaine through the buccal mucosa over time. DentiPatch® was approved for marketing by the FDA in May 1996 and was the first FDA-approved oral transmucosal patch. We launched the product nationwide in April 1997. The product is indicated for the amelioration of pain from oral injections and soft tissue dental procedures. It is the first topical anesthetic clinically proven to prevent pain when large needles are inserted to the bone. DentiPatch® is currently marketed in the United States through a network of independent distributors. Sales of DentiPatch® do not contribute meaningfully to our results of operations.

Research and Development

     Our research and development strategy is to identify drugs that can be delivered transdermally, which can be developed rapidly and which have substantial market potential. We also seek therapies that can be improved by using our innovative technologies. We will typically seek to develop products that use established agents which currently are being delivered to patients other than transdermally. In addition, we may enter into agreements to develop transdermal drug delivery systems utilizing proprietary compounds of other companies. For the years ended December 31, 2002, 2001 and 2000, we spent $11.6 million, $11.0 million and $13.6 million, respectively, for research and development activities. From time to time, we may supplement our research and development efforts by entering into research and development agreements, joint ventures and other collaborative arrangements with other companies. In allocating research and development dollars and

13

resources, we may devote greater resources to the development of products that we believe we can market and sell without a business partner.

     Our research and development expense may vary significantly from quarter to quarter depending on product development cycles and the timing of clinical studies. We intend to focus on long-term growth prospects, and therefore may incur higher than expected research and development expenses in a given period rather than delay clinical activities. These variations in research and development spending may not be accurately anticipated and may have a material effect on our results of operations.

     The length of time necessary to complete clinical trials, and from submission of an application for market approval to a final decision by a regulatory authority, varies significantly. We cannot assure that we will have the financial resources necessary to complete products under development, that those projects to which we dedicate sufficient resources will be successfully completed, that we will be able to obtain regulatory approval for any such product, or that any approved product may be produced in commercial quantities, at reasonable costs, and be successfully marketed, either by us or by a licensing partner. Similarly, we cannot assure that our competitors, many of whom have greater resources than we do, will not develop and introduce products that will adversely affect our business and results of operations.

14

     The following table summarizes as of March 1, 2003 the status of products marketed, approved and/or under development by us and is qualified by reference to the more detailed descriptions elsewhere in this Form 10-K. We have additional products in early development and continuously evaluate other drugs that may be suitable for transdermal delivery.

Product	Indication	Regulatory Status	Marketing Rights
Transdermal HRT
Estrogen Vivelle®/Menorest®/ Femiest®	Menopausal Symptoms	FDA-approved; Approved in over 40 foreign countries	Novogyne—U.S. Aventis—Japan Novartis AG—all other territories
	Osteoporosis	FDA-approved; Approved in over 40 foreign countries
Second Generation Estrogen Vivelle-Dot®/ Estradot®	Menopausal Symptoms	FDA-approved; Approved in over 30 foreign countries	Novogyne—U.S. Aventis—Japan Novartis AG—all other territories
	Osteoporosis	FDA-approved; Approved in over 30 foreign countries
Combination Estrogen/Progestin CombiPatch®/Estalis®	Menopausal Symptoms	FDA-approved; Approved in over 25 foreign countries	Novogyne—U.S. Aventis—Japan Novartis AG—all other territories
Second Generation Combination Estrogen/Progestin Methyltestosterone*	Menopausal Symptoms/Osteoporosis Female Libido	Phase I (sponsored by Novartis AG) Phase I	Aventis—Japan Novartis AG—all other territories Noven
Other Transdermals
Methylphenidate MethyPatch®	Attention Deficit Hyperactivity Disorder	NDA filed	Shire—worldwide
Dextroamphetamine	Attention Deficit Hyperactivity Disorder	Pre-clinical	Noven

15

Product	Indication	Regulatory Status	Marketing Rights
Fentanyl	Pain Relief	Clinical Development	Noven
Transmucosal
Lidocaine/DentiPatch®	Dental Pain Control	FDA-approved	Noven

* This product is available for licensing. We do not intend to further the development of this product unless and until we have entered an agreement with another company to assist in the development. We cannot assure that we will be able to identify any such development partner or that we will be able to enter into a license or development agreement on commercially reasonable terms. The failure to enter into such an agreement may result in the discontinuation of this development project.

Manufacturing

     We conduct our manufacturing operations in a facility comprised of two approximately 40,000 square foot buildings located on approximately 10 acres in Miami-Dade County, Florida. This facility has been inspected by the FDA and by the Medicines Control Agency of the United Kingdom and found to be in compliance with applicable regulatory requirements. This facility has also been certified by the Drug Enforcement Administration to manufacture products containing controlled substances. The manufacturing area is being expanded to facilitate the manufacture and storage of commercial quantities of MethyPatch®. Our manufacturing capability is approximately 400 million patches per year. There is sufficient room for further development of facilities at this site that would significantly increase our manufacturing capacity to accommodate additional products under development. We anticipate that full development of this site, including possible new construction on the property, can accommodate our space requirements for the foreseeable future. No assurance can be given that we will have the financial resources necessary to adequately expand our manufacturing capacity if and when the need arises.

     Raw materials essential to our business generally are readily available from multiple sources. Certain raw materials and components used in the manufacture of our products (including essential polymer adhesives) are, however, available from limited sources, and in some cases, a single source. Our NDA for MethyPatch®, for example, includes only one active drug ingredient supplier. In addition, the DEA controls access to controlled substances (including methylphenidate), and we must receive authorization from the DEA to obtain these substances. Any curtailment in the availability of such raw materials could be accompanied by production or other delays, and, in the case of products for which only one raw material supplier exists, could result in a material loss of sales, with consequent adverse effects on our business and results of operations. In addition, because raw material sources for pharmaceutical products must generally be approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales, customers and market share. Some raw materials used in our products are supplied by companies that restrict certain medical uses of their products. While our use is presently acceptable, there can be no assurance that such companies will not expand their restrictions to include our applications.

16

Marketing

     Except for DentiPatch®, we have historically granted marketing rights to our products to our joint venture company, Novogyne, or to other pharmaceutical companies. As we develop new products, we will evaluate whether to license such products to a larger company or utilize our own clinical, marketing and sales capabilities. Our evaluation will be conducted on a product-by-product basis and will include consideration of the characteristics of the particular market and the estimated costs associated with clinical studies, sales, marketing and distribution. These combined costs and our financial position will be factored into the decision whether to license or market the product. We expect that we will seek to retain manufacturing rights in any future licensing transactions, partly in an effort to safeguard our proprietary technology. There can be no assurance that we will be able to reach a favorable agreement in any particular transaction or collaborative arrangement.

     We have substantial day-to-day management control over the Novogyne sales force. If we develop any products in the future for the women’s healthcare market, we may seek to license the marketing rights for such products to Novogyne.

Competition

     The markets for our products are highly competitive. All drug delivery products being developed by us may face competition from conventional forms of drug delivery (i.e., oral and parenteral), from alternate forms of drug delivery, such as controlled release oral delivery, liposomes, implants, gels and creams and possibly from alternate non-drug therapies. In addition, some or all of the products being marketed or developed by us face, or will face, competition from other transdermal products that deliver the same drugs to treat the same indications.

     Competition in drug delivery systems is generally based on a company’s marketing strength, product performance characteristics (i.e., reliability, safety, patient convenience) and product price. Acceptance by physicians and other health care providers, including managed care groups, is also critical to the success of a product. The first product on the market in a particular therapeutic area typically is able to obtain and maintain a significant market share. In a highly competitive marketplace and with evolving technology, there can be no assurance that additional product introductions or medical developments by others will not render our products or technologies noncompetitive or obsolete.

     We face competition from a number of companies in the development, marketing and sale of transdermal drug delivery products, and competition is expected to intensify. Competitors include Elan Corporation, plc, Watson Pharmaceuticals, Inc., Mylan Pharmaceuticals, Inc., LTS Lohmann Therapie-Systeme AG, Johnson & Johnson, Schering-Plough Corporation, 3M Corporation, Groupe Fournier, Women First HealthCare, Inc., Novavax, Inc. and others, including Novartis, Novartis AG and their affiliates. Some of these companies are substantially larger and have greater resources than we do, as well as greater experience in developing and commercializing pharmaceutical products. We also compete with other drug delivery companies in the establishment of business arrangements with large pharmaceutical companies to assist in the development or marketing of products.

     Other competitive factors affecting our business include the prevalence and influence of managed care organizations, government organizations, buying groups and similar institutions that seek

17

price discounts and rebates on pharmaceutical products. As the influence of these entities continues to grow, we and our marketing partners may face increased pricing pressure. Outside of the United States, our products may be affected by government price controls and reimbursement policies.

Patents and Proprietary Rights

     We seek to obtain patent protection on our delivery systems and manufacturing processes whenever possible. We have obtained over 25 United States patents and over 140 foreign patents relating to our transdermal and transmucosal delivery systems and manufacturing processes, and have over 110 pending patent applications worldwide.

     As a result of changes in United States patent law under the General Agreement on Tariffs and Trade and the accompanying Agreement on Trade-Related Aspects of Intellectual Property Law, which took effect in their entirety on January 1, 1996, the terms of some of our existing patents have been extended beyond the original term of seventeen years from the date of grant. Our patents filed after June 7, 1995 will have a term of twenty years computed from the effective filing date.

     We are unaware of any challenge to the validity of our patents or of any third party claim of patent infringement with respect to any of our products that could have a material adverse effect on our business or prospects.

     Although there is a statutory presumption as to a patent’s validity, the issuance of a patent is not conclusive as to such validity, or as to the enforceable scope of the claims of the patent. We cannot assure that our patents or any future patents will prevent other companies from developing similar or functionally equivalent products. We cannot assure that we would have the resources to prosecute an action to enforce our patent rights against an alleged infringer or that we would be successful in any infringement action that we elect to bring. Likewise, we cannot assure that we would have the resources to defend an infringement action or that we would be successful in any such defense. Furthermore, we cannot assure that any of our future processes or products will be patentable, that any pending or additional patents will be issued in any or all appropriate jurisdictions or that our processes or products will not infringe upon the patents of third parties.

     We also attempt to protect our proprietary information under trade secret and confidentiality agreements. Generally, our agreements with each employee, licensing partner, consultant, university, pharmaceutical company and agent contain provisions designed to protect the confidentiality of our proprietary information. There can be no assurance that these agreements will not be breached, that we will have adequate legal remedies as a result thereof, or that our trade secrets will not otherwise become known or be independently developed by others.

Government Regulation

     Our operations are subject to extensive regulation by governmental authorities in the United States and other countries with respect to the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical products. We devote significant time, effort and expense to address the extensive government regulations applicable to our business.

18

     The marketing of pharmaceutical products requires the approval of the FDA in the United States. The FDA has established regulations, guidelines and safety standards, which apply to the pre-clinical evaluation, clinical testing, manufacturing and marketing of pharmaceutical products. The process of obtaining FDA approval for a new product may take several years or more and is likely to involve the expenditure of substantial resources. The steps required before a product can be produced and marketed for human use typically include: (i) pre-clinical studies; (ii) submission to the FDA of an Investigational New Drug Exemption (“IND”), which must become effective before human clinical trials may commence in the United States; (iii) adequate and well controlled human clinical trials; (iv) submission to the FDA of a New Drug Application (“NDA”) or, in some cases, an Abbreviated New Drug Application (“ANDA”); and (v) review and approval of the NDA or ANDA by the FDA.

     An NDA generally is required for products with new active ingredients, new indications, new routes of administration, new dosage forms or new strengths. An NDA requires that complete clinical studies of a product’s safety and efficacy be submitted to the FDA, the cost of which is substantial. These costs can be reduced, however, for delivery systems which utilize approved drugs. In these cases, the company seeking approval may refer to safety and toxicity data reviewed by the FDA in its approval process for the innovator product. In addition, a supplemental NDA may be filed to add an indication to an already approved product.

     An ANDA involves an abbreviated approval process that may be available for products that have the same active ingredient(s), indication, route of administration, dosage form and dosage strength as an existing FDA-approved product, if clinical studies have demonstrated bio-equivalence of the new product to the FDA-approved product. Under FDA ANDA regulations, companies that seek to introduce an ANDA product must also certify that the product does not infringe on the approved product’s patent or that such patent has expired. If the applicant certifies that its product does not infringe on the approved product’s patent, the patent holder may institute legal action to determine the relative rights of the parties and the application of the patent. Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), the FDA may not finally approve the ANDA until the later of thirty months from the date of the legal action or a final determination by a court that the applicable patent is invalid or would not be infringed by the applicant’s product. We are developing products for which we intend to file an ANDA. There can be no assurance that we will not be sued for patent infringement, that we would prevail in any litigation or that the costs of litigation would not be prohibitive.

     Pre-clinical studies are conducted to obtain preliminary information on a product’s safety. The results of these studies are submitted to the FDA as part of the IND and are reviewed by the FDA before human clinical trials begin. Human clinical trials may commence 30 days after receipt of the IND by the FDA, unless the FDA objects to the commencement of clinical trials.

     Human clinical trials are typically conducted in three sequential phases, but the phases may overlap. Phase I trials consist of testing the product primarily for safety in healthy volunteers or a small number of patients at one or more doses. In Phase II trials, the safety and efficacy of the product are evaluated in a patient population somewhat larger than the Phase I trials. Phase III trials typically involve additional testing for safety and clinical efficacy in an expanded population at different clinical test sites. A clinical plan, or protocol, accompanied by the approval of the institution participating in the trials, must be submitted to the FDA prior to commencement of each

19

phase of the clinical trials. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time.

     The results of product development and pre-clinical and clinical studies are submitted to the FDA as an NDA or ANDA for approval. If an application is submitted, there can be no assurance that the FDA will review and approve the NDA or ANDA in a timely manner. The FDA may deny an NDA or ANDA if applicable regulatory criteria are not satisfied or it may require additional clinical testing. Even if such data is submitted, the FDA may ultimately deny approval of the product. Further, if there are any modifications to the drug, including changes in indication, manufacturing process, labeling, or a change in manufacturing facility, an NDA or ANDA supplement may be required to be submitted to the FDA. Product approvals may be withdrawn after the product reaches the market if compliance with regulatory standards is not maintained or if problems occur regarding the safety or efficacy of the product. The FDA may require testing and surveillance programs to monitor the effect of products which have been commercialized, and has the power to prevent or limit further marketing of these products based on the results of these post-marketing programs.

     The approval procedures for the marketing of our products in foreign countries vary from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Even after foreign approvals are obtained, further delays may be encountered before products may be marketed. For example, many countries require additional governmental approval for price reimbursement under national health insurance systems. If practical and acceptable to the FDA, we intend to design our protocols for the clinical studies of our products to permit acceptance of the data by foreign regulatory authorities and thereby to reduce the risk of duplication of clinical studies. However, additional studies may be required to obtain foreign regulatory approval. Further, some foreign regulatory agencies may require additional studies involving patients located in their countries.

     Manufacturing facilities are subject to periodic inspections for compliance with the FDA’s good manufacturing practices regulations and each domestic drug manufacturing facility must be registered with the FDA. Foreign regulatory authorities may have similar regulations. In complying with standards set forth in these regulations, we must expend significant time, money and effort in the area of quality assurance to insure full technical compliance. Facilities handling controlled substances, such as ours, also must be licensed by the DEA, and are subject to more extensive regulatory requirements than those facilities not licensed to handle controlled substances. We also require approval of the DEA to obtain and possess controlled substances, including methylphenidate. We produce transdermal drug delivery products in accordance with United States and international regulations for clinical trials, manufacturing process validation studies and commercial sale. FDA approval to manufacture a drug is site specific. In the event an approved manufacturing facility for a particular drug becomes inoperable, obtaining the required FDA approval to manufacture such drug at a different manufacturing site could result in production delays, which could adversely affect our business and results of operations.

     The federal and state governments in the United States, as well as many foreign governments, from time to time explore ways to reduce medical care costs through health care reform. Due to uncertainties regarding the ultimate features of reform initiatives and their enactment

20

and implementation, we cannot predict what impact any reform proposal ultimately adopted may have on the pharmaceutical industry or on our business or operating results.

     Our activities are subject to various federal, state and local laws and regulations regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and possible future local, state, federal and foreign regulations. Under certain of these laws, we could be liable for substantial costs and penalties in the event that waste is disposed of improperly. While it is impossible to accurately predict the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not presently expected to have, a material adverse effect on our earnings or competitive position.

Employment

     We employ approximately 274 people; approximately 161 are engaged in manufacturing, process development, quality assurance and quality control, 20 in research and development, 9 in clinical research and regulatory affairs, and 84 in marketing and administration. No employee is represented by a union and we have never experienced a work stoppage. We believe our employee relations are good. In addition to the employees employed directly by us, Novogyne has a contract sales force of approximately 90 individuals that we manage under the terms of the Novogyne joint venture agreements.

Seasonality

     There are no significant seasonal aspects to our existing HRT business. New ADHD patients are often diagnosed during the start of a school year, so initial sales of MethyPatch® may be affected by the timing of FDA approval and product launch. Thereafter, we expect that MethyPatch® will be prescribed and dispensed more frequently during the school year than in the summer months, which may affect the timing of orders received from Shire.

Available Information

     Noven’s Internet website address is www.noven.com. Noven’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available free of charge through its website, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Noven’s Internet website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form 10-K.

Item 2. Properties.

     Our headquarters and manufacturing facilities are located on a 10 acre site in Miami, Florida. On this site, we own an approximately 28,000 square foot building, which is used for laboratory, office and administrative purposes. We also lease from Aventis, for nominal rent, two approximately 40,000 square foot buildings on this site, which we use for manufacturing, engineering, administrative and warehousing purposes. One of these facilities has been certified by the DEA to manufacture products containing controlled substances. The lease expires in 2024 and we have an option to purchase the leased facilities at any time during the term. Aventis may terminate the lease prior to the expiration of its term upon termination or expiration of our 1992 license agreement with Aventis. We expect that we will have sufficient cash to purchase the facility

21

in this event. Nonetheless, if we are unable to purchase the facility, termination of the lease by Aventis could have a material adverse effect on our business and results of operations.

     We also lease approximately 8,500 square feet of office space in a neighboring facility for our sales and marketing operations. In addition, we own 5 acres of vacant land on a contiguous site that could accommodate new buildings for a variety of manufacturing, warehousing and developmental purposes. We believe that our facilities are in satisfactory condition, are suitable for their intended use and, in the aggregate, have capacities in excess of those necessary to meet our present needs.

     Our sole manufacturing facility, our research and development activities, as well as our corporate headquarters and other critical business functions, are located in an area subject to hurricane casualty risk. Although we have certain limited protection afforded by insurance, our business, earnings and competitive position could be materially adversely affected in the event of a major windstorm or other casualty.

Item 3. Legal Proceedings.

In re: Noven Pharmaceuticals, Inc. Securities Litigation, United States District Court for the Southern District of Florida.

     This action consolidated several essentially identical actions brought by plaintiffs purporting to represent a class of purchasers of Noven’s common stock during the period March 27 through November 1, 2001. Plaintiffs alleged that during that period, Noven and its officers and directors named as defendants violated Sections 10 and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by making material misstatements and omissions regarding international sales of certain of our products that are the subject of an exclusive license agreement with Novartis AG. Plaintiffs sought unspecified damages, for themselves and the class, based on the allegedly artificially inflated prices they paid for their shares of Noven’s common stock.

     On May 13, 2002, the defendants filed Motions to Dismiss, seeking to have the Court dismiss the plaintiff’s Consolidated Amended Complaint. On December 20, 2002, the Court dismissed the Consolidated Amended Complaint for failing to meet the requirements of the Private Securities Litigation Reform Act of 1995. The Court’s order dismissed the Consolidated Amended Complaint without prejudice but gave the plaintiffs leave to amend the Consolidated Amended Complaint to attempt to cure its defects. Subsequently, the plaintiffs decided not to amend the Consolidated Amended Complaint, and on February 24, 2003, the parties filed a joint motion for voluntary dismissal of the Consolidated Amended Complaint with prejudice which the Court granted. Under the terms of the Court’s order, each party is to bear its own costs and attorneys’ fees.

     We are a party to other pending legal proceedings arising in the normal course of business, none of which we believe is material to our financial position or results of operations.

22

Item 4. Submission of Matters to a Vote of Security Holders.

     We did not submit any matters to a vote of stockholders during the quarter ended December 31, 2002.

Executive Officers of the Registrant

     Set forth below is a list of the names, ages, positions held and business experience of the persons serving as our executive officers as of March 1, 2003. Officers serve at the discretion of the Board of Directors. There is no family relationship between any of the executive officers or between any of the executive officers and any of our directors, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected.

     Jeffrey F. Eisenberg.    Mr. Eisenberg, age 37, has been with Noven since November 1998 and, since November 2000, has served as Vice President — Strategic Alliances, General Counsel & Corporate Secretary. From 1995 through 1998, Mr. Eisenberg served as Associate General Counsel and then as Acting General Counsel of IVAX Corporation. Prior to joining IVAX, he was a lawyer in the corporate securities department of the law firm of Steel Hector & Davis.

     W. Neil Jones.    Mr. Jones, age 50, has been with Noven since February 1997 and, since November 2000, has served as Vice President — Marketing & Sales. From 1981 through 1997, he served Ciba-Geigy Corporation in a variety of sales and marketing positions, most recently as Executive Director of Marketing.

     Juan A. Mantelle.    Mr. Mantelle, age 44, has been with Noven since March 1990 and, since June 2000, has served as Vice President & Chief Technical Officer. From December 1986 to March 1990, he served Paco Research Corp. as Manager — Product Development. From April 1983 to December 1986, he served Key Pharmaceuticals, Inc. as Senior Research Engineer.

     James B. Messiry.    Mr. Messiry, age 60, has been Vice President & Chief Financial Officer of Noven since January 1999. From 1979 through 1984, and subsequently from 1991 until 1998, he served the Bacardi group of companies in a variety of senior executive positions in Europe and North America, most recently as Vice President of Bacardi-Martini, Inc. Between 1985 and 1991, Mr. Messiry held senior finance positions at Beatrice Latin America and Dole Fresh Fruit. From 1973 to 1979, Mr. Messiry served Pfizer, Inc. in various financial and strategic planning roles.

     Robert C. Strauss.    Mr. Strauss, age 61, has been President, Chief Executive Officer & Chairman of the Board of Noven since June 2001. From December 1997 to September 2000, he served as President & Chief Executive Officer and as a Director of Noven, and from September 2000 to June 2001, he served as Co-Chairman of Noven. From March 1997 to July 1997, he served as President and Chief Operating Officer and a Director of IVAX Corporation. From 1983 to 1997, he served in various executive positions with Cordis Corporation, most recently as its Chairman of the Board, President and Chief Executive Officer. Mr. Strauss serves on the Board of Directors of CardioGenesis Corporation (medical devices), Columbia Laboratories, Inc. (pharmaceuticals), Percardia Inc. (medical devices) and TissueLink Medical, Inc. (surgical devices and procedures).

23

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     (a)  Market Information

     Our Common Stock is listed on the Nasdaq Stock Market and is traded under the symbol NOVN. The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock as reported on the Nasdaq Stock Market.

	High Price		Low Price
First Quarter, 2001	$	41.50	$	17.25
Second Quarter, 2001		40.02		16.38
Third Quarter, 2001		39.80		16.19
Fourth Quarter, 2001		22.30		13.12
First Quarter, 2002	$	23.22	$	16.01
Second Quarter, 2002		27.51		18.57
Third Quarter, 2002		25.37		8.91
Fourth Quarter, 2002		14.50		8.95

     (b)  Holders.

     As of March 1, 2003, we had 333 stockholders of record.

     (c)  Dividends.

     We have never paid a cash dividend on our Common Stock and do not anticipate paying cash dividends in the foreseeable future.

24

Securities Authorized for Issuance under Equity Compensation Plans.

     We generally issue stock options under our Amended and Restated Stock Option Plan, our 1997 Stock Option Plan, and our 1999 Long Term Incentive Plan. All of the stock options that we grant to our employees and directors are granted under these plans. In addition to the stock options that we grant under these plans, we have made charitable donations to the University of Miami for the years 2002, 2001 and 2000 in the form of options to acquire shares of our common stock at a price per share equal to the market price of our Common Stock on the date of grant. These options were granted outside of our stock option plans, vested immediately and have ten year terms. One of our non-employee directors serves as Dean of the University of Miami School of Medicine and does not accept any compensation for his service on our Board of Directors.

Equity Compensation Plan Information

     The following table provides summary information concerning the equity awards under these compensation plans (option and share amounts in thousands):

					Number of
					securities
					remaining available
	Number of				for future issuance
	securities to be				under equity
	issued upon				compensation plans
	exercise of				(excluding
	outstanding		Weighted average		securities
	options, warrants		exercise price of outstanding		reflected in column
	and rights		options, warrants and rights		(a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders		3,410	$	15.20		1,290
Equity compensation plans not approved by security holders		23		12.58		—
Total		3,433		15.18		1,290

25

Item 6. Selected Financial Data.

     The selected financial data presented below is derived from our audited financial statements. The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements and related notes appearing elsewhere in this Form 10-K.

		Years Ended December 31,
		2002		2001		2000			1999			1998
				(in thousands, except per share amounts)
Statement of Operations Data:
Revenues		$	55,372	$	45,947	$	42,924		$	31,650		$	21,842
Expenses:
	Cost of products sold		22,973		20,376		19,219			12,721			9,447
	Research and development		11,634		10,973		13,621			7,171			6,808
	Marketing, general and administrative		14,257		11,554		8,737			7,860			10,105
	Total expenses		48,864		42,903		41,577			27,752			26,360
Income (loss) from operations			6,508		3,044		1,347			3,898			(4,518	)
Equity in earnings of Novogyne			14,368		14,013		9,294			1,487			—
Interest income, net			822		1,770		1,385			343			439
Income (loss) before income taxes			21,698		18,827		12,026			5,728			(4,079	)
Income tax expense (benefit)			7,819		6,736		(7,608	)		(4,732	)		—
Net income (loss)		$	13,879	$	12,091	$	19,634		$	10,460		$	(4,079	)
Basic earnings (loss) per share		$	0.62	$	0.54	$	0.90		$	0.49		$	(.19	)
Diluted earnings (loss) per share		$	0.60	$	0.51	$	0.84		$	0.48		$	(.19	)
Balance Sheet Data:
Cash and cash equivalents		$	58,684	$	49,389	$	40,976		$	15,338		$	5,573
Working capital			59,342		45,788		46,697			16,581			8,847
Investment in Novogyne			34,684		32,043		15,431			8,365			7,500
Total assets			137,702		136,228		104,031			56,888			40,156
Long-term notes payable			5		13		265			604			—
Deferred license revenue			29,445		32,758		27,109			8,028			5,644
Stockholders’ equity			96,741		81,898		65,277			39,393			28,325

26

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis should be read in conjunction with Noven and Novogyne’s 2002 financial statements and the related notes included in this Form 10-K.

General

     From our inception in 1987 through 1994, we engaged primarily in the development of advanced transdermal and transmucosal drug delivery systems. During this period, our revenues consisted primarily of amounts paid to us under license agreements with Novartis and Aventis. Beginning in 1995, when our first generation transdermal estrogen delivery system received initial regulatory approvals, we derived a significant portion of our revenues from the sale of our products to our licensees, Novartis and Aventis.

Novogyne and Novartis

     In May 1998, we formed Novogyne with Novartis to market and sell women’s prescription healthcare products in the United States and Canada. Novogyne markets Vivelle®, Vivelle-Dot® and CombiPatch® in the United States. The establishment of Novogyne modified a prior relationship in which we had licensed to Novartis the exclusive right to market Vivelle® in the United States and Canada and had received royalties from Novartis based upon Novartis’ sales. We hold a 49% equity interest in Novogyne, and Novartis holds a 51% equity interest. Under the terms of the joint venture agreements, we manufacture and supply Vivelle®, Vivelle-Dot® and CombiPatch® to Novogyne, perform marketing, sales and promotional activities, and receive royalties from Novogyne based on Novogyne’s sales of certain of the products. Novartis distributes Vivelle®, Vivelle-Dot® and CombiPatch® and provides certain other services to Novogyne, including marketing to the managed care sector, legal, accounting and regulatory services.

     Our share of Novogyne’s income, after an annual $6.1 million preferred return to Novartis, increases as product sales increase, subject to a maximum of 49%. Novogyne’s income resulted in our recognition of $14.4 million, $14.0 million and $9.3 million in income in 2002, 2001 and 2000, respectively. The income we recognize from Novogyne is a non-cash item. We receive cash from Novogyne in the form of cash distributions declared by Novogyne’s Management Committee. The amount of cash that we receive from Novogyne in any period may not be the same as the amount of income we recognize from Novogyne for that period. In 2002, 2001 and 2000, we received $11.7 million, $13.1 million and $2.2 million in distributions from Novogyne based upon Novogyne’s results of operations for the years ended December 31, 2001, 2000 and 1999, respectively. We invested all of the distributions we received in 2001 from Novogyne, plus an additional $2.6 million, in Novogyne to fund our portion of the payments associated with the CombiPatch® license transaction. These investments did not increase our share of Novogyne’s equity. We expect that a significant portion of our earnings and cash flow for the next several years will be generated through our interest in Novogyne, but we cannot assure you of Novogyne’s future profitability or cash distributions. See Novogyne’s Audited Financial Statements included herein.

     Novogyne acquired the exclusive United States marketing rights to CombiPatch® in March 2001 in a series of transactions involving Novogyne, Noven, Novartis and Aventis. In the

27

transaction, Novogyne paid Aventis $25.0 million at closing, plus an additional $40.0 million, which was due in four quarterly installments of $10.0 million, with the final payment made in March 2002. As a consequence of the transaction and under the terms of our existing license agreement with Aventis, we received $3.5 million from Aventis, which amount was deferred and recognized as license revenue over ten years beginning in the first quarter of 2001. See “Products — Transdermal Combination Estrogen/Progestin Delivery System” above for a more complete description of the transaction.

     Novogyne’s relaunch of CombiPatch® in May 2001 did not meaningfully increase total prescriptions, and since the publication of the HRT studies described below, prescriptions for CombiPatch® have declined. If Novogyne is unable to increase CombiPatch® prescriptions, Novogyne’s growth may slow and its contribution to our earnings and cash flow may be reduced. Any failure by Novogyne to remain profitable or to continue to make distributions could have a material adverse effect on our results of operations or financial condition.

     Under the terms of the Novogyne joint venture, Novartis is responsible for distribution of Novogyne’s products, including Vivelle®, and for selling Novogyne’s products to its trade customers. Novartis regularly reports inventory information to the Novogyne Management Committee. In the third quarter of 2002, Novartis reported that trade inventory levels of Vivelle® in the aggregate were higher than in prior periods and appeared to have grown to levels that exceeded current demand. This situation has continued into 2003. During 2002, Vivelle® returns also increased, and Novogyne increased its reserve for sales allowances and returns.

     Based on information that we have received from Novartis, we believe that current inventory levels at Novogyne have increased and are higher than desirable in light of our trade customers’ current and expected demand. To align inventories with demand, Novogyne is curtailing product shipments to its trade customers, and we are deferring product shipments to Novogyne. These actions will adversely impact Novogyne’s and our financial results. We expect that sales of Novogyne’s products in future periods will be adversely impacted as trade customers are expected to reduce their inventories and as Novogyne and we take affirmative steps to attempt to reduce Novogyne’s inventory levels. We also expect that our sales to Novogyne, and our gross margin on those sales, will be adversely impacted, both as a result of an expected decline in orders from trade customers seeking to reduce their inventory levels (which would reduce Novogyne’s sales) and by Novogyne’s reduction of its higher than normal inventory levels (which would reduce our sales to Novogyne). A further decline in prescriptions of Novogyne’s HRT products, whether as a result of the HRT studies, related product label changes, or otherwise, could further exacerbate this situation. We are unable to predict either the timing or the magnitude of the impact of this situation on future sales and results of operations.

     Our supply agreement with Novogyne for Vivelle® and Vivelle-Dot® expired in January 2003. The parties are negotiating an extension to the agreement. Since the expiration of the Vivelle® and Vivelle-Dot® supply agreement, the parties have continued to operate in accordance with the supply agreement’s commercial terms, and we expect that the supply agreement will be extended on satisfactory terms. However, we cannot assure that the agreement will be extended on satisfactory terms or at all. Failure to extend the supply agreement could have a material adverse effect on our business, results of operations, financial conditions and prospects. Designation of a new supplier and approval of a new supply agreement would require the affirmative vote of 4 of the 5 members of

28

Novogyne’s Management Committee. Accordingly, Novartis and we must agree on Novogyne’s supplier.

     In November 2000, we entered into an exclusive license agreement with Novartis AG pursuant to which we granted Novartis AG the right to market Vivelle-Dot® under the name Estradot® in all countries other than the United States, Canada and Japan. We received a $20 million license payment upon execution of the agreement. For accounting purposes, the payment was deferred and is being recognized as license revenue over 10 years beginning in the fourth quarter of 2000. Noven subsequently received a $5.0 million milestone payment that is being recognized as license revenue beginning in the first quarter of 2002 through the fourth quarter of 2010. Under the terms of the agreement, Novartis AG is responsible for seeking approval to market Estradot® in its territories. The product has been approved for marketing in over 30 foreign countries and the regulatory authorities of other countries are reviewing Novartis’ registration applications. Novartis AG has launched the product in Germany and a number of smaller countries. However, Novartis AG has informed us that pricing and reimbursement issues are adversely impacting its launch plans in many countries, including the United Kingdom, France, Spain and Italy. Accordingly, we cannot assure that Novartis AG will be successful in effecting additional registrations of Estradot® or that Novartis AG will launch Estradot® in any particular country. Novartis AG markets several other transdermal HRT products in addition to our products, which may limit the efforts Novartis AG devotes to our products. In some countries, including the United Kingdom and France, Novartis AG is seeking a marketing partner to launch the product but to date has been unsuccessful. We cannot assure that Novartis AG will be successful in securing a marketing partner or in launching Estradot® in those countries.

HRT Studies

     In July 2002, the NIH released data from its WHI study on the risks and benefits associated with long-term use of oral HRT by healthy women. The NIH announced that it was discontinuing the arm of the study investigating the use of oral estrogen/progestin combination HRT products after an average follow-up period of 5.2 years because the oral HRT product used in the study was shown to cause an increase in the risk of invasive breast cancer. The study also found an increased risk of stroke, heart attacks and blood clots and concluded that overall health risks exceeded benefits from use of the orally delivered combined estrogen plus progestin product among healthy postmenopausal women. Also in July 2002, results of an observational study sponsored by the NCI on the effects of ERT were announced. The main finding of the study was that postmenopausal women who used ERT for 10 or more years had a higher risk of developing ovarian cancer than women who never used HRT. In October 2002, a significant HRT study being conducted in the United Kingdom was also halted. Our transdermal HRT products differ from the products used in the WHI study and the primary products observed in the NCI and United Kingdom studies. There are, however, no studies comparing the safety of our products against other HRT therapies.

     Although the range of consequences of these studies cannot be predicted, it is possible that they could result in a significant permanent decrease in the market for our HRT products, either as physicians withdraw their patients from HRT or as women elect to discontinue HRT on their own. In addition, the market growth that would have been expected if HRT had been found safe and

29

effective for additional indications, such as heart disease, is now unlikely to materialize. In January 2003, the FDA announced that marketers of HRT products, including Novogyne, are required to modify their HRT product labels to include additional safety information and warnings. Among other things, the labels must indicate that HRT should be used for short-term therapy only and that, in the absence of clinical studies demonstrating that HRT products other than the oral product studied in the WHI are safe, physicians should assume that all HRT products carry the same risks. Novartis has informed us that it intends to submit proposed revised labeling to the FDA and to begin using the revised label at the time it reaches agreement with the FDA on the language. Healthcare regulators also could delay the approval of new HRT products, such as those presently under development by Novartis AG and us, or require that any new HRT products be subject to more extensive or more rigorous study and testing prior to being approved. Further, because these studies show that certain uses of certain HRT products may result in a higher likelihood of certain adverse health effects, it is possible that we could be named as a defendant in product liability lawsuits relating to our HRT products.

     Other studies evaluating HRT are currently underway or in the planning stages. In particular, the estrogen-only arm of the WHI study is ongoing. We are unable to predict the effect of new study results, once available, on the short and long-term prospects for the HRT market or on the market for our transdermal HRT products. Since publication of the WHI and NCI study data, United States prescriptions have declined for substantially all HRT products, including our products, and prescriptions in Europe have also declined. The WHI safety board re-evaluates the risk/benefit profile of the estrogen-only arm as frequently as twice per year. If the estrogen-only study or any other currently ongoing HRT study is halted, the market for HRT products, including ours, both in the United States and abroad, could be further adversely impacted. The HRT label changes mandated by the FDA may also negatively impact our products, particularly with physicians and patients who now believe that transdermal HRT products are safer than orally delivered HRT products. Currently, our liquidity, results of operations and business prospects are almost entirely dependent on sales, license royalties and fees associated with transdermal HRT products. Accordingly, any further adverse change in the market for HRT products (including any adverse changes resulting from the foregoing studies) could have a material adverse impact on our liquidity, results of operations and business prospects.

MethyPatch®

     We have developed a once-daily transdermal methylphenidate delivery system for the treatment of ADHD, which is intended to be marketed under the trade name MethyPatch®. Our review of primary efficacy data from our Phase III clinical trial indicates that MethyPatch® reduces the symptoms of ADHD. We filed an NDA with the FDA in June 2002.

     In February 2003, we signed an agreement to license the exclusive global rights to market MethyPatch® to Shire for payments of up to $150 million and ongoing manufacturing revenue. Consideration for the transaction is payable as follows: (a) $25 million payable upon closing of the transaction; (b) $50 million upon receipt of final marketing approval for MethyPatch® by the FDA; and (c) $25 million each upon Shire’s achievement of $25 million, ®$50 million and ®$75 million in annual net sales of MethyPatch®, respectively. Shire’s annual net sales will be measured quarterly on a trailing 12-month basis, with each milestone payment due 45 days after the end of the first quarter during which trailing 12-month sales exceed the applicable threshold. For accounting purposes, all payments will be deferred and recognized as revenue over a period of years. Closing of the transaction is conditioned on, among other things, the expiration of any regulatory waiting period

30

under the Hart Scott Rodino Antitrust Improvements Act of 1976, and is expected to take place in April 2003.

     Under the terms of the transaction, we remain responsible for securing final regulatory approval for MethyPatch®. If we receive a non-approval letter from the FDA or if FDA approval has not been granted within two years of the closing date, Shire may require us to repurchase the product rights for $5 million. Shire has agreed that it will not sell any other product containing methylphenidate as an active ingredient until the earlier of (a) five years from the closing date or (b) payment of all of the sales milestones.

     On the closing date, we will enter into a long-term supply agreement under which we will manufacture and supply MethyPatch® to Shire. The agreement will give Shire the right to qualify a second manufacturing source and purchase a portion of its requirements from the second source.

     No assurance can be given that the product will be approved by the FDA. The FDA will examine efficacy data from the Phase III study together with safety and other data from this and other MethyPatch® studies sponsored by us, and there can be no assurance that the FDA will deem all of such data sufficient to approve the product for marketing or to authorize the product’s use in the manner described by us. We believe that MethyPatch® is the first transdermal ADHD product submitted to the FDA for approval, and there can be no assurance that the FDA will not have questions or raise objections including questions or objections specific to transdermal delivery that could delay or prevent an approval. Questions or objections specific to transdermal delivery of methylphenidate could raise new issues that would require us to expend significant additional time and resources to address, and any such questions or objections could necessitate further clinical testing which could significantly delay FDA approval of MethyPatch®. Additionally, there can be no assurance that the FDA will not place conditions or restrictions on any approval, which could adversely affect the market potential of MethyPatch®.

31

Results of Operations

Revenues:

     Total revenues are summarized as follows (dollar amounts in thousands):

				Percentage						Percentage
	2002			Change			2001			Change			2000
Product revenue	$	45,520			20	%	$	37,871			(1	%)	$	38,269
Contract revenue		1,787			70	%		1,049			14,886	%		7
Royalties		4,679			12	%		4,176			12	%		3,729
Product sales		51,986			21	%		43,096			3	%		42,005
License revenue		3,386			19	%		2,851			210	%		919
Total revenue	$	55,372			21	%	$	45,947			7	%	$	42,924
Gross profit (product sales less cost of products sold)	$	29,013			28	%	$	22,720			—		$	22,786
Gross margin (as a percentage of sales)		56	%					53	%					54	%

     The $9.4 million, or 21%, increase in 2002 revenues compared to 2001 was primarily attributable to an increase in product sales. Product sales were higher in 2002 as a result of increases in sales of Vivelle-Dot® and Vivelle® to Novogyne and the commencement of Estradot® sales to Novartis AG in the first quarter of 2002, partially offset by lower sales of CombiPatch® to Novogyne and Menorest® and Estalis® to Novartis AG. Product sales for the year ended 2001 included $1.4 million in minimum fee payments related to sales of Menorest® in certain European countries in 2000. These minimum fee payments did not recur in 2002.

     The $3.0 million, or 7%, increase in 2001 revenues compared to 2000 was primarily attributable to an increase in license revenue, resulting from the license of Estradot® to Novartis AG in the fourth quarter of 2000 and the license of CombiPatch® to Novogyne in the first quarter of 2001. Product sales were slightly higher in 2001 as a result of higher sales of CombiPatch® in the United States and, to a lesser extent, higher sales of Estalis® outside of the United States, partially offset by a decline in sales of Vivelle® and Vivelle-Dot® to Novogyne.

     Based on information that we have received from Novartis, we believe that current trade inventory levels of Vivelle® exceed current demand, and current Novogyne Vivelle® inventory levels are higher than desirable. A further decline in prescriptions of Novogyne’s HRT products, whether as a result of the HRT studies, related product label changes, or otherwise, could further exacerbate this situation. We are unable to predict either the timing or the magnitude of the impact of this situation on future sales and results of operations. However, as trade customers and Novogyne reduce orders and attempt to return inventories to desirable levels, and as we curtail shipments to facilitate this process, we expect that sales of Novogyne’s products and our sales to Novogyne in future periods will be adversely impacted.

32

Gross Margin:

     Our gross margin was 56% (or gross profit of $29.0 million) in 2002 compared to 53% (or gross profit of $22.7 million) in 2001. The increase resulted from a favorable product mix (we sold more product in the United States where sales have a higher gross margin) and to increases in production volume resulting in more favorable overhead absorption, partially offset by a lower minimum fee payment in 2002.

     Our gross margin was 53% (or gross profit of $22.7 million) in 2001 compared to 54% (or gross profit of $22.8 million) in 2000. The decrease resulted from an unfavorable product mix (we sold more product outside of the United States where sales have a lower gross margin). The decrease in gross margin was partially offset by higher minimum fee payments from Novartis AG.

     As trade customers and Novogyne reduce orders and attempt to return inventories to desirable levels, and as we curtail shipments to facilitate this process, we expect that our gross margin (and gross profit) for future periods will be adversely impacted.

Operating Expenses:

     Operating expenses are summarized as follows (dollar amounts in thousands):

			Percentage					Percentage
	2002		Change			2001		Change			2000
Research and development	$	11,634		6	%	$	10,973		(19	%)	$	13,621
Marketing, general and administrative		14,257		23	%		11,554		32	%		8,737

Research and Development

     The $0.7 million, or 6%, increase in 2002 research and development expenses compared to 2001 was primarily attributable to increases in purchases of materials and personnel costs for new product development, partially offset by a decrease in clinical study expenses for MethyPatch®.

     The $2.6 million, or 19%, decrease in 2001 research and development expenses compared to 2000 was primarily attributable to a decrease in clinical study expenses for MethyPatch®, partially offset by increases related to additional personnel.

Marketing, General and Administrative Expenses

     The $2.7 million, or 23%, increase in 2002 marketing, general and administrative expenses compared to 2001 was primarily attributable to increases in MethyPatch® pre-launch marketing expenses and higher incentive plan costs, partially offset by lower outside consulting services related to the implementation of our enterprise resource planning system and nonrecurring reserves for obsolete production equipment in 2001.

33

     The $2.8 million, or 32%, increase in 2001 marketing, general and administrative expenses compared to 2000 was primarily attributable to an increase in outside consulting services related to the implementation of an enterprise resource planning system, consulting costs related to improvements in production efficiencies, reserves for obsolete production equipment and higher legal fees as a result of the CombiPatch® license transaction. The increase in expenses was partially offset by a decline in recruitment costs and other related expenses.

Other Income and Expenses:

Interest Income

     Interest income, net, decreased approximately $0.9 million, or 54%, in 2002 compared to 2001, primarily due to lower interest rates.

     Interest income, net, increased approximately $0.4 million, or 28%, in 2001 compared to 2000, primarily due to higher average balances in cash and cash equivalents, partially offset by lower interest rates.

Income taxes

     Our effective tax rate was 36% for both 2002 and 2001. The provision for income taxes is based on the Federal statutory and state income tax rates. Net deferred income tax assets are measured using the average graduated tax rate for the estimated amount of annual taxable income in the years that the liability is expected to be settled or the asset recovered. The effect of adjusting the expected tax rate related to the net deferred income tax assets is included in the provision for income taxes. As of December 31, 2002, we had a net deferred tax asset of $12.4 million. Realization of this deferred tax asset depends upon the generation of sufficient future taxable income. Although realization is not assured, we believe it is more likely than not that the deferred income tax asset will be realized based upon estimated future taxable income.

     An income tax benefit of $7.6 million for 2000 resulted from the recognition of a deferred income tax benefit of $9.4 million, partially offset by a current income tax expense of $1.8 million. This resulted from an $11.5 million reduction of the valuation allowance on the deferred income tax asset.

Equity in Earnings of Novogyne

     We share in the earnings of Novogyne, after satisfaction of an annual preferred return of $6.1 million to Novartis, according to an established formula. Novogyne produced sufficient income in each of 2002, 2001 and 2000 for us to recognize earnings from Novogyne under the formula. We report our share of Novogyne’s earnings as “Equity in earnings of Novogyne” on our Statements of Operations.

34

     The financial results of Novogyne are summarized as follows (dollar amounts in thousands):

				Percentage						Percentage
Novogyne's Summary Results:	2002			Change			2001			Change			2000
Revenues	$	102,485			14	%	$	89,958			54	%	$	58,544
Cost of sales		26,136			25	%		20,833			59	%		13,127
Gross profit		76,349			10	%		69,125			52	%		45,417
Gross margin percentage		74	%					77	%					78	%
Selling, general and administrative expenses		33,091			21	%		27,347			53	%		17,886
Amortization of intangible assets		6,179			33	%		4,635			100	%		—
Income from operations		37,079			—			37,143			35	%		27,531
Interest income		350			(52	%)		734			(53%	)		1,562
Net income	$	37,429			(1	%)	$	37,877			30	%	$	29,093
Noven’s equity in earnings of Novogyne	$	14,368			3	%	$	14,013			51	%	$	9,294

     Royalties due to us on sales of Vivelle® and Vivelle-Dot® for 2001 and 2000 have been reclassified from selling, general and administrative expenses to cost of sales to conform to the current year’s presentation.

     Novogyne’s increase in revenue of $12.5 million, or 14%, in 2002 compared to 2001 was primarily attributable to increased sales of Vivelle-Dot® and the full year contribution of CombiPatch®, which was acquired in March 2001, partially offset by higher sales allowances and returns. Revenues for 2002 and 2001 are net of sales allowances and returns of $27.9 million and $14.2 million, respectively. The increase in sales allowances and returns is primarily attributable to increased product sales and higher returns of Vivelle®. Novogyne’s increase in revenue of $31.4 million, or 54%, in 2001 compared to 2000 was primarily attributable to increased sales of Vivelle-Dot® and the addition of CombiPatch® in March 2001, partially offset by a decrease in Vivelle® sales. Revenues for 2000 are net of sales allowances and returns of $10.2 million.

     Novogyne’s gross margin was 74% (or gross profit of $76.3 million) in 2002 compared to 77% (or gross profit of $69.1 million) for 2001. The decrease in gross margin was primarily attributable to higher sales allowances and returns in 2002 and an increase in inventory obsolescence reserves for 2002. Novogyne’s gross margin was 78% (or gross profit of $45.4 million) for 2001. The decrease in gross margin in 2001 as compared to 2000 was primarily attributable to the addition of CombiPatch® (which has a lower gross margin) in March 2001 and higher sales allowances and returns in 2001.

     Novogyne’s selling, general and administrative expenses increased to $33.1 million in 2002 from $27.3 million in 2001, primarily due to higher promotional expenses, the full year effect of a larger Novogyne sales force and higher sample expenses. Novogyne’s selling, general and administrative expenses increased to $27.3 million in 2001 from $17.9 million in 2000, primarily

35

due to expenses relating to the relaunch of CombiPatch® and to an approximate 20% increase in the size of the Novogyne sales force.

     Novogyne amortized $6.2 million and $4.6 million related to the CombiPatch® acquisition cost during 2002 and 2001, respectively. CombiPatch® was acquired by Novogyne in March 2001.

Liquidity and Capital Resources:

     As of December 31, 2002 and 2001, we had $58.7 million and $49.4 million in cash and cash equivalents and working capital of $59.3 million and $45.8 million, respectively.

     Cash provided by (used in) operating, investing and financing activities is summarized as follows (amounts in thousands):

		2002			2001			2000
Cash flows:
	Operating activities	$	11,787		$	24,683		$	23,832
	Investing activities		(3,011	)		(19,020	)		(1,554	)
	Financing activities		519			2,750			3,360

     Amounts related to distributions from Novogyne for 2001 and 2000 have been reclassified from investing activities to operating activities to conform to the current year’s presentation.

Operating Activities:

     Net cash provided by operating activities in 2002 primarily resulted from an $11.7 million distribution from Novogyne.

     Net cash provided by operating activities in 2001 primarily resulted from distributions from Novogyne totaling $13.1 million, the receipt of a license fee in the amount of $3.5 million in connection with the CombiPatch® license transaction and a $5.0 million milestone payment in connection with the Estradot® license transaction. See Note 5, License Agreements, in the Notes to Financial Statements for more information. Changes in working capital accounted for most of the remaining change over 2000.

     Net cash provided by operating activities in 2000 primarily resulted from the receipt of an up-front license fee of $20.0 million in November 2000 from Novartis AG in connection with the Estradot® license agreement and a $2.2 million distribution from Novogyne. A non-cash item (deferred income tax benefit of $9.4 million) constituted 48% of our net income of $19.6 million. Changes in working capital accounted for most of the remaining increase over 1999.

Investing Activities:

     Net cash used in investing activities in 2002 was primarily attributable to the purchase of fixed assets to expand production capacity and payment of patent development costs.

36

     Net cash used in investing activities in 2001 was primarily attributable to the implementation of an enterprise resource planning system and a $15.7 million investment in Novogyne related to the CombiPatch® acquisition.

     Net cash used in investing activities during 2000 was attributable to the purchase of fixed assets and payment of patent development costs.

Financing Activities:

     Net cash provided by financing activities in each of 2002, 2001 and 2000 was attributable to cash received in connection with the issuance of common stock from the exercise of stock options, partially offset by payments made on notes payable.

Short-Term and Long-Term Liquidity:

     In December 2000, we entered into a secured revolving credit facility (the “Credit Facility”) providing for borrowings of up to the lesser of $10.0 million or eligible accounts receivable. The Credit Facility was extended in March 2002 and it will terminate in April 2003. We do not expect to extend the Credit Facility’s term. The Credit Facility bears interest at LIBOR plus 1.50% (2.882% at December 31, 2002). At December 31, 2002 and 2001, there were no amounts outstanding under the Credit Facility. Terms of the Credit Facility include minimum net worth, revenue and operating results requirements, as well as maintenance of certain financial ratios, measured on a quarterly basis.

     Our principal sources of short-term liquidity are existing cash, cash generated from product sales, fees and royalties under license agreements, distributions from Novogyne and is expected to include payments from Shire in connection with the MethyPatch® transaction. For the year ended December 31, 2002, approximately 66% of our income before income taxes was comprised of equity in earnings of Novogyne, a non-cash item. Our short-term liquidity is dependent on sales, royalties and license fees associated with transdermal HRT products. Any decrease in sales of those products by us or our licensees or any increase in returns of products to Novogyne (including any such changes resulting from the results of the recent or ongoing HRT studies, the pending product label changes or decreases resulting from Novogyne and/or Novogyne’s trade customers reducing their inventory levels), the failure of the transdermal HRT market to resume its prior growth trends, or the inability or failure of Novogyne to pay distributions would have a material adverse effect on our short-term liquidity and require us to rely more heavily on our existing cash reserves or on borrowings to support our operations and business. Although we expect to receive distributions from Novogyne, there can be no assurance that Novogyne will have sufficient profits or cash flow to pay distributions or that Novogyne’s Management Committee will authorize such distributions. Closing of the Shire transaction is subject to, among other things, termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. We cannot assure that the transaction will close or that, if it closes, we will receive any payments from Shire.

     In the first quarter of 2003, our Board of Directors authorized a share repurchase program under which we may acquire up to $25 million of our Common Stock. As of March 14, 2003, we had repurchased 105,000 shares of our common stock at an aggregate price of $1.3 million. Any

37

repurchases of Common Stock under our share repurchase program could adversely affect our short-term liquidity.

     We believe that we will have sufficient cash available to meet our operating needs and anticipated short-term capital requirements. For our long term operating needs, we intend to utilize funds derived from the above sources, as well as funds generated through sales of products under development or products that we may license or acquire from others. We expect that such funds will be comprised of payments received pursuant to future development and licensing arrangements, as well as direct sales of our own products. We expect that our cash requirements will continue to increase, primarily to fund clinical studies for products under development and for plant and equipment to expand production capacity. We cannot assure that we will successfully complete the development of such products, that we will obtain regulatory approval for any such products, that any approved product may be produced in commercial quantities, at reasonable costs, and be successfully marketed, or that we will successfully negotiate future licensing or product acquisition arrangements. Because much of the cost associated with product development is incurred prior to product launch, if we are unable to launch additional commercially viable products that we develop or that we license or acquire from others, we will have incurred the up-front costs associated with product development or acquisition without the benefit of the liquidity generated by sales of those products, which could adversely affect our long-term liquidity needs. Many factors that could impact our ability to develop or acquire and launch additional commercially viable products are discussed under “Cautionary Factors that May Have an Impact on Future Results”.

     We are unable to predict the effect of the results of the discontinued and ongoing HRT studies discussed above on the short and long-term prospects for the HRT market or for the market for our transdermal HRT products. Accordingly, we are not able to predict the effect that those studies may have on our short-term or long-term liquidity, results of operations and business prospects.

     To the extent that capital requirements exceed available capital, we will seek alternative sources of financing to fund our operations. We do not intend to extend our Credit Facility, which expires in April 2003. No assurance can be given that alternative financing will be available, if at all, in a timely manner, or on favorable terms. If we are unable to obtain satisfactory alternative financing, we may be required to delay or reduce our proposed expenditures, including expenditures for research and development and plant and equipment, in order to meet our future cash requirements. See “Cautionary Factors that May Have an Impact on Future Results” for a description of certain matters that could affect our short or long-term liquidity.

New Accounting Standards

     In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction. This Statement eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement are effective for us with the beginning of fiscal year 2003. Debt extinguishments reported as extraordinary items prior to scheduled or early adoption of this Statement would be reclassified in

38

most cases following adoption. We do not anticipate a significant impact on our results of operations from adopting this Statement.

     In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. Adoption of this Statement is required with the beginning of fiscal year 2003. We do not anticipate a significant impact on our financial statements from adopting this statement.

     In December 2002, the FASB issued Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation — Transition and Disclosure. This Statement amends FASB Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We are required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in the financial statements for the fiscal year ended December 31, 2002 and for interim periods beginning with the quarterly period ending March 31, 2003.

     In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees it has issued and clarifies the accounting for such guarantees. The initial recognition and measurement provisions of FIN No. 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for periods ending after December 15, 2002. We do not anticipate a significant impact on our financial statements from adopting this interpretation.

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This Interpretation of Accounting Research Bulletin 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities which have one or both of the following characteristics: (1) The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity, and (2) The equity investors lack one or more of the characteristics of a controlling financial interest. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We do not anticipate a significant impact on our financial statements from adopting this interpretation.

39

Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to allowance for doubtful accounts, inventories, intangible assets, accrued liabilities, income and other tax accruals, revenue recognition and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Many of our critical accounting policies are those which we believe require the most subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Using different assumptions could result in materially different results. A discussion of our critical accounting policies, the underlying judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions, is as follows:

Revenue Recognition:

     Substantially all of our product sales are to our licensees, Novogyne and Novartis AG. Revenues from product sales are recognized at the time of shipment when both title and the risks and rewards of ownership have been transferred to the buyer. However, we defer the recognition of 49% of the profit on our product sales to Novogyne until those products are sold by Novogyne. Certain license agreements provide for an adjustment to the price of the product based upon the licensee’s actual sales price. We record such adjustments to revenues at the time that the information necessary to make the determination is received from the licensees. Certain license agreements entitle us to minimum fees. We record revenue related to minimum fees when sufficient supporting data is provided by the licensee. If the minimum fees are not determinable, we record the fees on a cash basis. These fees are included in product sales. Royalty revenue consists of royalties payable by Novogyne on sales of Vivelle® and Vivelle-Dot®/Estradot® in the United States and Canada. Royalty revenue is recognized when earned and determinable and is included in product sales.

     License revenue consists of up-front, milestone and similar payments under license agreements and is recognized when earned under the terms of the applicable agreements. In most cases, license revenue is deferred and recognized over the estimated product life cycle or the length of relevant patents, whichever is shorter. These estimates of product life cycle or the length of relevant patents may prove to be inaccurate, in which case an adjustment to the associated license revenue would be recognized in our revenue at the time of such determination.

     Contract revenue consists of contract development fees and milestone payments earned under contracts with third parties. We recognize revenue under the agreements as the work is performed. These estimates of work completed under the contract may prove to be inaccurate, in which case any resulting adjustments to contract revenue recorded would be recognized in our revenue at the time of such determination. Deferred revenue represents the portion of all refundable and nonrefundable payments received that have not been earned. Costs incurred in performing

40

contract development services are included in research and development expenses. Refundable development and license fee payments are deferred until the specified performance criteria are achieved. Contract revenue is included in product sales.

Fair Value of Stock Options:

     We have elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations in accounting for our employee stock options as allowed pursuant to SFAS 123, as amended by SFAS 148. Accordingly, no compensation expense has been recognized for the years ended December 31, 2002, 2001 and 2000.

     Our accounting for employee stock options complies with accounting practices generally accepted in the United States. However, from time to time, proposals have been put forth to change the method of accounting for employee stock options that, if adopted, would require us to include the fair value of employee stock options in our compensation expense. Congress, the Securities and Exchange Commission and the accounting profession are reevaluating employee compensation and its accounting, and several new proposals concerning the proper accounting for employee stock options have recently been put forth. It is not possible to predict whether any such proposal will be adopted, or, if such a policy is adopted, what its requirements may be. However, it is possible that we may in the future be required under accounting principles generally accepted in the United States to include the fair value of our employee stock options in our compensation expense.

     Had compensation cost for our stock option plans been determined on the basis of fair value at the grant date for awards under those plans, consistent with SFAS 123, and as amended by SFAS 148, and our existing valuation method for our employee stock options, the Black-Scholes option pricing model, we estimate that our net income for the years ended December 31, 2002, 2001 and 2000 would have been reduced by 22%, 33% and 8%, respectively. However, SFAS 123 requires the use of option valuation models that use highly subjective assumptions, including expected stock price volatility, and to date, a uniform standard for calculating the fair value of employee stock options in accordance with SFAS 123 has not been adopted. Because our stock options have characteristics significantly different from traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable measure of the fair value of our employee stock options. In addition, the effect of applying the fair value method of accounting for stock options on reported net income for 2002, 2001 and 2000 may not be representative of the effects for future years because outstanding options vest over a period of several years and additional awards are generally made each year.

Income Taxes:

     Accounting principles generally accepted in the United States require that we not record a valuation allowance against our net deferred tax asset if it is “more likely than not” that we will be able to generate sufficient future taxable income to utilize our net deferred tax asset. Although realization is not assured, we believe it is more likely than not that the net deferred income tax asset will be realized based upon our estimated future taxable income and, accordingly, no valuation allowance for the net deferred income tax asset was deemed necessary. Subsequent revisions to the

41

estimated net realizable value of the net deferred tax asset could cause our provision for income taxes to vary significantly from period to period.

Investment in Novogyne:

     We entered into a joint venture (Novogyne) with Novartis, effective May 1, 1998, to market and sell women’s prescription healthcare products in the United States and Canada. We account for our 49% investment in Novogyne under the equity method and report our share of Novogyne’s earnings as “Equity in earnings of Novogyne” on our Statements of Operations. We defer the recognition of 49% of our profit on products sold to Novogyne until the products are sold by Novogyne.

     As of December 31, 2002, Novogyne had a long-term asset of $51.0 million related to the acquisition of the marketing rights to CombiPatch®. Accounting principles generally accepted in the United States require that Novogyne record this asset at cost and that the asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Testing for impairment requires Novogyne to estimate the undiscounted future cash flow of the asset and compare that amount to the carrying value of the asset. If this analysis indicates that a possible impairment exists (undiscounted future cash flows are less than the carrying value), Novogyne would be required to estimate the fair value of the asset. The determination of fair value of this asset involves numerous uncertainties because there is no viable actively traded market for the marketing rights of a pharmaceutical product. As permitted by accounting principles generally accepted in the United States, Novogyne determines the estimated fair value of the marketing rights of CombiPatch® utilizing a discounted cash flow analysis. A discounted cash flow analysis values an asset on the basis of the net present value of the cash expected to be generated by that asset over its estimated useful life. This analysis requires Novogyne to make a number of significant assumptions and judgments. For example, estimates need to be made regarding prescription growth, sales price and unit cost among many other factors including the discount rate to be applied to the estimated cash generated by sales of the product. A material change in any of these assumptions, may require Novogyne to record a valuation allowance, which would adversely affect Novogyne’s operating results in the period in which the determination or allowance were made, and would reduce the earnings attributable to our investment in Novogyne for that period and the amount of our investment in Novogyne. Neither Novogyne nor we are able to predict the effect of the recently discontinued and currently ongoing HRT studies, and the pending product label changes, on the prospects for the HRT market or the market for CombiPatch®. Any adverse change in the market for HRT products could have a material adverse impact on the ability of Novogyne to recover its investment in CombiPatch® which could require Novogyne to revalue that asset.

     Novogyne records sales net of sales allowances for chargebacks, Medicaid rebates, managed healthcare rebates, cash discounts, product returns and other allowances. The returns portion of the sales allowance is based in part on Novartis’ returned goods policy. Novartis controls and maintains the reserves associated with such sales allowances and returns on behalf of Novogyne and pays all monies owed and issues credits to individual customers as deemed necessary. The contracts that underlie these transactions are maintained by Novartis for its business as a whole and those transactions relating to Novogyne are estimated by Novartis. Based on an analysis of the underlying activity, the amounts recorded by Novogyne represent Novartis’ best estimate of charges that apply to sales by Novogyne. However, neither Novogyne nor we can control Novartis’ analysis of the

42

underlying activity or its application of that analysis to Novogyne. If Novartis materially changes the assumptions it uses in allocating reserves or in the actual determination of the gross reserve, Novogyne may be required to record an additional reserve allowance on its financial statements, which would adversely affect Novogyne’s operating results during the period in which the determination or reserve were made, and would consequently also reduce the earnings attributable to our investment in Novogyne for that period.

     The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Outlook:

     Among the principal factors that we expect will influence our 2003 financial results are:

• Prescription trends in the HRT market, both in the U.S. and abroad;

• Inventory levels for our HRT products in the U.S.;

• The timing of any major market launches of our HRT products outside the U.S.; and

• The timing of any MethyPatch® approval and launch, the magnitude of launch orders placed by Shire and our ability to scale up production to meet Shire’s demands.

Full Year 2003

     U.S. HRT.

     As part of an inventory management initiative intended to align inventory with the reduced demand that followed the early termination of the WHI study, we expect to ship less product in the United States in the 2003 first quarter than in the 2002 fourth quarter. This initiative has reduced Novogyne’s inventory since December 31, 2002 but has also reduced the revenue that we recognize on sales to Novogyne. Based on inventory trends at Novogyne and forecast levels of demand for Novogyne’s HRT products, we expect that the initiative will align product inventory with demand by mid-2003. We cannot assure, however, that the initiative will have such a result or that demand for Novogyne’s HRT products will, in fact, correspond with Novogyne’s forecasts. If we are successful in re-aligning inventory, including inventory held in the trade distribution channel, with then current and forecast demand levels by mid-2003, and if prescriptions remain consistent with current levels, we would expect our domestic HRT business to grow in the second half of 2003.

     International HRT.

     We do not expect international sales to contribute to Noven’s growth in 2003 unless Novartis AG launches Estradot® in additional major markets. Estradot® has been launched in Germany and in several other countries, but, according to Novartis AG, significant pricing and reimbursement issues in the remaining major markets, including the United Kingdom, France, Spain and Italy, have to date prevented Novartis AG from launching in those countries. Because of these significant reimbursement and pricing issues and Novartis’ lack of success to date in securing a marketing partner in the United Kingdom and France for Estradot®, we do not expect any additional major market launches of Estradot® in 2003.

43

     MethyPatch®.

     Under the terms of the Shire transaction, if the Shire transaction closes and MethyPatch® is approved by the FDA this year, we should receive payments totaling at least $75.0 million from Shire in 2003. However, if we do not obtain FDA approval of MethyPatch® during 2003, we would not receive $50.0 million of those payments until FDA approval is obtained. Because we will recognize a portion of any such payments as revenue and do not expect to incur further significant MethyPatch® launch costs, if the transaction closes, we would expect it to be accretive to our 2003 earnings. In addition, we expect that Shire will place launch orders with us when the FDA approves MethyPatch® , which would be expected to generate additional manufacturing revenue for us in 2003.

Cautionary Factors that May Have an Impact on Future Results

     Except for historical information contained herein, the matters discussed in this report are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our and our strategic partners’ respective plans, objectives, expectations, estimates, strategies, product approvals and development plans, and anticipated financial results. These statements are typically identified by the use of terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “could,” “should,” “will,” “would” and similar words. These statements are based on our current expectations and beliefs concerning future events but are subject to risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting our operations, results of operations, markets, products, prices and prospects, and other factors discussed below and elsewhere in this report and the other documents filed by us with the Securities and Exchange Commission (“SEC”). These factors may cause our results to differ materially from the statements made in this report or otherwise made by or on behalf of us. The following is a brief summary of some of the risk factors, which are not listed in order of priority, that could adversely affect our results. Most of these factors are described elsewhere in this report, but the risks described below are not the only risks we face. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law.

• We face competition from a number of companies in the development of transdermal drug delivery products, and competition is expected to intensify as more companies enter the field. Some of these companies are substantially larger than we are and have greater resources than we do, as well as greater experience in developing and commercializing pharmaceutical products. As a result, they may succeed before us in developing competing technologies or obtaining governmental approvals for products. Our products compete with other transdermal products as well as alternative dosage forms of the same or comparable chemical entities, as well as non-drug therapies. We cannot assure that our products will compete successfully against competitive products or that developments by others will not render our products obsolete or uncompetitive. If we cannot maintain competitive products and technologies, our current and potential strategic partners may choose to adopt the drug delivery technologies of our competitors or their own internally developed technologies.

44

• Our equity in earnings of Novogyne contributed 66% of our income before income taxes in 2002, and Novogyne’s results will likely continue to be material to us in the future. Because, among other things, we are vastly different in size from Novartis, and because Novartis and its affiliates sell competing products outside of Novogyne, our interests may not always be aligned. This may result in potential conflicts between Novartis and us on matters relating to Novogyne which we may not be able to resolve on favorable terms. Novartis has the right to dissolve Novogyne under certain circumstances. Novogyne’s Management Committee is comprised of a majority of representatives from Novartis, and we do not control Novogyne. In addition, the joint venture operating agreement has a buy/sell provision which allows either party to compel either the purchase of the other party’s interest in Novogyne or the sale of its own interest at a price set by the party triggering the buy/sell provision. Novartis is a larger company with greater financial resources, and therefore may be in a better position to be the purchaser if the provision is triggered. If the provision is triggered and Novartis is the purchaser, there can be no assurance that we would be able to reinvest the proceeds of the sale in a manner that would result in sufficient earnings to offset the loss of earnings from Novogyne. If the provision is triggered and we are the purchaser, there can be no assurance that we would not be adversely affected by the changes in capital and/or debt structure that likely would be required to finance the purchase transaction.

• Under the terms of the Novogyne joint venture, Novartis is responsible for distribution of Novogyne’s products, including Vivelle®, and for selling Novogyne’s products to its trade customers. Novartis regularly reports inventory information to the Novogyne Management Committee. In the third quarter of 2002, Novartis reported that trade inventory levels of Vivelle® in the aggregate were higher than in prior periods and appeared to have grown to levels that exceed current demand. During 2002, Novogyne significantly increased its reserve for sales allowances and returns.

• Based on information that we have received from Novartis, we believe that current inventory levels at Novogyne have increased and are higher than desirable in light of our trade customers’ current and expected demand. To align inventories with demand, Novogyne is curtailing product shipments to its trade customers, and we are deferring product shipments to Novogyne. These actions will adversely impact Novogyne’s and our financial results. We expect that sales of Novogyne’s products in future periods will be adversely impacted as trade customers are expected to reduce their inventories and as Novogyne and we take affirmative steps to attempt to reduce Novogyne’s inventory levels. We also expect that our sales to Novogyne, and our gross margin on those sales, will also be adversely impacted, both as a result of an expected decline in orders from trade customers seeking to reduce their inventory levels (which would reduce Novogyne’s sales) and by Novogyne’s reduction of its inventory levels (which would reduce our sales to Novogyne). A further decline in prescriptions of Novogyne’s HRT products, whether as a result of the recent or ongoing studies, required label changes or otherwise, could further exacerbate this situation. We are unable to predict either the timing or the magnitude of the impact of this situation on future sales and results of operations.

• Almost all of our revenues are currently generated through sales of HRT transdermal delivery systems. Although the range of consequences of the HRT studies described above cannot be predicted, it is possible that they could result in a significant permanent decrease in the market for our HRT products either as physicians withdraw their patients from HRT or as women elect

45

	to discontinue HRT on their own. In addition, we do not expect the market growth to materialize as would have been expected had HRT been found safe and effective for additional indications, such as heart disease. In January 2003, the FDA announced that marketers of HRT products, including Novogyne, are required to modify their HRT product labels to include additional safety information and warnings. Among other things, the labels must indicate that HRT should be used for short-term therapy only and that, in the absence of clinical studies demonstrating that HRT products other than the oral product studied in the WHI are safe, physicians should assume that all HRT products carry the same risks. Novartis has informed us that it intends to submit proposed revised labeling to the FDA and to begin using the revised label after reaching agreement with the FDA on the label’s language, but we cannot assure you that Novartis’ proposed labeling will be submitted to the FDA or acted on by the FDA in a timely manner or at all. Healthcare regulators also could delay the approval of new HRT products, such as those presently under development by Novartis AG and us, or require that any new HRT products be subject to more extensive or more rigorous study and testing prior to being approved. The FDA has mandated that all companies engaged in clinical development of HRT products inform study subjects of the risks identified in the referenced studies. Further, because these studies show that certain uses of certain HRT products may result in a higher likelihood of certain adverse health effects, it is possible that we could be named as a defendant in product liability lawsuits relating to our HRT products.
	Other studies evaluating HRT are currently underway or in the planning stages. In particular, the estrogen-only arm of the WHI study is ongoing. We are unable to predict the effect of these study results on the short and long-term prospects for the HRT market or on the market for our transdermal HRT products. However, since publication of the WHI and NCI study data, United States prescriptions have declined for substantially all HRT products, including our products, and prescriptions in Europe have also declined. The WHI safety board reevaluates the risk/benefit profile of the estrogen-only arm as frequently as twice per year. If the estrogen-only study or any other currently ongoing HRT study is halted, the market for HRT products, including ours, both in the United States and abroad, could be further adversely impacted. Currently, our liquidity, results of operations and business prospects are almost entirely dependent on sales, license royalties and fees associated with transdermal HRT products. Accordingly, any further adverse change in the market for HRT products (including any adverse changes resulting from the foregoing studies) could have a material adverse impact on our liquidity, results of operations and business prospects.
•	Novogyne recorded the acquisition of CombiPatch® marketing rights at cost and tests this asset for impairment on a periodic basis. Any further adverse change in the market for HRT products could have a material adverse impact on the ability of Novogyne to recover its investment in its CombiPatch® marketing rights, which could require Novogyne to revalue that asset. Impairment of that asset would adversely affect Novogyne’s, and consequently our, operating results.
•	Because Novartis is responsible for estimating and recording sales allowances for Novogyne, including reserves and allowances related to product returns, we may have limited ability to accurately forecast the amount of such sales allowances in any period. If Novartis materially changes the assumptions it uses in allocating reserves or in the actual determination of the gross reserve, Novogyne may be required to record an additional reserve allowance on its financial statements, which would adversely affect Novogyne’s operating results during the period in

46

	which the determination or reserve were made, and would, consequently also reduce our earnings attributable to our investment in Novogyne for that period.
•	In 2003, we expect that Estrasorb™, the first prescription estrogen cream product in the United States, will be approved by the FDA for the treatment of menopausal symptoms and launched by Novavax, Inc. and King Pharmaceuticals. We are unable to predict the impact of this product launch on Novogyne’s sales and market share, but it is expected that this product will gain some market share at the expense of Novogyne’s products, and the impact on Novogyne’s sales could be material.
•	We expect to be dependent on sales to Novartis AG and Novogyne, as well as fees and royalties generated from such parties’ sales of our transdermal HRT delivery systems, for a significant portion of our expected revenues for at least the next several years, and no assurance can be given regarding the amount and timing of such revenues. Failure of either of these parties to market our products successfully would cause the quantity of products purchased from us and the amount of fees and royalties ultimately paid to us to be reduced and would therefore have a material adverse effect on our business and operations. In the short term, our growth depends in part on Novartis AG’s launch plans and marketing efforts with respect to Estalis® and Estradot®. The scope and success of those efforts are outside of our control. We receive firm orders from Novartis AG on a partial year basis, which limits our ability to accurately forecast full year sales to Novartis AG. Novartis and its affiliates sell competing products, both in the United States and abroad, and there can be no assurance that Novartis will promote our products at the expense of its other products. The supply agreement for Vivelle® and Vivelle-Dot® has expired, and the parties are currently negotiating an extension to the agreement. Since the expiration of the Vivelle® supply agreement, the parties have continued to operate in accordance with the supply agreement’s commercial terms, and we expect that the supply agreement will be extended on satisfactory terms. However, we cannot assure that we will enter into a new supply agreement on satisfactory terms or at all. Due to our dependence on Novogyne and Novartis AG, we may be unable to negotiate favorable business terms with them or resolve any dispute that we may be involved in with them in a favorable manner.
•	Our pharmaceutical company partners market and sell many of the products we develop and manufacture. Some of those partners, such as Novartis and Shire, market and sell products competitive with ours. If one or more partners fails to pursue the marketing of our products as planned, or if marketing of any of those products (including Estradot®, a second dosage strength of Estalis® or MethyPatch®) is otherwise delayed, our revenues and gross profits may be adversely affected which may also adversely affect our short-term liquidity. We cannot control the timing and other aspects of the development and launch of products incorporating our technologies and marketed by others. Our partners may have different and, sometimes, competing priorities. Even if our marketing partners aggressively pursue the launch and marketing of our products, regulatory matters or other external factors may prevent or delay the launch and marketing. Therefore, the commercialization and marketing of products we have under development may be delayed unexpectedly. Our principal commercialized products are marketed and sold by licensees, and we do not presently have a significant direct marketing channel to health care providers for our drug delivery technologies. The marketing organizations of our partners may be unsuccessful, or those partners may assign a lower level of priority to the marketing of our products. If marketing efforts

47

	for our products are not successful, our revenues and results of operations may be adversely affected, which may also adversely affect our short-term liquidity.
•	We expect that revenues from product sales to our licensees will fluctuate from quarter to quarter and year to year depending upon various factors not in our control, including the marketing efforts of each licensee, the inventory requirements of each licensee, the impact of competitive products, the timing and scope of Estalis® and Estradot® launches and commercialization efforts by Novartis AG , the growth, if any, in CombiPatch® prescriptions in the United States, the impact of the HRT studies on prescriptions for our hormone replacement products, the product pricing of each licensee, the timing of certain royalty reconciliations and payments under our license agreements, the timing of FDA approval of MethyPatch® and the subsequent product launch by Shire, and the success of Shire’s commercialization efforts. Our earnings may fluctuate because of, among other things, fluctuations in research and development spending resulting from the timing of clinical trials involving products in development.
•	Pharmaceutical prices, including prices for our products, in Europe and certain other countries are significantly lower than in the United States. Because our agreements with Novartis AG provide for us to receive a percentage of Novartis AG’s net selling price (subject to a minimum price), our gross margins are generally much lower for product sold to Novartis AG for resale outside of the United States than for product sold to Novogyne for sale in the United States. In addition, the lower prices restrict Novartis AG’s gross margin realized from selling our products. Because our products compete for sales and marketing resources with other Novartis AG products, including competitive hormone replacement products, there can be no assurance that the relatively low gross margins generated from selling our products will not cause Novartis AG to focus its resources on other products or even not launch our products in certain countries. Novartis AG has informed us that pricing and reimbursement issues are adversely impacting its launch plans for Estradot® in many countries, including the United Kingdom, France, Spain and Italy. Novartis AG is seeking a marketing partner to launch Estradot® in the United Kingdom and France, but to date has been unsuccessful.
•	Our long-term strategy is dependent, in part, upon the successful development, licensing or acquisition of new products, such as MethyPatch®, and their successful commercialization. There can be no assurance that we will be able to identify commercially promising products or technologies. The length of time necessary to complete clinical trials and obtain marketing approval from regulatory authorities may be considerable. No assurance can be given that we will have the financial resources necessary to complete products under development, that those projects to which we dedicate sufficient resources will be successfully completed, that we will be able to obtain regulatory approval for any such product, or that any approved product can be produced in commercial quantities, at reasonable costs, and be successfully marketed, either by us or by a licensing partner. A project can fail or be delayed at any stage of development, even if each prior stage was completed successfully, which could adversely impact our ability to recover our investment in the product. Some of our development projects will not be completed successfully or on schedule. Many of the factors which may cause a product in development to fail or be delayed, such as difficulty in enrolling patients in clinical trials, the failure of clinical trials, lack of sufficient supplies or raw materials, inability to apply the subject product or technology on a commercial scale on an economical basis and changes in regulations, are beyond our control. In some cases, we have begun and, in the future, may begin development of a

48

	product that we do not intend to independently develop through clinical trials and market, with the expectation that a licensee will be identified to assist in development and/or marketing. There can be no assurance that we will attract a business partner for any particular product or will be able to negotiate an agreement on commercially reasonable terms. If an agreement is not reached, our initial development investment in any such product may not be recovered.
•	Historically, our ability to improve our gross margins has depended on our ability to increase our manufacturing throughput. Therefore, if the impact of the HRT studies, the effect of lower pharmaceutical prices outside of the United States, competitive factors or other matters affecting Novartis AG’s marketing efforts, or any other factors cause our manufacturing volume to decrease, we would expect our gross margins to decline, which could have a material adverse effect on our financial results.
•	We depend upon collaborative agreements with pharmaceutical companies, some of whom are our competitors, to obtain regulatory approval for, market and sell certain of our products. Additionally, we intend to seek developmental partners to develop, test and obtain regulatory approval for, and commercialize certain of our products presently under development. The number of our products that are successfully developed and commercialized will affect our revenues. Because transdermal patches generally are more expensive to manufacture than oral formulations, it may be more difficult for us to attract development partners than for drug delivery companies with lower cost delivery systems. If we do not enter into additional agreements in the future, or if our current or future agreements do not result in successful marketing of our products, our revenue and results of operations may be adversely affected.
•	Our operations are subject to extensive regulation by governmental authorities in the United States and other countries with respect to the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical products. These regulations are wide-ranging and govern, among other things: adverse drug experience reporting, product promotion, product pricing and discounting, drug sample accountability, product manufacturing, including good manufacturing practices, and product changes or modifications. Our facilities handle controlled substances, resulting in additional extensive regulatory requirements and oversight. We devote significant time, effort and expense addressing the extensive government regulations applicable to our business. Even if a product is approved by a regulatory authority, product approvals may be withdrawn after the product reaches the market if compliance with regulatory standards is not maintained or if problems occur regarding the safety or efficacy of the product. Failure to comply with governmental regulations may result in fines, warning letters, unanticipated compliance expenditures, interruptions or suspension of production and resulting loss of sales, product seizures or recalls, injunctions prohibiting further sales, withdrawal of previously approved marketing applications, and criminal prosecution. Under the terms of the Novogyne joint venture, Novartis is responsible for providing regulatory services. While we believe that Novartis provides these services adequately, there can be no assurance that a violation of any of these regulations will not have an adverse effect on us.
•	FDA approval of a product incorporating our technologies, including MethyPatch® and our HRT products, includes approval of the product label. Typically, a pharmaceutical company will submit its initial marketing materials and proposed marketing claims to the FDA’s Division of Drug Marketing, Advertising and Communication (“DDMAC”), although there is no

49

	requirement to do so. DDMAC then determines whether a company’s proposed claims are consistent with the approved product label and may limit the approved claims. In that event, revenues derived from that product may be limited. Failure to comply with these marketing restrictions can result in severe penalties, and there can be no assurance that our marketing partners will comply with the foregoing restrictions with respect to claims that they may assert about our technology or products.
•	Our supply agreements with our licensees also impose strict obligations on us with respect to the manufacture and supply of our products. We devote significant time, effort and expense complying with these requirements. Failure to comply with the terms of these supply agreements may result in our being unable to supply product to our licensees, resulting in lost revenue by us and potential responsibility for damages and losses suffered by our licensees.
•	The federal and state governments in the United States, as well as many foreign governments, from time to time explore ways to reduce medical care costs through health care reform. In the United States, these proposals include government programs involving prescription drug reimbursement benefits for seniors. Due to the diverse range of proposals put forth from country to country and the uncertainty of any proposal’s adoption, we cannot predict what impact any reform proposal ultimately adopted may have on the pharmaceutical industry or on our business or operating results.
•	Substantially all of our revenues are generated through sales of transdermal delivery systems. Our products are marketed primarily to physicians, some of whom are reluctant to prescribe a transdermal delivery system when an alternative delivery system is available. We and our licensees must demonstrate to prescribing physicians the benefits of transdermal delivery, especially with respect to products such as MethyPatch® for which there is presently no transdermal system on the market. The commercial success of our products is also based in part on patient preference, and difficulties in obtaining patient acceptance of our transdermal delivery systems may similarly impact our ability to market our products.
•	Our success will depend, in part, on our ability to obtain or license patents for our products, processes and technologies. If we do not do so, our competitors may exploit our innovations and deprive us of the ability to realize revenues from those innovations. There is no assurance that we will be issued patents for any of our patent applications, that any existing or future patents that we receive or license will provide competitive advantages for our products, or that we will be able to enforce successfully our patent rights. Additionally, there can be no assurance that our patents or any future patents will prevent other companies from developing similar or functionally equivalent products, or challenging, invalidating or avoiding our patent applications or any existing or future patents that we receive or license. Many of our patents are formulation patents and would not preclude others from developing and marketing products that deliver drugs transdermally through non-infringing formulations. Furthermore, there is no assurance that any of our future processes or products will be patentable, that any pending or additional patents will be issued in any or all appropriate jurisdictions or that our processes or products will not infringe upon the patents of third parties.
•	We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation. We use confidentiality agreements with licensees, suppliers, employees and

50

	consultants to protect our trade secrets, unpatented proprietary know-how and continuing technological innovation, but there can be no assurance that these parties will not breach their agreements with us. We also cannot be certain that we will have adequate remedies for any breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, we cannot be sure that our trade secrets and proprietary technology will not otherwise become known or that our competitors will not independently develop our trade secrets and proprietary technology. We also cannot be sure, if we do not receive patents for products arising from our research, that we will be able to maintain the confidentiality of information relating to our products.
•	Our success will also depend in part on our ability to operate without infringing the proprietary rights of others, and there can be no assurance that our products and processes will not infringe upon the patents of others. If a third party asserts a claim of infringement, we may have to seek licenses, defend infringement actions or challenge the validity of those third-party patents in court. If we cannot obtain the required licenses, or are found liable for infringement or are not able to have these patents declared invalid, we may be liable for significant monetary 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 drug delivery covered by the patents of others. There can be no assurance that we have identified, or that in the future we will be able to identify, all U.S. and foreign patents that may pose a risk of potential infringement claims.
•	Like all pharmaceutical companies, the testing, manufacturing and marketing of our products may expose us to potential product liability and other claims resulting from their use. The publication of the HRT study data described above may increase the likelihood of product liability claims against us. If any such claims against us are successful, we may be required to make significant compensation payments and suffer the associated adverse publicity. We maintain product liability insurance, but there can be no assurance that our insurance will cover all future claims or that we will be able to maintain existing coverage or obtain additional coverage at reasonable rates. The trend in the pharmaceutical insurance market is toward narrower coverage and higher premiums, with certain pharmaceutical compounds specifically excluded from coverage. If a claim is not covered or if our coverage is insufficient, we may incur significant liability payments that would negatively affect our earnings and our business.
•	Certain raw materials and components used in the manufacture of our products, including essential polymer adhesives, are available from limited sources, and, in some cases, a single source. Our NDA for MethyPatch®, for example, seeks approval for only one source of the product’s active drug ingredient. Any curtailment in the availability of such raw materials could be accompanied by production or other delays, and, in the case of products for which only one raw material supplier exists, could result in a material loss of sales. Additionally, regulatory authorities must generally approve raw material sources for pharmaceutical products. Without adequate approved supplies of raw materials or packaging supplies, our manufacturing operations may be interrupted until another supplier could be identified, our products approved and trading terms with it negotiated. We may not be able to identify an alternative supplier and any supplier that we do identify may not be able to obtain the requisite regulatory approvals in a timely manner, or at all. Furthermore, we may not be able to negotiate favorable terms with an alternative supplier. Any disruptions in our manufacturing operations from the loss of an approved supplier may cause us to incur increased costs and lose revenues and may have an adverse effect on our relationships with our partners and customers, any of which could have

51

	adverse effects on our business and results of operations. Some raw materials used in our products are supplied by companies that restrict certain medical uses of their products. While our use is presently acceptable, there can be no assurance that such companies will not expand their restrictions to include our applications.
•	The DEA sets quotas for controlled substances, including methylphenidate, and we must receive authorization from the DEA to handle these substances. We cannot assure that we will be granted sufficient DEA quota to meet Shire’s MethyPatch® production requirements. Failure to meet such requirements would affect our revenues and could affect the success of Shire’s product launch.
•	All of our products are manufactured at a single facility in Miami, Florida. An interruption of manufacturing resulting from regulatory issues, technical problems, casualty loss (including hurricane) or other factors could result in our inability to meet production requirements, which may cause us to lose revenues and which could have an adverse effect on our relationships with our partners and customers, any of which could have a material adverse effect on our business and financial results. Without our existing production facility, we would have no other means of manufacturing our products until we were able to restore the manufacturing capability at our facility or develop an alternative manufacturing facility. Although we carry business interruption insurance to cover lost revenues and profits, this insurance does not cover all possible situations and there can be no assurance that any event of casualty to our facility would be covered by such insurance. In addition, our business interruption insurance would not compensate us for the loss of opportunity and potential adverse impact on relations with our existing partners and customers resulting from our inability to produce products for them.
•	Our receipt of the sales-based milestones under the Shire agreement depends on the MethyPatch® sales levels achieved by Shire. The ADHD market is very competitive. Competitors marketing or developing ADHD products include Johnson & Johnson, Novartis, Glaxo-Smithkline, Bristol-Myers Squibb, Abbott Laboratories, Celltech plc and Eli Lilly. Shire also markets non-methylphenidate ADHD products. There are other once-daily preparations on the market and a non-stimulant, non-controlled substance therapy was launched by Eli Lilly in the first quarter of 2003. There are also other, non-controlled substance drugs in development for the treatment of ADHD. These competitive products, especially those not designated as controlled substances, may negatively impact Shire’s ability to gain market share for MethyPatch® and therefore may decrease the likelihood that we will receive the sales-based milestone payments.
•	MethyPatch® is a new product that we have never manufactured on a commercial scale. We are modifying our manufacturing plant to prepare for the expected product launch in 2003. We cannot assure that our modifications will be completed successfully or in time to meet Shire’s launch requirements or that we will not otherwise experience manufacturing difficulties, particularly in the early stages of commercial manufacture. The terms of the Shire transaction will permit Shire to qualify a second manufacturing source and purchase a portion of its requirements from the second source. Failure to meet Shire’s requirements would affect our revenues and could affect the success of Shire’s product launch and may result in Shire relying

52

	more heavily on its second source, reducing the manufacturing revenues that we would otherwise realize.
•	The active ingredient in MethyPatch® is more expensive than the active ingredients in our HRT patch products. If we experience manufacturing difficulties such as quality problems, yield deficiencies or similar issues, our overall manufacturing costs may be higher than anticipated. In such event, our manufacturing margins would suffer and, in an extreme case, we could suffer losses in manufacturing and supplying MethyPatch® to Shire.
•	Closing of the Shire transaction is conditioned on, among other things, the expiration of any regulatory waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976. We cannot assure that the United States antitrust authorities will approve the transaction in a timely manner or at all. If the antitrust authorities do not approve the transaction or if they request additional information from the parties, or if the transaction does not close or if the closing is delayed for any other reason, we may not receive any payments from Shire even if MethyPatch® is approved by the FDA. Failure to receive antitrust approval could prevent the transaction from ever closing, in which case we would be forced to seek other strategies to commercialize MethyPatch®.
•	Prior to our decision to engage in the Shire transaction, one aspect of our corporate strategy was to establish a sales force, and to launch and market MethyPatch® ourselves. With the Shire transaction, we expect to avoid the significant launch and ongoing marketing expenses that we would have incurred had we launched the product ourselves. We cannot assure that we will deploy the cash expected to be received from Shire, or the cash that we would otherwise have spent, in a manner that will produce a satisfactory return. We also cannot assure that the milestone payments and manufacturing revenue that we may receive from Shire will be greater than the revenues that we would have realized from launching and marketing MethyPatch® ourselves.
•	There is an ongoing public debate in the United States regarding the appropriateness of using methylphenidate and other medications to treat children with ADHD. We expect that this debate will continue for the foreseeable future. The outcome of this debate is uncertain, and we cannot predict what impact, if any, the increased public attention will have on the market for products indicated for ADHD or on MethyPatch®. Because at least part of the stigma results from the fact that most of the current products are Schedule II controlled substances, the non-stimulant product launched by Eli Lilly may benefit from this controversy at the expense of the methylphenidate and amphetamine-based products on the market.
•	Our ability and our marketing partners’ ability to commercialize our products, including MethyPatch®, is dependent in part on obtaining reimbursement from government health authorities, private health insurers and managed care organizations. The trend toward managed healthcare in the United States and the prominence of health maintenance organizations (HMOs) and similar entities could significantly influence the purchase of our products, resulting in lower prices and lower demand. This is particularly true in a market that includes generic alternatives, such as the ADHD market. There can be no assurance that Shire will obtain acceptable reimbursement status for MethyPatch®. There can also be no assurance that managed care agreements established by Novartis will not adversely affect Novogyne’s financial results.

53

• From time to time we may need to acquire licenses to patents and other intellectual property of third parties to develop, manufacture and commercialize our products. There can be no assurance that we will be able to acquire such licenses on commercially reasonable terms. The failure to obtain such a license could negatively affect our ability to develop, manufacture and commercialize certain products, and could therefore have an adverse effect on our business and financial results.

• We rely on insurance to protect us from many business risks, including product liability, business interruption, property and casualty loss, employment practices liability and directors’ and officers’ liability. An increase in the number of securities class action suits, an increase in damages and/or settlements paid in connection with certain of these class actions, an increase in the number of product liability claims and the resulting damages and settlements, including those resulting from the HRT studies discussed above, and other factors we have experienced, and expect to continue to experience, could result in difficulty in obtaining adequate coverage at historical rates. In most cases, as is the trend in the pharmaceutical industry, as insurance policies expire, we may be required to procure policies with narrower coverage, more exclusions, and higher premiums. In some cases, coverage may not be available at any price. There can be no assurance that the insurance that we maintain and intend to maintain will be adequate, or that the cost of insurance and limitations in coverage will not adversely affect our business and financial results.

• The Sarbanes-Oxley Act of 2002 imposed significant new administrative burdens on publicly traded companies. We expect to incur significant incremental costs in complying with the provisions of the Sarbanes-Oxley Act. We cannot assure you that these additional costs will result in any increase in revenue or that they will not have a material adverse effect on our financial results. In addition, because we are a small company with relatively few employees, the individuals responsible for complying with the new statutory and regulatory requirements also have responsibility for business matters. As a result, our business may suffer if these individuals are forced to spend a disproportionate amount of time on compliance matters.

• In 2001, we implemented a new enterprise resource planning system. We expect that, over time, the new system will result in improved business processes and increased operating efficiencies. As our employees become familiar with the new system, we expect that some errors may occur, some of which could adversely impact our business and financial results. There can be no assurance that the system will perform as expected or that the anticipated improvements in business processes and operating efficiencies will be achieved. In the event of serious system malfunctions or deficiencies, we might experience business interruptions, which could adversely impact our business and financial results.

• Our success is dependent on our ability to attract and retain qualified, experienced personnel. We face significant competition in recruiting competent personnel. In the past, our location in an area with relatively few pharmaceutical companies has made recruitment more difficult, as many candidates prefer to work in places with a broad pharmaceutical industry presence. The loss of key personnel, or the inability to attract and retain additional, competent employees, could adversely affect our business and financial results.

• Our corporate charter documents, Delaware law and our stockholders’ rights plan include provisions that may discourage or prevent parties from attempting to acquire us. These provisions may have the effect of depriving our stockholders of the opportunity to sell their stock at a price in

54

	excess of prevailing market prices in an acquisition of Noven. Our Board of Directors has the authority to issue up to 100,000 shares of preferred stock and to determine the rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of holders of our common stock may be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. Additional provisions of our certificate of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting common stock. These include provisions that limit the ability of stockholders to bring matters before an annual meeting of stockholders, call special meetings or nominate candidates to serve on our Board of Directors.
	We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an “interested stockholder” is a person who, either alone or together with affiliates and associates, owns (or within the past three years, did own) 15% or more of the corporation’s voting stock.
	We also have a stockholders’ rights plan, commonly referred to as a “poison pill,” which is intended to cause substantial dilution to a person or group who attempts to acquire us on terms that our Board of Directors has not approved. The existence of the stockholders’ rights plan could make it more difficult for a third party to acquire a majority of our common stock without the consent of our Board of Directors.
•	The market price of our common stock was extremely volatile in 2002 and may continue to be volatile going forward. In 2002, our common stock traded as low as $8.91 per share and as high as $27.51 per share before closing at $9.23 on December 31, 2002, the last trading day of the year. Any number of factors, including some over which we have no control and some unrelated to our business or financial results, may have a significant impact on the market price of our common stock, including: announcements by us or our competitors of technological innovations or new commercial products, changes in governmental regulation, receipt by us or one of our competitors of regulatory approvals, developments relating to our patents or proprietary rights of one of our competitors, publicity regarding actual or potential medical results or risks for products that we or one of our competitors market or has under development; and period-to-period changes in financial results and the economy generally. We, like any other company with a volatile stock price, may be subject to further securities litigation, which could have a material adverse effect on our business and financial results.
•	Fluctuations in our operating results may lead to fluctuations or declines in our stock price. Our operating results may fluctuate from quarter to quarter and from year to year depending on demand by our customers for our products and timing of shipments to them, new product introductions, pharmaceutical company ordering patterns, the number and timing of product development milestones that we achieve, the timing of royalty and true-up payments and the level of our spending on new drug delivery technology development and technology acquisition, and internal product development.

55

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     We had no variable rate debt outstanding during the year ended or at December 31, 2002. Therefore, changes in interest rates did not affect interest expense, earnings or cash flows in 2002. We cannot predict market fluctuations in interest rates and their impact on any variable rate debt that we may have outstanding from time to time, nor can there be any assurance that fixed rate long-term debt will be available at favorable rates, if at all.

Item 8. Financial Statements and Supplementary Data.

     See Index to Financial Statements at page 66 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     Not applicable.

56

PART III

Item 10. Directors and Executive Officers of the Registrant.

     The information concerning directors required by item 10 is incorporated by reference to our Proxy Statement for our 2003 Annual Meeting of Shareholders. The information concerning executive officers required by item 10 is contained in the discussion entitled “Executive Officers of the Registrant” in Part I hereof.

Item 11. Executive Compensation.

     The information required by item 11 is incorporated by reference to our Proxy Statement for our 2003 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     The information required by item 12 is incorporated by reference to our Proxy Statement for our 2003 Annual Meeting of Shareholders.

Item 13. Certain Relationships and Related Transactions.

     The information required by item 13 is incorporated by reference to our Proxy Statement for our 2003 Annual Meeting of Shareholders.

Item 14. Controls and Procedures.

     Within ninety days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Noven required to be included in our periodic Securities and Exchange Commission filings. However, that conclusion should be considered in light of the various limitations described below on the effectiveness of those controls and procedures, some of which pertain to most if not all business enterprises, and some of which arise as a result of the nature of our business. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all error and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of any system of controls also is based in

57

part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Furthermore, our level of historical and current equity participation in Novogyne may substantially impact the effectiveness of our disclosure controls and procedures. Because we do not control Novogyne, and Novogyne’s financial, accounting, inventory and sales deductions functions are performed by Novartis, our disclosure controls and procedures with respect to Novogyne are necessarily more limited than those we maintain with respect to ourselves. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the Chief Executive Officer’s and Chief Financial Officer’s evaluation.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)(1) Financial Statements

     See Index to Financial Statements at page 66 of this report.

(a)(2) Financial Statement Schedules

     All schedules have been omitted because the required information is not applicable or the information is included in the financial statements or the notes thereto.

58

(a)(3) Exhibits

Exhibit
Number	Description	Method of Filing
3.1	Noven’s Restated Certificate of Incorporation		Incorporated by reference to Exhibit 3.1 of Noven’s Form 10-K for the year ended December 31, 1998 (File No. 0-17254).
3.2	Noven’s Certificate of Amendment of Certificate of Incorporation dated June 5, 2001.		Incorporated by reference to Exhibit 3.1 of Noven’s Form 10-Q for the quarter ended June 30, 2001 (File No. 0-17254).
3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of Noven Pharmaceuticals, Inc.		Incorporated by reference to Exhibit 3.3 of Noven’s Form 10-K for the year ended December 31, 2001 (File No. 0-17254)
3.4	Noven’s Bylaws, as amended and restated as of February 8, 2001.		Incorporated by reference to Exhibit 3.2 of Noven’s Form 10-K for the year ended December 31, 2000 (File No. 0-17254).
4.1	Rights Agreement by and between Noven Pharmaceuticals, Inc. and American Stock Transfer & Trust Company dated November 6, 2001.		Incorporated by reference to Exhibit 4.1 of Noven’s Form 8-K dated November 6, 2001 (File No. 0-17254).
10.1	Noven Pharmaceuticals, Inc. Amended and Restated Stock Option Plan.*		Incorporated by reference to Noven’s Form 10-K for the year ended December 31, 1990 (File No. 0-17254), as further amended on June 23, 1992 and incorporated by reference to the definitive Proxy Statement dated May 11, 1992, for the Annual Meeting of Shareholders held on June 23, 1992.
10.2	Amendment to Noven Pharmaceuticals, Inc. Amended and Restated Stock Option Plan.*		Incorporated by reference to Noven’s Form 10-Q for the quarter ended June 30, 1999 (File No. 0-17254).

59

Exhibit
Number	Description	Method of Filing
10.3	Noven Pharmaceuticals, Inc. 1997 Stock Option Plan.*		Incorporated by reference to Noven’s definitive Proxy Statement dated May 1, 1997, for the Annual Meeting of Shareholders held on June 3, 1997.
10.4	Amendment to Noven Pharmaceuticals, Inc. 1997 Stock Option Plan.*		Incorporated by reference to Noven’s Form 10-Q for the quarter ended June 30, 1999 (File No. 0-17254).
10.5	Noven Pharmaceuticals, Inc. 1999 Long-Term Incentive Plan.*		Incorporated by reference to Noven’s definitive Proxy Statement dated April 19, 1999, for the Annual Meeting of Shareholders held on June 8, 1999.
10.6	Employment Agreement between Noven and Robert C. Strauss dated December 12, 1997.*		Incorporated by reference to Exhibit 10.31 of Noven’s Form 10-K for the year ended December 31, 1997 (File No. 0-17254).
10.7	Employment Agreement (Change in Control), dated as of December 1, 1999, between Noven and each of Jeffrey F. Eisenberg, W. Neil Jones, Juan A. Mantelle and James B. Messiry.*		Incorporated by reference to the Form of Employment Agreement (Change in Control) filed as Exhibit 10.7 of Noven’s Form 10-K for the year ended December 31, 1999 (File No. 0-17254).
10.8	Form of Indemnification Agreement for Directors and Officers		Incorporated by reference to Exhibit 10.4 of Noven’s Form 10-K for the year ended December 31, 1998 (File No. 0-17254).
10.9	License Agreement between Noven and Ciba-Geigy Corporation dated November 15, 1991 (with certain provisions omitted pursuant to Rule 406)		Incorporated by reference to Exhibit 10.9 of Amendment No. 1 to Noven’s Registration Statement on Form S-2 (File No. 33-45784).
10.10	Industrial Lease between Rhône-Poulenc Rorer Pharmaceuticals Inc. and Noven dated March 23, 1993 and effective February 16, 1993 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.20 of Noven’s Form 10-K for the year ended December 31, 1993 (File No. 0-17254).
10.11	Operating Agreement of Vivelle Ventures LLC (a Delaware limited liability company) dated as of May 1, 1998.		Incorporated by reference to Exhibit 10.33 to Noven’s Form 10-Q for the quarter ended March 31, 1998 (File No. 0-17254).

60

Exhibit
Number	Description	Method of Filing
10.12	Amendment to Operating Agreement between Novartis Pharmaceuticals Corporation and Noven Pharmaceuticals, Inc. dated March 29, 2001.		Incorporated by reference to Exhibit 10.7 to Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.13	Marketing and Promotional Services Agreement by and between Noven and Vivelle Ventures LLC dated as of May 1, 1998.		Incorporated by reference to Exhibit 10.4 to Noven’s Form 10-Q for the quarter ended March 31, 1998 (File No. 0-17254).
10.14	First Amendment to Marketing and Promotional Services Agreement between Vivelle Ventures LLC and Noven Pharmaceuticals, Inc. dated March 29, 2001.		Incorporated by reference to Exhibit 10.6 to Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.15	Sublicense Agreement by and among Novartis Pharmaceuticals Corporation, Noven and Vivelle Ventures LLC dated as of May 1, 1998.		Incorporated by reference to Exhibit 10.35 to Noven’s Form 10-Q for the quarter ended March 31, 1998 (File No. 0-17254).
10.16	Amended and Restated License Agreement between Noven and Rhône-Poulenc Rorer, Inc. dated September 30, 1999 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.1 of Noven’s Form 10-Q for the quarter ended September 30, 1999 (File No. 0-17254).
10.17	Amended and Restated License Agreement between Noven and Rhône-Poulenc Rorer, Inc. dated September 30, 1999 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.2 of Noven’s Form 10-Q for the quarter ended September 30, 1999 (File No. 0-17254).
10.18	Amendment No. 2 to Amended and Restated License Agreement between Rorer Pharmaceutical Products, Inc. and Noven Pharmaceuticals, Inc. dated March 29, 2001 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.2 of Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.19	License Agreement between Noven and Novartis Pharma AG dated as of November 3, 2000 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.2 of Noven’s Form 10-Q for the quarter ended September 30, 2000 (File No. 0-17254).
10.20	License Agreement between Noven Pharmaceuticals, Inc. and Vivelle Ventures LLC dated March 29, 2001 (with certain provisions omitted pursuant to Rule 24b-2)		Incorporated by reference to Exhibit 10.1 of Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).

61

Exhibit
Number	Description	Method of Filing
10.21	Sublicense Agreement among Rorer Pharmaceutical Products, Inc., Rhône - -Poulenc Rorer Inc., Aventis Pharmaceuticals Products Inc., Rhône-Poulenc Rorer International Holdings Inc., Novartis Pharma AG and Noven Pharmaceuticals, Inc. dated March 29, 2001 (with certain provisions omitted pursuant to Rule 24b-2).		Incorporated by reference to Exhibit 10.3 of Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.22	Purchase Agreement among Rorer Pharmaceutical Products, Inc., Aventis Pharmaceuticals Products Inc. and Vivelle Ventures LLC dated March 29, 2001 (with certain provisions omitted pursuant to Rule 24b-2).		Incorporated by reference to Exhibit 10.4 of Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.23	Supply Agreement between Vivelle Ventures LLC and Noven Pharmaceuticals, Inc. dated March 29, 2001 (with certain provisions omitted pursuant to Rule 24b-2).		Incorporated by reference to Exhibit 10.5 of Noven’s Form 10-Q for the quarter ended March 31, 2001 (File No. 0-17254).
10.24	Development Agreement between Novartis Pharma AG and Noven Pharmaceuticals, Inc. dated June 1, 2001.		Incorporated by reference to Exhibit 10.1 of Noven’s Form 10-Q for the quarter ended June 30, 2001 (File No. 0-17254).
10.25	Transaction Agreement among Shire US Inc., Shire Pharmaceuticals Group PLC and Noven Pharmaceuticals, Inc., dated February 26, 2003, with certain provisions omitted pursuant to Rule 24b-2)**.		Filed herewith.
11	Computation of Earnings per Share.		Filed herewith.
21	Subsidiaries of the Registrant.		Filed herewith.
23.1	Consent of Deloitte & Touche LLP.		Filed herewith.
23.2	Consent of PricewaterhouseCoopers LLP.		Filed herewith.
99.1	Certification of Robert C. Strauss, President, Chief Executive Officer and Chairman of the Board, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Filed herewith.
99.2	Certification of James B. Messiry, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

*	Compensation Plan or Agreement.
**	Certain exhibits and schedules to this document have not been filed. The Registrant agrees to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.

62

(b) Reports on Form 8-K.

     No reports on Form 8-K were filed by Noven during the three months ended December 31, 2002.

63

SIGNATURES

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

Date: March 21, 2003	NOVEN PHARMACEUTICALS, INC.
	By: /s/ Robert C. Strauss
	Robert C. Strauss President, Chief Executive Officer and Chairman of the Board

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

Signature	Title	Date
By: /s/ Robert C. Strauss Robert C. Strauss (President, CEO and Chairman of the Board)	Principal Executive Officer and Chairman of the Board	March 21, 2003
By: /s/ James B. Messiry James B. Messiry (Vice President and Chief Financial Officer)	Principal Financial Officer	March 21, 2003
By: /s/ Diane M. Barrett Diane M. Barrett (Vice President, Finance and Treasurer)	Principal Accounting Officer	March 21, 2003
By: /s/ Sidney Braginsky	Director	March 21, 2003
Sidney Braginsky

64

Signature	Title	Date
By: /s/ John G. Clarkson, M.D.	Director	March 21, 2003
John G. Clarkson, M.D.
By: /s/ Lawrence J. DuBow Lawrence J. DuBow	Director	March 21, 2003
By: /s/ Regina E. Herzlinger Regina E. Herzlinger	Director	March 21, 2003
By: /s/Wayne P. Yetter Wayne P. Yetter	Director	March 21, 2003

65

INDEX TO FINANCIAL STATEMENTS

NOVEN PHARMACEUTICALS, INC.

	Page
INDEPENDENT AUDITORS’ REPORT		67
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2002 and 2001		68
Statements of Operations for the years ended December 31, 2002, 2001 and 2000		69
Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000		70
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		71
Notes to Financial Statements		72
VIVELLE VENTURES LLC (d/b/a NOVOGYNE PHARMACEUTICALS) (a significant unconsolidated subsidiary)
REPORT OF INDEPENDENT ACCOUNTANTS		91
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2002 and 2001		92
Statements of Operations for the years ended December 31, 2002, 2001 and 2000		93
Statements of Members’ Capital for the years ended December 31, 2002, 2001 and 2000		94
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		95
Notes to Financial Statements		96

66

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders
of Noven Pharmaceuticals, Inc.:

We have audited the accompanying balance sheets of Noven Pharmaceuticals, Inc. (“Noven”) as of December 31, 2002 and 2001, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of Noven’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals), Noven’s investment in which is accounted for by use of the equity method, for the years ended December 31, 2002, 2001 and 2000. Noven’s equity in Vivelle Ventures LLC of $34,684,000 and $32,043,000 at December 31, 2002 and 2001, respectively, and Noven’s share of that joint venture’s income of $14,368,000, $14,013,000, and $9,294,000 for the years ended December 31, 2002, 2001 and 2000, respectively, are included in the accompanying financial statements. Such financial statements of Vivelle Ventures LLC were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such joint venture for 2002, 2001 and 2000, is based solely on the report of such other auditors.

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

In our opinion, based on our audits, and the reports of other auditors, such financial statements present fairly, in all material respects, the financial position of Noven Pharmaceuticals, Inc. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Miami, Florida
February 14, 2003, except with respect to the matter
discussed in the fourth paragraph of Note 14, as to
which the date is February 24, 2003, and
February 26, 2003 as to Note 15.

67

NOVEN PHARMACEUTICALS, INC.

Balance Sheets

December 31, 2002 and 2001
(in thousands except share amounts)

		2002		2001
Assets
Current Assets:
	Cash and cash equivalents	$	58,684	$	49,389
	Accounts receivable — trade (less allowance for doubtful accounts of $79 in 2002 and $28 in 2001)		4,359		1,308
	Accounts receivable — Novogyne		2,581		15,158
	Inventories		5,613		4,324
	Net deferred income tax asset		2,600		4,800
	Prepaid and other current assets		541		304
			74,378		75,283
Property, plant and equipment, net			16,232		15,699
Other Assets:
	Investment in Novogyne		34,684		32,043
	Net deferred income tax asset		9,831		10,150
	Patent development costs, net		1,996		2,046
	Deposits and other assets		581		1,007
			47,092		45,246
		$	137,702	$	136,228
Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts payable	$	5,062	$	5,620
	Notes payable, current portion		8		252
	Due to Aventis Pharmaceuticals		—		10,000
	Accrued compensation and related liabilities		3,549		1,518
	Other accrued liabilities		2,063		2,752
	Deferred contract revenue		829		1,417
	Deferred license revenue, current portion		3,525		7,936
			15,036		29,495
Long-Term Liabilities:
	Notes payable		5		13
	Deferred license revenue		25,920		24,822
			40,961		54,330
Commitments and Contingencies (Note 14)
Stockholders’ Equity:
	Preferred stock — authorized 100,000 shares of $.01 par value; no shares issued or outstanding		—		—
	Common stock — authorized 80,000,000 shares, par value $.0001 per share; issued and outstanding 22,579,112 in 2002 and 22,481,977 in 2001		2		2
	Additional paid-in capital		78,358		77,394
	Retained earnings		18,381		4,502
			96,741		81,898
		$	137,702	$	136,228

The accompanying notes are an integral part of these statements.

68

NOVEN PHARMACEUTICALS, INC.

Statements of Operations

Years Ended December 31, 2002, 2001 and 2000
(in thousands except per share amounts)

		2002		2001		2000
Revenues:
	Product sales	$	51,986	$	43,096	$	42,005
	License revenue		3,386		2,851		919
	Total revenues		55,372		45,947		42,924
Expenses:
	Cost of products sold		22,973		20,376		19,219
	Research and development		11,634		10,973		13,621
	Marketing, general and administrative		14,257		11,554		8,737
	Total expenses		48,864		42,903		41,577
Income from operations			6,508		3,044		1,347
Equity in earnings of Novogyne			14,368		14,013		9,294
Interest income, net			822		1,770		1,385
Income before income taxes			21,698		18,827		12,026
Income tax expense (benefit)			7,819		6,736		(7,608	)
Net income		$	13,879	$	12,091	$	19,634
Basic earnings per share		$	0.62	$	0.54	$	0.90
Diluted earnings per share		$	0.60	$	0.51	$	0.84
Weighted average number of common shares outstanding:
	Basic		22,532		22,367		21,914
	Diluted		23,321		23,511		23,249

The accompanying notes are an integral part of these statements.

69

NOVEN PHARMACEUTICALS, INC.

Statements of Stockholders’ Equity

Years Ended December 31, 2002, 2001 and 2000
(in thousands)

		Common Stock				Additional		Retained Earnings/
						Paid-in		(Accumulated
		Share		Amount		Capital		Deficit)			Total
Balance at December 31, 1999			21,546	$	2	$	66,614	$	(27,223	)	$	39,393
	Issuance of shares pursuant to stock option plan, net		574		—		3,707		—			3,707
	Issuance of shares for bonus compensation		55		—		782		—			782
	Tax benefit from exercise of stock options		—		—		1,650		—			1,650
	Issuance of shares of stock and options to charitable organizations		3		—		111		—			111
	Net income		—		—		—		19,634			19,634
Balance at December 31, 2000			22,178		2		72,864		(7,589	)		65,277
	Issuance of shares pursuant to stock option plan, net		304		—		3,090		—			3,090
	Tax benefit from exercise of stock options		—		—		1,385		—			1,385
	Issuance of options to charitable organization		—		—		55		—			55
	Net income		—		—		—		12,091			12,091
Balance at December 31, 2001			22,482		2		77,394		4,502			81,898
	Issuance of shares pursuant to stock option plan, net		97		—		771		—			771
	Tax benefit from exercise of stock options		—		—		153		—			153
	Issuance of options to charitable organization		—		—		40		—			40
	Net income		—		—		—		13,879			13,879
Balance at December 31, 2002			22,579	$	2	$	78,358	$	18,381		$	96,741

70

NOVEN PHARMACEUTICALS, INC.

Statements of Cash Flows

Years Ended December 31, 2002, 2001 and 2000
(in thousands)

				2002			2001			2000
Cash flows from operating activities:
	Net income			$	13,879		$	12,091		$	19,634
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			2,216			2,488			1,325
		Amortization of patent costs			312			233			237
		Amortization of non-competition agreement			400			233			—
		Deferred income tax expense (benefit)			2,586			709			(9,401	)
		Recognition of deferred contract revenue			(1,787	)		(1,049	)		(7	)
		Recognition of deferred license revenue			(3,386	)		(2,851	)		(919	)
		Undistributed earnings of Novogyne			(2,641	)		(932	)		(7,066	)
		Expense related to issuance of shares of stock and options to charitable organizations			40			55			111
		(Increase) decrease in accounts receivable — trade, net			(3,051	)		4,369			(2,662	)
		Decrease (increase) in accounts receivable — Novogyne			2,577			(2,241	)		767
		(Increase) decrease in inventories			(1,289	)		1,774			(2,520	)
		(Increase) decrease in prepaid and other current assets			(237	)		191			(80	)
		Decrease (increase) in deposits and other assets			26			(1,129	)		248
		(Decrease) increase in accounts payable			(558	)		(177	)		712
		Increase (decrease) in accrued compensation and related liabilities			2,031			(986	)		1,049
		(Decrease) increase in other accrued liabilities			(603	)		1,775			1,561
		Increase in deferred contract revenue			1,199			1,630			843
		Increase in deferred license revenue			73			8,500			20,000
			Cash flows provided by operating activities		11,787			24,683			23,832
Cash flows from investing activities:
	Purchase of property, plant and equipment, net				(2,749	)		(3,033	)		(1,150	)
	Contributions to Novogyne				—			(15,680	)		—
	Payments for patent development costs				(262	)		(307	)		(404	)
			Cash flows used in investing activities		(3,011	)		(19,020	)		(1,554	)
Cash flows from financing activities:
	Issuance of common stock				771			3,090			3,707
	Repayments of notes payable				(252	)		(340	)		(347	)
			Cash flows provided by financing activities		519			2,750			3,360
Net increase in cash and cash equivalents					9,295			8,413			25,638
Cash and cash equivalents, beginning of year					49,389			40,976			15,338
Cash and cash equivalents, end of year				$	58,684		$	49,389		$	40,976

The accompanying notes are an integral part of these statements.

71

NOVEN PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS:

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

     Noven and Novartis Pharmaceuticals Corporation (“Novartis”) entered into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals) (“Novogyne”), effective May 1, 1998, to market and sell women’s prescription healthcare products in the United States and Canada. These products include Noven’s transdermal estrogen delivery systems marketed under the brand names Vivelle® and Vivelle-Dot® and, effective March 30, 2001, Noven’s transdermal combination estrogen/progestin delivery system marketed under the brand name CombiPatch®. Noven accounts for its 49% investment in Novogyne under the equity method and reports its share of Novogyne’s earnings as “Equity in earnings of Novogyne” on its Statements of Operations. Noven defers the recognition of 49% of its profit on products sold to Novogyne until the products are sold by Novogyne.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES:

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

     The most significant estimates made by management include: revenue recognition of certain license agreements containing price adjustments, minimum fee payments and/or milestone and similar payments that are dependent on licensee supporting data or estimated product life cycles or length of patents, contract revenue consisting of development fees and milestone payments that require estimates of work completed, determination of the fair value of employee stock options in order to determine compensation expense for disclosure purposes, determination of the net realizable value of the net deferred tax asset, and estimates related to allowance for doubtful accounts, inventories, intangible assets, accrued liabilities, income and other tax accruals and contingencies and litigation.

CASH AND CASH EQUIVALENTS:

     Cash and cash equivalents includes all highly liquid investments with an original maturity of three months or less at the date of purchase.

72

INVENTORIES:

     Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventory costs include material, labor and manufacturing overhead. The following are the major classes of inventories as of December 31 (in thousands):

	2002		2001
Finished goods	$	830	$	458
Work in process		1,390		1,140
Raw materials		3,393		2,726
Total	$	5,613	$	4,324

     Inventories at December 31, 2002 and 2001 relate to Noven’s marketed products. As appropriate, provisions are made to reduce inventories to net realizable value. To date, Noven has not experienced and does not anticipate any difficulty acquiring materials necessary to manufacture its products. No assurance can be given that Noven will not experience difficulty in the future. Noven’s policy is to immediately recognize as expense all inventory purchased for research and development purposes.

PROPERTY, PLANT AND EQUIPMENT:

     Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging up to 31 years. Leasehold improvements are amortized over the life of the lease or the service life of the improvements, whichever is shorter. Major renewals and betterments are capitalized, while maintenance repairs and minor renewals are expensed as incurred. Retired assets are removed from the cost and accumulated depreciation accounts.

SOFTWARE AND DEVELOPMENT COSTS:

     Noven capitalizes purchased software which is ready for service and development costs for marketable software incurred from the time the preliminary project stage is completed until the software is ready for use. Under the provisions of SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”, Noven capitalizes costs associated with software developed or obtained for internal use when the preliminary project state is completed. Capitalized costs include only (1) external direct costs of materials and services consumed in developing or obtaining internal-use software, and (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose.

     Computer software maintenance costs related to software development are expensed as incurred. Software development costs are amortized using the straight-line method over three years, but not exceeding the expected life of the product.

IMPAIRMENT OF LONG LIVED ASSETS:

     Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Fair value is determined based on market quotes, if available, or is based on valuation techniques.

73

PATENT DEVELOPMENT COSTS:

     Costs related to the development of patents, principally legal fees, are capitalized and amortized over the lesser of their estimated economic useful lives or their remaining legal lives.

INCOME TAXES:

     Noven accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. SFAS 109 provides that income taxes are accounted for using an asset and liability method which requires the recognition of deferred income tax assets and liabilities for expected future tax consequences of temporary differences between tax bases and financial reporting carrying values of assets and liabilities (see Note 9).

REVENUE RECOGNITION:

     Substantially all of Noven’s product sales were to its licensees, Novogyne, Novartis AG and Aventis (see Notes 5 and 6). Revenues from product sales are recognized at the time of shipment when both title and the risks and rewards of ownership have been transferred to the buyer. Certain license agreements provide for an adjustment to the price of the product based upon the licensee’s actual sales price. Noven records such adjustments to revenues at the time that the information necessary to make the determination is received from the licensees. Certain license agreements for international products entitle Noven to minimum fees. Noven records revenue related to minimum fees when sufficient supporting data is provided by the licensee. If the minimum fees are not determinable, Noven records these fees on a cash basis. These fees are included in product revenue. Royalty revenue consists of royalties payable by Novogyne and Novartis from sales of Vivelle® and Vivelle-Dot®/Estradot® in the United States and Canada. Royalty revenue is recognized when earned and determinable and is included in product sales. Royalty revenue in the amount of $4.7 million, $4.2 million and $3.7 million was included in product sales for 2002, 2001 and 2000, respectively.

     License revenue consists of up-front, milestone and similar payments under license agreements and is recognized when earned under the terms of the applicable agreements. In most cases, license revenue is deferred and recognized over the estimated product life cycle or the length of relevant patents, whichever is shorter.

     Contract revenue consists of contract development fees and milestone payments earned under contracts with third parties. Noven recognizes revenue under the agreements as the work is performed. Deferred revenue represents the portion of all refundable and nonrefundable payments received that have not been earned. Costs incurred in performing contract development services are included in research and development expenses. Refundable development and license fee payments are deferred until the specified performance criteria are achieved. Noven’s contract revenue recognition policy is in compliance with the requirements of EITF 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables”.

     Noven’s revenue recognition policy is in compliance with the requirements of Staff Accounting Bulletin 101, “Revenue Recognition in Financial Statements”.

COST OF PRODUCTS SOLD:

     Direct and indirect costs of manufacturing are included in cost of products sold.

74

RESEARCH AND DEVELOPMENT COSTS:

     Research and development costs include costs of internally generated research and development activities and costs associated with work performed under agreements with third parties. Research and development costs include direct and allocated expenses and are expensed as incurred.

EARNINGS PER SHARE:

     Noven computes its Earnings Per Share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share”. Basic earnings per share excludes all dilution. It is based on income available to common stockholders and the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Common share equivalents are not included in the diluted earnings per share calculation if the effect of their inclusion would be antidilutive. The total number of share equivalents not included in the diluted earnings per share calculation as of December 31, 2002 was 2,238,306 shares.

COMPREHENSIVE INCOME:

     For the years ended December 31, 2002, 2001 and 2000, total comprehensive income was equal to net income.

EMPLOYEE STOCK PLANS:

     In accordance with the provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation”, as amended by Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation — Transition and Disclosure", Noven may elect to continue to apply the provisions of the Accounting Principles Board’s Opinion No. 25 (APB 25, “Accounting for Stock Issued to Employees”) and related interpretations in accounting for its employee stock option plans, or adopt the fair value method of accounting prescribed by SFAS 123. Noven has elected to continue to account for its stock plans using APB 25, and therefore no stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

75

     The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS 123, as amended by SFAS 148:

		2002			2001			2000
Net income:
	As reported	$	13,879		$	12,091		$	19,634
	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,994	)		(4,024	)		(1,590	)
	Pro forma	$	10,885		$	8,067		$	18,044
Basic earnings per share:
	As reported	$	0.62		$	0.54		$	0.90
	Pro forma	$	0.48		$	0.36		$	0.82
Diluted earnings per share:
	As reported	$	0.60		$	0.51		$	0.84
	Pro forma	$	0.47		$	0.34		$	0.78

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

     The effect of applying the fair value method of accounting for stock options on reported net income and earnings per share for 2002, 2001 and 2000 may not be representative of the effects for future years because outstanding options vest over a period of several years and additional awards are generally made each year.

     The fair value of each option granted during 2002, 2001 and 2000 is estimated as $9.65, $12.80 and $23.44, respectively, on the date of the grant using the Black Scholes option-pricing model with the assumptions listed below:

	2002			2001			2000
Volatility		85.0	%		92.0	%		84.6	%
Risk free interest rate		3.22	%		4.11	%		5.75	%
Expected life (years)		6			6			6

SEGMENT INFORMATION:

     Noven discloses segment information in accordance with Statement of Financial Accounting Standards No. 131 (SFAS 131), “Disclosure about Segments of an Enterprise and Related Information”. Noven is engaged principally in one line of business, the development and commercialization of advanced transdermal drug delivery products and technologies and prescription transdermal products. SFAS 131 also requires disclosures about geographic areas and major customers (See Note 12).

76

FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable, accounts payable and accrued expenses reasonably approximate fair value because of the short maturity of these items. Noven believes the carrying amounts of Noven’s notes payable and obligations under capital leases approximate fair value because the interest rates on these instruments change with, or approximate, market interest rates.

CONCENTRATIONS OF CREDIT RISK:

     Noven’s customers consist of Novogyne, Novartis AG and a limited number of pharmaceutical companies with worldwide operations. Noven performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. Noven maintains an allowance for doubtful accounts based on an assessment of the collectibility of such accounts.

RECLASSIFICATION:

     Certain reclassifications have been made to the prior financial statements to conform to the current year’s presentation.

RECENT ACCOUNTING PRONOUNCEMENTS:

     In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction. This Statement eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement are effective for Noven with the beginning of fiscal year 2003. Debt extinguishments reported as extraordinary items prior to scheduled or early adoption of this Statement would be reclassified in most cases following adoption. Noven does not anticipate a significant impact on its results of operations from adopting this Statement.

     In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this Statement are effective for Noven with the beginning of fiscal year 2003. Noven does not anticipate a significant impact on its financial statements from adopting this statement.

     In December 2002, the FASB issued SFAS 148. This Statement amends SFAS 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Noven is required to follow the prescribed format and provide the additional disclosures required by SFAS No. 148 in the financial statements for the year ended December 31, 2002 and for interim periods beginning with the quarterly period ending March 31, 2003.

77

     In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees it has issued and clarifies the accounting for such guarantees. The initial recognition and measurement provisions of FIN No. 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for periods ending after December 15, 2002. Noven does not anticipate a significant impact on its financial statements from adopting this interpretation.

     In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This Interpretation of Accounting Research Bulletin 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities which have one or both of the following characteristics: (1) The equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity and (2) The equity investors lack one or more of the characteristics of a controlling financial interest. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Noven does not anticipate a significant impact on its financial statements from adopting this interpretation.

3. CASH FLOW INFORMATION:

     Cash payments for income taxes were $6.1 million, $3.9 million and $0.6 million in 2002, 2001 and 2000, respectively. Cash payments for interest were $14,000, $35,000 and $64,000 in 2002, 2001 and 2000, respectively.

     In connection with the CombiPatch® transaction described in Note 5 below, in March 2001, Noven recorded a $40.0 million receivable from Novogyne and a $40.0 million payable to Aventis Pharmaceuticals, the United States pharmaceuticals business of Aventis Pharma AG (“Aventis”). In June, September and December 2001, Novogyne paid the first three $10.0 million installments, respectively, directly to Aventis. The final $10.0 million quarterly installment was paid by Novogyne directly to Aventis in March 2002.

     Accrued compensation and related liabilities for the year ended December 31, 1999 included bonuses for employees and officers of $0.8 million that were settled by issuance of 55,125 shares of common stock during the quarter ended March 31, 2000.

     Noven recorded a $0.2 million, $1.4 million and $1.7 million income tax benefit to additional paid-in capital derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options in 2002, 2001 and 2000, respectively.

78

4. PROPERTY, PLANT AND EQUIPMENT, NET:

     Property, plant and equipment consists of the following at December 31, 2002 and 2001 (in thousands):

	2002		2001
Land	$	2,540	$	2,540
Building and improvements		2,875		2,393
Leased property and leasehold improvements		8,918		8,929
Manufacturing and testing equipment		10,036		8,242
Furniture		1,103		1,044
Software and software development costs		1,870		1,448
		27,342		24,596
Less accumulated depreciation and amortization		11,110		8,897
	$	16,232	$	15,699

5. LICENSE AGREEMENTS:

     Noven has license agreements with Aventis, Novartis, Novartis Pharma AG (“Novartis AG”) and Novogyne. At the time of the formation of Novogyne, Novartis sublicensed its rights under its license agreement to Novogyne. Noven’s agreement with Novogyne grants Novogyne the right to market Noven’s transdermal estrogen delivery systems in the United States and Canada. Novartis’ Canadian affiliate markets Vivelle® and Estradot® in Canada. The agreement provides for royalty payments based on sales by Novogyne and Novartis’ Canadian affiliate.

     Noven has two license agreements with Aventis. These agreements grant Aventis the right to market Noven’s first generation transdermal estrogen delivery system worldwide except for the United States and Canada and to market Noven’s transdermal combination estrogen/progestin delivery system worldwide. The agreements also grant Aventis the right to market Noven’s second generation transdermal estrogen delivery system in Japan. Aventis funded the construction of a manufacturing facility for the production by Noven of transdermal drug delivery systems. Noven leases the facility at a nominal rate for a term of 31.5 years expiring in 2024 and has the right to purchase the facility at any time during the term of the lease at Aventis’ book value. Noven has recorded both the facility and deferred revenue at amounts equal to the funds advanced by Aventis which are deferred and recognized as depreciation expense and license revenue over the life of the underlying lease.

     In October 1999, Novartis AG sublicensed Aventis’ rights to market (1) Noven’s combination estrogen/progestin transdermal delivery system in all countries other than the United States and Japan, and (2) Noven’s first generation estrogen transdermal delivery system in all countries other than the United States, Canada and Japan.

     In November 2000, Noven entered into an exclusive license agreement with Novartis AG pursuant to which Noven granted Novartis AG the right to market Noven’s second generation transdermal estrogen delivery system under the name Estradot® in all countries other than the United States, Canada and Japan. The agreement also grants Novartis AG marketing rights in the same territories, to any product improvements and future generations of estrogen patches

79

developed by Noven. Noven received an up-front license payment of $20.0 million upon execution of the agreement. The up-front payment was deferred and is being recognized as license revenue over 10 years beginning in the fourth quarter of 2000. Noven subsequently received a $5.0 million milestone payment that is being recognized as license revenue beginning in the first quarter of 2002 through the fourth quarter of 2010. This product has been approved for marketing in over 30 foreign countries and the regulatory authorities of other countries are reviewing Novartis’ registration applications.

     Novogyne acquired the exclusive United States marketing rights to CombiPatch® in March 2001 in a series of transactions involving Novogyne, Noven, Novartis and Aventis. Prior to the transaction, Aventis had been Noven’s exclusive licensee for CombiPatch® in the United States. The transaction was structured as (a) a direct purchase by Novogyne from Aventis of certain assets for $25.0 million, which was paid at closing, (b) a grant-back by Aventis to Noven of certain intellectual property rights relating to CombiPatch®, and (c) a simultaneous license by Noven to Novogyne of these intellectual property rights. The consideration payable by Noven to Aventis, and by Novogyne to Noven, was $40.0 million, due in four quarterly installments of $10.0 million each, payable beginning June 1, 2001. Novogyne agreed to indemnify Noven against Noven’s obligation to Aventis. The first three $10.0 million quarterly installments were paid by Novogyne to Aventis in June, September and December 2001, respectively. The final $10.0 million quarterly installment was paid by Novogyne directly to Aventis in March 2002. As a consequence of the transaction and under the terms of Noven’s existing license agreement with Aventis, Noven received $3.5 million from Aventis, which amount was deferred and recognized as license revenue over ten years beginning in the first quarter of 2001.

     In a related transaction, Novartis AG acquired from Aventis the development and marketing rights to future generations of Noven’s combination estrogen/progestin patch in all markets other than Japan. Novogyne expects to sublicense the United States rights to these product improvements, and, if and when future generation combination products are commercialized, Novogyne expects that it will pay a royalty to Novartis AG on the United States sales of such products. Noven manufactures and supplies CombiPatch® and expects to manufacture and supply any future combination products to Novogyne and to Novartis AG. In June 2001, Noven and Novartis AG entered into a development agreement relating to future generations of combination estrogen/progestin patch products.

6. INVESTMENT IN VIVELLE VENTURES LLC:

     In 1998, Noven invested $7.5 million in return for a 49% equity interest in Novogyne. In return for a 51% equity interest, Novartis granted an exclusive sublicense to Novogyne of a license agreement with Noven (see Note 5). This sublicense assigned certain of Novartis’ rights and obligations under license and supply agreements with Noven, and granted an exclusive license to Novogyne of the Vivelle® trademark. Noven shares in the income of Novogyne according to an established formula after an annual preferred return of $6.1 million to Novartis. During 2002, 2001 and 2000, Novogyne produced $37.4 million, $37.9 million and $29.1 million, respectively, of net income, and Noven recorded $14.4 million, $14.0 million and $9.3 million, respectively, as equity in earnings of Novogyne. In 2002, 2001 and 2000, Noven received cash distributions of $11.7 million, $13.1 million and $2.2 million, respectively, from Novogyne. These amounts were recorded as reductions in the investment in Novogyne when received. During 2001, Noven contributed $15.7 million to Novogyne in connection with the CombiPatch® transaction described in Note 5 above. This amount was recorded as an increase in the investment in Novogyne when paid.

80

     During the years ended December 31, 2002, 2001 and 2000, Noven had the following transactions with Novogyne (in thousands):

		2002		2001		2000
Revenue:
	Trade product	$	21,984	$	13,634	$	13,220
	Sample product and other		3,410		3,055		2,269
	Royalty		4,505		4,037		3,429
		$	29,899	$	20,726	$	18,918
Expenses:
	Services	$	18,345	$	16,187	$	10,180
	Product specific marketing expenses		7,535		5,849		4,133
		$	25,880	$	22,036	$	14,313

     As of December 31, 2002 and 2001, the Accounts Receivable — Novogyne is as follows (in thousands):

	2002			2001
Sales of product	$	1,631		$	3,071
Services provided by Noven		2,029			2,637
Royalty		905			952
CombiPatch® license installment		—			10,000
Deferred profit on Novogyne inventory		(1,984	)		(1,502	)
	$	2,581		$	15,158

     Under the terms of the joint venture agreements, Noven is responsible for the manufacture of the products, retention of samples and regulatory documentation, design and implementation of an overall marketing and sales program in the hospital and retail sales sectors of the market, including the preparation of marketing plans and sales force staffing and management, and the procurement of advertising services in connection with the marketing and promotion of the products. All other matters, including inventory control and distribution, management of marketing and sales programs for the managed care sector of the market, customer service support, regulatory affairs support, legal, accounting and other administrative services are provided by Novartis.

81

     The condensed Statements of Operations of Novogyne for the years ended December 31, 2002, 2001 and 2000 are as follows (in thousands):

	2002		2001		2000
Revenues	$	102,485	$	89,958	$	58,544
Cost of sales		26,136		20,833		13,127
Selling, general and administrative expenses		33,091		27,347		17,886
Amortization of intangible assets		6,179		4,635		—
Income from operations		37,079		37,143		27,531
Interest income		350		734		1,562
Net income	$	37,429	$	37,877	$	29,093

     Royalties due to Noven on sales of Vivelle® and Vivelle-Dot® for 2001 and 2000 have been reclassified from selling, general and administrative expenses to cost of sales to conform to the current year’s presentation.

     The condensed Balance Sheets of Novogyne at December 31, 2002 and 2001 are as follows (in thousands):

	2002		2001
Current assets	$	34,827	$	23,695
Long-term assets		50,981		57,160
Total assets		85,808		80,855
Total liabilities (all of which are current)		17,468		23,452
Members’ capital	$	68,340	$	57,403

     The joint venture operating agreement also has a buy/sell provision which allows each party to compel either the purchase of the other party’s interest in Novogyne or the sale of its own interest in Novogyne at a price set by the party triggering the buy/sell provision. Either party may dissolve Novogyne in the event that Novogyne does not achieve certain financial results. Noven expects that the applicable financial targets will be achieved, although no assurance can be given that unexpected events will not affect Novogyne’s financial performance. Dissolution can also result from a change in control of Noven if the acquirer is a top ten pharmaceutical company (as measured by annual dollar sales). Upon dissolution, Novartis would reacquire the rights to market Vivelle® and Vivelle-Dot® and Novogyne’s other assets would be liquidated and distributed to the parties in accordance with their capital account balances as determined pursuant to the operating agreement.

7. CREDIT FACILITY:

     In December 2000, Noven entered into a credit agreement with a bank for a secured revolving credit facility (the “Credit Facility”) providing for borrowings up to the lesser of (a) $10.0 million or (b) eligible accounts receivable. The Credit Facility will terminate in April

82

2003. Amounts outstanding under the credit facility bear interest at LIBOR plus 1.50% (2.882% at December 31, 2002). Amounts outstanding under the Credit Facility are secured by accounts receivable and inventory. Noven pays certain fees in connection with the Credit Facility, including a quarterly commitment fee of 0.0625% of the aggregate unused portion of the Credit Facility. At December 31, 2002 and 2001, there were no amounts outstanding under the Credit Facility. The Credit Facility contains various covenants pertaining to minimum net worth, revenue and operating results requirements, as well as certain financial ratios, measured on a quarterly basis. Noven is not aware of any defaults under the current terms of the Credit Facility. Noven does not expect to extend the term of the Credit Facility beyond its April 2003 expiration.

8. NOTES PAYABLE:

     In May 1999, Noven entered into a Master Finance Lease Agreement (the “Master Lease”) for $1.0 million with a base lease term of three or four years depending upon the equipment type. The terms of the Master Lease include, among other provisions, minimum net worth, revenue and operating results requirements, as well as certain financial ratios, measured on a quarterly basis. Transactions under the Master Lease have been accounted for as financing arrangements.

     Long-term obligations, less installments due within one year, are summarized below (in thousands):

	2002		2001
Borrowings under Master Lease, 8%		—	$	245
Capitalized equipment lease, 11%, maturing in 2004		13		20
		13		265
Less: installments due within one year		8		252
	$	5	$	13

     Principal payments on existing long-term debt for the years succeeding December 31, 2002 are $8,000 in 2003 and $5,000 in 2004.

9. INCOME TAXES:

     The provision (benefit) for income taxes in 2002, 2001 and 2000 consists of (amounts in thousands):

		2002		2001		2000
Current income taxes
	Federal	$	4,430	$	5,400	$	1,251
	State		803		627		542
			5,233		6,027		1,793
Deferred income tax expense (benefit)
	Federal		2,518		448		(8,789	)
	State		68		261		(612	)
			2,586		709		(9,401	)
Income tax expense (benefit)		$	7,819	$	6,736	$	(7,608	)

83

     Deferred income taxes reflect the tax effects on future years for temporary differences between the tax bases of assets and liabilities and their financial reporting amounts. The following table summarizes the significant components of Noven’s net deferred tax asset:

		2002			2001
Deferred income tax assets:
	Deferred license revenue	$	8,814		$	10,270
	Joint venture interest		2,397			891
	General business credit		515			3,131
	Alternative minimum tax credit		483			483
	Other		697			478
	Total deferred income tax assets		12,906			15,253
Deferred income tax liabilities:
	Basis difference in fixed assets		(475	)		(303	)
	Total deferred income tax liabilities		(475	)		(303	)
Net deferred income tax asset		$	12,431		$	14,950

     At December 31, 1999, Noven established $11.5 million in valuation allowances against its deferred income tax assets, which consisted primarily of net operating loss and research and development credit carryforwards. A portion of the carryforwards was utilized against 2000 income, and Noven recognized the remainder as a deferred income tax asset. Realization of the net deferred income tax asset of $12.4 million and $15.0 million at December 31, 2002 and 2001, respectively, is dependent upon generating sufficient future taxable income. Although realization is not assured, management believes it is more likely than not that the net deferred income tax asset will be realized based upon estimated future taxable income of Noven and, accordingly, no valuation allowance for the net deferred income tax asset was deemed necessary at December 31, 2002 and 2001.

     At December 31, 2002 and 2001, Noven had research and development credit carryforwards of $0.5 million and $3.1 million, respectively, which will expire in 2013 through 2022.

     The income tax benefits derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options, when realized, are credited to additional paid-in capital. For the years ended December 31, 2002, 2001 and 2000, Noven credited $0.2 million, $1.4 million and $1.7 million, respectively, to additional paid-in capital related to the tax benefits from the exercise of stock options.

84

     The difference between the statutory federal income tax rate applied to pretax income and the total income tax expense (benefit) is reconciled as follows (dollars in thousands):

		2002						2001						2000
		Amount			%			Amount			%			Amount			%
Income taxes at statutory rate		$	7,594			35.0		$	6,589			35.0		$	4,089			34.0
Increase (decrease) in taxes:
	State income tax, net of federal benefits		566			2.6			577			3.1			470			3.9
	Research and development expenditures		(396	)		(1.8	)		(458	)		(2.4	)		(700	)		(5.8	)
	Other		55			0.2			28			0.1			63			0.5
	Reduction of valuation allowance on deferred income tax assets		—			—			—			—			(11,530	)		(95.9	)
Income tax expense (benefit)		$	7,819			36.0		$	6,736			35.8		$	(7,608	)		(63.3	)

10. STOCKHOLDERS’ EQUITY:

     Noven established its 1999 Long-Term Incentive Plan (the “1999 Plan”) on June 8, 1999. The 1999 Plan replaced Noven’s 1997 Stock Option Plan (the “1997 Plan”) and no future stock option awards may be granted under the 1997 Plan. The 1999 Plan provides for the granting of up to 3,768,848 incentive and non-qualified stock options to selected individuals, including 2,768,848 shares that remained available under the 1997 Plan at the time of its termination. The terms and conditions of these options (including price, vesting schedule, term and number of shares) are determined by the Compensation and Stock Option Committee, which administers the 1999 Plan. The per share exercise price of (i) non-qualified stock options granted to directors and all other persons can not be less than the fair market value of the common stock on the date of grant, (ii) incentive stock options granted to employees can not be less than the fair market value of the common stock on the date of grant and (iii) incentive stock options granted to employees owning in excess of 10% of Noven’s issued and outstanding common stock can not be less than 110% of the fair market value of the common stock on the date of grant.

     Each option granted under the 1999 Plan is exercisable after the period(s) specified in the relevant option agreement, and no option can be exercised after ten years from the date of grant (or five years from the date of grant in the case of a grantee of an incentive stock option holding more than 10% of the issued and outstanding Noven common stock). At December 31, 2002, there were approximately 2,459,138 stock options outstanding under the 1999 Plan. Generally, the options vest over a period of five years, beginning one year after date of grant, and expire seven years after date of grant.

     The 1997 Plan, originally effective January 1, 1997, provided for the granting of up to 4,000,000 incentive and non-qualified stock options. At December 31, 2002, there were approximately 890,688 stock options outstanding under the 1997 Plan. The 1997 Plan is also administered by the Compensation and Stock Option Committee, and the terms and conditions of the 1997 Plan are similar to those of the 1999 Plan.

     Noven also has an earlier stock option plan, which had provisions similar to those of the 1997 and 1999 Plans. This plan terminated on December 31, 1996, and no additional options

85

may be granted under this plan. At December 31, 2002, there were approximately 59,755 stock options outstanding under this plan.

     Stock option transactions related to the plans are summarized as follows (options and shares in thousands):

	2002					2001					2000
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding at beginning of year		2,845		$	15.57		2,501		$	14.57		2,554		$	8.32
Granted		871			14.08		792			17.59		626			33.37
Exercised		(101	)		8.02		(308	)		10.45		(634	)		8.41
Canceled and expired		(205	)		19.14		(140	)		20.32		(45	)		8.06
Outstanding at end of year		3,410			15.20		2,845			15.57		2,501			14.57
Options exercisable at end of year		1,404			13.23		960			11.89		745			8.87
Shares of common stock reserved		4,722					4,895					4,909

     The following table summarizes information concerning outstanding and exercisable options at December 31, 2002 (options in thousands):

		Options Outstanding						Options Exercisable
Range of		Number		Weighted Average
Exercise		Outstanding		Remaining		Weighted Average		Number Exercisable		Weighted Average
Prices		at Year End		Contractual Life		Exercise Price		at Year End		Exercise Price
$	4.19 -   6.25		799		2.4	$	5.79		681	$	5.90
	6.38 -   8.81		140		2.7		8.53		89		8.43
	9.94 - 14.38		1,137		5.5		12.52		216		11.96
	15.13 - 21.47		730		6.0		15.65		171		16.59
	31.31 - 41.81		604		5.0		33.69		247		33.95
			3,410						1,404

     In June 2001, Noven’s stockholders approved an increase in the number of authorized common shares from 40 million to 80 million.

     On November 6, 2001, Noven’s Board of Directors adopted a Stockholder Rights Plan under which Noven declared a dividend of one right for each share of common stock outstanding. Prior to the Distribution Date referred to below, the rights will be evidenced by, and trade with, the certificates for the common stock. After the Distribution Date, Noven will mail rights certificates to the stockholders and the rights will become transferable apart from the common stock. Rights will separate from the common stock and become exercisable following (a) the tenth day after a public announcement that a person or group acquired beneficial ownership of 15% or more of Noven’s common stock in a transaction or series of transactions

86

not approved by Noven’s Board of Directors or (b) the tenth business day (or such later date as may be determined by a majority of the directors) after a person or group announces a tender or exchange offer (with respect to which the Board of Directors does not issue a favorable recommendation), the consummation of which would result in ownership by a person or group of 15% or more of Noven’s common stock (in either case, such date is referred to as the “Distribution Date”). After the Distribution Date, each right will entitle the holder to purchase for $110 a fraction of a share of Noven’s preferred stock with economic terms similar to that of one share of Noven’s common stock. In addition, upon the occurrence of certain events, holders of the rights (other than rights owned by an acquiring person or group) would be entitled to purchase either Noven’s preferred stock or shares in an “acquiring entity” at approximately half of market value. The rights will expire on November 6, 2011, and Noven generally will be entitled to redeem the rights at $0.01 per right at any time prior to the close of business on the tenth day after there has been a public announcement of the beneficial ownership by any person or group of 15% or more of Noven’s voting stock, subject to certain exceptions. The plan is intended to protect the interests of Noven’s stockholders against certain coercive tactics sometimes employed in takeover attempts. The adoption of the Stockholder Rights Plan could make it more difficult for a third party to acquire a majority of Noven’s common stock in a transaction that does not have the support of Noven’s Board of Directors.

11. 401(k) SAVINGS PLAN:

     On January 1, 1997, Noven established a savings plan under section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering substantially all employees who have completed three months of service and have reached the age of twenty-one. This plan allows eligible participants to contribute from one to fifteen percent of their current compensation to the 401(k) Plan. Noven amended the 401(k) Plan as of January 2001, and during 2001 and 2002, the 401(k) Plan provided for employer matching of 50% of employee contributions up to the first 3% of the participants’ contributions. Noven contributed $148,000 and $126,000 for the year ended December 31, 2002 and 2001, respectively. Prior to the Plan amendment, Noven determined, on a year-to-year basis, the amount, if any, that it would provide as a matching contribution. For the year ended December 31, 2000, Noven made no matching contributions.

12. SEGMENT, GEOGRAPHIC AND CUSTOMER DATA:

     Noven is engaged principally in one line of business, the development and commercialization of advanced transdermal drug delivery technologies and prescription transdermal products, which represents more than 90% of total revenue. There were no sales or transactions between geographic areas.

     The following table presents information about Noven’s revenues by geographic area (in thousands):

	2002		2001		2000
United States	$	28,995	$	25,018	$	25,386
Other countries		26,377		20,929		17,538
Total revenues	$	55,372	$	45,947	$	42,924

87

     The following table presents information about Noven’s revenues by customer, including royalty payments and license revenue (in thousands):

	2002		2001		2000
Novogyne	$	29,899	$	20,726	$	18,918
Novartis AG/Novartis		23,201		19,809		15,614
Aventis		1,212		4,736		7,620
Other		1,060		676		772
Total revenues	$	55,372	$	45,947	$	42,924

13. UNAUDITED QUARTERLY CONDENSED FINANCIAL DATA:
(in thousands, except per share amounts):

2002	First		Second		Third		Fourth		Full Year
Revenues	$	12,735	$	16,156	$	13,198	$	13,283	$	55,372
Total operating expenses		12,202		13,013		11,188		12,461		48,864
Income from operations		533		3,143		2,010		822		6,508
Equity in earnings of Novogyne		1,515		7,132		2,010		3,711		14,368
Interest income, net		207		195		223		197		822
Income tax provision		802		3,827		1,480		1,710		7,819
Net income	$	1,453	$	6,643	$	2,763	$	3,020	$	13,879
Basic earnings per share	$	0.06	$	0.29	$	0.12	$	0.13	$	0.62
Diluted earnings per share	$	0.06	$	0.28	$	0.12	$	0.13	$	0.60

2001	First		Second		Third			Fourth		Full Year
Revenues	$	12,689	$	12,594	$	10,403		$	10,261	$	45,947
Total operating expenses		9,703		11,480		12,081			9,639		42,903
Income (loss) from operations		2,986		1,114		(1,678	)		622		3,044
Equity in earnings of Novogyne		595		3,137		5,278			5,003		14,013
Interest income, net		619		482		398			271		1,770
Income tax provision		1,533		1,510		1,542			2,151		6,736
Net income	$	2,667	$	3,223	$	2,456		$	3,745	$	12,091
Basic earnings per share	$	0.12	$	0.14	$	0.11		$	0.17	$	0.54
Diluted earnings per share	$	0.11	$	0.14	$	0.10		$	0.16	$	0.51

88

14. COMMITMENTS AND CONTINGENCIES:

EMPLOYMENT AGREEMENT AND BONUS PLAN

     Noven has an employment agreement with Robert C. Strauss, its President, Chief Executive Officer and Chairman, that provides for a base salary subject to cost of living increases each year and other increases and bonuses. This agreement provides for annual commitments of approximately $0.5 million and has a term extending through 2003.

     Noven has a formula bonus plan that includes company and individual performance goals, and Noven incurred $2.5 million, $0.7 million and $2.2 million of bonus expenses in 2002, 2001 and 2000, respectively. Under the plan, a fixed percentage of each employee’s base salary is set as a target incentive bonus award for such employee. To the extent that actual company performance is equal to, exceeds or is less than the company performance targets, an employee’s bonus award may be equal to, greater than or less than his target award. An employee’s non-financial goals are then considered in determining his final bonus award. In 2001, Noven did not meet the Company performance goals and Noven’s officers received no bonus. During 2001, Noven set revised goals for non-officer employees, and the revised goals were met, resulting in a total bonus payment of $0.7 million. In 2002 and 2000, Noven met or exceeded each of the company performance goals, and in accordance with the plan formula the bonus awards to most employees were greater than their initial target awards.

     In September 2000, Noven entered into a Severance and Non-Competition Agreement with Steven Sablotsky, then Co-Chairman of the Board of Directors. Pursuant to the agreement, Mr. Sablotsky’s employment as an officer of Noven terminated on June 1, 2001. Noven paid Mr. Sablotsky $1.2 million on that date, which is being amortized over the period of his three year non-competition agreement. In July 2001, Mr. Sablotsky resigned as a director of Noven.

LITIGATION, CLAIMS AND ASSESSMENTS:

     In November and December 2001 and January 2002, individuals purporting to be Noven stockholders filed a total of five substantially identical lawsuits against Noven and certain of its directors and officers in the United States District Court for the Southern District of Florida, which actions were subsequently consolidated into a single consolidated lawsuit. The plaintiffs purport to represent a class consisting of all purchasers of Noven’s common stock between March 27 and November 1, 2001. The plaintiffs each alleged that during that period, Noven and its officers and directors named as defendants violated Sections 10 and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by making material misstatements and omissions regarding international sales of certain of Noven’s products that are the subject of an exclusive license agreement with Novartis AG. The plaintiffs sought unspecified damages, for themselves and the purported class, based on the allegedly artificially inflated prices paid for their shares of Noven’s common stock. On May 13, 2002, the defendants filed Motions to Dismiss, seeking to have the Court dismiss the plaintiff’s Consolidated Amended Complaint. On December 20, 2002, the Court dismissed the Consolidated Amended Complaint for failing to meet the requirements of the Private Securities Litigation Reform Act of 1995. The Court’s order dismissed the Consolidated Amended Complaint without prejudice but gave the plaintiffs leave to amend the Consolidated Amended Complaint to attempt to cure its defects. Subsequently, the plaintiff decided not to amend the Consolidated Amended Complaint, and, on February 24, 2003, the parties filed a joint motion for voluntary dismissal of the Consolidated Amended Complaint with prejudice, which the Court granted. Under the terms of the Court’s order, each party is to bear its own costs and attorneys’ fees.

89

     Noven is involved in certain litigation and claims incidental to its business. Noven does not believe, based on currently available information, that these matters will have a material adverse effect on the accompanying financial statements.

LICENSE AGREEMENTS

     In certain circumstances, Noven is required to indemnify its licensees from damages caused by the products it manufactures.

15. SUBSEQUENT EVENTS:

     On February 26, 2003, Noven signed an agreement to license the exclusive global rights to market MethyPatch® to Shire Pharmaceuticals Group plc (“Shire”) for payments of up to $150 million and ongoing manufacturing revenue. Consideration for the transaction is payable as follows: (a) $25 million payable upon closing of the transaction; (b) $50 million upon receipt of final marketing approval for MethyPatch® by the FDA; and (c) three installments of $25 million each upon Shire’s achievement of $25 million, $50 million and $75 million in annual net sales of MethyPatch®, respectively. Shire’s annual net sales will be measured quarterly on a trailing 12-month basis, with each milestone payment due 45 days after the end of the first quarter during which trailing 12-month sales exceed the applicable threshold. For accounting purposes, all payments (other than manufacturing revenues) will be deferred and recognized as revenue over a period of years. Closing of the transaction is conditioned on, among other things, the expiration of any regulatory waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, and is expected to take place in April 2003.

     Under the terms of the transaction, Noven remains responsible for securing final regulatory approval for MethyPatch®. If Noven receives a non-approval letter from the FDA or if FDA approval has not been granted within two years of the closing date, Shire may require Noven to repurchase the product rights for $5 million. Shire has agreed that it will not sell any other product containing methylphenidate as an active ingredient until the earlier of (a) five years from the closing date or (b) payment of all of the sales milestones.

     On the closing date, Noven will enter into a long-term supply agreement under which it will manufacture and supply MethyPatch® to Shire. The agreement will give Shire the right to qualify a second manufacturing source and purchase a portion of its requirements from the second source.

90

Report of Independent Accountants

To the Management Committee of
Vivelle Ventures LLC d/b/a Novogyne Pharmaceuticals:

In our opinion, the accompanying balance sheets and the related statements of operations, members’ capital and cash flows present fairly, in all material respects, the financial position of Vivelle Ventures LLC at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

January 31, 2003
Florham Park, New Jersey

91

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Balance Sheet

As of December 31, 2002 and 2001

					2002		2001
Assets
	Current assets
			Due from affiliate — Novartis Pharmaceuticals Corporation		$	28,470,812	$	16,493,027
			Due from Novartis Pharmaceuticals Canada, Inc.			—		876,263
			Finished goods inventory (net of reserves of $975,624 and $250,000 as of December 31, 2002 and 2001)			6,315,282		5,976,405
			Other current assets			41,390		349,407
				Total current assets		34,827,484		23,695,102
Long-term assets (see Note 3)						50,980,582		57,160,047
				Total assets	$	85,808,066	$	80,855,149
Liabilities and Members’ Capital
		Current liabilities
		Due to affiliate — Noven Pharmaceuticals, Inc.			$	4,565,279	$	16,660,758
		Accrued liabilities				122,383		118,116
		Allowance for returns				12,780,006	$	6,673,109
				Total current liabilities		17,467,668		23,451,983
Commitments and contingencies (see Note 6)
Members’ capital
		Capital contributions				32,857,909		32,857,909
		Accumulated earnings				35,482,489		24,545,257
				Total members’ capital		68,340,398		57,403,166
				Total liabilities and members’ capital	$	85,808,066	$	80,855,149

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

92

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Statement of Operations

For the Years Ended December 31, 2002, 2001 and 2000

				2002		2001		2000
Net sales
	Third parties			$	97,755,546	$	88,808,362	$	57,221,383
	Novartis Pharmaceuticals Canada, Inc.				4,729,216		1,149,817		1,322,772
					102,484,762		89,958,179		58,544,155
Cost of sales
	Third parties				19,550,963		16,272,541		9,165,457
	Noven royalties				4,504,663		4,036,972		3,429,288
	Novartis Pharmaceuticals Canada, Inc.				2,079,829		523,358		532,187
					26,135,455		20,832,871		13,126,932
Gross profit					76,349,307		69,125,308		45,417,223
Operating expenses
	Administrative expenses				2,195,203		1,926,320		1,391,446
	Sales and marketing expenses				30,895,914		25,420,730		16,494,690
	Amortization expense				6,179,465		4,634,598		—
		Income from operations			37,078,725		37,143,660		27,531,087
Other income
	Interest income				349,741		733,600		1,562,112
			Net income	$	37,428,466	$	37,877,260	$	29,093,199

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

93

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Statement of Members’ Capital

For the Years Ended December 31, 2002, 2001 and 2000

	Total
Members’ capital at December 31, 1999	$	15,397,611
Net income		29,093,199
Distribution to members (see Note 4)		(13,064,904	)
Members’ capital at December 31, 2000		31,425,906
Net income		37,877,260
Distributions to members (see Note 4)		(43,900,000	)
Capital contributions by members		32,000,000
Members’ capital at December 31, 2001		57,403,166
Net income		37,428,466
Distributions to members (see Note 4)		(26,491,234	)
Members’ capital at December 31, 2002	$	68,340,398

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

94

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Statement of Cash Flows

For the Years Ended December 31, 2002, 2001 and 2000

				2002			2001			2000
Operating activities
	Net income			$	37,428,466		$	37,877,260		$	29,093,199
	Adjustments to reconcile net income to income to net cash provided by operating activities
		Amortization of marketing rights			6,179,465			4,634,598			—
		Obsolescence reserve			725,624			50,000			—
		Changes in assets and liabilities, net of assets acquired
			Due from affiliate — Novartis Pharmaceuticals Corporation		(11,977,785	)		19,486,451			(13,853,727	)
			Due from Novartis Pharmaceuticals Canada, Inc.		876,263			(631,575	)		(104,292	)
			Inventories		(1,064,501	)		3,111,424			(3,597,441	)
			Other current assets		308,017			(349,407	)		104,040
			Due to affiliate — Noven Pharmaceuticals, Inc.		(2,095,479	)		2,188,408			426,583
			Other liabilities		6,111,164			804,753			996,542
		Net cash provided by operating activities			36,491,234			67,171,912			13,064,904
Investing activities
	Cash paid to purchase the CombiPatch® marketing rights and inventory (see Note 3)				(10,000,000	)		(55,271,912	)		—
		Net cash used in investing activities			(10,000,000	)		(55,271,912	)		—
Financing activities
	Contribution by members (see Note 3)				—			32,000,000			—
	Distributions to members (see Note 4)				(26,491,234	)		(43,900,000	)		(13,064,904	)
		Net cash used in financing activities			(26,491,234	)		(11,900,000	)		(13,064,904	)
Net change in cash					—			—			—
Cash and cash equivalents at beginning of year					—			—			—
			Cash and cash equivalents at end of year	$	—		$	—		$	—

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

95

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

1. Organization, Business and Basis of Accounting

Vivelle Ventures LLC (the “Company”) was organized to maintain and grow a franchise in women’s health in the United States of America focusing initially on the marketing and sale of an estradiol transdermal patch product under the trademark “Vivelle®”. During 1999, the Company began doing business under the name “Novogyne Pharmaceuticals”.

The Company is a limited liability company between Novartis Pharmaceuticals Corporation (“Novartis”) and Noven Pharmaceuticals, Inc. (“Noven”) (collectively referred to as the “Members”), pursuant to a Formation Agreement dated as of May 1, 1998 (date of inception). Prior to the formation of the Company, Vivelle® was marketed by Novartis pursuant to a license (“License Agreement”) granted by Noven which owns the patent rights and know-how for Vivelle®. Noven had previously supplied Vivelle® to Novartis under a supply agreement (the “Supply Agreement”) (see Note 6). On May 1, 1998, Novartis granted an exclusive sublicense to the Company of the License Agreement, assigned the Company certain of its rights and obligations under the Supply Agreement, and granted an exclusive license to the Company of the Vivelle® trademark as its contribution of capital to the Company. These assets, with a value of $7,800,000 as agreed to by the Members, have been recorded by the Company at Novartis’ carryover basis of zero. Noven contributed $7,500,000 in cash to the Company. Pursuant to the Formation Agreement, the initial capital interests of the Company were owned 51% by Novartis and 49% by Noven.

Novartis is responsible for providing distribution, administrative and marketing services to the Company, pursuant to certain other agreements, as amended. Noven is responsible for supplying Vivelle® and other products to the Company and for providing marketing and promotional services pursuant to certain other agreements, as amended. The Company has no discrete employees. (See Note 5.)

The Company commenced selling its second generation transdermal estrogen delivery system “Vivelle-Dot®” in 1999. The patent rights and know-how for Vivelle-Dot® have been transferred to the Company by means of the original sublicense granted by Novartis for Vivelle® as discussed above.

On March 30, 2001, the Company acquired the exclusive United States marketing rights to CombiPatch® (estradiol/norethindrone acetate transdermal system) in a series of transactions involving the Company, Noven, Novartis and Aventis Pharmaceuticals (“Aventis”) (see Note 3).

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the deductions from gross sales for allowances, returns and discounts and provisions for inventory obsolescence.

96

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

Cash and Cash Equivalents

For the purposes of the Statement of Cash Flows, cash is defined as unrestricted cash balances and investment securities with original maturities of three months or less.

Inventory

Inventory is stated at the lower of cost or market value utilizing the first-in, first-out method. Inventory provisions are recorded in the normal course of business, and relate primarily to product that is within nine months of expiration as of the balance sheet dates.

Revenue Recognition

Revenues are recognized when title and risk of loss pass to the customer. In fiscal year 2000, the Company adopted Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition in Financial Statements, the effects of which were immaterial for all periods presented. Provision is made at the time of sale for discounts and estimated sales allowances and returns.

Sales Allowances

Novartis records the Company’s sales net of sales allowances for chargebacks, Medicaid rebates, managed healthcare rebates, cash discounts and other allowances. Novartis maintains the reserves associated with such sales allowances on behalf of the Company and pays all moneys owed and issues credits to individual customers as deemed necessary. Revenues for the years ended December 31, 2002, 2001 and 2000 are net of $13,601,706, $8,785,599 and $5,989,323, respectively, for such sales allowances. The contracts that underlie these transactions are maintained by Novartis for its business as a whole and those transactions relating to the Company are estimated. Based on an analysis of the underlying activity, the amounts recorded by the Company represent management’s best estimate of these charges that apply to sales of the Company.

Revenues for the years ended December 31, 2002, 2001 and 2000 are net of sales returns allowances of $14,272,113, $5,401,758 and $4,221,545, respectively. Returns are estimated based on historical experience and may vary in future periods.

Advertising Costs

Advertising costs are expensed as incurred.

Income Taxes

The Company’s income, gains, losses and tax credits are passed to its Members who report their share of such items on their respective income tax returns. Accordingly, income taxes have not been provided.

Reclassifications

Noven royalty expense has been reclassified from sales and marketing expenses to cost of sales on the accompanying statement of operations for all periods presented.

97

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

Impairment of Long Lived Assets

The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews such long lived asset to assess recoverability from future operations using undiscounted cash flows. Impairments would be recognized in earnings to the extent that carrying value exceeds fair value. To date, no impairment has been identified.

Recently Adopted Accounting Standards

During 2002, the Company adopted the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS 144 incorporates probability weighting of undiscounted cash flow assumptions, and a primary asset approach to determine the cash flow estimation period for a group of assets. The adoption of SFAS 144 did not affect the financial position, results of operations or cash flows of the Company.

Also during 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires that goodwill and intangible assets with indefinite useful lives not be amortized but that they be tested for impairment at adoption and at least annually thereafter. The adoption of SFAS 142 did not affect the financial position, results of operations or cash flows of the Company.

3. Acquisition of CombiPatch® Marketing Rights and Inventory

On March 30, 2001, the Company acquired the exclusive United States marketing rights to CombiPatch® in a series of transactions involving the Company, Noven, Novartis and Aventis. The transaction was structured as (a) a direct purchase by the Company from Aventis of the sales and marketing rights and inventory for $25,000,000 which was paid at closing, (b) a grant-back by Aventis to Noven of certain intellectual property rights relating to CombiPatch®, and (c) a simultaneous license by Noven to the Company of these intellectual property rights. The consideration payable by Noven to Aventis, and by the Company to Noven, is $40,000,000, due in four quarterly installments of $10,000,000 each, payable beginning June 1, 2001. The Company agreed to indemnify Noven against its obligation to Aventis. The first three $10,000,000 quarterly installments were paid by the Company to Aventis on behalf of Noven in June, September and December 2001, respectively. The final $10,000,000 quarterly installment was paid by the Company to Aventis on behalf of Noven in March 2002. The Company has assigned $3,477,267 to the value of the inventory and the remainder and various costs totaling $61,794,645 to an intangible asset representing license and marketing rights. This intangible asset is being amortized over a period of 10 years, the remaining life of the CombiPatch patent at March 31, 2001. To fund the purchase price of approximately $65,000,000 the members contributed $32,000,000 in cash. The remaining amount was funded by the Company and reduced the Novartis due from affiliate account.

The accumulated amortization was $10,814,063 and $4,634,598 as of December 31, 2002 and 2001. Amortization expense is $6,179,465 per year, and will total $30,897,325 over the next five years.

98

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

4. Operating Agreement

The Company’s Operating Agreement provides, among other things, for the following:

Allocation of Net Income and Loss

Net income is allocated at the end of each fiscal year in accordance with the accounting method followed by the Company for federal income tax purposes in the following order of priority:

• First, to Novartis until the cumulative amount of net income allocated under the relevant provisions of the Operating Agreement equals $6,100,000 annually for the current and all prior fiscal years.

• Second, any remaining net income attributable to sales of Vivelle® for each fiscal year is to be allocated 70% to Novartis and 30% to Noven until the cumulative amount of such net income equals the product of $30,000,000 multiplied by a fraction, the numerator of which is the aggregate net income from sales of Vivelle® and the denominator of which is the aggregate net sales of Vivelle® in that period.

• Third, any remaining net income attributable to sales of Vivelle® for each fiscal year is to be allocated 60% to Novartis and 40% to Noven until the cumulative amount of such net income equals the product of $10,000,000 multiplied by a fraction, the numerator of which is the aggregate net income from sales of Vivelle® and the denominator of which is the aggregate net sales of Vivelle® in that period.

• Lastly, all remaining net income attributable to Vivelle® and all other net income, including Vivelle-Dot® and CombiPatch®, are to be allocated to the members in proportion to their respective percentage interests.

Net loss for any fiscal year is to be allocated between the Members in proportion to their respective percentage interests, with the exception of any net loss resulting from the termination of any license or know-how which would be allocated to the Member to whom such license or know-how reverts upon termination.

Distributions

Distributable funds are equal to the Company’s Net Cash Flow during the period, as defined in the Operating Agreement, less reserves for working capital and other purposes of $3,000,000 or as determined by the Management Committee.

99

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

Distributable funds are payable to the Members quarterly or as determined by the Management Committee. Distributions are made to the Members on the same basis as the allocation of net income. In 2002, distributions of $14,763,251 were made to Novartis and $11,727,983 to Noven related to the period July 1, 2001 to December 31, 2001. During 2001, distributions of $10,719,000 were made to Novartis and $3,581,000 to Noven related to the period January 1, 2001 to June 30, 2001. In addition, in 2001 distributions of $20,100,000 were made to Novartis and $9,500,000 to Noven related to the period January 1, 2000 to December 31, 2000. During 2000, distributions of $10,836,915 were made to Novartis and $2,227,989 to Noven related to the period January 1, 1999 to December 31, 1999. Distributions during the years ended December 31, 2002, 2001 and 2000 were based on taxable income and subject to approval by the Management Committee prior to payment.

Management Committee

The Operating Agreement, as amended, provides for the formation of a Management Committee. The Members act on any matters to be determined by them through their representatives on the Management Committee. The Management Committee has general management powers with respect to the management and operation of the business and affairs of the Company and is responsible for policy setting and approval of the overall direction of the Company. The Management Committee consists of five individuals of whom three are designated by Novartis and two by Noven. A decision by the Management Committee is made by the affirmative vote of a majority of the Committee members. The Operating Agreement, as amended, also provides for certain actions or decisions to require the vote of at least four of the five members of the Management Committee. Those actions or decisions include but are not limited to approval of the annual operating and capital budget for activities outside normal business, approval of the annual sales and marketing plan, amendments to the documents concerning the formation of the Company, entering into any contract for a third party sales force, incurrence of indebtedness in excess of $1 million, admitting a new member, acquiring or disposing of assets with a value in excess of $500,000 or settlement of litigation in excess of $1 million.

Buy/Sell and Dissolution Provisions

The joint venture operating agreement has a buy/sell provision which allows each party to compel either the purchase of the other party’s interest in the Company or the sale of its own interest in the Company at a price set by the party triggering the buy/sell provision. Either party may dissolve the Company in the event that the Company does not achieve certain financial results.

Dissolution can also result from a change in control of Noven if the acquirer is a top ten pharmaceutical company (as measured by annual dollar sales). Upon dissolution, Novartis would reacquire the rights to market Vivelle® and Vivelle-Dot® and the Company’s other assets would be liquidated and distributed to the parties in accordance with their capital account balances as determined pursuant to the operating agreement.

5. Transactions with Affiliates

Services

The Company relies on Novartis and Noven for providing certain services. These are detailed below.

Novartis is responsible for providing the following services:

• Shipment of the products, fulfillment of product orders, inventory control and distribution, processing of invoices and cash management.

• Management of the overall marketing and sales program for the products in the managed care sector of the market, including but not limited to all corporate, institutional and government accounts.

• Customer service support and assistance for the products.

• Regulatory affairs support and assistance for the products.

• Bookkeeping and accounting, administrative functions relating to the distribution and sale of the products, and assistance with tax matters, insurance coverage and treasury services.

• Legal services.

100

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

Charges for these services are based upon predetermined budgeted amounts that were ratified by the Management Committee of the Company. The Company believes this method is a reasonable basis for determining those charges.

During the years ended December 31, 2002, 2001 and 2000, Novartis charged the Company $2,324,055, $1,976,952 and $1,148,953, respectively, for these services.

Bookkeeping, Accounting and Treasury

The books and records of the Company are maintained by Novartis. The Company’s transactions are initially recorded in Novartis’ general ledger and are transferred to the Company’s ledger on a monthly basis with the corresponding entry being recorded as an amount due to or from Novartis. The balances in this account of $28,470,812, $16,493,027 and $35,979,478 as of December 31, 2002, 2001 and 2000, respectively, represent the net balance of these transactions for the period from commencement of the Company to those dates.

The Company maintains a bank account. Transactions which are processed through this account are subsequently transferred to or from Novartis’ bank accounts under a cash pooling mechanism whereby the Company’s bank balance is maintained at zero. Transactions with Novartis on this basis are recorded in the general ledger account referred to above.

The Company received interest on amounts due from Novartis during the year ended December 31, 2002, 2001 and 2000 at an average annual rate of 2%, 5% and 7%, respectively. During these periods, interest of $349,741, $733,600 and $1,562,112, respectively, was earned and is reflected in the amount due from Novartis.

Novartis records the accounts receivable balances due from the Company’s sales in its general ledger and records these in the Company’s general ledger as amounts due from Novartis. The Members have agreed that Novartis is responsible for managing the receivables balances and Novartis bears the risk of the balances not being recovered in full. However, the Company records receivables for sales to Novartis Pharmaceuticals Canada, Inc. and retains the risk related to these balances. These receivables are reflected in the amount due from Novartis Pharmaceuticals Canada, Inc. on the financial statements.

101

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

The following summarizes the transactions processed through the Due from affiliate — Novartis account:

		For the Years Ended December 31,
		2002			2001			2000
Balance at the beginning of the period		$	16,493,027		$	35,979,478		$	22,125,751
Capital contributions by members			—			32,000,000			—
Net sales (excluding returns)			112,027,659			94,210,120			62,765,692
Sales returns processed			(8,165,215	)		(4,602,001	)		(3,250,631	)
Interest income on cash balances			349,741			733,600			1,562,112
Distributions to members			(26,491,234	)		(43,900,000	)		(13,064,904	)
Payment to Noven for inventory purchases, royalties, and other items			(58,528,474	)		(40,284,456	)		(33,363,053	)
Disbursements made on behalf of the Company			(804,134	)		(1,001,799	)		(280,459	)
Novartis service charges			(2,324,055	)		(1,976,952	)		(1,148,953	)
Receivable from Novartis Canada transferred to the Company			5,605,479			518,241			(244,687	)
Payments for CombiPatch® license			(10,000,000	)		(55,000,000	)		—
Other			308,018			(183,204	)		878,610
	Total	$	28,470,812		$	16,493,027		$	35,979,478

Noven is responsible for providing the following services:

• Manufacturing and packaging products for distribution by Novartis.

• Retention of samples and regulatory documentation of the products.

• Design and implementation of an overall marketing and sales program for the products in the hospital and retail sales sectors of the market, including the preparation of annual and quarterly marketing plans and field sales force staffing.

• Quality control and quality assurance testing of finished goods prior to shipment to Novartis.

During the years ended December 31, 2002, 2001 and 2000, Noven charged the Company $18,344,551, $16,187,211 and $10,179,559, respectively, for these services.

Noven also provides advertising and other services in connection with the marketing and promotion of the products. Such costs charged during the years ended December 31, 2002, 2001 and 2000 were $11,599,911, $8,628,409 and $6,255,770, respectively.

Royalties

Royalties are payable to Noven by the Company on the sale of Vivelle® and Vivelle-Dot® in the United States of America. The royalty formula is based upon a percentage of the products’ net sales. In addition, a minimum annual royalty formula is specified. During the years ended December 31, 2002, 2001 and 2000, total royalties of $4,504,663, $4,036,972 and $3,429,288, respectively, were incurred, of which $905,407, $952,312 and $935,110 remained payable to Noven as of December 31, 2002, 2001, and 2000, respectively.

102

Vivelle Ventures LLC
d/b/a Novogyne Pharmaceuticals

Notes to Financial Statements

Product Transactions

Vivelle®, Vivelle-Dot® and CombiPatch® are manufactured by Noven and sold to the Company at an agreed upon price. During the years ended December 31, 2002, 2001 and 2000 the Company purchased products from Noven in the amounts of $21,983,870, $13,634,475 and $13,220,064, respectively.

Research and Development

Noven assumes responsibility for research and development costs associated with the development of Vivelle®, Vivelle-Dot®, CombiPatch® and all future generation products.

Due to Affiliate-Noven Pharmaceuticals, Inc.

The following represents the amounts payable to Noven related to:

		As of December 31,
		2002		2001
Purchases of inventory		$	1,630,975	$	3,071,180
Services provided by Noven			2,028,897		2,637,266
Royalties			905,407		952,312
CombiPatch® license installment			—		10,000,000
	Total	$	4,565,279	$	16,660,758

6. Commitments and Contingencies

The Company is subject to legal proceedings, including product liability claims, related to its normal course of business. The Company is not currently a party to any pending litigation which, if decided adversely to the Company, would have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company.

As a result of an amended and restated Supply Agreement between Novartis and Noven, Noven supplies finished goods to the Company. The Company is obligated to purchase a nominal amount of inventory in the subsequent fiscal year. The Supply Agreement expired in January 2003, and has not been renewed. Failure to renew the Supply Agreement could have a material adverse impact on the Company’s financial position, results of operations and cash flows.

In July 2002, the National Institute of Health released data on studies concerning the risks and benefits associated with long-term use of oral hormone replacement therapy. The study revealed an increase in the risk of developing breast cancer and increased risk of stroke, heart attacks and blood clots. Although the Company’s products are not orally administered, management can not predict whether the study will have an adverse effect on the Company’s results of operations, or its ability to recover the value of the CombiPatch® intangible asset (see Note 3).

103 EX-10.25 3 g81253exv10w25.txt EX-10.25 TRASACTION AGREEMENT EXHIBIT 10.25 TRANSACTION AGREEMENT DATED AS OF FEBRUARY 26, 2003 BY AND AMONG NOVEN PHARMACEUTICALS, INC., SHIRE US INC. AND SHIRE PHARMACEUTICALS GROUP PLC TABLE OF CONTENTS

PAGE ---- ARTICLE I DEFINITIONS........................................................................ 1 Section 1.01. Definitions........................................................................ 1 Section 1.02. Other Definitions.................................................................. 7 ARTICLE II TRANSACTIONS AND CLOSING........................................................... 8 Section 2.01. Closing. .......................................................................... 8 Section 2.02. Closing Transactions............................................................... 8 Section 2.03. Regulatory Approval................................................................ 8 Section 2.04. Transaction Consideration.......................................................... 9 Section 2.05. Milestone Payments................................................................. 10 Section 2.06. Limited Right of Set-Off........................................................... 10 Section 2.07. Determination of Annual Net Sales.................................................. 10 Section 2.08. Assignment of Contracts and Rights; Cooperation.................................... 11 ARTICLE III PURCHASE AND SALE OF ASSETS........................................................ 12 Section 3.01. Purchase and Sale of Purchased Assets.............................................. 12 Section 3.02. Excluded Assets.................................................................... 13 ARTICLE IV ASSUMPTION OF LIABILITIES.......................................................... 13 Section 4.01. Assumption of Assumed Liabilities.................................................. 13 Section 4.02. Excluded Liabilities............................................................... 14 ARTICLE V REPRESENTATIONS AND WARRANTIES..................................................... 14 Section 5.01. Representations and Warranties of Purchaser and Guarantor.......................... 14 Section 5.02. Representations and Warranties of Seller........................................... 17 Section 5.03. Knowledge.......................................................................... 20 ARTICLE VI COVENANTS AND AGREEMENTS OF SELLER................................................. 20 Section 6.01. Conduct of Business................................................................ 20 Section 6.02. Access to Information; Cooperation After Closing Date.............................. 21 Section 6.03. Maintenance of Insurance Policies.................................................. 21 ARTICLE VII COVENANTS AND AGREEMENTS OF PURCHASER.............................................. 22 Section 7.01. Cooperation After Closing Date..................................................... 22 Section 7.02. Insurance.......................................................................... 22 Section 7.03. Certain Intellectual Property Matters.............................................. 22 Section 7.04. Purchaser Guaranty................................................................. 22

ARTICLE VIII COVENANTS AND AGREEMENTS OF THE PARTIES............................................ 23 Section 8.01. Confidentiality.................................................................... 23 Section 8.02. Press Releases..................................................................... 24 Section 8.03. Additional Formulations and Improvements........................................... 25 Section 8.04. Tax Matters........................................................................ 25 Section 8.05. Further Assurances................................................................. 25 Section 8.06. Certain Filings; Consents.......................................................... 25 Section 8.07. Antitrust Laws..................................................................... 26 ARTICLE IX REGULATORY MATTERS................................................................. 26 Section 9.01. Regulatory Responsibility.......................................................... 26 Section 9.02. Regulatory Procedures.............................................................. 26 ARTICLE X CONDITIONS TO CLOSING.............................................................. 28 Section 10.01. Conditions to Obligations of Each Party............................................ 28 Section 10.02. Conditions to Obligation of Purchaser and Guarantor................................ 29 Section 10.03. Conditions to Obligation of Seller................................................. 29 Section 10.04. Updated Disclosure Schedules....................................................... 29 Section 10.05. Effect of Waiver................................................................... 30 ARTICLE XI SURVIVAL; INDEMNIFICATION.......................................................... 30 Section 11.01. Survival of Provisions............................................................. 30 Section 11.02. Indemnification.................................................................... 30 Section 11.03. Certain Limitations................................................................ 33 ARTICLE XII TERMINATION........................................................................ 33 Section 12.01. Termination........................................................................ 33 Section 12.02. Effect of Termination.............................................................. 34 ARTICLE XIII MISCELLANEOUS...................................................................... 34 Section 13.01. Notices. .......................................................................... 34 Section 13.02. Disputes........................................................................... 36 Section 13.03. Independent Contractors............................................................ 37 Section 13.04. Assignment......................................................................... 37 Section 13.05. Binding Effect; Benefit............................................................ 37 Section 13.06. Amendments......................................................................... 37 Section 13.07. No Waiver.......................................................................... 38 Section 13.08. Counterparts....................................................................... 38 Section 13.09. Interpretation..................................................................... 38 Section 13.10. Governing Law...................................................................... 38 Section 13.11. Unenforceability................................................................... 38 Section 13.12. Entire Agreement................................................................... 39 Section 13.13. Expenses........................................................................... 39 -ii- Section 13.14. Disclosure......................................................................... 40 Section 13.15. Guarantor Obligations.............................................................. 40 LIST OF EXHIBITS Exhibit A Trademarks LIST OF ATTACHMENTS Attachment I Form of Assignment Agreement (Closing) Attachment II Form of Assignment Agreement (Regulatory Approval) Attachment III Form of License Agreement Attachment IV Form of Noncompetition Agreement (Purchaser) Attachment V Form of Noncompetition Agreement (Seller) Attachment VI Form of Toll Conversion and Supply Agreement Attachment VII Letter from Seller to the FDA Attachment VIII Letter from Purchaser to the FDA Attachment IX Press Release (Seller) Attachment X Press Release (Purchaser) Attachment XI Purchaser Guaranty -iii- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TRANSACTION AGREEMENT This TRANSACTION AGREEMENT (together with any Schedules and Attachments hereto, this "Agreement"), is made as of this 26th day of February 2003, by and among NOVEN PHARMACEUTICALS, INC., a Delaware corporation ("Seller"), SHIRE US INC., a New Jersey corporation ("Purchaser"), and SHIRE PHARMACEUTICALS GROUP PLC, a corporation organized under the laws of England and Wales ("Guarantor"). WITNESSETH: WHEREAS, Seller is engaged in the business of developing transdermal drug delivery systems and in connection therewith has developed the Technology and the Product; WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, Seller and Purchaser desire to enter into a transaction pursuant to which, among other things, (a) Seller will transfer to Purchaser certain of the assets held, owned or used by Seller in connection with the Business and assign certain liabilities and obligations associated with the Business to Purchaser, (b) Seller and Purchaser will enter into the License Agreement pursuant to which Seller will license to Purchaser the Technology, and (c) Seller and Purchaser will enter into the Toll Conversion and Supply Agreement pursuant to which Seller will supply Purchaser with all of its requirements of the Product for sale within the Territory; WHEREAS, in order to induce Seller to enter into this Agreement, Guarantor is willing to join in this Agreement and guarantee the obligations of Purchaser hereunder on the terms and conditions set forth herein; and WHEREAS, in connection with the Contemplated Transactions, Seller and Purchaser desire to enter into certain ancillary agreements and arrangements to effect the transactions contemplated by this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. As used herein, the following capitalized terms have the following meanings: "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention Deficit Disorder. "Affiliate" means, when used with respect to a Person, any other Person directly or indirectly controlling, controlled by or under common control with the subject Person. For Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. purposes of this Agreement, "control" means the direct or indirect ownership of over 50% of the outstanding voting securities of a Person. "Annual Net Sales" means, as of any calendar quarter, the gross amount invoiced by Purchaser (or any Affiliate, successor, assignee or sublicensee of Purchaser) on all sales of the Product in the Territory during the 12-month period ending on the last day of such calendar quarter, less (i) discounts actually allowed, (ii) credits actually allowed for claims, allowances or returned products, (iii) prepaid freight, and (iv) sales taxes, value added taxes, duties and other governmental charges or rebates actually paid in connection with the sale (but excluding Income Taxes) to the extent not reimbursed. "Antitrust Laws" means all United States federal and state, and any foreign, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade. "Applicable Law" means, with respect to any Person, any domestic or foreign, federal, state or local statute, treaty, law, ordinance, rule, regulation, administrative interpretation, order, writ, injunction, judicial decision, decree or other requirement of any Governmental Authority applicable to such Person or any of such Person's respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers', directors', employees', consultants' or agents' activities on behalf of such Person). "Assignment Agreement (Closing)" means the Bill of Sale, Assignment and Assumption Agreement, in the form contemplated by Attachment I to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Assignment Agreement (Regulatory Approval)" means the Bill of Sale and Assignment Agreement, in the form contemplated by Attachment II to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Business" means the business as conducted by Seller prior to the date of this Agreement consisting of the development, manufacture, testing and clinical and non-clinical trials of the Product, and which business, upon receipt of the Regulatory Approval, shall additionally consist of marketing, advertising, promoting, distributing, selling, using and otherwise disposing of the Product. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York, USA are authorized or required by law to close. "Closing Date" means the date of the Closing as determined pursuant to Section 2.01. "Code of Federal Regulations," or "C.F.R." means the codification of the general and permanent rules published in the Federal Register by the Executive department and agencies of the United States federal government. Title 21 of the C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act. -2- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Confidential Information" means all secret, confidential or proprietary data, know-how and related information, including all INDs, NDAs, Regulatory Applications, Regulatory and Clinical Materials and related filings, applications and data, the content of any unpublished patent applications, operating methods and procedures, marketing, manufacturing, distribution and sales methods and systems, sales figures, pricing policies and price lists and other business information and shall include all information disclosed or accessed by the parties pursuant to the provisions this Agreement. "Contemplated Transactions" means the transactions contemplated by the Transaction Documents. "Damages" means all liabilities, demands, obligations, assessments, judgments, levies, losses, fines, penalties, damages (including compensatory damages), costs and expenses, including reasonable attorneys', accountants', investigators', and experts' fees and expenses, reasonably sustained or incurred in connection with the defense or investigation of any Proceedings (including any Proceedings to establish insurance coverage). "DEA" means the United States Drug Enforcement Administration and any successor agency thereto. "FDA" means the United States Food and Drug Administration and any successor agency thereto. "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. Section 301, et. seq., as amended, and the regulations promulgated thereunder, as amended from time to time. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "Governmental Authority" means any foreign, domestic, federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization (including any national or international securities exchange and The NASDAQ Stock Market), commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of any of the foregoing. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Income Taxes" means Taxes on net income or gain and franchise Taxes where the amount of such franchise Taxes is measured by reference to net income or gain. "IND" means an Investigational New Drug Application, as defined in the 21 C.F.R. Section 312.3. -3- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Intellectual Property" means (i) all patents, copyrights, technology, know-how, processes, trade secrets, inventions (including inventions conceived prior to the Closing Date but not documented as of the Closing Date), proprietary data, formulae, research and development data and computer software programs, (ii) all trademarks, trade names, service marks and service names, (iii) all registrations, applications, recordings and common-law rights relating thereto, all rights to sue at law or in equity for any infringement or other impairment thereto, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections pertaining thereto, and (iv) all other United States, state and foreign intellectual property. "License Agreement" means the License Agreement, in the form contemplated by Attachment III to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Lien" means, with respect to any asset, any mortgage, lien, claim, pledge, charge, security interest or other encumbrance of any kind in respect of such asset. "Manufacturing Facility" means Seller's facility located at 11960 S.W. 144th Street, Miami, Florida 33186. "Material Adverse Effect" means (i) with respect to the Business, a material adverse effect on the assets, financial condition or results of operations of the Business taken as a whole, or (ii) with respect to any other Person, a material adverse effect on the assets, financial condition or results of operations of such Person and its Subsidiaries taken as a whole; provided, that the receipt by Seller of any notice, correspondence or other communication from the FDA (other than a Non-Approval Notice) and any questions or issues raised by the FDA (other than those raised in connection with the issuance of a Non-Approval Notice) shall not be deemed as having a Material Adverse Effect on the Business. "New Drug Application" or "NDA" means an application, including amendments and supplements thereto, filed by a Person with the FDA to obtain FDA approval of a new drug or therapy, as the context indicates, as defined in 21 C.F.R. Section 314.3. "Non-Approval Notice" means the issuance of a written notice by the FDA notifying Seller that the Product NDA is not approved. "Noncompetition Agreement (Purchaser)" means the Noncompetition Agreement (Purchaser), in the form contemplated by Attachment IV to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Noncompetition Agreement (Seller)" means the Noncompetition Agreement (Seller), in the form contemplated by Attachment V to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Noven Patents" has the meaning specified in the License Agreement. -4- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Permitted Liens" means any of the following: (i) statutory Liens or landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's, or other like Liens arising in the ordinary course of business with respect to amounts not yet overdue for a period of 60 days or amounts being contested in good faith by appropriate Proceedings; (ii) rights and licenses granted to others in any Intellectual Property; (iii) Liens that have not had, and could not reasonably be expected to have, a Material Adverse Effect on the Business; and (iv) Liens disclosed in the Disclosure Schedules. "Person" means an individual, a corporation, a general partnership, a limited partnership, a limited liability company, a limited liability partnership, an association, a trust or any other entity or organization, including a Governmental Authority. "Proceedings" means governmental, judicial, administrative or adversarial proceedings (public or private), litigation, suits, arbitration, disputes, claims, causes of action or investigations. "Product" means the transdermal methylphenidate drug delivery system that has and is being developed, manufactured and tested by Seller, and for which there is currently pending the Product NDA. "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by Seller on December 12, 1997, seeking approval to develop, test and perform clinical and non-clinical trials of the Product, along with any amendments, correspondence or supplements thereto and incorporated therein. "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by Seller on June 27, 2002, seeking approval to commercially market the Product for the treatment of ADHD, along with any amendments, correspondence or supplements thereto and incorporated therein. "Product Study" means any investigation of, or request for, clinical or non-clinical studies (including any Phase IV clinical studies) that may be requested by the FDA with respect to the Product at any time, whether prior or subsequent to Regulatory Approval of the Product. "Regulatory and Clinical Materials" means all documents, supporting materials and other materials relating to the Regulatory Application, any regulatory approval or other matter required to be submitted to any Regulatory Authority in relation to the Product, including IND and NDA and documents, supporting materials and other materials relating to any drug master file, investigators' brochures, clinical studies (including any Phase IV clinical studies), safety data, adverse event reports, questionnaires, consultants reports, correspondence (including correspondence with any Regulatory Authority), batch reports, protocols, specifications, quality assurance, quality control, customer queries and any responses thereto, and any compilation or evaluations thereof, and question and answer scripts. "Regulatory Application" means the applications submitted by Seller to the FDA seeking approval for the development, manufacture, testing, storage, transport, marketing, advertisement, -5- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. promotion, sale, use, distribution or other disposal of the Product in all or any portion of the Territory, including the Product IND and the Product NDA. "Regulatory Approval" means the issuance of an approval letter (as defined in 21 C.F.R. Section 314.3) by the FDA pursuant to 21 C.F.R. 314.105 approving the Product NDA and approving the Product for manufacturing, marketing, sale, distribution and use in the United States, irrespective of any postmarketing study commitments agreed to by Seller and/or Purchaser, including the performance of one or more postmarketing Product Studies. "Regulatory Authority" means a Governmental Authority that has the authority over the manufacture, use, storage, import, export, clinical testing, transport, marketing, sale or distribution of the Product in all or any portion of the Territory, including the FDA. "Regulatory Standards" has the meaning specified in the Toll Conversion and Supply Agreement. "Securities Laws" means the United States Securities Act of 1933, as amended, the United States Securities Exchange Act of 1934, as amended, and any other similar law or regulation of a Governmental Authority, or any successor to any such laws or regulations, together with any rules, regulations or listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market. "Seller Indemnity Cap Amount" means ***. "Shire Ireland" means Shire Pharmaceuticals Ireland Limited, a Republic of Ireland corporation. "Subsidiary" as it relates to any Person, shall mean with respect to such Person, any other Person of which the specified Person, either directly or through or together with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their equivalents, other than as affected by events of default. "Technology" has the meaning specified in the License Agreement. "Territory" means the entire world. "Toll Conversion and Supply Agreement" means the Toll Conversion and Supply Agreement, in the form contemplated by Attachment VI to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Trademark" means the registered trademark owned by Seller set forth on Exhibit A, and all variations thereof. "Transaction Documents" means this Agreement, the Assignment Agreement (Closing), the Assignment Agreement (Regulatory Approval), the License Agreement, the Toll Conversion and Supply Agreement, the Noncompetition Agreement (Purchaser), the Noncompetition Agreement (Seller), the Purchaser Guaranty, any agreements or documents prepared or executed -6- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. pursuant to the transactions contemplated by such agreements, any exhibits or attachments to any of the foregoing and any other written agreement signed by Seller and Purchaser that is expressly identified as a Transaction Document, as any of the foregoing may be amended, supplemented or otherwise modified from time to time. "United States Applicable Law" means any Applicable Law of any United States Governmental Authority. "United States Governmental Authority" means a Governmental Authority organized under the laws of the United States of America, any state thereof or the District of Columbia. Section 1.02. Other Definitions. Each of the following terms is defined in the section of this Agreement referenced opposite such term.

Term Section ---- ------- Agreement...................................................................... Preamble Assumed Liabilities............................................................ 4.01 Closing........................................................................ 2.01 Closing Payment................................................................ 2.02(f) Contracts...................................................................... 3.01(a) Disclosing Party............................................................... 8.01 Excluded Assets................................................................ 3.02 Excluded Liabilities........................................................... 4.02 Guarantor...................................................................... Preamble Indemnified Party.............................................................. 11.02(c) Indemnifying Party............................................................. 11.02(c) Indemnity Deductible Amount.................................................... 11.02(a) IRS............................................................................ 2.04 Milestone Payments............................................................. 2.05 Milestones..................................................................... 2.05 Obligations.................................................................... 13.15 Offer.......................................................................... 8.03(a) Offered Agreement.............................................................. 8.03(a) Offeree........................................................................ 8.03(a) Offeror........................................................................ 8.03(a) Purchased Assets............................................................... 3.01 Purchaser...................................................................... Preamble Purchaser Indemnitees.......................................................... 11.02(b) Receiving Party................................................................ 8.01 Regulatory Approval Payment.................................................... 2.03(d) Second Generation Product...................................................... 8.03(c) Seller......................................................................... Preamble Seller Indemnitees............................................................. 11.02(a) Termination Fee................................................................ 12.02 Transaction Consideration...................................................... 2.04

-7- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Voluntary Termination Date..................................................... 12.01(b) ARTICLE II TRANSACTIONS AND CLOSING Section 2.01. Closing. Subject to the terms and conditions set forth herein, the closing (the "Closing") of the Contemplated Transactions shall take place at 10:00 a.m. at the offices of King & Spalding LLP, 1730 Pennsylvania Avenue, NW, Washington, D.C. 20006 on March 21, 2003; provided, however, that if all of the conditions to Closing set forth in Article X have not been satisfied (or waived) as of that date, the Closing shall, subject to the terms and conditions set forth herein, take place on the third Business Day following the satisfaction or waiver (by the party entitled to waive the condition) of all conditions to Closing set forth in Article X, or at such other time and place as the parties may agree. The Closing shall become effective at 12:01 a.m., Washington, D.C. time on the Closing Date. Section 2.02. Closing Transactions. Upon the terms and subject to the conditions set forth in this Agreement, the parties agree that at the Closing, among other things: (a) except as otherwise contemplated in Section 2.03(a), Seller will transfer to Purchaser the Purchased Assets and Purchaser will assume the Assumed Liabilities; (b) to effect the transfer of the Purchased Assets and the assumption of the Assumed Liabilities contemplated by the foregoing clause (a), Seller and Purchaser will execute and deliver the Assignment Agreement (Closing); (c) Seller and Shire Ireland will execute and deliver the License Agreement, and the Toll Conversion and Supply Agreement; (d) Seller and Purchaser will execute and deliver the Noncompetition Agreement (Purchaser) and the Noncompetition Agreement (Seller); (e) Purchaser will execute and deliver to and for the benefit of Seller the Purchaser Guaranty; and (f) Purchaser will pay and deliver to Seller US$25,000,000 in immediately available funds (the "Closing Payment"), by wire transfer to an account or accounts designated by Seller by written notice to Purchaser at least two Business Days prior to the Closing Date (or such shorter notice as Purchaser shall agree to accept); and (g) Seller and Purchaser will execute and deliver closing certificates and other documents, agreements and notices as are reasonably required in order to effectuate the Contemplated Transactions. Section 2.03. Regulatory Approval. Upon the terms and subject to the conditions set forth in this Agreement, within three days after Seller's receipt of Regulatory Approval for the -8- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Product or, if Seller receives such Regulatory Approval prior to the Closing Date, on the Closing Date: (a) Seller will transfer to Purchaser the Regulatory Application, the Regulatory and Clinical Materials and the Trademark; (b) to effect the transfer of the Regulatory Application, the Regulatory and Clinical Materials and the Trademark, Seller and Purchaser will execute and deliver the Assignment Agreement (Regulatory Approval); (c) Seller will deliver a letter to the FDA, in the form attached hereto as Attachment VII, notifying the FDA of the transfer of the Regulatory Application, to Purchaser; (d) Purchaser will deliver a letter to the FDA, in the form attached hereto as Attachment VIII, notifying the FDA of Purchaser's assumption of the Regulatory Application from Seller; and (e) Purchaser will pay and deliver to Seller US$50,000,000 (which amount is in addition to the US$25,000,000 contemplated by Section 2.02(f)) in immediately available funds (the "Regulatory Approval Payment"), by wire transfer to an account or accounts designated by Seller by written notice to Purchaser at least two Business Days prior to the date of such payment (or such shorter notice as Purchaser shall agree to accept). Section 2.04. Transaction Consideration. The consideration to be paid to Seller for the sale of the Purchased Assets and the license of the Technology pursuant to the License Agreement (the "Transaction Consideration"), shall, in the aggregate, consist of the following: (a) the Closing Payment; (b) the Regulatory Approval Payment; (c) the Milestone Payments; and (d) the assumption by Purchaser of the Assumed Liabilities in accordance with this Agreement. After the Closing, the parties shall make consistent use of the allocation, fair market value and useful lives specified in Schedule 2.04 hereto for all Tax purposes and in any and all filings, declarations and reports with the Internal Revenue Service (the "IRS") in respect thereof, including the reports required to be filed under Section 1060 of the Internal Revenue Code, as amended, if applicable, it being understood that Purchaser shall prepare and deliver IRS Form 8594 to Seller within 45 days after the Closing Date if such form is required to be filed with the IRS. In any Proceeding related to the determination of any Tax, neither Purchaser nor Seller shall contend or represent that the allocation of the Transaction Consideration set forth in Schedule 2.04 is incorrect. -9- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 2.05. Milestone Payments. Purchaser shall pay and deliver to Seller three payments in an aggregate amount equal to US$75,000,000 (collectively, the "Milestone Payments"), upon the achievement of certain milestones determined with reference to Purchaser's Annual Net Sales of the Product (the "Milestones"), as follows: (a) Purchaser shall pay and deliver to Seller US$25,000,000 in immediately available funds within 45 days after the last day of the first calendar quarter during which the Annual Net Sales of the Product become equal to or greater than US$25,000,000; (b) Purchaser shall pay and deliver to Seller US$25,000,000 in immediately available funds within 45 days of the last day of the first calendar quarter during which the Annual Net Sales of the Product become equal to or greater than US$50,000,000; and (c) Purchaser shall pay and deliver to Seller US$25,000,000 in immediately available funds within 45 days of the last day of the first calendar quarter during which the Annual Net Sales of the Product become equal to or greater than US$75,000,000; provided, that if more than one Milestone shall be achieved in any single calendar quarter, each Milestone Payment corresponding to the achievement of such Milestones shall be paid and delivered to Seller within 45 days of the last day of such quarter in accordance with this Section 2.05. Section 2.06. Limited Right of Set-Off. Purchaser and Guarantor hereby covenant and agree that except as otherwise expressly provided in this Section 2.06, each payment of the Transaction Consideration provided for in this Article II shall be paid and delivered to Seller when due and payable in accordance with the provisions of this Article II, and neither Purchaser nor Guarantor shall have any right to set off against any amounts due or to become due to Seller hereunder, any amounts that may become payable to Purchaser and/or Guarantor by Seller pursuant to any provision of the Transaction Documents, any provision of Applicable Law or otherwise; provided however, that notwithstanding the foregoing, Purchaser may set off against any unpaid payment of the Transaction Consideration due and payable to Seller hereunder any amounts due and payable to Purchaser by Seller which amounts (a) are not subject to dispute between Seller and Purchaser, or (b) have been determined to be due and payable pursuant to a final and nonappealable judgment of a court of competent jurisdiction or a final, nonappealable and binding arbitration award. ***. Section 2.07. Determination of Annual Net Sales. (a) Quarterly Reports. From the Closing until the payment in full of the Milestone Payments, Purchaser shall provide financial reports to Seller on a quarterly basis within 45 days after the last day of each calendar quarter, setting forth the amount of Annual Net Sales of the Product for the 12-month period ending as of the end of each such calendar quarter. Seller and Purchaser hereby acknowledge and agree that such reports shall constitute Confidential Information for purposes of this Agreement and shall be held as confidential by Seller in accordance with Section 8.01 hereof. -10- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) Generation of Annual Net Sales. Until the payment in full of the Milestone Payments, Purchaser shall exercise reasonable commercial efforts to maximize the Annual Net Sales of the Product, and ***. (c) Disputes. In the event Seller shall dispute the correctness of Purchaser's calculation of Annual Net Sales for any 12-month period, Seller shall, within 45 days of receipt of any such calculation, provide written notice to Purchaser of such objection, setting forth in writing and in reasonable detail the reasons therefor. Seller and Purchaser shall endeavor in good faith to resolve any disputed matters within 45 days after Purchaser's receipt of Seller's notice of objections. If Seller and Purchaser are unable to resolve the disputed matters within such 45-day period, Seller and Purchaser shall select a nationally known independent accounting firm (which firm shall not be the then regular auditors of Seller, Purchaser or Guarantor) to resolve the matters in dispute, and the determination of such firm in respect of the correctness of each matter remaining in dispute shall be conclusive and binding on Seller and Purchaser. In connection with the resolution of any dispute under this Section 2.07(c), each party shall bear its own costs and expenses and share the costs and expenses of any independent accounting firm selected to resolve such disputes, except that if Purchaser is determined to have underreported the amount of Annual Net Sales for the period subject to such dispute by ten percent or more, or if any such understatement shall have resulted in Purchaser not paying Seller a Milestone Payment to which Seller was entitled, then Purchaser shall reimburse Seller for any and all reasonable, actual out-of-pocket expenses incurred by Seller in connection with the dispute, including any costs and expenses payable to the independent accounting firm and any other costs and expenses incurred by Seller in connection with such dispute resolution process. Notwithstanding anything to the contrary in this Section 2.07(c), Seller's failure to dispute the correctness of Purchaser's calculation of Annual Net Sales for any 12-month period shall not prevent Seller from disputing the calculation of Annual Net Sales for any calendar quarter of such undisputed 12-month period in connection with its dispute of any subsequent 12-month period in accordance with this Section 2.07(c); provided however, that in the event Seller shall dispute Purchaser's calculation of Annual Net Sales pursuant to this Section 2.07(c), the final resolution of such dispute as to each of the four calendar quarters of such 12-month period shall be binding upon Seller, and shall not be further subject to dispute by Seller in connection with any disputes as to future 12-month periods. Section 2.08. Assignment of Contracts and Rights; Cooperation. Anything in the Transaction Documents to the contrary notwithstanding, nothing in this Agreement or in any of the Transaction Documents shall constitute an agreement to assign or otherwise sell, convey or transfer any Purchased Asset or any claim, right or benefit arising thereunder or resulting therefrom, or to enter into any other agreement or arrangement with respect thereto, if any such attempted assignment, sale, conveyance, transfer, manufacture or supply, or entering into any agreement or arrangement pursuant thereto would, without the consent or approval of any Person (including any Governmental Authority), constitute a breach of, or other contravention under, any Contract or in any way adversely affect the rights of Seller or Purchaser thereunder. With respect to any such Contract or any claim, right or benefit arising thereunder or resulting therefrom, promptly after the date hereof, the parties hereto will use reasonable commercial efforts (but without any payment of money by Seller, Purchaser any of their respective Affiliates to any third party) to obtain the written consent of the other parties to any such Contract for the -11- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. assignment thereof to Purchaser, or written confirmation from such parties reasonably satisfactory in form and substance to Seller and Purchaser confirming that such consent is not required. If such consent is not obtained with respect to any such Contract or if an attempted assignment thereof would be ineffective or would adversely affect the rights of Seller or Purchaser thereunder, the parties will cooperate in a mutually agreeable arrangement under which Purchaser would obtain the benefits thereunder in accordance with this Agreement, including subcontracting or subleasing to Purchaser, subject to Applicable Law and the terms of such Contract. In such case, Seller shall, until such time as any required consents shall have been obtained, act as the agent of the Purchaser in order to obtain for Purchaser the benefits of such Contract as though the Contract had been assigned to the Purchaser. If Seller shall thereafter obtain a required consent to a Contract retained by Seller pursuant to this Section 2.08, such Contract shall thereupon be transferred to Purchaser without need of further action by Seller or Purchaser or of further documentation. ARTICLE III PURCHASE AND SALE OF ASSETS Section 3.01. Purchase and Sale of Purchased Assets. Subject to the terms and conditions of this Agreement, as of the Closing Date (or, as to subsections (c), (d) and (e) of this Section 3.01, if Seller shall not have received Regulatory Approval prior to the Closing Date, then as of the date contemplated by Section 2.03), Seller shall sell, transfer, convey, assign and deliver to Purchaser, and Purchaser shall purchase and accept, all right, title and interest in and to the Purchased Assets. The "Purchased Assets" shall consist of the following items and no others: (a) to the extent assignable, (i) all of the contracts listed in Schedule 3.01(a), and (ii) any and all contracts entered into by Seller with the prior written consent of Purchaser after the date of this Agreement and prior to the Closing Date in connection with any Product Studies assumed by Seller pursuant to Section 9.02(b)(i) (collectively, the "Contracts"); (b) the domain name MethyPatch.com; (c) the Regulatory Application; (d) the Regulatory and Clinical Materials; and (e) the Trademark. Notwithstanding that the Regulatory Application, including the Product IND and the Product NDA, shall constitute a Purchased Asset under this Agreement, Purchaser covenants and agrees that it will not make, have made, manufacture or have manufactured any Product and will purchase all of its requirements of the Product from Seller pursuant to the terms and conditions of the License Agreement and the Toll Conversion and Supply Agreement, except as otherwise expressly permitted by the terms of the Toll Conversion and Supply Agreement; provided however, that Purchaser may manufacture or have manufactured the Product to the extent the Toll Conversion and Supply Agreement is terminated but the License Agreement remains in effect. -12- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 3.02. Excluded Assets. Notwithstanding anything to the contrary contained herein, and subject to the transfer of any of the rights, title and interest in and to the assets transferred by Seller under any of the Transaction Documents, the Purchased Assets shall not include, and Seller shall retain all of its rights, title and interest in and to, all assets, properties or rights of Seller and its Affiliates other than those specifically enumerated as Purchased Assets in Section 3.01 (the "Excluded Assets"). Without limiting the generality of the foregoing, to the extent not expressly listed as a Purchased Asset in Section 3.01, the Purchased Assets shall not include: (a) any Intellectual Property owned, licensed or otherwise used by Seller or any of its Affiliates; (b) any right, title or interest in Seller's or any of its Affiliates' corporate name, corporate service mark or corporate logo used with respect to the Product; (c) any original books or records of Seller (other than the Regulatory and Clinical Materials); (d) the labor of any employees of Seller; (e) any refunds of Income Taxes or any prepaid Income Taxes arising from or with respect to the Purchased Assets prior to the Closing Date or arising from or with respect to the operations of the Business for periods (or portions thereof) ending on or prior to the Closing Date; (f) any assets of Seller and its Affiliates not held or owned by or used exclusively in connection with the Business; (g) any assets used in the manufacture of the Product; (h) any licenses or permits relating to the manufacture of the Product, including any regulatory approvals issued to Seller by the FDA, the DEA or any other Governmental Authority; (i) any rights or claims of Seller under any of the Transaction Documents or the agreements and instruments delivered to Seller by Purchaser or Guarantor pursuant to any of the Transaction Documents; or (j) any assets related to Excluded Liabilities. ARTICLE IV ASSUMPTION OF LIABILITIES Section 4.01. Assumption of Assumed Liabilities. Subject to the terms and conditions of this Agreement, as of the Closing Date, Purchaser shall assume, and shall be solely and -13- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. exclusively liable with respect to, and shall pay, perform, discharge and satisfy when due, the following liabilities and obligations of Seller arising out of or relating to the Business, (collectively, the "Assumed Liabilities"): (a) all liabilities and obligations, whether accrued, liquidated, contingent, matured or unmatured, at or prior to the Closing, that Purchaser is expressly assuming pursuant to this Agreement; and (b) all liabilities of Seller and its Affiliates under the Contracts arising on or after the Closing Date. Section 4.02. Excluded Liabilities. The "Excluded Liabilities" are all liabilities or obligations not expressly included in the definition of Assumed Liabilities, it being agreed that Purchaser and Guarantor are not assuming any liability of Seller other than the Assumed Liabilities. Without limiting the foregoing, "Excluded Liabilities" include the following: (a) all liabilities and obligations for any Income Taxes arising from or related to the Business and the Purchased Assets in respect of any period (or portion thereof) ending on or before the Closing Date or arising from the payment to or receipt by Seller of the Transaction Consideration or any portion thereof; (b) all liabilities and obligations, whether presently in existence or arising after the Closing Date, relating to fees, commissions or expenses owed to any broker, finder, investment banker, accountant, attorney or other intermediary or advisor employed by Seller in connection with the Contemplated Transactions; (c) all liabilities and obligations in respect of accounts payable of the Business existing on the Closing Date; and (d) all liabilities and obligations, whether presently in existence or arising after the Closing Date, relating to or arising primarily out of Excluded Assets including any liability or obligation to any current or former employee or independent contractor of Seller. ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.01. Representations and Warranties of Purchaser and Guarantor. Each of Purchaser and Guarantor represents and warrants to Seller as of the date hereof and as of the Closing Date that: (a) Organization. Each of Purchaser and Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. As of the Closing Date, Purchaser will be duly qualified to do business in each jurisdiction where the character of its business (after giving effect to the Contemplated Transactions) make such qualifications necessary to carry on its business. -14- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) Power, Authority and Enforceability. Each of Purchaser and Guarantor has full corporate power and authority to enter into and perform the Transaction Documents and to consummate the Contemplated Transactions. The Transaction Documents have been or shall be duly executed and delivered by duly authorized signatories of each Purchaser and Guarantor, as the case may be. The Transaction Documents are valid and binding obligations of Purchaser and Guarantor, as the case may be, enforceable against each of Purchaser and Guarantor in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally. (c) Compliance With Law. Except for violations or infringements that have not had, or would not reasonably be expected to have, a Material Adverse Effect on Purchaser or the Business, as the case may be, Purchaser is and has been in compliance in all respects with any Applicable Law (statutory, judicial or otherwise), ordinances, regulations, judgments, orders, directives, injunctions, writs, decrees, or awards of any Governmental Authority. (d) Governmental Authorization. The execution, delivery and performance by Purchaser and Guarantor of the Transaction Documents requires no action by or in respect of, consents or approvals of, or filing with, any Governmental Authority other than (i) the notices to the FDA described in Sections 2.03(c) and 2.03(d), (ii) compliance with any applicable requirements of any Antitrust Laws (including the HSR Act), and (iii) the actions, consents, approvals, permits or filings expressly referred to in this Agreement. (e) No Violation. Neither the execution and delivery of the Transaction Documents nor the consummation by Purchaser and Guarantor of the Contemplated Transactions, will (i) conflict with or result in a breach of any of the terms, conditions or provisions of Purchaser's or Guarantor's certificate of incorporation or other governing or charter document, or of any statute or administrative regulation, or, to the best of their knowledge, of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award or any agreement binding upon Purchaser or Guarantor or their respective assets, (ii) assuming compliance with the matters set forth in Section 5.01(d), to the best of their knowledge, contravene or conflict with, or constitute a violation of, any provisions of any Applicable Law binding upon Purchaser or Guarantor, or (iii) assuming compliance with the matters set forth in Section 5.01(d), constitute a default under, or give rise to any right of termination, cancellation or acceleration of, or to a loss of any benefit to which Purchaser or Guarantor is entitled under any provision of any contract, agreement or other instrument of any license, franchise, permit or similar authorization held by Purchaser or Guarantor and which default would have a Material Adverse Effect on Purchaser, Guarantor or the Business. (f) No Default. Neither Purchaser nor Guarantor is a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Purchaser or Guarantor according to the terms of the Transaction Documents will be a default, or whereby timely performance by Purchaser and Guarantor according to the terms of any of the Transaction Documents may be prohibited, prevented or delayed and which in either case would have a Material Adverse Effect on Purchaser, Guarantor or the Business. -15- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (g) Litigation. There is no Proceeding pending or, to knowledge of Purchaser or Guarantor, threatened against Purchaser or Guarantor or any of their respective Affiliates before any court, arbitrator, administrative agency or other tribunal which (i) could reasonably be expected to have a Material Adverse Effect upon Purchaser or the Business, (ii) could reasonably be expected to prevent Purchaser or Guarantor from executing any Transaction Document or consummating the Contemplated Transactions, or (iii) could reasonably be expected to prevent or interfere with Seller's ability to obtain the Regulatory Approval. (h) Licenses and Permits. Subject to receipt of Regulatory Approval of the Product and compliance with the requirements of any Antitrust Laws (including the HSR Act), Purchaser has all licenses, franchises, permits and other similar authorizations affecting, or relating in any way to, the Business and the Product required by Applicable Law to be obtained by Purchaser to permit Purchaser to conduct the Business in the manner contemplated by the Transaction Documents and to market, promote, distribute, use, sell, or otherwise dispose of the Product after the Closing Date. (i) Inspections. Purchaser and Guarantor are informed and sophisticated participants in the Contemplated Transactions and have engaged expert advisors experienced in the evaluation and purchase of assets such as the Business and the license of intellectual property such as the Technology. Purchaser and Guarantor have undertaken an investigation, have been provided with, have evaluated and have relied upon certain documents and information, (including the Product IND and the Product NDA, each in its entirety) to assist Purchaser and Guarantor in making an informed and intelligent decision with respect to the execution of the Transaction Documents. Each of Purchaser and Guarantor shall undertake prior to Closing such further investigation and request such additional documents and information as each deems necessary. Each of Purchaser and Guarantor acknowledges that Seller makes no representation or warranty as to the prospects, financial or otherwise, of the Business or the sale of the Product, and that any projections, estimates or forecasts of future results or events provided by or on behalf of Seller are subject to uncertainty and to the assumptions used in their preparation. Purchaser agrees that it shall accept the Purchased Assets and the Assumed Liabilities as they exist on the Closing Date (or, if any of such Purchased Assets are transferred to Purchaser after the Closing Date pursuant to Section 2.03, on the date of such transfer) based on Purchaser's inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature, whether in writing, orally or otherwise, made by or on behalf of or imputed to Seller, except as expressly set forth in the Transaction Documents. Notwithstanding the foregoing, nothing herein shall in any way limit Purchaser's or Guarantor's ability to rely fully on the representations, warranties and agreements of Seller expressly contained in the Transaction Documents. (j) Financing. Each of Purchaser and Guarantor has available to it cash, marketable securities or other investments or available sources of credit to enable it to effectuate the Contemplated Transactions on the terms and conditions set forth in the Transaction Documents. (k) Finder's Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Purchaser or Guarantor -16- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. who might be entitled to any fee or commission from Seller upon effectuation of the Contemplated Transactions. (l) Regulatory Approval. Purchaser and Guarantor acknowledge that as of the date of this Agreement, no Regulatory Approval has been issued to permit the marketing, promotion, sale, distribution, use or other disposal of the Product by Purchaser, and further acknowledge the possibility that such Regulatory Approval may not be issued prior to or after the Closing Date. (m) Generic Drug Enforcement Act. Neither Purchaser, it Affiliates nor any of their respective officers, directors, employees, agents or consultants have been charged with or convicted under federal law for conduct relating to the development or approval of, or otherwise relating to the regulation of, any product under the Generic Drug Enforcement Act of 1992 or any other relevant statute, law or regulation. (n) Insurance. Schedule 5.01(n) contains a true and complete list of all product liability, comprehensive general liability and property casualty insurance policies maintained by Purchaser and/or Shire Ireland which will be maintained by Purchaser and/or Shire Ireland after the Closing Date in connection with the Business. Each of such policies is in full force and effect in the amounts indicated. Section 5.02. Representations and Warranties of Seller. Seller represents and warrants to Purchaser and Guarantor as of the date hereof and as of the Closing Date that: (a) Organization. Seller is a corporation duly organized, existing and in good standing under the laws of the State of Delaware. Seller has all necessary corporate power and authority to engage in the Business in the Territory as such business is now being conducted. (b) Power, Authority and Enforceability. Seller has full corporate power and authority to enter into and perform the Transaction Documents and to consummate the Contemplated Transactions. The Transaction Documents have been or shall be duly executed and delivered by duly authorized signatories of Seller. The Transaction Documents are valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally. (c) Compliance with Law. Except as set forth on Schedule 5.02(c) and except for violations or infringements that have not had, or would not reasonably be expected to have, a Material Adverse Effect on the Business or any of the Purchased Assets, Seller, and its operation of the Business, is and has been in compliance in all respects with any and all Applicable Law (statutory, judicial or otherwise), ordinances, regulations, judgments, orders, directives, injunctions, writs, decrees or awards of any Governmental Authority. (d) Governmental Authorization. The execution, delivery and performance by Seller of the Transaction Documents requires no action by or in respect of, consents or approvals -17- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. of, or filing with, any Governmental Authority other than (i) the notices to the FDA described in Sections 2.03(c) and 2.03(d), (ii) compliance with any applicable requirements of any Antitrust Laws (including the HSR Act), and (iii) the actions, consents, approvals, permits or filings set forth in Schedule 5.02(d) or otherwise expressly referred to in this Agreement. (e) No Violation. Except as set forth on Schedule 5.02(e), neither the execution and delivery of the Transaction Documents by Seller nor the consummation by Seller of the Contemplated Transactions will (i) conflict with or result in a breach of any of the terms, conditions or provisions of Seller's certificate of incorporation or bylaws, or of any statute or administrative regulation, or, to the best of its knowledge, of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award or any material agreement binding upon Seller or any of its Affiliates, (ii) assuming compliance with the matters set forth in Section 5.02(d), to the best of its knowledge, contravene or conflict with, or constitute a violation of, any provisions of any Applicable Law binding upon Seller or any of its Affiliates, or (iii) assuming compliance with the matters set forth in Section 5.02(d), constitute a default under, or give rise to any right of termination, cancellation or acceleration of, or to a loss of any benefit to which Seller or any of its Affiliates is entitled under any provision of any contract, agreement or other instrument or any license, franchise, permit or similar authorization held by Seller or any of its Affiliates and which default would have a Material Adverse Effect on Seller or the Business. (f) No Default. Neither Seller nor any of its Affiliates is a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Seller according to the terms of the Transaction Documents will be a default, or whereby timely performance by Seller according to the terms of any of the Transaction Documents may be prohibited, prevented or delayed and which default would have a Material Adverse Effect on Seller or the Business. (g) Litigation. Except as set forth on Schedule 5.02(g), there is no Proceeding pending or, to the knowledge of Seller, threatened against Seller or any of its Affiliates before any court, arbitrator, administrative agency or other tribunal which (i) could reasonably be expected to have a Material Adverse Effect on the Business, the Product or any of the Purchased Assets, (ii) could reasonably be expected to prevent Seller from executing any of the Transaction Documents or consummating the Contemplated Transactions or (iii) could reasonably be expected to prevent or interfere with Seller's ability to obtain the Regulatory Approval. (h) Absence of Certain Changes. Except (A) as disclosed in the Product IND or the Product NDA, or (B) as set forth in Schedule 5.02(h), from January 8, 2003 to the date of this Agreement there has not been: (i) any event or occurrence that has had a Material Adverse Effect on the Business, other than events or occurrences resulting from changes, whether actual or prospective, in general conditions applicable to the industries in which the Business is involved or general economic conditions; -18- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (ii) any damage, destruction or other casualty loss affecting the Business or any assets that would constitute Purchased Assets if owned, held or used by Seller on the Closing Date that has had a Material Adverse Effect on the Business; or (iii) any cancellation, compromise, waiver or release by Seller or, to the knowledge of Seller, by any third party, of any claim or right (or a series of related claims or rights) related to the Business, other than cancellations, compromises, waivers or releases in the ordinary course of business that, in the case of any cancellation compromise, waiver or release by any third party, has had a Material Adverse Effect on the Business. (i) Title to the Purchased Assets. Except as set forth in Schedule 5.02(i), Seller has good and marketable title to or, as the case may be, a valid contract right in the Purchased Assets, free and clear of any Liens (other than Permitted Liens). (j) Licenses and Permits. Except as set forth in Schedule 5.02(j) and subject to compliance with the requirements of any Antitrust Laws (including the HSR Act), Seller and its Affiliates have all licenses, franchises, permits and other similar authorizations affecting, or relating in any way to, the Business required by Applicable Law to be obtained by Seller and its Affiliates to permit Seller and its Affiliates to conduct the Business in substantially the same manner as the Business has heretofore been conducted and to consummate the Contemplated Transactions. (k) Finder's Fees. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Seller who might be entitled to any fee or commission from Purchaser or Guarantor upon consummation of the Contemplated Transactions. (l) Contracts. Seller has heretofore delivered to Purchaser a true and complete copy of the Contract listed on Schedule 3.01(a). Such Contract is in full force and effect as a legal, binding and enforceable obligation of Seller, and, to the knowledge of Seller, no event has occurred which constitutes or with the giving of notice or passage of time, or both, would constitute, a default thereunder by Seller or any other party thereto. Except as set forth in Schedule 3.01(a), no consent of any third party is required to assign the Contract to Purchaser. (m) Insurance. Schedule 5.02(m) contains a true and complete list of all product liability, comprehensive general liability and property casualty insurance policies maintained by Seller in connection with the Business. Each of such policies is in full force and effect in the amounts indicated. (n) Manufacturing Facility. The Manufacturing Facility is in substantial compliance with all Regulatory Standards and, to the knowledge of Seller, there are no pending uncorrected citations or adverse conditions affecting the Manufacturing Facility that would have a Material Adverse Effect on the Business. -19- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (o) Intellectual Property. To the extent set forth in the License Agreement, except as set forth in Schedule 5.02(o), (i) Seller has the right to grant to Purchaser the rights granted under the License Agreement (other than rights contemplated by the FDC Act as to which Seller makes no representation) unencumbered by any Liens (other than Permitted Liens), (ii) to the knowledge of Seller, Seller has not received any written notice alleging any infringement by Seller of any intellectual property rights of another Person in respect of the Product or the Noven Patents, (iii) to the knowledge of Seller, the Noven Patents are valid and enforceable and Seller has no knowledge of any infringement by a third party of any of the claims in the Noven Patents, (iv) to the knowledge of Seller, making, having made, using or selling the Product does not infringe any patent or other rights of any third party, and (v) the rights granted to Purchaser under the License Agreement do not conflict with rights granted by Seller to any other Person. Notwithstanding the foregoing, the parties acknowledge and understand that, as of the Closing Date, (x) Seller does not have approval from the FDA or any other Regulatory Authority to market, offer to sell or sell the Product, (y) the Product has not been established by the FDA or any other Regulatory Authority as safe or effective, and (z) Purchaser is not authorized by Seller or Applicable Law to represent that the Product has been approved for sale or is safe or effective. To the knowledge of Seller, except for rights contemplated by the FDC Act as to which Seller makes no representation, the Technology represents all data, information (whether proprietary to Seller or not), technology, know-how, processes, methods, skills, trade secrets, developments, discoveries and inventions, including patents, necessary to manufacture the Product. Section 5.03. Knowledge. Where a representation or warranty contained in this Article V is stated to be to a party's knowledge, this knowledge shall mean to the actual knowledge of the party's executive officers and shall be deemed as a representation that a reasonable inquiry or investigation of the subject matter thereof has been made of such individuals and shall thus include matters that a prudent individual could reasonably be expected to discover or otherwise become aware of during the course of such inquiry or investigation; it being understood and agreed by Purchaser that, with respect to the representations and warranties set forth in Section 5.02(o), a reasonable inquiry or investigation shall not require and shall not include requesting or obtaining a non-infringement opinion in respect of the Product. ARTICLE VI COVENANTS AND AGREEMENTS OF SELLER Section 6.01. Conduct of Business. Except (i) with the written consent of Purchaser (which consent shall not be unreasonably withheld or delayed), (ii) as set forth in Schedule 6.01, (iii) as permitted below or required by Applicable Law, or (iv) in accordance with the terms and conditions of Contracts in existence on the date of this Agreement, from the date of this Agreement until the Closing Date, Seller shall: (a) conduct the Business only in accordance with its usual, regular and ordinary course of business in substantially the same manner as conducted prior to the date hereof; -20- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) use reasonable commercial efforts to diligently pursue receipt of Regulatory Approval pending the Closing; (c) maintain the Contracts in full force and effect, and comply with all material obligations under the Contracts and not amend or terminate any Contract; and (d) subject to the limitations set forth in Section 6.02, allow Purchaser and its representatives access to the books, records, and employees of Seller at all times reasonably requested by Purchaser to verify Seller's compliance with the foregoing obligations. Section 6.02. Access to Information; Cooperation After Closing Date. Except as may be necessary to comply with any Applicable Laws and subject to any applicable privileges (including the attorney-client privilege), from the date of this Agreement until the Closing Date, and from and after the Closing Date, Seller shall, at Purchaser's expense (a) afford Purchaser and its representatives reasonable access upon reasonable prior notice during normal business hours to all employees, offices, properties, agreements, records, books and affairs of Seller and provide copies of such information concerning the Business as Purchaser may reasonably request for any proper purpose, (b) instruct the employees and representatives of Seller to provide reasonable cooperation to Purchaser in its investigation of the Business prior to the Closing, and (c) cooperate fully with Purchaser with respect to matters relating to the conduct of the Business prior to the Closing, including in the defense or pursuit of any Purchased Asset, Assumed Liability or Indemnified Claim, or any claim, allegation or action that relates to occurrences involving a Purchased Asset, Assumed Liability, Indemnified Claim or the Business prior to the Closing; provided, that Purchaser shall reimburse Seller for any out-of-pocket expenses incurred by Seller in connection with any such defense, claim or action. Notwithstanding the foregoing, neither Purchaser nor its representatives shall have access to (i) any records or data of Seller related to Seller's costs of manufacturing any product including the Product (except as otherwise expressly provided in the Toll Conversion and Supply Agreement) or Seller's pricing policies or price lists or (ii) personnel records of Seller relating to individual performance or evaluation records, medical histories or records or other information that in Seller's good faith opinion is sensitive or the disclosure of which could subject any Seller to risk of liability. Section 6.03. Maintenance of Insurance Policies. Except for the replacement of existing insurance policies with substantially similar policies upon expiration of existing policies, on and after the date of this Agreement and until the Closing Date, Seller shall not take or fail to take any action if such action or inaction, as the case may be, would adversely affect the applicability of any insurance (including reinsurance) maintained by Seller and in effect on the date of this Agreement that covers all or any part of the assets that would constitute Purchased Assets (if owned, held or used by Seller on the Closing Date), or the Business. Seller shall not have any obligation to maintain the effectiveness of any such insurance policy after the Closing Date or to make any monetary payment in connection with any such policy for any period after the Closing Date. -21- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE VII COVENANTS AND AGREEMENTS OF PURCHASER Section 7.01. Cooperation After Closing Date. Except as may be necessary to comply with any Applicable Law and any applicable privileges (including the attorney-client privilege), on and after the Closing Date, Purchaser shall, at Seller's expense, (a) afford Seller and its representatives reasonable access upon reasonable prior notice during normal business hours, to all employees, offices, properties, agreements, records, books and affairs of Purchaser and provide copies of such information concerning the Business as Seller may reasonably request for any proper purpose, including in connection with (i) the preparation of any Tax Returns, (ii) any judicial, quasi-judicial, administrative, Tax, audit or arbitration proceeding, (iii) the preparation of any financial statements or reports, and (iv) the defense or pursuit of any claims, allegations or actions that relate to or may relate to any Excluded Assets, Excluded Liabilities or Indemnified Claims; provided, that Seller may review Purchaser's books and records concerning, and conduct an investigation into, Annual Net Sales only pursuant to and during the times permitted by Section 2.07(c), and (b) cooperate fully with Seller with respect to the defense or pursuit of any Excluded Liability, Excluded Asset or Indemnified Claim, or of any claim, allegation or action that relates to occurrences involving an Excluded Liability, Excluded Asset, Indemnified Claim or the Business after the Closing; provided, that Seller shall reimburse Purchaser for any out-of-pocket expenses incurred by Purchaser in connection with any such defense, claim or action. Section 7.02. Insurance. Purchaser acknowledges and agrees that from and after the Closing Date, neither Purchaser, the Business, any property owned or leased by any of the foregoing, nor the Purchased Assets shall be insured under any insurance policies maintained by Seller, except (a) in the case of a claims made policy, to the extent a claim has been reported prior to the Closing Date, and (b) in the case of a policy that is an occurrence policy, to the extent the accident, event or occurrence that results in an insurable loss occurs prior to the Closing Date and has been or will be noticed to the respective carrier in accordance with the requirements of such policy. Section 7.03. Certain Intellectual Property Matters. Purchaser hereby acknowledges and agrees that except as otherwise specifically contemplated by the License Agreement, Purchaser is not obtaining any rights in or to use any Intellectual Property owned, licensed or otherwise used by Seller, and Purchaser is not obtaining any rights in or licenses with respect to the name "Noven" or any derivative thereof. Purchaser further acknowledges and agrees that except as expressly contemplated herein, Purchaser shall not use any trademark, logo or trade name of Seller or any trademarks, logos or trade names that are confusingly similar thereto or that are a translation or transliteration thereof into any language or alphabet. To the knowledge of Purchaser, no artwork or labeling related to the Product shall violate or infringe any patent, copyright or trademark laws or rights of any third party. Section 7.04. Purchaser Guaranty. As a material inducement for Seller to enter into this Agreement and the other Transaction Documents and to consummate the Contemplated Transactions, Purchaser shall execute and deliver to and for the benefit of Seller the Purchaser Guaranty for the purpose of guaranteeing the performance by Shire Ireland of all of its duties and obligations under the Transaction Documents to which it is a party. -22- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE VIII COVENANTS AND AGREEMENTS OF THE PARTIES Section 8.01. Confidentiality. (a) Pursuant to the terms of this Agreement, each party (in such capacity, the "Disclosing Party"), has disclosed and will be disclosing to the other parties and/or their Affiliates or representatives (in such capacity, the "Receiving Party"), certain Confidential Information of the Disclosing Party. The Receiving Party shall make no use of such Confidential Information except in the exercise of its rights and the performance of its obligations set forth in this Agreement. The Receiving Party shall use the same efforts to keep secret, and prevent the disclosure to third parties of, Confidential Information of the Disclosing Party as it would use with respect to its own Confidential Information. Confidential Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted herein. The above restrictions on the use and disclosure of Confidential Information shall not apply to any information which (i) is already known to the Receiving Party at the time of disclosure by the Disclosing Party, as demonstrated by competent proof, (ii) is or becomes generally available to the public other than through any act or omission of the Receiving Party in breach of this Agreement, (iii) is acquired by the Receiving Party from a third party who is not, directly or indirectly, under an obligation of confidentiality to the Disclosing Party with respect to same, or (iv) is developed independently by the Receiving Party without use, direct or indirect, of information that is required to be held confidential hereunder. (b) In the event the Receiving Party is required (i) by Applicable Law to disclose Confidential Information of the Disclosing Party to any Regulatory Authorities to obtain Regulatory Approval for the Product or to comply with the requirement of any Regulatory Authority, (ii) to disclose Confidential Information of the Disclosing Party to respond to an inquiry of a Regulatory Authority or Governmental Authority concerning the Product, or (iii) to disclose Confidential Information of the Disclosing Party in a judicial, administrative or arbitration proceeding to enforce such party's rights under this Agreement, it may do so only if it (A) provides the Disclosing Party with as much advance written notice as possible of the required disclosure, (B) cooperates with the Disclosing Party in any attempt to prevent or limit the disclosure, and (C) limits disclosure, if any, to the specific purpose at issue. (c) Notwithstanding the provisions of this Section 8.01: (i) Purchaser shall be permitted to disclose to its distributors, wholesalers and other direct customers such Confidential Information relating to the Product as Purchaser shall reasonably determine to be necessary or useful in order to effectively market and distribute the Product; (ii) Seller shall be permitted to disclose such Confidential Information relating to the Product as Seller shall reasonably determine to be necessary or useful in order to effectively perform its obligations under the Toll Conversion and Supply Agreement; -23- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (iii) Seller shall be permitted to disclose such Confidential Information relating to the Product as it shall reasonably determine to be necessary or useful in order to pursue or obtain any regulatory approvals in respect of any other transdermal drug delivery products; (iv) each of Seller and Purchaser shall be permitted to disclose to a Regulatory Authority such Confidential Information relating to the Product as it shall reasonably determine (but only after consulting with the other party to the extent practicable) to be necessary to comply with the provisions of Applicable Law; and (v) nothing in this Section 8.01 shall be interpreted to limit the ability of either Seller or Purchaser to disclose its own Confidential Information to the other party or any other Person on such terms and subject to such conditions as it deems advisable or appropriate; provided, however, that in each such case any third party recipients of any Confidential Information (other than a Regulatory Authority or other Governmental Authority) undertake substantially the same confidentiality obligation as the parties hereunder with respect to such Confidential Information. (d) The parties agree that, with effect from the date of this Agreement, the terms of this Section 8.01 shall supersede and replace the confidentiality obligations of the parties under the letter of intent between Seller and Purchaser dated as of January 8, 2003, which agreement is hereby terminated and of no further force or effect. (e) Each of Seller and Purchaser acknowledge and agree that the terms and conditions of this Agreement shall be considered Confidential Information of each party and shall be treated accordingly. Notwithstanding the foregoing, Purchaser acknowledges and agrees that Seller may be required to disclose some or all of the information included in this Agreement in order to comply with its obligations under the Securities Laws, and hereby consents to such disclosure to the extent deemed advisable or appropriate by counsel to Seller (but only after consulting with Purchaser to the extent practicable). (f) Each party specifically recognizes that any breach by it of this Section 8.01 may cause irreparable injury to the other party and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), each party agrees that in the event of any such breach, notwithstanding the provisions of Section 13.02 or Article XII hereof, the other party shall be entitled to seek, by way of private litigation in the first instance, injunctive relief and such other legal and equitable remedies as may be available. Section 8.02. Press Releases. Prior to the Closing, no party shall issue any publicity, news or press release or make any public statement, written or oral, with respect to this Agreement, any of the Contemplated Transactions or to the existence of an arrangement among the parties without the prior written approval of the other parties or except as may be required by -24- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Applicable Law or any listing agreement with any national securities exchange, in which case no party shall issue any such press release or make any such public statement without prior consultation with the other parties and without complying with Applicable Law; provided, however, that each of Seller and Purchaser hereby agree to the release by the other, on or after the date of this Agreement, of a press release substantially in the forms attached hereto as Attachment IX and Attachment X, respectively. Notwithstanding the foregoing, no provision of this Agreement shall relieve any of the parties of their respective obligations under Section 8.01. Section 8.03. Additional Formulations and Improvements. (a) ***. (b) ***. (c) ***. Section 8.04. Tax Matters. All transfer Taxes and similar fees and governmental charges and all sales, use and similar Taxes and governmental charges resulting from or relating to the transfer of the Purchased Assets to Purchaser by Seller or resulting from or relating to the Contemplated Transactions, shall be shared equally by Seller and Purchaser. The parties will cooperate to minimize all such sales, transfer and/or use Taxes, recording fees and personal property title application fees. Section 8.05. Further Assurances. The parties shall execute such further documents, and perform such further acts as may be reasonably necessary to transfer and convey the Purchased Assets to Purchaser on the terms herein contained, and to otherwise comply with the terms of this Agreement and to consummate the Contemplated Transactions, including providing information reasonably requested by other Persons necessary for such Persons to evaluate whether to consent to the assignment of any Contracts or related rights or obligations. Seller and Purchaser shall execute and deliver, as appropriate or required and as the case may be, such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable to consummate or implement the Contemplated Transactions. Except as otherwise expressly set forth in the Transaction Documents, nothing in this Section 8.05 or elsewhere in the Transaction Documents shall require any of Seller, Purchaser or any of their respective Affiliates to make any payments or issue any guarantee in order to obtain any consents or approvals necessary or desirable in connection with the consummation of the Contemplated Transactions. Section 8.06. Certain Filings; Consents. Seller and Purchaser shall cooperate with each other (a) in determining whether any action by or in respect of, or filing with, any Governmental Authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any Contracts, in connection with the consummation of the Contemplated Transactions, and (b) subject to the terms and conditions of this Agreement, in taking any such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. -25- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 8.07. Antitrust Laws. Seller and Purchaser shall make the filings required under the HSR Act and any other Antitrust Laws on or before the third day following the date of this Agreement (or, if such third day is not a Business Day, on the first Business Day thereafter). Seller and Purchaser shall also comply at the earliest practicable date with any request for additional information, documents, or other materials received from the Federal Trade Commission or the Department of Justice or any other Governmental Authority, including international competition authorities. Purchaser shall use all reasonable commercial efforts to resolve objections, if any, that may be asserted by any Governmental Authority with respect to the Contemplated Transactions under any Antitrust Laws, including the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, and the Federal Trade Commission Act, as amended. If any judicial or administrative action or proceeding is initiated (or threatened to be initiated) challenging the Contemplated Transactions as violative of any Antitrust Law or any other Applicable Law and Seller desires to oppose any such action or proceeding, the parties shall each cooperate to contest and resist any such action or proceeding, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction, ruling, decision, finding or other order (whether temporary, preliminary, or permanent) until such time as a final, non-appealable order has been entered. ARTICLE IX REGULATORY MATTERS Section 9.01. Regulatory Responsibility. Following the transfer of the Regulatory Application and the Regulatory and Clinical Materials pursuant to this Agreement, and except as otherwise contemplated in Section 4.02, Section 9.02 or in any of the Transaction Documents, Purchaser shall be solely responsible for maintaining the Regulatory Application and obtaining all further regulatory approvals regarding the Product, as well as all ongoing regulatory compliance relating to the Product. For a period of up to one year after the date of the transfer of the Regulatory Application and Regulatory and Clinical Materials, Seller shall reasonably assist Purchaser by providing information regarding the regulatory compliance activities performed by Seller prior to such transfer in order to ensure an orderly transition of regulatory responsibilities regarding the Business. Notwithstanding anything to the contrary herein, Purchaser hereby covenants and agrees that neither it nor any of its Affiliates or representatives shall amend, supplement or otherwise modify the Product IND or the Product NDA in any manner, including for the purpose of obtaining regulatory approval for improvements upon and additional formulations of the Product, without the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed. Section 9.02. Regulatory Procedures. (a) In the event the Regulatory Approval has not been issued prior to the Closing Date, Seller and Purchaser shall cooperate in good faith after the Closing Date to obtain Regulatory Approval of the Product. Except as otherwise provided herein, Seller shall use reasonable commercial efforts to diligently pursue receipt of Regulatory Approval. (b) Notwithstanding anything to the contrary in this Article IX: -26- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (i) If at any time after the date of this Agreement and prior to the Closing Date the FDA shall request that a Product Study be conducted, Seller shall have the option to assume exclusive control of such Product Study; provided, that (A) if such Product Study shall be required to be completed prior to Regulatory Approval and as a prerequisite to such Regulatory Approval, and if Seller shall not have assumed control of such Product Study as of the Closing Date, the provisions of subsection (ii) below shall apply from and after the Closing Date, and (B) if such Product Study shall be required to be either (1) commenced prior to the date of Regulatory Approval but may be completed after the date of Regulatory Approval and the completion is not a prerequisite to Regulatory Approval, or (2) commenced and completed after the date of Regulatory Approval, then, and in either case, the provisions of subsection (iii) below shall apply from and after the Closing Date. (ii) If at any time after the Closing Date and prior to receipt by Seller of Regulatory Approval, the FDA shall request that a Product Study be conducted, and such Product Study shall be required to be completed prior to Regulatory Approval and as a prerequisite to such Regulatory Approval, Seller shall have the option to assume exclusive control of such Product Study and to conduct such Product Study in its discretion and at its expense by providing notice of such election to Purchaser within 60 days of the date of any such request for a Product Study. In the event that Seller shall refuse to conduct any such Product Study within such 60-day period (whether by written notice to Purchaser of such refusal or by lapse of such 60-day period), Purchaser shall have the option to assume exclusive control of such Product Study and conduct such Product Study in its discretion and at its expense by providing notice to Seller of its election within 60 days from the date of Seller's refusal. In the event Purchaser shall so elect to conduct any such Product Study within such 60-day period, Seller shall transfer to Purchaser the Regulatory Application and any Regulatory and Clinical Materials, to the extent and only to the extent necessary to permit Purchaser to conduct such Product Study. In the event Purchaser shall refuse to conduct any such Product Study (whether by written notice to Seller of such refusal or by lapse of such 60-day period), Seller shall have the option to (A) conduct such Product Study in its discretion and at its expense notwithstanding its prior refusal, or (B) within two years from the date of such request for a Product Study, repurchase from Purchaser all of the Purchased Assets transferred hereunder and terminate the license to the Technology granted to Purchaser under the License Agreement, for an aggregate consideration of *** and on other terms and conditions to be negotiated by Seller and Purchaser in good faith; provided, that nothing in this Section 9.02(b)(ii) shall require Seller to (x) exercise either of the options contemplated in subsections (A) or (B) of this sentence, or (y) take or refrain from taking any action in response to Purchaser's refusal to conduct such Product Study. (iii) If at any time after the Closing Date and prior to receipt by Seller of Regulatory Approval the FDA shall request that a Product Study be conducted, and such Product Study shall be required to be either (A) commenced prior to the date of Regulatory Approval, but may be completed after the date of Regulatory Approval and the completion is not a prerequisite to Regulatory Approval, or (B) commenced and completed after Regulatory Approval, then, and in either case, Purchaser shall assume -27- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. exclusive control of such Product Study and conduct such Product Study in its discretion and at its expense. In such event, Seller shall transfer to Purchaser the Regulatory Application and any Regulatory and Clinical Materials, to the extent and only to the extent necessary to permit Purchaser to conduct such Product Study. (c) If (i) at any time after the Closing Date Seller or Purchaser shall receive a Non-Approval Notice, or (ii) Regulatory Approval shall not have been obtained by the second anniversary of the Closing Date, then in either case, Purchaser shall have the right to demand that Seller repurchase from Purchaser all of the Purchased Assets transferred hereunder and terminate the license to the Technology granted to Purchaser under the License Agreement, for an aggregate consideration of US$5,000,000 and on other terms and conditions to be negotiated by Seller and Purchaser in good faith; provided, that Purchaser shall provide written notice of such demand within 90 days of the issuance of such Non-Approval Notice or the second anniversary of the Closing Date, as the case may be. ARTICLE X CONDITIONS TO CLOSING Section 10.01. Conditions to Obligations of Each Party. The obligations of Seller, Purchaser and Guarantor to consummate the Closing are subject to the satisfaction (or waiver by each of Seller, Purchaser and Guarantor) of the following conditions: (a) any applicable waiting period (and any extension thereof) under the HSR Act relating to the Contemplated Transactions shall have expired or been terminated, and there shall not be (i) any Proceeding pending in which a United States Governmental Authority is seeking to enjoin the Contemplated Transactions, or (ii) a final, nonappealable order entered by a United States Governmental Authority that enjoins or otherwise prohibits the Contemplated Transactions; (b) no provision of any United States Applicable Law and no judgment, injunction, order or decree shall prohibit the Closing; (c) no Proceeding shall be pending or threatened in writing before any court or other United States Governmental Authority that seeks to prohibit the Closing, or impose damages or obtain other relief in connection with the Contemplated Transactions that (i) is brought by any United States Governmental Authority having jurisdiction in respect thereof, or (ii) is brought by any Person (other than a Governmental Authority) if in the case of this clause (ii) such Proceeding reasonably could be expected to prohibit the Closing or result in a Material Adverse Effect on the Business; and (d) all actions by or in respect of, or filings with, any United States Governmental Authority required to permit the consummation of the Closing shall have been taken or made. -28- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 10.02. Conditions to Obligation of Purchaser and Guarantor. The obligations of Purchaser and Guarantor to consummate the Closing are subject to the satisfaction (or waiver by Purchaser or Guarantor) of the following further conditions: (a) (i) Seller shall have performed in all material respects all of its obligations under this Agreement required to be performed by it at or prior to Closing, (ii) the representations and warranties of Seller contained herein shall be true and correct at and as of the date of this Agreement and as of the Closing Date, as if made at and as of each such date, except that those representations and warranties that by their express terms are made as of a specific date shall be required to be true and correct only as of such date, in each case except for inaccuracies that could not reasonably be expected to have a Material Adverse Effect on the Business, and (iii) Purchaser shall have received a certificate signed by an officer of Seller to the foregoing effect; (b) since the date of this Agreement, no event shall have occurred that has had a Material Adverse Effect on the Business, other than those resulting from changes, whether actual or prospective, in general conditions applicable to the industries in which the Business is involved or general economic conditions; and (c) Seller shall have executed and delivered, on or before the Closing Date, the Transaction Documents. Section 10.03. Conditions to Obligation of Seller. The obligation of Seller to consummate the Closing is subject to the satisfaction (or waiver by Seller) of the following further conditions: (a) (i) each of Purchaser and Guarantor shall have performed in all material respects all of their respective obligations under this Agreement required to be performed by them at or prior to Closing, (ii) the representations and warranties of Purchaser and Guarantor contained herein shall be true and correct at and as of the date of this Agreement and as of the Closing Date, as if made at and as of each such date, except that those representations and warranties that by their express terms are made as of a specific date shall be required to be true and correct only as of such date, in each case except for inaccuracies that could not reasonably be expected to have a Material Adverse Effect on Purchaser, Guarantor or the Business, and (iii) Seller shall have received certificates signed by an officer of each of Purchaser and Guarantor to the foregoing effect; and (b) Purchaser shall have executed and delivered, on or before the Closing Date, the Transaction Documents. Section 10.04. Updated Disclosure Schedules. At any time prior to the Closing, Seller shall be entitled to deliver to Purchaser and Guarantor updates to, or substitutions of, the Disclosure Schedules; provided, that such updates or substitutions are clearly marked as such and are addressed to Purchaser and Guarantor at their respective addresses listed in Section 13.01. In the event that Seller delivers updated or substitute Disclosure Schedules within three days of any scheduled Closing Date, Purchaser and Guarantor shall be entitled to extend, by written notice to Seller, the scheduled Closing Date to the third day after receipt of the updated or substitute Disclosure Schedules, or if such day is not a Business Day, to the next Business Day. The delivery by Seller of updated or substitute -29- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Disclosure Schedules shall not prejudice any rights of Purchaser or Guarantor under this Agreement, including the right to claim that the representations and warranties of Seller, when made on the date of this Agreement, were untrue. Notwithstanding the foregoing, in the event Seller delivers updated or substituted Disclosure Schedules, and as a result of such updated or substituted Disclosure Schedules the closing condition set forth in Section 10.02(a)(ii) is not satisfied, Purchaser shall have the right to terminate this Agreement by written notice to Seller within three days after delivery of such updated or substituted Disclosure Schedules (or if such day is not a Business Day, on the next Business Day); provided, that unless any representation or warranty of Seller updated by such updated or substituted Disclosure Schedules shall have been untrue when made on the date of this Agreement, neither Purchaser nor Guarantor shall have any claim for Damages or any other remedy against Seller arising out of such representations and warranties other than the right to terminate this Agreement pursuant to this Section 10.04; and provided further, that if Purchaser and Guarantor shall consummate the Closing notwithstanding the condition to closing set forth in Section 10.02(a)(ii), the updated or substitute Disclosure Schedules shall replace, in whole or in part as the case may be, the Disclosure Schedules previously delivered hereunder for all purposes. Section 10.05. Effect of Waiver. Any waiver by Purchaser of the conditions specified in 10.02(a)(ii), and any waiver by Seller of the conditions specified in Section 10.03(a)(ii), if made knowingly, shall also be deemed a waiver of any claim for Damages arising out of, resulting from or related to the matters waived. ARTICLE XI SURVIVAL; INDEMNIFICATION Section 11.01. Survival of Provisions. (a) The rights of the respective parties to make a claim for breach of any of the representations or warranties made in this Agreement shall survive the Closing Date and remain in full force and effect for a period of *** thereafter, except that the representations and warranties contained in Sections 5.01(a), 5.01(b), 5.02(a), 5.02(b) and 5.02(i) shall survive indefinitely. (b) The rights of the respective parties to make a claim for breach of any of the covenants, agreements, duties or obligations set forth in this Agreement that, by their terms, are to have effect after the Closing Date shall survive the Closing Date and remain in full force and effect for the period contemplated thereby until such covenants, agreements, duties and obligations have been fully performed in accordance with their respective terms, or if no period is so contemplated, indefinitely. Section 11.02. Indemnification. In order to distribute among themselves the responsibility for claims arising out of this Agreement, and except as otherwise specifically provided for herein, from and after the Closing Date, the parties shall indemnify each other as provided in this Section 11.02. -30- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (a) Indemnification Obligations of Purchaser. From and after the Closing Date, Purchaser shall defend, indemnify and hold Seller, its Affiliates, and each of their respective officers, directors, agents, employees and shareholders (collectively, "Seller Indemnitees"), harmless from and against any and all Damages which Seller Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the storage, handling, use, marketing, advertising, promotion, distribution or sale of the Product by Purchaser and/or its Affiliates, sublicensees, distributors or agents in the Territory, the conduct of the Business by Purchaser and/or its Affiliates, sublicensees, distributors or agents in the Territory or Purchaser's ownership or use of the Purchased Assets, in each case on and after the Closing Date, including (A) liabilities for product liability and returned goods, (B) liabilities in respect of product warranty obligations or services and any returned Product sold, (C) governmental and nongovernmental chargebacks, rebates or discounts with respect to the Product, and (D) liabilities relating to errors and omissions or claims of design and other defects with respect to any Product sold, including any clinical and non-clinical trials conducted on or after the Closing Date by Purchaser; (ii) the breach by Purchaser or Guarantor of this Agreement including (A) any material inaccuracy in or material breach of any representation or warranty made by Purchaser or Guarantor in this Agreement; provided, however, that (1) Purchaser shall not have any liability under this Section 11.02(a)(ii)(A) unless and until, and then only to the extent, the aggregate, cumulative amount of such Damages exceeds *** (the "Indemnity Deductible Amount"), and (2) in no event shall the aggregate, cumulative liability of Purchaser for Damages under this Section 11.02(a)(ii)(A) exceed ***; and provided further that Purchaser shall only have liability under this Section 11.02(a)(ii)(A) to the extent a Seller Indemnitee provides written notice to Purchaser of its claim for indemnification within the applicable period of limitations contemplated in Section 11.01(a), and (B) any material breach by Purchaser of, or material failure by Purchaser or Guarantor to comply with, any of their covenants or obligations pursuant to this Agreement, including those covenants and obligations which are a part of Purchaser's responsibility for the Assumed Liabilities; (iii) the enforcement by Seller Indemnitees of their rights under this Section 11.02(a); (iv) Purchaser's material violation of any Applicable Law; and (v) arising out of or related in any way to the Assumed Liabilities (including Purchaser's failure to perform or in the due course pay and discharge any Assumed Liability); provided, however, that, in each such case, Purchaser shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or a violation of any Applicable Law by, Seller, its Affiliates, agents, employees or contractors, or from the breach by Seller of the provisions of any of the Transaction Documents. -31- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) Indemnification Obligations of Seller. From and after the Closing Date, Seller shall defend, indemnify and hold Purchaser, its Affiliates, and each of their respective officers, directors, agents, employees, shareholders or members (collectively, "Purchaser Indemnitees"), harmless from and against any and all Damages which Purchaser Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the storage, handling, use, marketing, advertising, promotion, distribution or sale of the Product by Seller and/or its Affiliates, sublicensees, distributors or agents in the Territory, the conduct of the Business by Seller and/or its Affiliates, sublicensees, distributors or agents in the Territory, or Seller's ownership or use of the Purchased Assets, in each case, prior to the Closing Date, excluding all Assumed Liabilities, and on and after the date of a repurchase contemplated by Section 9.02(b)(ii) or 9.02(c); (ii) the breach by Seller of this Agreement including (A) any material inaccuracy in or material breach of any representation or warranty made by Seller in this Agreement; provided, however, that (1) Seller shall not have any liability under this Section 11.02(b)(ii)(A) unless and until, and then only to the extent, the aggregate, cumulative amount of such Damages exceeds the Indemnity Deductible Amount, and (2) in no event shall the aggregate, cumulative liability of Seller for Damages under this Section 11.02(b)(ii)(A) exceed the Seller Indemnity Cap Amount; and provided further that Seller shall only have liability under this Section 11.02(b)(ii)(A) to the extent a Purchaser Indemnitee provides written notice to Seller of its claim for indemnification within the applicable period of limitations contemplated in Section 11.01(a), and (B) any material breach by Seller of, or material failure by Seller to comply with, any of its covenants or obligations pursuant to this Agreement; (iii) the enforcement by Purchaser Indemnitees of their rights under this Section 11.02(b); (iv) Seller's material violation of any Applicable Law; and (v) arising out of or in any way related to the Excluded Liabilities; provided, however, that (x) in each such case, Seller shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or violation of Applicable Law by, Purchaser, its Affiliates, agents, employees or contractors, or from the breach by Purchaser of the provisions of any of the Transaction Documents, ***. (c) Procedure. If any Proceeding arises as to which a right of indemnification provided in this Article XI applies, the Person seeking indemnification (the "Indemnified Party"), shall within 20 days notify the party obligated under this Article XI to indemnify the Indemnified Party (the "Indemnifying Party"), thereof in writing, except to the extent that such failure to notify within 20 days does not prejudice the Indemnifying Party's ability to defend or contest any such Proceeding, and allow the Indemnifying Party and its insurers the opportunity to assume direction and control of the defense against such Proceeding, at its sole expense, including the -32- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. settlement thereof at the sole option of the Indemnifying Party or its insurers; provided, however, that the Indemnifying Party may not enter into any compromise or settlement without the prior written consent of the Indemnified Party unless such compromise or settlement includes as an unconditional term thereof the giving by each plaintiff or claimant to the Indemnified Party of a release from all liability in respect of such claim and only if such compromise or settlement does not include any admission of legal wrongdoing on the part of the Indemnified Party. The Indemnified Party shall fully cooperate with the Indemnifying Party and its insurer in the disposition of any such matter and the Indemnified Party will have the right and option to participate in (but not control) the defense of any Proceeding as to which this Article XI applies, with separate counsel at its election and cost. If the Indemnifying Party fails or declines to assume the defense of any such Proceeding within 30 days after notice thereof, the Indemnified Party may assume the defense thereof for the account and at the risk of the Indemnifying Party. The Indemnifying Party shall pay promptly to the Indemnified Party any Damages to which the indemnity under this Article XI applies, as incurred. Section 11.03. Certain Limitations. (a) Except as otherwise provided in Section 8.01(f), the sole and exclusive remedy with respect to any breach of any representation, warranty, covenant or agreement contained herein and for the other matters described in Sections 11.02(a) and 11.02(b) (other than (i) with respect to a breach of the terms of a covenant or agreement, as to which Purchaser or Seller, as the case may be, also shall be entitled to seek specific performance or other equitable relief and (ii) with respect to claims for fraud) shall be a claim for Damages (whether by contract, in tort or otherwise, and whether in law, in equity or both) made pursuant to this Article XI. No party shall be entitled to recover any punitive, incidental or consequential damages whatsoever under this Article XI except to the extent any such punitive, incidental or consequential damages shall be payable to a third party. (b) Notwithstanding anything to the contrary contained herein, although a party may be entitled to make a claim for indemnification pursuant to more than one section of this Article XI, a party shall not be entitled to recover indemnification for the same claim under more than one section of this Article XI. ARTICLE XII TERMINATION Section 12.01. Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written agreement of Seller and Purchaser; (b) by Seller or Purchaser if the Closing shall not have been consummated by April 15, 2003 (as such date may be extended pursuant to this clause (b), the "Voluntary Termination Date"); provided, however, that neither Seller nor Purchaser may terminate this Agreement pursuant to this clause (b) if the Closing shall not have been consummated by the Voluntary Termination Date by reason of the failure of such party or any of its Affiliates to -33- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. perform in all material respects any of its or their respective covenants or agreements contained in this Agreement; and provided further, that if the only reason the Closing shall not have occurred on or prior to April 15, 2003 is that the condition set forth in Section 10.01(a) has not been satisfied by such date, neither Seller nor Buyer may unilaterally terminate this Agreement until May 31, 2003; (c) by either Seller or Purchaser if there shall be any United States Applicable Law that makes consummation of the Contemplated Transactions illegal or otherwise prohibited or if consummation of the Contemplated Transactions would violate any nonappealable final order, decree or judgment of any United States Governmental Authority having competent jurisdiction over such Person; or (d) by Purchaser pursuant to Section 10.04. Any party desiring to terminate this Agreement pursuant to this Section 12.01 shall give written notice of such termination to the other parties to this Agreement. Section 12.02. Effect of Termination. If this Agreement is terminated as permitted by Section 12.01, (a) this Agreement shall forthwith become void and of no further force or effect, except for the following provisions, which shall remain in full force and effect: (i) the representations and warranties set forth in Sections 5.01(k) and 5.02(k) (Finder's Fees), (ii) Section 8.01 (Confidentiality), (iii) Section 8.02 (Press Releases), (iv) Section 8.04 (Tax Matters), (v) this Section 12.02, (vi) Section 13.10 (Governing Law), (vii) Section 13.12 (Entire Agreement), (viii) Section 13.13 (Expenses), and (ix) Section 13.15 (Guaranty), and except that any and all claims arising prior to such termination shall survive such termination; and (b) except as otherwise set forth herein, such termination shall be without liability of any party to any other party to this Agreement; provided, however, that if the Contemplated Transactions fail to close as a result of a breach of the provisions of this Agreement by any party, such party shall be fully liable for any and all Damages incurred or suffered by the other parties as a result of all such breaches if the other parties are ready, willing and able to otherwise satisfy their respective obligations under the Transaction Documents. Notwithstanding the foregoing, in the event Purchaser shall terminate this Agreement pursuant to Section 10.04 by reason of the failure of the closing condition set forth in Section 10.02(a)(ii), Seller shall have no liability to either Purchaser or Guarantor arising out of such termination unless, and only to the extent that, any representation or warranty of Seller shall have been untrue when made on the date of this Agreement. The rights and remedies provided in this Section 12.02 shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law. ARTICLE XIII MISCELLANEOUS Section 13.01. Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier, or registered or certified mail, return receipt requested, addressed as follows: -34- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. if to Seller: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, Florida 33186 Attention: CEO & General Counsel Telecopy: 305-964-3340 with copies (which shall not constitute notice) to: King & Spalding LLP 1730 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: Glenn C. Campbell Telecopy: 202-626-3737 if to Purchaser: Shire US Inc. One Riverfront Place Newport, Kentucky 41071 Attention: General Counsel Telecopy: 859-669-8414 with copies (which shall not constitute notice) to: Shire Pharmaceuticals Group plc Hampshire International Business Park Chineham Basingstoke Hampshire RG24 8EP United Kingdom Attention: Group General Counsel Telecopy: 011-44-1256-894710 and to: Ulmer & Berne LLP 600 Vine Street, Suite 2800 Cincinnati, Ohio 45202 Attention: Scott P. Kadish Telecopy: 513-762-6245 if to Guarantor: Shire Pharmaceuticals Group plc -35- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Hampshire International Business Park Chineham Basingstoke Hampshire RG24 8EP United Kingdom Attention: Group General Counsel Telecopy: 011-44-1256-894710 with copies (which shall not constitute notice) to: Ulmer & Berne LLP 600 Vine Street, Suite 2800 Cincinnati, Ohio 45202 Attention: Scott P. Kadish Telecopy: 513-762-6245 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such communication shall be deemed to have been delivered (a) when delivered, if delivered personally, (b) when sent (with written confirmation received), if sent by facsimile transmission on a Business Day, (c) on the first Business Day after dispatch (with written confirmation received), if sent by facsimile transmission on a day other than a Business Day, (d) on the second Business Day after dispatch, if sent by air courier, and (e) on the fifth Business Day after mailing, if sent by mail. Section 13.02. Disputes. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the parties hereunder, the parties shall try to settle their differences amicably between themselves. Any party may initiate such informal dispute resolution by sending written notice of the dispute to the other parties, and within 10 days after such notice, appropriate representatives of the parties shall meet for attempted resolution by good faith negotiations. If such representatives are unable to resolve promptly such disputed matter, it shall be referred to the presidents of Seller, Purchaser and/or Guarantor, as the case may be, or their respective designees, for discussion and resolution. If such personnel are unable to resolve such dispute within 30 days of initiating such negotiations, the parties agree first to try in good faith to settle the dispute by mediation in Washington, D.C. under the Commercial Mediation Rules of the American Arbitration Association. If following any such mediation the parties still have not been able to resolve any such dispute, the parties agree to submit the dispute to final and binding arbitration before a single arbitrator in Washington, D.C. under the Commercial Arbitration Rules of the American Arbitration Association. The parties agree that a judgment may be entered on the arbitrator's award in any court of competent jurisdiction. The arbitrator in reviewing any claim under this Agreement shall have the exclusive authority to determine any issues as to the arbitrability of any such claim or related disputes under this Agreement. In reaching a decision, the arbitrator shall interpret, apply and be bound by this Agreement and by Applicable Law. The arbitrator shall have no authority to add to, detract from or modify this Agreement or any Applicable Law in any respect. The arbitrator may not grant any remedy or relief that a court of competent jurisdiction -36- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. could not grant, nor any relief or remedy greater than that sought by the parties nor any punitive, incidental or consequential damages, except to the extent any such punitive, incidental or consequential damages shall be payable to a third party. Any up-front costs of the arbitrator shall be borne equally by the parties; provided, however, that the non-prevailing party in any such arbitration shall pay, and to the extent applicable reimburse the prevailing party for, the costs and expenses of the arbitrator, including costs and expenses payable to the American Arbitration Association and to the arbitrator; and provided further, that in the event each party prevails as to certain claims in connection with any such arbitration, the fees of the arbitrator shall be paid and/or reimbursed in accordance with the decision of the arbitrator. Each party shall bear its own costs incurred in connection with attorneys' fees and related expenses. Notwithstanding the foregoing provisions of this Section 13.02, nothing in this Agreement shall limit or in any way restrict the ability of either party to seek injunctive or other equitable relief in a court or other judicial body. For purposes of this Section 13.02, neither the Milestone Payments nor any other portion of the Transaction Consideration shall constitute punitive, incidental or consequential damages. Section 13.03. Independent Contractors. In making and performing the Transaction Documents, the parties are acting and shall act as independent contractors. Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship among the parties hereto. No party shall have the authority to obligate another party in any respect, and no party shall hold itself out as having any such authority. All personnel of Seller shall be solely employees of Seller and shall not represent themselves as employees of Purchaser or Guarantor. All personnel of Purchaser and Guarantor shall be solely employees of Purchaser and Guarantor and shall not represent themselves as employees of Seller. Section 13.04. Assignment. No party shall have a right to assign this Agreement or delegate any of its rights, interests, duties or obligations hereunder without the prior written consent of the other parties (which consent may be granted in such parties' sole discretion); provided, however, that any party may assign this Agreement to any of its Affiliates without the prior written consent of the other parties; and provided, further that no such assignment of this Agreement shall relieve the assignor of any of its obligations or liabilities under this Agreement. Notwithstanding the foregoing, any party may assign this Agreement without the other parties' prior written consent in connection with the transfer or sale of all or substantially all of its assets or business or its merger or consolidation with another Person upon written notice to the other parties. Any attempted assignment in violation of this Section 13.04 shall be void. Section 13.05. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto, and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 13.06. Amendments. This Agreement shall not be modified, amended or supplemented except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto. -37- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 13.07. No Waiver. The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege conferred in this Agreement, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. Section 13.08. Counterparts. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures of each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. Each party may execute this Agreement on a facsimile of the Agreement. In addition, facsimile signatures of authorized signatories of either party shall be valid and binding and delivery of a facsimile signature by either party shall constitute due execution and delivery of this Agreement. Section 13.09. Interpretation. The article and section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and singular shall include the plural. Unless the context otherwise requires, the term "party" when used herein means a party hereto. References herein to a party or other Person include their respective successors and assigns. The words "include," "includes" and "including" when used herein shall be deemed to be followed by the phrase "without limitation" unless such phrase otherwise appears. Unless the context otherwise requires, references herein to Articles, Sections, Schedules and Attachments shall be deemed references to Articles and Sections of, and Schedules and Attachments to, this Agreement. Unless the context otherwise requires, the words "hereof," "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision hereof. With regard to each and every term and condition of this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which party actually prepared, drafted or requested any term or condition of this Agreement. Section 13.10. Governing Law. This Agreement and any claims, disputes or causes of action relating to or arising out of this Agreement shall be construed in accordance with and governed by the substantive laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. Section 13.11. Unenforceability. If any provisions of this Agreement are determined to be invalid or unenforceable in any jurisdiction, such provisions shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the validity or enforceability of any of -38- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. such provisions of this Agreement in any other jurisdiction. The parties will use their best efforts to substitute the invalid or unenforceable provision with a valid and enforceable one which conforms, as nearly as possible, with the original intent of the parties. Section 13.12. Entire Agreement. (a) This Agreement, together with the other Transaction Documents, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, commitments, arrangements, negotiations or understandings, whether oral or written, among the parties hereto and their respective Affiliates with respect thereto. There are no agreements, covenants or undertakings with respect to the subject matter of this Agreement other than those expressly set forth or referred to herein and no representations or warranties of any kind or nature whatsoever, express or implied, are made or shall be deemed to be made herein by the parties hereto, except those expressly made in this Agreement and the Transaction Documents. (b) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET FORTH IN THE PRECEDING SENTENCE, (I) NEITHER SELLER NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES, IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE BUSINESS GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF SELLER OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE, AND (II) SELLER EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES OF MERCHANTABILITY. EACH OF PURCHASER AND GUARANTOR ACKNOWLEDGES THAT SELLER HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY SELLER OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE BUSINESS OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY. Section 13.13. Expenses. Except as expressly set forth herein, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions, including attorneys', accountants' and other professional fees and expenses. -39- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 13.14. Disclosure. Certain information set forth in the Disclosure Schedules has been included and disclosed solely for informational purposes and may not be required to be disclosed pursuant to the terms and conditions of this Agreement. The disclosure of any such information shall not be deemed to constitute an acknowledgement or agreement that the information is required to be disclosed in connection with the representations and warranties made in this Agreement or that the information is material, nor shall any information so included and disclosed be deemed to establish a standard of materiality or otherwise be used to determine whether any other information is material. Section 13.15. Guarantor Obligations. Guarantor hereby absolutely, unconditionally and irrevocably guarantees, as principal obligor, and not merely as surety, to Seller and its successors and assigns (a) the due and punctual payment in full of the Transaction Consideration, the discharge of the Assumed Liabilities and all other obligations of Purchaser hereunder, including Purchaser's indemnification obligations under Article XI and Purchaser's obligations under the Transaction Documents, and (b) the performance by Shire Ireland of all of its duties and obligations under the Transaction Documents to which it is a party (collectively, the "Obligations"). The foregoing obligation of Guarantor constitutes a continuing guaranty of payment, and not of collection, and is and shall be absolute and unconditional under any and all circumstances, including circumstances that might otherwise constitute a legal or equitable discharge of a surety or guarantor. Guarantor waives any right to require that resort for payment first be had by Seller against Purchaser and/or Shire Ireland, as the case may be. The obligation of Guarantor hereunder shall not be discharged, impaired or otherwise affected by the failure of Seller to assert any claim or demand against Purchaser and/or Shire Ireland, as the case may be, or to enforce any remedy hereunder. Notwithstanding the foregoing, (i) nothing in this Section 13.15 shall create any liabilities or obligations for Guarantor to the extent Purchaser and/or Shire Ireland, as the case may be, would not have liability or otherwise be responsible to Seller hereunder, and (ii) Guarantor shall have the right to assert as a defense (including rights of set off and counterclaim) to any of its obligations hereunder any defense that would be available to it had it duly authorized and entered into the Obligations directly. -40- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first above written. NOVEN PHARMACEUTICALS, INC. By: /s/ Robert C. Strauss --------------------------------------- Name: Robert C. Strauss Title: President, CEO and Chairman SHIRE US INC. By: /s/ William A. Nuerge --------------------------------------- Name: William A. Nuerge Title: President and CEO SHIRE PHARMACEUTICALS GROUP PLC By: /s/ Kevin T. Anderson --------------------------------------- Name: Kevin T. Anderson Title: Attorney in Fact -41- ATTACHMENT III LICENSE AGREEMENT DATED AS OF ____________ __, 2003 BY AND BETWEEN NOVEN PHARMACEUTICALS, INC. AND SHIRE PHARMACEUTICALS IRELAND LIMITED TABLE OF CONTENTS

PAGE ARTICLE I DEFINITIONS....................................................... 1 Section 1.01. Definitions....................................................... 1 Section 1.02. Other Definitions................................................. 5 ARTICLE II LICENSE GRANTS.................................................... 5 Section 2.01. License Grant: Patents........................................... 5 Section 2.02. Limitations on License Granted Under Section 2.01................. 6 Section 2.03. Quality Control................................................... 6 Section 2.04. Sublicense........................................................ 6 ARTICLE III INTELLECTUAL PROPERTY MATTERS..................................... 7 Section 3.01. Infringement or Other Actions Regarding the Technology............ 7 Section 3.02. Other Third Party Claims.......................................... 7 Section 3.03. Maintenance of Noven Patents...................................... 8 ARTICLE IV CONFIDENTIALITY................................................... 8 Section 4.01. Confidentiality................................................... 8 Section 4.02. Press Releases................................................... 10 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SHIRE IRELAND.................. 10 Section 5.01. Representations and Warranties of Shire Ireland.................. 10 ARTICLE VI INDEMNIFICATION.................................................. 11 Section 6.01. Indemnification.................................................. 11 Section 6.02. Certain Limitations.............................................. 12 ARTICLE VII TERM AND TERMINATION............................................. 13 Section 7.01. Term............................................................. 13 Section 7.03. Effect of Termination............................................ 13 ARTICLE VIII MISCELLANEOUS.................................................... 14 Section 8.01. Notices.......................................................... 14 Section 8.02. Disputes......................................................... 15 Section 8.03. Independent Contractors.......................................... 16 Section 8.04. Assignment....................................................... 16 Section 8.05. Binding Effect; Benefit.......................................... 16 Section 8.06. Amendments....................................................... 16

-i-

PAGE Section 8.07. No Waiver........................................................ 16 Section 8.08. Counterparts..................................................... 17 Section 8.09. Interpretation................................................... 17 Section 8.10. Governing Law.................................................... 17 Section 8.11. Unenforceability................................................. 17 Section 8.12. Entire Agreement................................................. 18 Section 8.13. Expenses......................................................... 18 Section 8.14. Force Majeure.................................................... 19

LIST OF EXHIBITS Exhibit A Noven Patents -ii- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. LICENSE AGREEMENT This LICENSE AGREEMENT (together with any Exhibits and Schedules hereto, this "Agreement") is entered into as of this ___ day of ________ 2003 (the "Effective Date"), by and between NOVEN PHARMACEUTICALS, INC., a Delaware corporation ("Noven"), and SHIRE PHARMACEUTICALS IRELAND LIMITED, a Republic of Ireland corporation ("Shire Ireland"). W I T N E S S E T H: WHEREAS, Noven, and Shire US Inc., a New Jersey corporation ("Shire"), and Shire Pharmaceuticals Group plc, a corporation organized under the laws of England and Wales, are parties to the Transaction Agreement, dated as of February 26, 2003 (the "Transaction Agreement"), pursuant to which Noven has agreed to transfer to Shire certain of the assets held, owned or used by Noven in connection with the Business; WHEREAS, simultaneously with the execution of this Agreement, Noven and Shire Ireland are entering into a Toll Conversion and Supply Agreement (the "Toll Conversion and Supply Agreement"), pursuant to which Noven will manufacture and supply to Shire Ireland certain of Shire Ireland's requirements of the Product for sale within the Territory; and WHEREAS, Noven desires to license to Shire Ireland the Technology on the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein and for other good and valuable consideration, including the payments to be made to Noven by Shire in accordance with the Transaction Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. As used herein, the following capitalized terms have the following meanings: "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention Deficit Disorder. "Affiliate" means, when used with respect to a Person, any other Person directly or indirectly controlling, controlled by or under common control with the subject Person. For purposes of this Agreement, "control" means the direct or indirect ownership of over 50% of the outstanding voting securities of a Person. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Applicable Law" means, with respect to any Person, any domestic or foreign, federal, state or local statute, treaty, law, ordinance, rule, regulation, administrative interpretation, order, writ, injunction, judicial decision, decree or other requirement of any Governmental Authority applicable to such Person or any of such Person's respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers', directors', employees', consultants' or agents' activities on behalf of such Person). "Business" means the business as conducted by Noven prior to the Effective Date consisting of the development, manufacture, testing and clinical and non-clinical trials of the Product, and which business, upon receipt of the Regulatory Approval, shall additionally consist of marketing, advertising, promoting, distributing, selling, using and otherwise disposing of the Product. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York, USA are authorized or required by law to close. "Code of Federal Regulations," or "C.F.R." means the codification of the general and permanent rules published in the Federal Register by the Executive department and agencies of the United States federal government. Title 21 of the C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act. "Competing Product" means ***. "Confidential Information" means all secret, confidential or proprietary data, know-how and related information, including all INDs, NDAs, Regulatory Applications, Regulatory and Clinical Materials and related filings, applications and data, the content of any unpublished patent applications, operating methods and procedures, marketing, manufacturing, distribution and sales methods and systems, sales figures, pricing policies and price lists and other business information and shall include all information disclosed or accessed by the parties pursuant to the provisions this Agreement. "Contemplated Transactions" means the transactions contemplated by the Transaction Documents. "Damages" means all liabilities, demands, obligations, assessments, judgments, levies, losses, fines, penalties, damages (including compensatory damages), costs and expenses, including reasonable attorneys', accountants', investigators', and experts' fees and expenses, reasonably sustained or incurred in connection with the defense or investigation of any Proceedings (including any Proceedings to establish insurance coverage). "Develop" means, with respect to the Product, to conduct clinical and non-clinical development and commercialization activities, including (subject to the requirements and restrictions of Applicable Law) the right to market and sell the Product throughout the Territory, which activities shall not, in any event, include modifications to the structure or composition of the Product and shall not include any right to manufacture the Product. "FDA" means the United States Food and Drug Administration and any successor agency -2- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. thereto. "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C.Section 301 et seq., as amended, and the regulations promulgated thereunder, as amended from time to time. "Field" means therapeutic uses of the Product, whether or not for the treatment of ADHD. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "Governmental Authority" means any foreign, domestic, federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization (including any national or international securities exchange and The NASDAQ Stock Market), commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of any of the foregoing. "IND" means an Investigational New Drug Application, as defined in the 21 C.F.R.Section 312.3. "Inventions" means the inventions relating to the Product that are owned by Noven during the term of this Agreement and are the subject of the Noven Patents. "Milestone Payments" has the meaning specified in the Transaction Agreement. "New Drug Application," or "NDA," means an application, including amendments and supplements thereto, filed by a Person with the FDA to obtain FDA approval of a new drug or therapy, as the context indicates, as defined in 21 C.F.R. Section 314.3. "Noven Patents" means all patents and patent applications, as listed in Exhibit A, in the Territory covering Inventions for use in the Field in the Territory, and any improvement patents, reissues, confirmations, renewals, extensions, counterparts, divisions, continuations, continuations-in-part or patents-of-addition issued or assigned to Noven of the patents or patent applications listed in Exhibit A, but only to the extent covering the Product in the Field in the Territory. Subject to the parties reaching an agreement pursuant to Section 8.03(c) of the Transaction Agreement, the term "Noven Patents" also shall include any of Noven's future patents and patent applications for Inventions relating to methylphenidate. "Person" means an individual, a corporation, a general partnership, a limited partnership, a limited liability company, a limited liability partnership, an association, a trust or any other entity or organization, including a Governmental Authority. "Proceedings" means governmental, judicial, administrative or adversarial proceedings (public or private), litigation, suits, arbitration, disputes, claims, causes of action or investigations. -3- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Product" means the transdermal methylphenidate drug delivery system that has and is being developed, manufactured and tested by Noven, and for which there is currently pending the Product NDA, and all improvements, modifications and variations to the transdermal methylphenidate drug delivery system made by Noven or its Affiliates during the term of this Agreement. "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by Noven on December 12, 1997, seeking approval to develop, test and perform clinical and non-clinical trials of the Product, along with any amendments, correspondence or supplements thereto and incorporated therein. "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by Noven on June 27, 2002, seeking approval to commercially market the Product for the treatment of ADHD, along with any amendments, correspondence or supplements thereto and incorporated therein. "Regulatory and Clinical Materials" means all documents, supporting materials and other materials relating to the Regulatory Application, any regulatory approval or other matter required to be submitted to any Regulatory Authority in relation to the Product, including IND and NDA and documents, supporting materials and other materials relating to any drug master file, investigators' brochures, clinical studies (including any Phase IV clinical studies), safety data, adverse event reports, questionnaires, consultants reports, correspondence (including correspondence with any Regulatory Authority), batch reports, protocols, specifications, quality assurance, quality control, customer queries and any responses thereto, and any compilation or evaluations thereof, and question and answer scripts. "Regulatory Application" means the applications submitted by Noven to the FDA seeking approval for the development, manufacture, testing, storage, transport, marketing, advertisement, promotion, sale, use, distribution or other disposal of the Product in all or any portion of the Territory, including the Product IND and the Product NDA. "Regulatory Approval" has the meaning specified in the Transaction Agreement. "Regulatory Authority" means a Governmental Authority that has the authority over the manufacture, use, storage, import, export, clinical testing, transport, marketing, sale or distribution of the Product in all or any portion of the Territory, including the FDA. "Securities Laws" means the United States Securities Act of 1933, as amended, the United States Securities Exchange Act of 1934, as amended, and any other similar law or regulation of a Governmental Authority, or any successor to any such laws or regulations, together with any rules, regulations or listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market. "Subsidiary" as it relates to any Person, shall mean with respect to such Person, any other Person of which the specified Person, either directly or through or together with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their -4- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. equivalents, other than as affected by events of default. "Technology" means any and all data, information (whether proprietary to Noven or not), technology, know-how, processes, methods, skills, trade secrets, developments, discoveries and inventions, owned by Noven, to the extent but only to the extent related to the Product, including the Noven Patents. Notwithstanding the foregoing, Technology shall not include data, information (whether proprietary to Noven or not), technology, know-how, processes, methods, skills, trade secrets, developments, discoveries and inventions related to the manufacture of the Product or specifications, processes or procedures relating thereto, except to the extent required to obtain Regulatory Approval for the Product. "Territory" means the entire world. "Transaction Documents" has the meaning specified in the Transaction Agreement. Section 1.02. Other Definitions. Each of the following terms is defined in the section of this Agreement referenced opposite such term.

Term Section Agreement............................................... Preamble Disclosing Party........................................ 4.01 Effective Date.......................................... Preamble Indemnified Party....................................... 6.01(c) Indemnifying Party...................................... 6.01(c) Noven................................................... Preamble Noven Indemnitees....................................... 6.01(a) Obligations............................................. 8.15 Receiving Party......................................... 4.01 Shire................................................... Recitals Shire Ireland........................................... Preamble Shire Ireland Indemnitees............................... 6.01(b) Toll Conversion and Supply Agreement.................... Recitals Transaction Agreement................................... Recitals

ARTICLE II LICENSE GRANTS Section 2.01. License Grant: Patents. Except as otherwise provided herein and subject to the terms and conditions of this Agreement, including the provisions of Article VII, with effect from the Effective Date, Noven hereby grants to Shire Ireland an unconditional, irrevocable, royalty-free, perpetual, exclusive license in the Territory of rights under the Noven Patents, including the right to grant sublicenses in accordance with Section 2.04, to Develop, use, make, have made, sell or otherwise dispose of the Product under the Technology; provided, however, that notwithstanding the foregoing, Shire Ireland shall not have the right to make or have made the Product other than (a) as expressly contemplated or provided in the Toll Conversion and -5- Supply Agreement, or (b) following the termination of the Toll Conversion and Supply Agreement in accordance with its terms. Notwithstanding the foregoing, nothing in this Agreement shall limit in any way Noven's right (i) to make or have made the Product under the terms and conditions of the Toll Conversion and Supply Agreement or for the other purposes contemplated by clause (ii) or clause (iii) of this sentence, (ii) to Develop, use or otherwise dispose of the Product, or to authorize another Person to Develop, use or otherwise dispose of the Product, for the purpose of conducting research or clinical trials of improved transdermal methylphenidate drug delivery products or other products with an indication for ADHD, or of products for indications other than ADHD and which do not include delivery of methylphenidate, or (iii) to Develop, use, promote, sell or otherwise dispose of a product other than the Product, whether on its own, together with another Person or through a license or other grant of rights to another Person. Section 2.02. Limitations on License Granted Under Section 2.01. Shire Ireland shall not be entitled to exercise the rights granted to it under Section 2.01 unless such rights are exercised pursuant to an effective and active Regulatory Approval and in accordance with all Applicable Laws. Section 2.03. Quality Control. Shire Ireland shall only Develop, market, promote, sell, distribute, use or otherwise dispose of the Product, and any materials used in connection with the Product, including any labeling, packaging and advertising, in accordance with all Applicable Laws. Notwithstanding the fact that Shire Ireland shall be obligated to ensure that the Product is manufactured, stored, marketed, promoted, sold, distributed, used or otherwise disposed of in accordance with Applicable Law, Noven shall have the right to take any and all actions it deems necessary or appropriate (including seeking or obtaining preliminary or permanent injunctive relief) to ensure that the Product is used in a manner consistent with the terms and conditions of this Agreement, in a manner consistent with Applicable Law. Section 2.04. Sublicense. Prior to the date on which Shire has paid Noven the full amount of the Milestone Payments, Shire Ireland shall not have the right to sublicense any of the rights granted by Noven under Section 2.01. On and after the date Shire has paid Noven the full amount of the Milestone Payments, Shire Ireland shall have the right to sublicense the rights granted by Noven under Section 2.01; provided, that (i) Shire Ireland shall give written notice of such sublicense to Noven, (ii) the sublicensee shall confirm in writing to and for the benefit of Noven that it will comply with the covenants and agreements of Shire Ireland hereunder, and (iii) no such sublicense pursuant to this Section 2.04 shall relieve Shire Ireland of any of its obligations or liabilities under this Agreement. Except as otherwise provided in the Toll Conversion and Supply Agreement, Noven shall have no obligation to supply the Product to any sublicensee of Shire Ireland (or of any Affiliate, successor, assignee or delegatee of Shire Ireland, as the case may be) pursuant to this Section 2.04. Notwithstanding the foregoing, Shire Ireland may sublicense the rights granted by Noven under Section 2.01 to any of its Affiliates without the prior written consent of Noven; provided, that no such sublicense shall relieve Shire Ireland of any of its obligations or liabilities under this Agreement. -6- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE III INTELLECTUAL PROPERTY MATTERS Section 3.01. Infringement or Other Actions Regarding the Technology. (a) If, at any time on or after the Effective Date, either party shall become aware of any infringement or threatened infringement of the Noven Patents or any unfair competition, inappropriate or unauthorized use, disparagement or other tortious act by any third party in relation to the Technology, then the party having such knowledge shall give prompt notice thereof to the other party. (b) Subject to Section 3.02, Shire Ireland shall have the right to take such action as it deems appropriate to protect and enforce the Noven Patents in the Territory against any Competing Product, including initiating an appropriate Proceeding or threatening to initiate an appropriate Proceeding to prevent or eliminate the infringement of such Noven Patents with regard to any Competing Product, or the unfair competition, inappropriate or unauthorized use, disparagement or other tortious act by any third party in relation to the Technology in the Territory. Subject to Section 3.01(c) below, Noven agrees to cooperate with Shire Ireland if and to the extent reasonably requested by Shire Ireland, including joining as a party to such Proceeding, if necessary to maintain standing. (c) ***. (d) ***. (e) All amounts awarded as damages, profits or otherwise in connection with any action specified in Section 3.01(b) taken by Shire Ireland shall be ***. If Shire Ireland elects not to take any action of the nature specified in Section 3.01(b) within 60 days of becoming aware or receiving notice under Section 3.01(a) of any infringement, threatened infringement, unfair competition, disparagement or other tortious act identified in Section 3.01(a), Shire Ireland shall give Noven notice of such decision, and Noven thereafter shall have the right to take any action of the nature specified in Section 3.01(b). In such event, all amounts awarded as damages, profits or otherwise in connection with any action taken by Noven shall be ***. (f) Notwithstanding the provisions of Section 3.01(b), Noven shall have the right, and Shire Ireland shall not have the right, to take such actions as it deems appropriate to protect and enforce the Technology in any Proceeding other than a Proceeding seeking to protect or enforce the Technology in the Territory against a Competing Product. All amounts awarded as damages, profits or otherwise in connection with any action specified in this Section 3.01(f) taken by Noven shall be paid to and become the sole property of Noven. Section 3.02. Other Third Party Claims. (a) If, at any time on or after the Effective Date, any party shall become aware of any Proceeding or threat of any Proceeding by a third party alleging that any of the Noven Patents (or any -7- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. claims asserted in the Noven Patents) are invalid or unenforceable, or otherwise seeking to limit the scope, construction or interpretation of any of the Noven Patents (or any claims asserted in the Noven Patents), such party shall promptly notify the other parties of the same. (b) ***. (c) ***. Section 3.03. Maintenance of Noven Patents. Noven shall pay all necessary maintenance and related expenses to maintain the Noven Patents in those jurisdictions within the Territory where the Noven Patents are currently filed as of the Effective Date. Noven shall, from and after the Effective Date, upon the request and at the expense of Shire Ireland, use reasonable commercial efforts to file additional applications and to take such other reasonable actions necessary to obtain protection of the Noven Patents in additional jurisdictions within the Territory. Noven agrees to consult with Shire Ireland with regard to the prosecution of the Noven Patents to the extent relating to the Product. ARTICLE IV CONFIDENTIALITY Section 4.01. Confidentiality. (a) Pursuant to the terms of this Agreement, each party (in such capacity, the "Disclosing Party"), has disclosed and will be disclosing to the other parties and/or their Affiliates or representatives (in such capacity, the "Receiving Party"), certain Confidential Information of the Disclosing Party. The Receiving Party shall make no use of such Confidential Information except in the exercise of its rights and the performance of its obligations set forth in this Agreement. The Receiving Party shall use the same efforts to keep secret, and prevent the disclosure to third parties of, Confidential Information of the Disclosing Party as it would use with respect to its own Confidential Information. Confidential Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted herein. The above restrictions on the use and disclosure of Confidential Information shall not apply to any information which (i) is already known to the Receiving Party at the time of disclosure by the Disclosing Party, as demonstrated by competent proof, (ii) is or becomes generally available to the public other than through any act or omission of the Receiving Party in breach of this Agreement, (iii) is acquired by the Receiving Party from a third party who is not, directly or indirectly, under an obligation of confidentiality to the Disclosing Party with respect to same, or (iv) is developed independently by the Receiving Party without use, direct or indirect, of information that is required to be held confidential hereunder. (b) In the event the Receiving Party is required (i) by Applicable Law to disclose Confidential Information of the Disclosing Party to any Regulatory Authorities to obtain Regulatory Approval for the Product or to comply with the requirement of any Regulatory Authority, (ii) to disclose Confidential Information of the Disclosing Party to respond to an inquiry of a Regulatory Authority or Governmental Authority concerning the Product, or (iii) to disclose Confidential Information of the Disclosing Party in a judicial, administrative or -8- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. arbitration proceeding to enforce such party's rights under this Agreement, it may do so only if it (A) provides the Disclosing Party with as much advance written notice as possible of the required disclosure, (B) cooperates with the Disclosing Party in any attempt to prevent or limit the disclosure, and (C) limits disclosure, if any, to the specific purpose at issue. (c) Notwithstanding the provisions of this Section 4.01: (i) Shire Ireland shall be permitted to disclose to its distributors, wholesalers and other direct customers such Confidential Information relating to the Product as Shire Ireland shall reasonably determine to be necessary or useful in order to effectively market and distribute the Product; (ii) Noven shall be permitted to disclose such Confidential Information relating to the Product as Noven shall reasonably determine to be necessary or useful in order to effectively perform its obligations under the Toll Conversion and Supply Agreement; (iii) Noven shall be permitted to disclose such Confidential Information relating to the Product as it shall reasonably determine to be necessary or useful in order to pursue or obtain any regulatory approvals in respect of any other transdermal drug delivery products; (iv) each of Noven and Shire Ireland shall be permitted to disclose to a Regulatory Authority such Confidential Information relating to the Product as it shall reasonably determine (but only after consulting with the other parties to the extent practicable) to be necessary to comply with the provisions of Applicable Law; and (v) nothing in this Section 4.01 shall be interpreted to limit the ability of either Noven or Shire Ireland to disclose its own Confidential Information to the other parties or any other Person on such terms and subject to such conditions as it deems advisable or appropriate; provided, however, that in each such case any third party recipients of any Confidential Information (other than a Regulatory Authority or other Governmental Authority) undertake substantially the same confidentiality obligation as the parties hereunder with respect to such Confidential Information. (d) Each of Noven and Shire Ireland acknowledge and agree that the terms and conditions of this Agreement shall be considered Confidential Information of each party and shall be treated accordingly. Notwithstanding the foregoing, Shire Ireland acknowledges and agrees that Noven may be required to disclose some or all of the information included in this Agreement in order to comply with its obligations under the Securities Laws, and hereby consents to such disclosure to the extent deemed advisable or appropriate by counsel to Noven (but only after consulting with Shire Ireland to the extent practicable). (e) Each party specifically recognizes that any breach by it of this Section 4.01 -9- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. may cause irreparable injury to the other parties and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), each party agrees that in the event of any such breach, notwithstanding the provisions of Section 8.02 or Article VI hereof, the other parties shall be entitled to seek, by way of private litigation in the first instance, injunctive relief and such other legal and equitable remedies as may be available. Section 4.02. Press Releases. Except as may be required by Applicable Law, no party shall originate any publicity, press or news release or other public announcement, written or oral, whether to the public press or otherwise, relating to this Agreement, or to the existence of an arrangement between the parties, without the prior written approval of the other parties. In the event disclosure of this Agreement, or any of the terms and conditions of this Agreement is required by Applicable Law, the party required to so disclose such information shall, to the extent possible, provide to the other parties for their prior approval (such approval not to be unreasonably withheld or delayed) a written copy of such public announcement. When practicable, the party required to disclose such information will provide such copy to the other parties at least five Business Days prior to disclosure. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SHIRE IRELAND Section 5.01. Representations and Warranties of Shire Ireland. Shire Ireland represents and warrants to Noven as of the Effective Date that: (a) Organization. Shire Ireland is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. As of the Closing Date, Shire Ireland will be duly qualified to do business in each jurisdiction where the character of its business (after giving effect to the Contemplated Transactions) make such qualifications necessary to carry on its business. (b) Power, Authority and Enforceability. Shire Ireland has full corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein. This Agreement has been or shall be duly executed and delivered by duly authorized signatories of Shire Ireland. This Agreement constitutes a valid and binding obligation of Shire Ireland, enforceable against Shire Ireland in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally. (c) No Violation. Neither the execution and delivery of this Agreement nor the consummation by Shire Ireland of the transactions contemplated hereby, will (i) conflict with or result in a breach of any of the terms, conditions or provisions of Shire Ireland's certificate of incorporation or other governing or charter document, or of any statute or administrative regulation, or, to the best of its knowledge, of any order, writ, injunction, judgment or decree of -10- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. any court or governmental authority or of any arbitration award or any agreement binding upon Shire Ireland or its assets, or (ii) to the best of its knowledge, contravene or conflict with, or constitute a violation of, any provisions of any Applicable Law binding upon Shire Ireland. (d) No Default. Shire Ireland is not a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Shire Ireland according to the terms of this Agreement will be a default, or whereby timely performance by Shire Ireland according to the terms of this Agreement may be prohibited, prevented or delayed. ARTICLE VI INDEMNIFICATION Section 6.01. Indemnification. In order to distribute between themselves the responsibility for claims arising out of this Agreement, and except as otherwise specifically provided for herein, from and after the Effective Date, the parties shall indemnify each other as provided in this Section 6.01. (a) Indemnification Obligations of Shire Ireland. From and after the Effective Date, Shire Ireland shall defend, indemnify and hold Noven, its Affiliates, and each of their respective officers, directors, agents, employees and shareholders (collectively, "Noven Indemnitees"), harmless from and against any and all Damages which Noven Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the breach by Shire Ireland of this Agreement including any material breach by Shire Ireland of, or material failure by Shire Ireland to comply with, any of its covenants or obligations pursuant to this Agreement; (ii) the enforcement by Noven Indemnitees of their rights under this Section 6.01(a); and (iii) Shire Ireland's material violation of any Applicable Law; provided, however, that, in each such case, Shire Ireland shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or a violation of any Applicable Law by Noven, its Affiliates, agents, employees or contractors, or from the breach by Noven of the provisions of any of the Transaction Documents. (b) Indemnification Obligations of Noven. From and after the Effective Date, Noven shall defend, indemnify and hold Shire Ireland, its Affiliates, and each of their respective officers, directors, agents, employees, shareholders or members (collectively, "Shire Ireland Indemnitees") harmless from and against any and all Damages which Shire Ireland Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the breach by Noven of this Agreement including any material breach by Noven of, or material failure by Noven to comply with, any of its covenants or -11- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. obligations pursuant to this Agreement; (ii) the enforcement by Shire Ireland Indemnitees of their rights under this Section 6.01(b); and (iii) Noven's material violation of any Applicable Law; provided, however, that, in each such case, Noven shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or a violation of any Applicable Law by Shire Ireland, its Affiliates, agents, employees or contractors, or from the breach by Shire Ireland of any of the provisions of the Transaction Documents. (c) Procedure. If any Proceeding arises as to which a right of indemnification provided in this Article VI applies, the Person seeking indemnification (the "Indemnified Party"), shall within 20 days notify the party obligated under this Article VI to indemnify the Indemnified Party (the "Indemnifying Party"), thereof in writing, except to the extent that such failure to notify within 20 days does not prejudice the Indemnifying Party's ability to defend or contest any such Proceeding, and allow the Indemnifying Party and its insurers the opportunity to assume direction and control of the defense against such Proceeding, at its sole expense, including the settlement thereof at the sole option of the Indemnifying Party or its insurers; provided, however, that the Indemnifying Party may not enter into any compromise or settlement without the prior written consent of the Indemnified Party unless such compromise or settlement includes as an unconditional term thereof the giving by each plaintiff or claimant to the Indemnified Party of a release from all liability in respect of such claim and only if such compromise or settlement does not include any admission of legal wrongdoing on the part of the Indemnified Party. The Indemnified Party shall fully cooperate with the Indemnifying Party and its insurer in the disposition of any such matter and the Indemnified Party will have the right and option to participate in (but not control) the defense of any Proceeding as to which this Article VI applies, with separate counsel at its election and cost. If the Indemnifying Party fails or declines to assume the defense of any such Proceeding within 30 days after notice thereof, the Indemnified Party may assume the defense thereof for the account and at the risk of the Indemnifying Party. The Indemnifying Party shall pay promptly to the Indemnified Party any Damages to which the indemnity under this Article VI applies, as incurred. Section 6.02. Certain Limitations. (a) Except as otherwise provided in Section 4.01(e), the sole and exclusive remedy with respect to any breach of any representation, warranty, covenant or agreement contained herein and for the other matters described in Sections 6.01(a) and 6.01(b) (other than (i) with respect to a breach of the terms of a covenant or agreement, as to which Shire Ireland or Noven, as the case may be, also shall be entitled to seek specific performance or other equitable relief and (ii) with respect to claims for fraud) shall be a claim for Damages (whether by contract, in tort or otherwise, and whether in law, in equity or both) made pursuant to this Article VI. No party shall be entitled to recover any punitive, incidental or consequential damages whatsoever under this Article VI, except to the extent any such punitive, incidental or consequential damages are payable to a third party. -12- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) Notwithstanding anything to the contrary contained herein, although a party may be entitled to make a claim for indemnification pursuant to more than one section of this Article VI, a party shall not be entitled to recover indemnification for the same claim under more than one section of this Article VI. ARTICLE VII TERM AND TERMINATION Section 7.01. Term. This Agreement and the license granted hereunder shall terminate and be of no further force or effect upon the earlier of: (a) the date of a termination of the Toll Conversion and Supply Agreement by Noven pursuant to Section 10.02(b) thereof, but only if such termination occurs prior to payment in full of each of the Milestone Payments; (b) the termination of this Agreement pursuant to Section 9.02(b)(ii) or Section 9.02(c) of the Transaction Agreement; or (c) the termination of this Agreement in accordance with Section 7.02. Section 7.02. Certain Termination Events. (a) ***. (b) This Agreement shall terminate and shall be of no further force or effect on the date on which the last of the Noven Patents in force in the Territory shall (a) expire by its terms, or (b) be adjudicated invalid or unenforceable in the Territory by the judgment of a court of competent jurisdiction, which judgment shall not be subject to appeal; provided, that following any such termination, nothing in this Agreement shall limit the right of Shire Ireland to market and sell the Product. Section 7.03. Effect of Termination. Upon termination, this Agreement shall forthwith become void and of no further force or effect, except for the following provisions, which shall remain in full force and effect: (a) Section 4.01 (Confidentiality), (b) Section 4.02 (Press Releases), (c) this Section 7.03, (d) Section 8.10 (Governing Law), (e) Section 8.12 (Entire Agreement) and (f) Section 8.13 (Expenses). The rights and remedies provided in this Article VII shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law. Any termination of this Agreement shall not affect any right or claim hereunder that arises prior to such termination, which claims and rights shall survive any such termination. -13- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE VIII MISCELLANEOUS Section 8.01. Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier or registered or certified mail, return receipt requested, addressed as follows: if to Noven: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, Florida 33186 Attention: CEO & General Counsel Telecopy: 305-964-3340 with copies (which shall not constitute notice) to: King & Spalding LLP 1730 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: Glenn C. Campbell Telecopy: 202-626-3737 if to Shire Ireland: Shire Pharmaceuticals Ireland Limited Pharmapark Chapelizod Dublin 20 Ireland Attention: General Counsel Telecopy: 011-353-1623-7469 with copies (which shall not constitute notice) to: Shire Pharmaceuticals Group plc Hampshire International Business Park Chineham Basingstoke Hampshire RG24 8EP United Kingdom Attention: Group General Counsel Telecopy: 011-44-1256-894710 -14- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. and to: Ulmer & Berne LLP 600 Vine Street, Suite 2800 Cincinnati, Ohio 45202 Attention: Scott P. Kadish Telecopy: 513-762-6245 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such communication shall be deemed to have been delivered (a) when delivered, if delivered personally, (b) when sent (with written confirmation received), if sent by facsimile transmission on a Business Day, (c) on the first Business Day after dispatch (with written confirmation received), if sent by facsimile transmission on a day other than a Business Day, (d) on the second Business Day after dispatch, if sent by air courier, and (e) on the fifth Business Day after mailing, if sent by mail. Section 8.02. Disputes. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the parties hereunder, the parties shall try to settle their differences amicably between themselves. Any party may initiate such informal dispute resolution by sending written notice of the dispute to the other parties, and within 10 days after such notice, appropriate representatives of the parties shall meet for attempted resolution by good faith negotiations. If such representatives are unable to resolve promptly such disputed matter, it shall be referred to the presidents of Noven and Shire Ireland, or their respective designees, for discussion and resolution. If such personnel are unable to resolve such dispute within 30 days of initiating such negotiations, the parties agree first to try in good faith to settle the dispute by mediation in Washington, D.C. under the Commercial Mediation Rules of the American Arbitration Association. If following any such mediation the parties still have not been able to resolve any such dispute, the parties agree to submit the dispute to final and binding arbitration before a single arbitrator in Washington, D.C. under the Commercial Arbitration Rules of the American Arbitration Association. The parties agree that a judgment may be entered on the arbitrator's award in any court of competent jurisdiction. The arbitrator in reviewing any claim under this Agreement shall have the exclusive authority to determine any issues as to the arbitrability of any such claim or related disputes under this Agreement. In reaching a decision, the arbitrator shall interpret, apply and be bound by this Agreement and by Applicable Law. The arbitrator shall have no authority to add to, detract from or modify this Agreement or any Applicable Law in any respect. The arbitrator may not grant any remedy or relief that a court of competent jurisdiction could not grant, nor any relief or remedy greater than that sought by the parties, nor any punitive, incidental or consequential damages, except to the extent any such punitive, incidental or consequential damages are payable to a third party. Any up-front costs of the arbitrator shall be borne equally by the parties; provided, however, that the non-prevailing party in any such arbitration shall pay, and to the extent applicable reimburse the prevailing party for, the costs and expenses of the arbitrator, including costs and expenses payable to the American Arbitration Association and to the arbitrator; and provided further, that in the event each party prevails as to certain claims in connection with any such arbitration, the fees of the arbitrator shall be paid and/or reimbursed in -15- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. accordance with the decision of the arbitrator. Each party shall bear its own costs incurred in connection with attorneys' fees and related expenses. Notwithstanding the foregoing provisions of this Section 8.02, nothing in this Agreement shall limit or in any way restrict the ability of any party to seek injunctive or other equitable relief in a court or other judicial body. Section 8.03. Independent Contractors. In making and performing this Agreement, the parties are acting and shall act as independent contractors. Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship between the parties hereto. No party shall have the authority to obligate another party in any respect, and no party shall hold itself out as having any such authority. All personnel of Noven shall be solely employees of Noven and shall not represent themselves as employees of Shire Ireland. All personnel of Shire Ireland shall be solely employees of Shire Ireland and shall not represent themselves as employees of Noven. Section 8.04. Assignment. Prior to the date on which Shire has paid Noven the full amount of the Milestone Payments, Shire Ireland shall not have the right to assign this Agreement or delegate any of its rights, interests, duties or obligations hereunder. On and after the date Shire has paid Noven the full amount of the Milestone Payments, Shire Ireland shall have the right to assign this Agreement or delegate any of its rights, interests, duties or obligations; provided, that (i) Shire Ireland shall give written notice of such assignment or delegation to Noven, (ii) the assignee or delegatee shall confirm in writing to and for the benefit of Noven that it will comply with the covenants and agreements of Shire Ireland hereunder, and (iii) no such assignment or delegation pursuant to this Section 8.04 shall relieve Shire Ireland of any of its obligations or liabilities under this Agreement. Notwithstanding the foregoing, at any time during the term of this Agreement any party may assign this Agreement to any of its Affiliates without the prior written consent of the other parties; provided, that no such assignment of this Agreement shall relieve the assignor of any of its obligations or liabilities under this Agreement. Notwithstanding the foregoing, any party may assign this Agreement without the other parties' prior written consent in connection with the transfer or sale of all or substantially all of its assets or business or its merger or consolidation with another Person upon written notice to the other parties. Except as otherwise provided in the Toll Conversion and Supply Agreement, Noven shall have no obligation to supply the Product to any assignee or delegatee of Shire Ireland pursuant to this Section 8.04. Any attempted assignment in violation of this Section 8.04 shall be void. Section 8.05. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto, and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 8.06. Amendments. This Agreement shall not be modified, amended or supplemented except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto. Section 8.07. No Waiver. The failure in any one or more instances of a party to insist -16- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege conferred in this Agreement, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. Section 8.08. Counterparts. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures of each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. Each party may execute this Agreement on a facsimile of the Agreement. In addition, facsimile signatures of authorized signatories of any party shall be valid and binding and delivery of a facsimile signature by any party shall constitute due execution and delivery of this Agreement. Section 8.09. Interpretation. The article and section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and singular shall include the plural. Unless the context otherwise requires, the term "party" when used herein means a party hereto. References herein to a party or other Person include their respective successors and assigns. The words "include," "includes" and "including" when used herein shall be deemed to be followed by the phrase "without limitation" unless such phrase otherwise appears. Unless the context otherwise requires, references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words "hereof," "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision hereof. With regard to each and every term and condition of this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which party actually prepared, drafted or requested any term or condition of this Agreement. Section 8.10. Governing Law. This Agreement and any claims, disputes or causes of action relating to or arising out of this Agreement shall be construed in accordance with and governed by the substantive laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. Section 8.11. Unenforceability. If any provisions of this Agreement are determined to be invalid or unenforceable in any jurisdiction, such provisions shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the validity or enforceability of any of such provisions of this Agreement in any other jurisdiction. The parties will use their best efforts -17- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. to substitute the invalid or unenforceable provision with a valid and enforceable one which conforms, as nearly as possible, with the original intent of the parties. Section 8.12. Entire Agreement. (a) This Agreement, together with the other Transaction Documents, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, commitments, arrangements, negotiations or understandings, whether oral or written, between the parties hereto and their respective Affiliates with respect thereto. There are no agreements, covenants or undertakings with respect to the subject matter of this Agreement other than those expressly set forth or referred to herein and no representations or warranties of any kind or nature whatsoever, express or implied, are made or shall be deemed to be made herein by the parties hereto, except those expressly made in this Agreement and the other Transaction Documents. (b) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET FORTH IN THE PRECEDING SENTENCE, (I) NEITHER NOVEN NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES, IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE BUSINESS OR THE TECHNOLOGY GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF NOVEN OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY OR REGULATORY AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE, AND (II) NOVEN EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES OF MERCHANTABILITY. SHIRE IRELAND ACKNOWLEDGES THAT NOVEN HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY NOVEN OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE BUSINESS OR THE TECHNOLOGY OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY. Section 8.13. Expenses. Except as expressly set forth herein, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions, including attorneys', accountants' and other professional fees and expenses. -18- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 8.14. Force Majeure. If the performance of this Agreement or any obligation hereunder (except the payment of money) by any party is prevented or hindered, by reason of any cause beyond the reasonable control of the affected party, including fire, flood, riot, war, explosions, acts of God (including hurricanes and tropical storms), acts of a public enemy, labor disturbances or any governmental action, the party so affected, upon notice to the other parties, shall be excused from such performance; provided that the party so affected shall use diligent effort to avoid or remove such cause or causes of non-performance and shall continue to perform hereunder with the utmost dispatch whenever such cause or causes are removed. -19- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first above written. NOVEN PHARMACEUTICALS, INC. By: ------------------------------------ Name: Title: SHIRE PHARMACEUTICALS IRELAND LIMITED By: ------------------------------------ Name: Title: -20- ATTACHMENT VI TOLL CONVERSION AND SUPPLY AGREEMENT DATED AS OF ____________ __, 2003 BY AND BETWEEN NOVEN PHARMACEUTICALS, INC. AND SHIRE PHARMACEUTICALS IRELAND LIMITED TABLE OF CONTENTS

PAGE ---- ARTICLE I DEFINITIONS............................................. 1 Section 1.01. Definitions............................................. 1 Section 1.02. Other Definitions....................................... 6 ARTICLE II MANUFACTURE AND SUPPLY.................................. 6 Section 2.01. Supply of Product....................................... 6 Section 2.02. Materials............................................... 7 Section 2.03. Labeling................................................ 7 Section 2.04. Compliance with Applicable Law.......................... 7 Section 2.05. Steering Committee...................................... 8 ARTICLE III FORECASTS, ORDERS, DELIVERY AND ACCEPTANCE.............. 8 Section 3.01. Forecasts............................................... 8 Section 3.02. Initial Order........................................... 9 Section 3.03. Future Orders........................................... 9 Section 3.04. Annual Installed Capacity............................... 9 Section 3.05. Active Ingredient Quota................................. 9 Section 3.06. Excused Vendor Default.................................. 9 Section 3.07. Delivery................................................ 10 Section 3.08. Shipment................................................ 10 Section 3.09. Acceptance of Product................................... 11 ARTICLE IV CONVERSION PRICE AND PAYMENT............................ 12 Section 4.01. Invoice................................................. 12 Section 4.02. Conversion Price........................................ 12 Section 4.03. Adjustment of Product Gross Cost Resulting from Adjustments to Active Ingredient Cost.............. 12 Section 4.04. Active Ingredient Supplier.............................. 13 Section 4.05. Adjustment Pursuant to Producer Price Index............. 13 Section 4.06. Adjustment for Modification of Specifications........... 13 Section 4.07. Taxes................................................... 14 Section 4.08. Adjustment for Late Deliveries.......................... 14 ARTICLE V MANUFACTURING STANDARDS AND QUALITY ASSURANCE........... 14 Section 5.01. Product Warranties...................................... 14 Section 5.02. Manufacturing Standards; Release of Product............. 15 Section 5.03. Specifications.......................................... 15

ARTICLE VI AUDITS AND INSPECTION RIGHTS............................ 15 Section 6.01. Records and Audits...................................... 15 Section 6.02. Inspections by Governmental or Regulatory Agencies...... 15 ARTICLE VII ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES...... 16 Section 7.01. Confidentiality......................................... 16 Section 7.02. Safety.................................................. 17 Section 7.03. Product Recall.......................................... 17 Section 7.04. Insurance............................................... 18 Section 7.05. Ultimate Use of Product................................. 18 Section 7.06. Intellectual Property Matters........................... 18 Section 7.07. No Debarred Persons..................................... 19 Section 7.08. Labeling................................................ 19 Section 7.09. Second Source Arrangements.............................. 19 ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF PRINCIPAL............. 19 Section 8.01. Representations and Warranties of Principal............. 19 ARTICLE IX INDEMNIFICATION......................................... 20 Section 9.01. Indemnification......................................... 20 Section 9.02. Certain Limitations..................................... 22 ARTICLE X TERM AND TERMINATION.................................... 23 Section 10.01. Term.................................................... 23 Section 10.02. Certain Termination Events.............................. 23 Section 10.03. Optional Termination by Manufacturer.................... 24 Section 10.04. Obligations on Termination.............................. 24 Section 10.05. Effect of Termination................................... 24 Section 10.06. Anticipatory Breach..................................... 25 ARTICLE XI MISCELLANEOUS........................................... 25 Section 11.01. Notices................................................. 25 Section 11.02. Disputes................................................ 26 Section 11.03. Independent Contractors................................. 27 Section 11.04. Assignment.............................................. 27 Section 11.05. Binding Effect; Benefit................................. 28 Section 11.06. Amendments.............................................. 28 Section 11.07. No Waiver............................................... 28 Section 11.08. Counterparts............................................ 28 Section 11.09. Interpretation.......................................... 28 Section 11.10. Governing Law........................................... 29 Section 11.11. Unenforceability........................................ 29 -ii- Section 11.12. Entire Agreement........................................ 29 Section 11.13. Expenses................................................ 30 Section 11.14. Force Majeure........................................... 30 -iii- LIST OF EXHIBITS Exhibit A Negotiated Batch Yield Exhibit B Specifications Exhibit C Form of Purchase Order Exhibit D Estimated Conversion Price Based on Negotiated Batch Yield Exhibit D1 Form of Manufacturer Invoicing to Principal Exhibit E Quality Assurance Agreement Exhibit F Mechanism for Adjustment of Product Gross Price Resulting from Adjustment to Active Ingredient Cost -iv- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TOLL CONVERSION AND SUPPLY AGREEMENT This TOLL CONVERSION AND SUPPLY AGREEMENT (together with any Exhibits and Schedules hereto, this "Agreement"), is made as of this __ day of _______ 2003 (the "Effective Date"), by and between NOVEN PHARMACEUTICALS, INC., a Delaware corporation ("Manufacturer"), and SHIRE PHARMACEUTICALS IRELAND LIMITED, a Republic of Ireland corporation ("Principal"). W I T N E S S E T H: WHEREAS, Manufacturer, and Shire US Inc., a New Jersey corporation ("Shire"), and Shire Pharmaceuticals Group plc, a corporation organized under the laws of England and Wales, are parties to the Transaction Agreement, dated as of February 26, 2003 (the "Transaction Agreement"), pursuant to which Manufacturer has agreed to transfer to Shire certain of the assets held, owned or used by Manufacturer in connection with the Business; WHEREAS, simultaneously with the execution of this Agreement, Manufacturer and Principal are entering into a License Agreement (the "License Agreement"), pursuant to which Manufacturer will license to Principal the exclusive rights to the Technology to use, sell or otherwise dispose of the Product in the Territory; WHEREAS, Manufacturer desires to manufacture the Product and to supply Principal with certain of its requirements of the Product for sale in accordance with the License Agreement; and WHEREAS, Principal desires to purchase certain of its requirements of the Product from Manufacturer pursuant to the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions.. As used herein, the following capitalized terms have the following meanings: "Active Ingredient" means methylphenidate base. "Active Ingredient Cost" means ***. "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention Deficit Disorder. Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Affiliate" means, when used with respect to a Person, any other Person directly or indirectly controlling, controlled by or under common control with the subject Person. For purposes of this Agreement, "control" means the direct or indirect ownership of over 50% of the outstanding voting securities of a Person. "Applicable Law" means, with respect to any Person, any domestic or foreign, federal, state or local statute, treaty, law, ordinance, rule, regulation, administrative interpretation, order, writ, injunction, judicial decision, decree or other requirement of any Governmental Authority applicable to such Person or any of such Person's respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers', directors', employees', consultants' or agents' activities on behalf of such Person). "Batch" means, as to each size of the Product, respectively, the actual number of complete and usable units of such size of the Product yielded from a standard size kettle of raw materials as determined by applicable FDA validation requirements and blended for production of such size, it being understood and agreed that the actual yield obtained by Manufacturer from any such Batch will vary from time to time. The estimated number of units of each size of the Product expected to be yielded from each Batch produced thereof, as of the Effective Date, shall be as described in Exhibit A hereto, as such exhibit may be amended, modified or otherwise supplemented from time to time in accordance with the terms of this Agreement. "Business" means the business as conducted by Manufacturer prior to the Effective Date consisting of the development, manufacture, testing and clinical and non-clinical trials of the Product, and which business, upon receipt of the Regulatory Approval, shall additionally consist of marketing, advertising, promoting, distributing, selling, using and otherwise disposing of the Product. "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York, USA are authorized or required by law to close. "Code of Federal Regulations," or "C.F.R." means the codification of the general and permanent rules published in the Federal Register by the Executive department and agencies of the United States federal government. Title 21 of the C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act. "Confidential Information" means all secret, confidential or proprietary data, know-how and related information, including all INDs, NDAs, Regulatory Applications, Regulatory and Clinical Materials and related filings, applications and data, the content of any unpublished patent applications, operating methods and procedures, marketing, manufacturing, distribution and sales methods and systems, sales figures, pricing policies and price lists and other business information and shall include all information disclosed or accessed by the parties pursuant to the provisions this Agreement. "Contemplated Transactions" means the transactions contemplated by the Transaction Documents. -2- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Conversion Price" means ***. "Damages" means all liabilities, demands, obligations, assessments, judgments, levies, losses, fines, penalties, damages (including compensatory damages), costs and expenses, including reasonable attorneys', accountants', investigators', and experts' fees and expenses, reasonably sustained or incurred in connection with the defense or investigation of any Proceedings (including any Proceedings to establish insurance coverage). "DEA" means the United States Drug Enforcement Administration and any successor agency thereto. "Excused Vendor Default" means ***. "FDA" means the United States Food and Drug Administration and any successor agency thereto. "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. Section 301 et seq., as amended, and the regulations promulgated thereunder, as amended from time to time. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "GMP" means the current Good Manufacturing Practices as that term is defined by the FDA which are in force or hereafter adopted by the FDA in (i) its applicable regulations promulgated or issued thereunder, and (ii) good manufacturing practices as required by applicable regulations of any Regulatory Authority. "Governmental Authority" means any foreign, domestic, federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization (including any national or international securities exchange and The NASDAQ Stock Market), commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of any of the foregoing. "IND" means an Investigational New Drug Application, as defined in 21 C.F.R. Section 312.3. "Intellectual Property" means (i) all patents, copyrights, technology, know-how, processes, trade secrets, inventions (including inventions conceived prior to the Effective Date but not documented as of the Effective Date), proprietary data, formulae, research and development data and computer software programs, (ii) all trademarks, trade names, service marks and service names, (iii) all registrations, applications, recordings and common-law rights relating thereto, all rights to sue at law or in equity for any infringement or other impairment thereto, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections pertaining thereto, and (iv) all other United States, state and foreign intellectual property. -3- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Manufacture" means to formulate, process, produce, package, handle, store, hold, label, test, analyze, sample, release and ship the Product in accordance with the terms of the Specifications. "Manufacturing Facility" means Manufacturer's facility located at 11960 S.W. 144th Street, Miami, Florida 33186, or such other FDA-approved facility of Manufacturer approved by Principal for the purpose of Manufacture hereunder. "Materials" means all ingredients, items or substances (including those that may not appear in the Product) used or required for use by Manufacturer to Manufacture the Product, including the Active Ingredient, all other active drug ingredients, excipients, packaging components, printed materials and manufacturing materials that may have direct Product contact. "Milestone Payments" has the meaning specified in the Transaction Agreement. "New Drug Application" or "NDA" means an application, including amendments and supplements thereto, filed by a Person with the FDA to obtain FDA approval of a new drug or therapy, as the context indicates, as defined in 21 C.F.R. Section 314.3. "Out of Trend Event" means ***. "Person" means an individual, a corporation, a general partnership, a limited partnership, a limited liability company, a limited liability partnership, an association, a trust or any other entity or organization, including a Governmental Authority. "Proceedings" means governmental, judicial, administrative or adversarial proceedings (public or private), litigation, suits, arbitration, disputes, claims, causes of action or investigations. "Product" means the transdermal methylphenidate drug delivery system that has and is being developed, manufactured and tested by Manufacturer and for which there is currently pending the Product NDA, and all improvements, modifications and variations to the transdermal methylphenidate drug delivery system made by Manufacturer or its Affiliates during the term of the License Agreement. ***. "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by Manufacturer on December 12, 1997, seeking approval to develop, test and perform clinical and non-clinical trials of the Product, along with any amendments, correspondence or supplements thereto and incorporated therein. "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by Manufacturer on June 27, 2002, seeking approval to market the Product for the treatment of ADHD, along with any amendments, correspondence or supplements thereto and incorporated therein. "Regulatory and Clinical Materials" means all documents, supporting materials and other materials relating to the Regulatory Application, any regulatory approval or other matter required -4- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. to be submitted to any Regulatory Authority in relation to the Product, including IND and NDA and documents, supporting materials and other materials relating to any drug master file, investigators' brochures, clinical studies (including any Phase IV clinical studies), safety data, adverse event reports, questionnaires, consultants reports, correspondence (including correspondence with any Regulatory Authority), batch reports, protocols, specifications, quality assurance, quality control, customer queries and any responses thereto, and any compilation or evaluations thereof, and question and answer scripts. "Regulatory Application" means the applications submitted by Manufacturer to the FDA seeking approval for the development, manufacture, testing, storage, transport, marketing, advertisement, promotion, sale, use, distribution or other disposal of the Product in all or any portion of the Territory, including the Product IND and the Product NDA. "Regulatory Approval" has the meaning specified in the Transaction Agreement. "Regulatory Authority" means a Governmental Authority that has the authority over the manufacture, use, storage, import, export, clinical testing, transport, marketing, sale or distribution of the Product in all or any portion of the Territory, including the FDA and the DEA. "Regulatory Standards" means (i) the facility license requirements of all regulatory agencies applicable to the equipment and facilities used in the Manufacture of the Product or used in the storage of Materials, (ii) any laws, regulations, policies, or standards of any Governmental Authority that apply to Manufacturer's Manufacture of the Product or the storage of Materials, and (iii) any conditions or specifications contained in the Product IND, the Product NDA or the Regulatory Approval for the Materials and the Product. ***. "Securities Laws" means the United States Securities Act of 1933, as amended, the United States Securities Exchange Act of 1934, as amended, and any other similar law or regulation of a Governmental Authority, or any successor to any such laws or regulations, together with any rules, regulations or listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market. "Specifications" means, collectively, the Manufacturer manufacturing, packaging and standard testing procedures for the Product, including all applicable control procedures and analytical test methods contained therein, as described in Exhibit B attached hereto, as such exhibit may be amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement. "Subsidiary" as it relates to any Person, shall mean with respect to such Person, any other Person of which the specified Person, either directly or through or together with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their equivalents, other than as affected by events of default. "Technology" has the meaning specified in the License Agreement. -5- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Territory" means the United States of America. "Transaction Documents" has the meaning specified in the Transaction Agreement. Section 1.02. Other Definitions. Each of the following terms is defined in the section of this Agreement referenced opposite such term.

Term Section - ---- ------- Agreement............................................................. Preamble Alternative Supplier.................................................. 7.09(b) Annual Installed Capacity............................................. 3.04 Disclosing Party...................................................... 7.01 Force Majeure Event................................................... 11.14 Effective Date........................................................ Preamble Indemnified Party..................................................... 9.01(c) Indemnifying Party.................................................... 9.01(c) Index................................................................. 4.05(a) License Agreement..................................................... Recitals Manufacturer.......................................................... Preamble Manufacturer Indemnitees.............................................. 9.01(a) Manufacturing Problem................................................. 10.06(a) Obligations........................................................... 11.15 Principal............................................................. Preamble Principal Indemnitees................................................. 9.01(b) Purchase Order........................................................ 3.03 Quality Assurance Agreement........................................... 5.02 Receiving Party....................................................... 7.01 Rejection Notice...................................................... 3.09(a) Shortfall............................................................. 10.06(d) Steering Committee.................................................... 2.05 Shire................................................................. Recitals Technical Dispute..................................................... 3.09(c) Term.................................................................. 10.01 Transaction Agreement................................................. Recitals

ARTICLE II MANUFACTURE AND SUPPLY Section 2.01. Supply of Product. Subject to the terms and conditions of this Agreement, the Transaction Agreement and the License Agreement, from and after the Effective Date, Manufacturer shall Manufacture on a toll basis and deliver exclusively for and to Principal the Product ordered by Principal pursuant to the terms of this Agreement, and, except as otherwise expressly provided herein, Principal shall order and purchase from Manufacturer at least *** -6- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (calculated on a calendar year basis) of Principal's requirements of the Product for sale, use or other disposal within the Territory. Notwithstanding the foregoing, Manufacturer's obligation to supply Product to Principal hereunder is subject to exception for an Excused Vendor Default and, in respect of the Active Ingredient, also subject to the payment by Principal for the Active Ingredient in the quantities requested by Manufacturer from time to time and the ordering by Principal of the quantities requested for delivery at the times requested by Manufacturer from time to time. Section 2.02. Materials. Subject to the terms and conditions of this Agreement, the Transaction Agreement and the License Agreement, Manufacturer shall (a) procure at its expense from third parties sufficient quantities of Materials as required from time to time for the Manufacture of the Product; provided, that Principal shall procure at its sole expense sufficient quantities of Active Ingredient as are requested from time to time by Manufacturer for the Manufacture of the Product, and (b) ensure that all Materials used by Manufacturer conform to the Specifications and are tested in accordance with, and will meet, all applicable Regulatory Standards including GMPs. Section 2.03. Labeling. Manufacturer covenants and agrees that the labeling, including any inserts, utilized in the packaging of the Product will conform to the package and/or label copy provided by Principal, which packaging and labeling shall be in compliance with the terms and conditions of the Quality Assurance Agreement. Section 2.04. Compliance with Applicable Law. Principal hereby covenants and agrees that Principal and its Affiliates shall store, handle, transport, market, promote, sell, distribute, use and otherwise dispose of any Product supplied by Manufacturer, and any materials used in connection with such Product, including any labeling, packaging and advertising, in accordance with all Applicable Laws. -7- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 2.05. Steering Committee. (a) To facilitate the Manufacture of Product hereunder, Manufacturer and Principal shall each within 30 days of the Effective Date nominate representatives from their respective employees, full time consultants or Affiliates to a Steering Committee (the "Steering Committee") to serve in an advisory capacity with respect to their respective obligations under this Agreement to (i) review manufacturing operations for the purpose of considering, proposing and developing improvements to the ordering and manufacturing process and to the way the parties communicate and interact, (ii) consider strategic planning and facilitate manufacturing operations, (iii) provide ongoing advisory services with respect to manufacturing services hereunder, and (iv) attempt to resolve amicably any disputes arising between Manufacturer and Principal with respect to day-to-day operations. The Steering Committee is intended to provide a mechanism to foster a better working relationship between the parties. Except as otherwise expressly provided herein, the Steering Committee shall not have any authority or responsibility hereunder or require any matter to be brought (and no party shall be required to bring any matter) before the Steering Committee prior to pursuing any available remedy. Furthermore, no action of the Steering Committee shall conflict or be inconsistent with the terms of this Agreement absent an amendment to this Agreement agreed to by the parties in writing. (b) Manufacturer and Principal shall appoint as members of the Steering Committee a reasonable number of suitably qualified and experienced representatives of each of Manufacturer and Principal and shall each designate one member appointed by it to be the principal contact in relation to the day to day management of and administration of this Agreement. Each of Manufacturer and Principal shall appoint no more than four persons to the Steering Committee. (c) The Steering Committee shall meet at regular intervals on such dates and at such locations as may be agreed upon by Manufacturer and Principal, by video or telephone conference. In particular, the Steering Committee shall strive to meet at least once per quarter, but in any event shall meet no less than twice per year during the term of this Agreement unless otherwise agreed by Manufacturer and Principal. The Steering Committee may also meet upon 15 days' written request by either Manufacturer or Principal, should circumstances necessitate such a meeting. ARTICLE III FORECASTS, ORDERS, DELIVERY AND ACCEPTANCE Section 3.01. Forecasts. Within seven Business Days after the first day of each calendar month during the Term, Principal will provide Manufacturer with a non-binding (except as otherwise provided in Section 3.03), rolling 12-month forecast of its requirements for Batches of the Product. Such 12-month forecast shall indicate the number of Batches of each size of the Product, as well as the number of Batches of placebos of each size of the Product, forecasted to be ordered by Principal for each month. Principal shall use reasonable commercial efforts to ensure that its forecasts are as accurate as possible. -8- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 3.02. Initial Order. Manufacturer and Principal hereby acknowledge and agree that, in order to address Principal's initial requirements for the commercial launch of the Product and for the month after commercial launch***. Section 3.03. Future Orders. From and after the initial production period contemplated by Section 3.02, Principal shall submit to Manufacturer standard form purchase orders in the form of Exhibit C hereto (each, a "Purchase Order"), for each order placed by Principal pursuant to this Agreement. With respect to each of the 12-month forecasts to be provided by Principal in accordance with Section 3.01, the quantities set forth for the first three months of each such 12-month period shall constitute firm and binding orders for such forecasted quantities and shall be subject to binding Purchase Orders. The quantities set forth for the fourth, fifth and six months of each such 12-month period shall constitute partially binding orders, such that Principal shall be bound to purchase, for any particular month, *** of the Batches of each size of the Product forecasted by Principal for such month at the time that such month was the sixth month in any 12-month forecast; provided, that upon request by Principal, Manufacturer shall attempt in good faith to supply a quantity of the Product in excess of *** of the Batches previously forecasted by Principal for any such month. Each Purchase Order shall indicate a specific delivery date, which date shall be no sooner than 90 days after submission of any such Purchase Order to Manufacturer. Principal shall be bound to purchase, and Manufacturer, subject to Sections 3.06, 3.07 and 11.14, shall be bound to Manufacture and deliver to Principal by the applicable delivery date, the Product ordered pursuant to each Purchase Order properly submitted to Manufacturer. Each Purchase Order shall be placed in a minimum quantity, as to each size of the Product, equal to one Batch of such Product size and in increments of additional Batches thereafter. In the event that the terms and conditions of any Purchase Order are inconsistent with or conflict with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall govern. Section 3.04. Annual Installed Capacity. Manufacturer and Principal acknowledge and agree that Manufacturer's maximum installed capacity for production of the Product for the remainder of calendar year 2003 is *** units of Product per month (the "Annual Installed Capacity"). ***. For calendar years after 2003, the Steering Committee shall consult to evaluate and review the Annual Installed Capacity as represented by Manufacturer to Principal from time to time and the then effective forecasts delivered by Principal to identify any potential shortfalls in Manufacturer's capacity that need to be addressed by Manufacturer and Principal. Forecasts submitted by Principal pursuant to Section 3.01 and orders placed by Principal pursuant to Sections 3.02 and 3.03, as to any month, shall be for quantities of the Product that fall within Manufacturer's Annual Installed Capacity for such month. Section 3.05. Active Ingredient Quota. On April 1 of each calendar year, Principal shall deliver to Manufacturer a forecast of its requirements of the Product for the following calendar year, for the purpose of assisting Manufacturer in projecting its demand for the Active Ingredient for such calendar year for submission to and approval by the DEA. The Steering Committee shall consult in good faith in September of each calendar year in order to determine whether any adjustments to such projection and the related quota are appropriate. Section 3.06. Excused Vendor Default. In the event Manufacturer or Principal shall become aware of an actual or potential Excused Vendor Default that such party reasonably -9- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. anticipates will adversely affect Manufacturer's ability to ship on the delivery date set forth in any Purchase Order such party shall provide notice thereof to the other as soon as practicable. In the event of such an Excused Vendor Default, Manufacturer and Principal shall cooperate to establish a reasonable new delivery date. Manufacturer's failure to meet any delivery date set forth in a Purchase Order by reason of an Excused Vendor Default shall neither (a) constitute a breach by Manufacturer of the terms of this Agreement pursuant to Section 10.02(b), nor (b) be considered as a delivery failure for purposes of Section 4.08 or Section 10.02(c). Section 3.07. Delivery. The actual number of units delivered pursuant to any Purchase Order for the Manufacture of the Product shall be equal to the number of units of each size of the Product or placebos of the Product, as the case may be, produced in each Batch thereof, subject to reduction of the number of units produced in any Batch by the number of units not suitable for release or otherwise retained pursuant to the provisions of the Quality Assurance Agreement. In the event Manufacturer shall deliver less than *** of the units ordered by Principal pursuant to any Purchase Order (which number of units shall be determined with reference to the number of units estimated to be yielded by each Batch ordered by Principal as reflected on Exhibit A), Manufacturer shall notify Principal in writing of the amount of such shortfall upon delivery of the Product to Principal. Principal shall, within 30 days of receipt of such delivery, either (a) accept such delivery in full satisfaction of the Purchase Order (as to quantity only and not in waiver of Principal's opportunity to reject such Product pursuant to Section 3.09), or (b) issue a replacement Purchase Order for an additional Batch of the Product, and Manufacturer shall use reasonable commercial efforts to deliver such Product within 60 days of the date of such replacement Purchase Order; provided, that in either case Principal shall accept and pay Manufacturer the Conversion Price for the units of Product delivered and Manufacturer shall, to the extent applicable, be subject to the financial provisions of Section 4.08. Principal's failure to issue a replacement Purchase Order within such 30-day period shall be deemed as an acceptance of such delivery pursuant to subsection (a) above. Any replacement Purchase Order submitted by Principal to Manufacturer pursuant to this Section 3.07 shall be subject to the same terms and conditions of this Agreement as a Purchase Order submitted pursuant to Section 3.03. Section 3.08. Shipment. Title to and insurable interest in the Active Ingredient shall remain with Principal at all times during Manufacture of the Product. Shipment of the Product shall be FOB Manufacturer's Manufacturing Facility. Title to shipments of the Product (other than that portion constituting the Active Ingredient) and risk of loss in respect thereof shall pass to Principal upon placement of such shipments at the disposal of Principal's designated carrier at Manufacturer's Manufacturing Facility. Principal shall ensure the use of temperature-controlled vehicles for shipment of the Product to ensure that the viability of the Product is maintained in accordance with the Specifications. All actual transportation costs and all costs and charges associated with shipping the Product shall be borne entirely by Principal; provided, that Manufacturer shall arrange for and pay the costs of handling and transporting the Product to Principal and shall invoice Principal for such costs and expenses. Principal shall deliver to Manufacturer a list of preferred carriers, and Manufacturer shall select the carrier therefrom. -10- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 3.09. Acceptance of Product. (a) Principal shall, (i) in the case of defects which are determinable by testing upon receipt in accordance with standard quality control procedures or are otherwise apparent, within 30 days after Principal receives delivery of shipment of the Product, or (ii) in the case of latent defects, within 30 days from the date that Principal should have discovered such defect, notify Manufacturer in writing of any rejection of any such Product (a "Rejection Notice"), on the basis of (A) any non-compliance with the Specifications of all or any part of said shipment or the occurrence of an Out of Trend Event that gives rise to a right of rejection under Section 3.09(f), or (B) failure of any such shipment to conform with any product warranty set forth in Section 5.01, to the extent such non-compliance or failure is not due to the fault of Principal. Failure to provide a possible Rejection Notice to Manufacturer within the applicable 30-day period shall constitute acceptance by Principal of the shipment, and Manufacturer shall have no liability for any deviations for which it has not received notice within such 30-day period. Any such possible Rejection Notice shall state in reasonable detail (sufficient to enable Manufacturer to identify the nature of the problem for tests or studies to be conducted by or on its behalf or to dispute the same) the reason why Principal believes the Product may not be acceptable to Principal. Principal shall, within five days of the delivery by Principal of any such possible Rejection Notice, provide samples of the Product being rejected, if appropriate, and copies of written reports relating to tests, studies or investigations performed to that date by or on behalf of Principal on the Batch of the Product being rejected. (b) Principal's test results or basis for rejection shall be conclusive unless Manufacturer notifies Principal, within 30 days of receipt by Manufacturer of the Rejection Notice, that it disagrees with such test results or basis for rejection. If Principal and Manufacturer fail to agree within 10 days after Manufacturer's notice to Principal as to whether any Product identified in the Rejection Notice deviates from the Specifications, representative samples of the Batch of the Product in question shall be submitted to a mutually acceptable independent laboratory or consultant (if not a laboratory analysis issue) for analysis or review. The results of such evaluation shall be binding upon the parties. If Manufacturer and Principal determine by agreement or if such evaluation certifies that the Product was properly rejected by Principal, Principal may reject the Product in the manner contemplated by Section 3.09(e). The party that is determined to have been incorrect in its determination of whether the Product should be rejected shall pay the costs of any such evaluation. ***. (c) In the event of a dispute (other than disputes in relation to the matters set out in Section 3.09(b)) between Manufacturer and Principal that is exclusively related to technical aspects of the manufacturing, packaging, labeling, quality control testing, handling, storage or other activities under this Agreement (a "Technical Dispute"), Manufacturer and Principal shall make all reasonable efforts to resolve the dispute by amicable negotiations pursuant to Section 11.02. (d) If any order of the Product is rejected by Principal, Principal's duty to pay all amounts payable to Manufacturer in respect of the rejected Product shall be suspended unless the rejection is rescinded as per Section 3.09(b). If only a portion of an order is rejected, only the duty to pay the amount allocable to such portion shall be suspended. -11- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (e) In the event an order or partial order is rejected by Principal pursuant to the provisions of this Section 3.09, Principal shall return to Manufacturer (or, at the election of Manufacturer, destroy and provide evidence of such destruction to Manufacturer) any units of such rejected Product. Manufacturer shall, at Principal's election, (i) credit the original invoice in respect of the rejected Product and re-invoice Principal for the units that were not rejected and offset any reasonable expenses related to the return or destruction against other amounts then due Manufacturer hereunder, or (ii) at Manufacturer's cost and expense, replace such rejected Product with conforming Product as soon as practicable after Manufacturer's receipt of Principal's instructions to deliver replacement Product and credit Principal any reasonable expenses related to the return or destruction of the rejected Product; provided, however, that in either case Manufacturer shall have no liability or obligation to Principal under this Section 3.09(e) if it is determined that any such defect is attributable to the failure by any Person (including Principal) to properly store, transport or care for any unit of such Product after such Product left Manufacturer's possession. (f) If an Out of Trend Event shall occur, Manufacturer and Principal shall commence a review of the relevant data and commence an investigation in accordance with the terms and conditions of the Quality Assurance Agreement. The results of such investigation shall be reviewed by the Steering Committee or its designees and if the Steering Committee or its designees determines that the Out of Trend Event is reasonably expected to result in a recall or other adverse event and Principal decides not to release the Batch that is the subject of the Out of Trend Event, Principal shall be entitled to reject such Product within 30 days of such determination. ARTICLE IV CONVERSION PRICE AND PAYMENT Section 4.01. Invoice. Manufacturer shall invoice Principal promptly following the release and shipment of an order of the Product. Subject to the provisions of Section 3.09(d) and Section 3.09(e), payment for each delivery of the Product to Principal shall be due within 30 days after the date of Manufacturer's invoice. All payments required to be made hereunder shall be paid in United States dollars and made by corporate check drawn on a United States bank or a United States branch of a foreign bank, or by wire transfer of immediately available funds to the financial institution, account number and account party's name designated in writing by Manufacturer to Principal from time to time. Overdue invoices shall bear interest at the rate of 1.5% per month until such amount is paid. Section 4.02. Conversion Price. Subject to adjustment as set forth in this Article IV, Principal agrees to pay Manufacturer the Conversion Price per unit of the Product, which Conversion Price for units of each size of the Product, and for placebos of the Product, respectively, as of the Effective Date shall be as set forth in Exhibit D. ***. Section 4.03. Adjustment of Product Gross Cost Resulting from Adjustments to Active Ingredient Cost. Manufacturer and Principal acknowledge that changes in the Active Ingredient Cost will impact the calculations of Product Gross Cost as presented on Exhibit D1. Exhibit F -12- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. provides the mechanism for adjusting Product Gross Cost for changes in the Active Ingredient Cost. In the event of any change in the Active Ingredient Cost, Principal shall advise Manufacturer in writing of such change. Section 4.04. Active Ingredient Supplier. In the event Principal shall purchase the Active Ingredient from any supplier other than the supplier of the Active Ingredient specified in the Product NDA, Principal shall make any required filings with applicable Regulatory Authorities and shall pay and/or reimburse Manufacturer for (a) the cost of auditing alternative suppliers of the Active Ingredient, and (b) the qualification or other costs and expenses of changing suppliers of the Active Ingredient, including any changeover costs (such as, for example, scrap and waste costs) associated with the selection of a new supplier of the Active Ingredient. Any alternative supplier of the Active Ingredient selected by Principal shall conform to Manufacturer's alternative raw materials acceptance process, which determination shall be made in Manufacturer's sole discretion. A copy of Manufacturer's alternative raw materials acceptance process will be provided to Principal upon signing of this Agreement. Section 4.05. Adjustment Pursuant to Producer Price Index. (a) On January 1, 2005 and on January 1 of each year thereafter, the Conversion Price shall be adjusted pursuant to the Producer Price Index for Pharmaceutical Preparations published by the U.S. Department of Labor, Bureau of Labor Statistics (the "Index"). Any such adjustment shall be determined by multiplying the respective Conversion Price for each size of the Product, and for placebos of the Product, by a fraction, the numerator of which shall be the value of the Index set forth in this Section 4.05(a) for the month of June of the year prior to the year in which the computation is made, and the denominator of which shall be the value of the Index for June 2003. For example, when adjusting the Conversion Price in January 2005, the numerator shall be the Index value for June 2004 and the denominator shall be the Index value for June 2003. Notwithstanding the foregoing, for any given calendar year no increase of the Conversion Price in excess of *** shall be made pursuant to this Section 4.05(a). (b) Should the publication of said Index be discontinued by said U.S. Department of Labor, then such other indexes as may be published by said Department most nearly approaching said discontinued Index shall be used in determining the adjustment hereunder. Should said Department discontinue the publication of any such index, then such index as may be published by another United States governmental agency, as most nearly approximating the Index, shall govern and be substituted as the Index hereunder. Section 4.06. Adjustment for Modification of Specifications. In the event a change in the Specifications pursuant to Section 5.03 shall result in increased packaging or production costs to Manufacturer, (a) ***, (b) Principal shall reimburse Manufacturer for the costs of implementing any changes requested by Principal in labeling, packaging and preprinting of backing or pouch materials and of discontinuing stock of the same due to such changes, and (c) any inventory of Manufacturer, including work-in-progress and finished goods rendered obsolete or rejected as a result of a formula, process, artwork or packaging change requested by Principal or required by any Regulatory Authority shall be reimbursed to Manufacturer by Principal at Manufacturer's standard cost. -13- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 4.07. Taxes. In addition to the Conversion Price provided for in this Article IV, Principal shall reimburse Manufacturer for any federal, provincial or local excise or other tax or assessment that Manufacturer may be required to pay upon the sale, production or transportation of the Product (excluding taxes based on Manufacturer's income or Manufacturer's franchise fees or taxes and excluding amounts Manufacturer is required to pay in connection with the importation of Material). Section 4.08. Adjustment for Late Deliveries. In the event that a particular order of the Product is not delivered within 30 days of the delivery date set forth on the applicable Purchase Order therefor, Principal may, in its sole discretion, on the 31st day after such delivery date, impose a *** reduction in the Conversion Price for such order and may, in the event such order has not been delivered within 60 days and/or 90 days after such acknowledged delivery date, in its sole discretion, on the 61st and/or 91st day after such delivery date, impose additional *** reductions in the Conversion Price for each such shipment; provided, that Principal shall only have rights pursuant to this Section 4.08 in the event Manufacturer shall fail to deliver Product pursuant to a Purchase Order for any reason other than yield variations; and provided further, that Manufacturer shall have no rights pursuant to this Section 4.08 in the event that the cause for such late delivery is due to (a) a circumstance contemplated by Section 11.14, (b) an Excused Vendor Default, or (c) the fault of Principal. ARTICLE V MANUFACTURING STANDARDS AND QUALITY ASSURANCE Section 5.01. Product Warranties. Manufacturer hereby covenants and agrees that: (a) Manufacturer will Manufacture and deliver to Principal the Product in accordance with, and the Product will conform with, the Specifications for such product and all requirements set forth in the Product NDA, including specifications and requirements relating to composition, purity, appearance and stability, and the Product shall be capable of maintaining such until the applicable expiration date for such Product; (b) Manufacturer will comply with all Applicable Laws relating to the Manufacture of such Product, including all then current GMPs applicable to the Manufacture of the Product which are in force or hereafter adopted by the FDA or any successor agency thereto, and it will ship the Product in accordance with DEA requirements and Applicable Law; (c) the Product shall not be misbranded, adulterated, manufactured, packaged or transported in violation of Articles 501, 502, 505 or 506A of the FDC Act, as amended from time to time; and (d) all Product supplied by Manufacturer hereunder shall be transferred to Principal free and clear of all liens, title claims, encumbrances, security interests and other third party claims. -14- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 5.02. Manufacturing Standards; Release of Product. Each Batch of the Product manufactured by Manufacturer shall comply with the provisions of the Quality Assurance Agreement attached hereto as Exhibit E (the "Quality Assurance Agreement"). Section 5.03. Specifications. The Specifications may be amended only by mutual agreement of Manufacturer and Principal, provided, that notwithstanding the foregoing, Manufacturer may unilaterally amend the Specifications at any time prior to receipt of Regulatory Approval to the extent required by any Regulatory Authority. In the event of an amendment to the Specifications pursuant to this Section 5.03 the Conversion Price shall be adjusted in accordance with Section 4.06. ARTICLE VI AUDITS AND INSPECTION RIGHTS Section 6.01. Records and Audits. (a) Manufacturer shall keep complete and accurate records concerning costs incurred in qualifying additional suppliers of the Active Ingredient and costs incurred in implementing changes in Specifications and any other costs and expenses relevant to the changes in the amounts payable to Manufacturer hereunder. Such records shall be kept in accordance with GAAP applied on a consistent basis. If Manufacturer or Principal shall invoke any of Sections 4.04 or 4.06, then Manufacturer shall, at Principal's request and expense, make those records applicable to such Section available for examination by independent certified public accountants or auditors designated by Principal and approved by Manufacturer, which approval shall not be unreasonably withheld or delayed; provided, that Principal shall only have access to such records of Manufacturer in connection with the invocation of the provisions of either Section 4.04 or 4.06. (b) Principal shall keep complete and accurate records concerning the Active Ingredient Cost. Such records shall be kept in accordance with GAAP applied on a consistent basis. If Manufacturer or Principal shall invoke Section 4.03, then Principal shall, at Manufacturer's request and expense, make such records available for examination by independent certified public accountants or auditors designated by Manufacturer and approved by Principal, which approval shall not be unreasonably withheld or delayed; provided, that Manufacturer shall only have access to such records of Principal in connection with the invocation of the provisions of Section 4.03. Section 6.02. Inspections by Governmental or Regulatory Agencies. Manufacturer shall promptly give Principal advance notice, to the extent that advance notice is given to Manufacturer, of any site visit to the Manufacturing Facility by any Governmental Authority the purpose of which is to inspect the manufacture, storage, disposal or transportation of the Product in accordance with the terms and conditions of the Quality Assurance Agreement. -15- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE VII ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES Section 7.01. Confidentiality. (a) Pursuant to the terms of this Agreement, each party (in such capacity, the "Disclosing Party"), has disclosed and will be disclosing to the other parties and/or their Affiliates or representatives (in such capacity, the "Receiving Party"), certain Confidential Information of the Disclosing Party. The Receiving Party shall make no use of such Confidential Information except in the exercise of its rights and the performance of its obligations set forth in this Agreement. The Receiving Party shall use the same efforts to keep secret, and prevent the disclosure to third parties of, Confidential Information of the Disclosing Party as it would use with respect to its own Confidential Information. Confidential Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted herein. The above restrictions on the use and disclosure of Confidential Information shall not apply to any information which (i) is already known to the Receiving Party at the time of disclosure by the Disclosing Party, as demonstrated by competent proof, (ii) is or becomes generally available to the public other than through any act or omission of the Receiving Party in breach of this Agreement, (iii) is acquired by the Receiving Party from a third party who is not, directly or indirectly, under an obligation of confidentiality to the Disclosing Party with respect to same, or (iv) is developed independently by the Receiving Party without use, direct or indirect, of information that is required to be held confidential hereunder. (b) In the event the Receiving Party is required (i) by Applicable Law to disclose Confidential Information of the Disclosing Party to any Regulatory Authorities to obtain Regulatory Approval for the Product or to comply with the requirement of any Regulatory Authority, (ii) to disclose Confidential Information of the Disclosing Party to respond to an inquiry of a Regulatory Authority or Governmental Authority concerning the Product, or (iii) to disclose Confidential Information of the Disclosing Party in a judicial, administrative or arbitration proceeding to enforce such party's rights under this Agreement, it may do so only if it (A) provides the Disclosing Party with as much advance written notice as possible of the required disclosure, (B) cooperates with the Disclosing Party in any attempt to prevent or limit the disclosure, and (C) limits disclosure, if any, to the specific purpose at issue. (c) Notwithstanding the provisions of this Section 7.01: (i) Principal shall be permitted to disclose to its distributors, wholesalers and other direct customers such Confidential Information relating to the Product as Principal shall reasonably determine to be necessary or useful in order to effectively market and distribute the Product; (ii) Manufacturer shall be permitted to disclose such Confidential Information relating to the Product as Manufacturer shall reasonably determine to be necessary or useful in order to effectively perform its obligations under this Agreement; -16- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (iii) Manufacturer shall be permitted to disclose such Confidential Information relating to the Product as it shall reasonably determine to be necessary or useful in order to pursue or obtain any regulatory approvals in respect of any other transdermal drug delivery products; (iv) each of Manufacturer and Principal shall be permitted to disclose to a Regulatory Authority such Confidential Information relating to the Product as it shall reasonably determine (but only after consulting with the other parties to the extent practicable) to be necessary to comply with the provisions of Applicable Law; and (v) nothing in this Section 7.01 shall be interpreted to limit the ability of either Manufacturer or Principal to disclose its own Confidential Information to the other parties or any other Person on such terms and subject to such conditions as it deems advisable or appropriate; provided, however, that in each such case any third party recipients of any Confidential Information (other than a Regulatory Authority or other Governmental Authority) undertake substantially the same confidentiality obligation as the parties hereunder with respect to such Confidential Information. (d) Each of Manufacturer and Principal acknowledge and agree that the terms and conditions of this Agreement shall be considered Confidential Information of each party and shall be treated accordingly. Notwithstanding the foregoing, Principal acknowledges and agrees that Manufacturer may be required to disclose some or all of the information included in this Agreement in order to comply with its obligations under the Securities Laws, and hereby consents to such disclosure to the extent deemed advisable or appropriate by counsel to Manufacturer (but only after consulting with Principal to the extent practicable). (e) Each party specifically recognizes that any breach by it of this Section 7.01 may cause irreparable injury to the other parties and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), each party agrees that in the event of any such breach, notwithstanding the provisions of Section 11.02 or Article IX hereof, the other parties shall be entitled to seek, by way of private litigation in the first instance, injunctive relief and such other legal and equitable remedies as may be available. Section 7.02. Safety. Manufacturer shall comply with all applicable health and safety regulations, policies and procedures relating to the manufacture and packaging of the Product, including the transmission by Manufacturer to its employees of health and safety information relating to the Product, its manufacture, storage, disposal and transportation. Section 7.03. Product Recall. Product recalls shall be conducted in accordance with the terms of the Quality Assurance Agreement. Each of Manufacturer and Principal shall make a permanent, complete and accurate record of all costs incurred by its connection with any Product recall, a copy of which shall be delivered to the other as soon after the completion of such recall -17- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. or seizure as practically may be done. If the cause of or reason for said recall or seizure arises from or is attributable to Manufacturer's negligence or breach of this Agreement, Manufacturer shall reimburse Principal for all reasonable costs incurred by Principal in effecting such recall or seizure. If the cause of or reason for said recall or seizure is directly attributable to the negligence of, or breach of this Agreement by, Principal, Principal shall reimburse Manufacturer for all reasonable costs incurred by Manufacturer at Principal's request in effecting such recall or seizure. If Manufacturer and Principal cannot agree which party is at fault, then an independent technical expert, acceptable to both, will be designated to make the determination. The so designated technical expert shall not be an employee, consultant, officer, director or shareholder of or otherwise associated with any party or an Affiliate of any party. The technical expert's determination shall be, in the absence of fraud or manifest error, binding and conclusive upon the parties. Section 7.04. Insurance. Throughout the Term, each of Manufacturer and Principal shall maintain commercial liability insurance, including blanket commercial liability insurance covering the obligation of that party under this Agreement through the term of this Agreement and for five years thereafter, which insurance shall afford limits of not less than *** per occurrence, (and in the aggregate only with respect to personal injury liability) for bodily injury liability, products liability, property damage liability, contractual liability and completed operations liability with an insurance carrier qualified to do business in the United States. Each of Manufacturer and Principal shall promptly furnish to the other evidence of the maintenance of the insurance required hereunder and shall name the other as an "additional insured" under a broad form vendor's endorsement to such insurance policy. In case any such policies are written on a "claims made" basis, such policies shall remain in effect for a period of five years following the expiration or earlier termination of this Agreement. Notwithstanding the foregoing, the obligation of each of Manufacturer and Principal to obtain insurance in accordance with this Section 7.04 is subject to the availability of such insurance from nationally recognized carriers at reasonable rates and on reasonable terms and conditions, which reasonableness shall be determined in the judgment of each party, respectively, in accordance with such party's past practices in the ordinary course of business. In the event either party shall be unable to obtain insurance as contemplated by this Section 7.04, such party shall notify the other party as soon as practicable and shall have the right to self-insure such coverage; provided that any party opting to so self-insure shall provide to the other party reasonable information regarding its self-insurance program. Section 7.05. Ultimate Use of Product. Manufacturer and Principal acknowledge and agree that Manufacturer has no control over the ultimate use of the Product and Manufacturer shall have no liability in connection with any such use, provided, that such liability does not result from Manufacturer's negligence or breach of the terms of this Agreement. Section 7.06. Intellectual Property Matters. Manufacturer and Principal acknowledge and agree that all matters governing the ownership, license, and rights, title and interest in and to the Technology and any other Intellectual Property associated with the Product, including any improvements, inventions, discoveries or other future developments related thereto, shall be governed by the terms and conditions of the License Agreement. -18- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Section 7.07. No Debarred Persons. Each of Manufacturer and Principal covenants and agrees that it has not and will not use in any capacity the services of any Person debarred under subsections (a) or (b) of Section 306 of the FDC Act in connection with its performance of this Agreement. Section 7.08. Labeling. All labeling and artwork approved, designated or supplied by Principal shall be in compliance with all Applicable Laws and Regulatory Standards. Compliance with all federal, state and local laws shall be the sole responsibility of Principal, provided that Manufacturer shall process such packaging and labeling in accordance with the Specifications and all applicable Regulatory Standards, including the GMPs. Section 7.09. Second Source Arrangements. (a) For a period commencing on the Closing Date and expiring ***, Manufacturer and Principal shall consult in good faith with a view toward determining whether they are able to reach an agreement upon terms and conditions on which Manufacturer shall establish a second site of Manufacturer for purposes of the Manufacture of the Product. (b) In the event that, by ***, Manufacturer and Principal are unable to reach agreement upon the terms and conditions on which Manufacturer shall establish a second site of Manufacturer for purposes of the Manufacture of the Product, Principal shall be entitled to take steps to qualify a third-party second source supplier of the Product (the "Alternative Supplier"), which Alternative Supplier shall be subject to approval of Manufacturer, which approval shall not be unreasonably withheld or delayed. All costs and expenses, including out-of-pocket expenses incurred by Manufacturer, associated with qualifying an Alternative Supplier shall be borne by Principal. (c) Upon the written request of Principal, in the event Principal seeks to qualify an Alternative Supplier pursuant to Section 7.09(b), Manufacturer shall provide reasonable assistance to such Alternative Supplier and access to such of its Confidential Information and Technology as may be reasonably necessary for the Alternative Supplier to Manufacture the Product for sale to Principal. Section 7.10. Active Ingredient Supply Arrangement. ***. ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF PRINCIPAL Section 8.01. Representations and Warranties of Principal. Principal represents and warrants to Manufacturer as of the Effective Date that: (a) Organization. Principal is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. As of the Closing Date, Principal will be duly qualified to do business in each jurisdiction where the character of its business (after giving effect to the Contemplated Transactions) make such qualifications necessary to carry on its business. -19- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (b) Power, Authority and Enforceability. Principal has full corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein. This Agreement has been or shall be duly executed and delivered by duly authorized signatories of Principal. This Agreement constitutes a valid and binding obligation of Principal, enforceable against Principal in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally. (c) No Violation. Neither the execution and delivery of this Agreement nor the consummation by Principal of the transactions contemplated hereby, will (i) conflict with or result in a breach of any of the terms, conditions or provisions of Principal's certificate of incorporation or other governing or charter document, or of any statute or administrative regulation, or, to the best of its knowledge, of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award or any agreement binding upon Principal or its assets, or (ii) to the best of its knowledge, contravene or conflict with, or constitute a violation of, any provisions of any Applicable Law binding upon Principal. (d) No Default. Principal is not a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Principal according to the terms of this Agreement will be a default, or whereby timely performance by Principal according to the terms of this Agreement may be prohibited, prevented or delayed. ARTICLE IX INDEMNIFICATION Section 9.01. Indemnification. In order to distribute between themselves the responsibility for claims arising out of this Agreement, and except as otherwise specifically provided for herein, from and after the Effective Date, the Manufacturer and Principal shall indemnify each other as provided in this Section 9.01. (a) Indemnification Obligations of Principal. From and after the Effective Date, Principal shall defend, indemnify and hold Manufacturer, its Affiliates and each of their respective officers, directors, agents, employees and shareholders (collectively, "Manufacturer Indemnitees"), harmless from and against any and all Damages which Manufacturer Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the storage, handling, use, marketing, advertising, promotion, distribution or sale of the Product by Principal and/or its Affiliates, sublicensees, distributors or agents in the Territory and the conduct of the Business by Principal and/or its Affiliates, sublicensees, distributors or agents in the Territory, including (A) liabilities for product liability and returned goods, (B) liabilities in respect of product warranty obligations or services and any returned Product sold, (C) governmental and nongovernmental chargebacks, rebates or discounts with respect to the Product, and (D) -20- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. liabilities relating to errors and omissions or claims of design and other defects with respect to any Product sold, including any clinical and non-clinical trials; (ii) the breach by Principal of or any of its Affiliates sublicensees, distributors or agents of this Agreement including any material breach by Principal of, or material failure by Principal to comply with, any of its covenants or obligations pursuant to this Agreement; (iii) the enforcement by Manufacturer Indemnitees of their rights under this Section 9.01(a); (iv) any negligence or willful misconduct by Principal under this Agreement or by Principal or its Affiliates in the conduct of the Business or in connection with the Product or the Technology; (v) Principal's material violation of any Applicable Law; and (vi) any bodily injury, illness or death of any person caused or alleged to be caused by the use, distribution or sale of the Product (except to the extent any such bodily injury, illness or death shall be the result of a breach by Manufacturer of its covenants and obligations set forth in Section 5.01); provided, however, that, in each such case, Principal shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or a violation of any Applicable Law by, Manufacturer, its Affiliates, agents, employees, or contractors, or from the breach by Manufacturer of the provisions of any of the Transaction Documents. (b) Indemnification Obligations of Manufacturer. From and after the Effective Date, Manufacturer shall defend, indemnify and hold Principal, its Affiliates and each of their respective officers, directors, agents, employees, shareholders or members (collectively, "Principal Indemnitees") harmless from and against any and all Damages which Principal Indemnitees may incur or suffer, or with which any of them may be faced arising out of: (i) the breach by Manufacturer of this Agreement including any material breach by Manufacturer of, or material failure by Manufacturer to comply with, any of its covenants or obligations pursuant to this Agreement; (ii) the enforcement by Principal Indemnitees of their rights under this Section 9.01(b); (iii) any negligence or willful misconduct by Manufacturer under this Agreement or by Manufacturer or its Affiliates in the conduct of the Business or in connection with the Product or the Technology; (iv) Manufacturer's material violation of any Applicable Law; and -21- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (v) any bodily injury, illness or death of any person to the extent any such bodily injury, illness or death shall be the result of a breach by Manufacturer of its covenants and obligations set forth in Section 5.01; provided, however, that, in each such case, Manufacturer shall not be liable hereunder to the extent such Damages arise from misconduct or negligence of, or a violation of any Applicable Law by, Principal, its Affiliates, agents, employees, or contractors, or from the breach by Principal of the provisions of any of the Transaction Documents. (c) Procedure. If any Proceeding arises as to which a right of indemnification provided in this Article IX applies, the Person seeking indemnification (the "Indemnified Party"), shall within 20 days notify the party obligated under this Article IX to indemnify the Indemnified Party (the "Indemnifying Party"), thereof in writing, except to the extent that such failure to notify within 20 days does not prejudice the Indemnifying Party's ability to defend or contest any such Proceeding, and allow the Indemnifying Party and its insurers the opportunity to assume direction and control of the defense against such Proceeding, at its sole expense, including the settlement thereof at the sole option of the Indemnifying Party or its insurers; provided, however, that the Indemnifying Party may not enter into any compromise or settlement without the prior written consent of the Indemnified Party unless such compromise or settlement includes as an unconditional term thereof the giving by each plaintiff or claimant to the Indemnified Party of a release from all liability in respect of such claim and only if such compromise or settlement does not include any admission of legal wrongdoing on the part of the Indemnified Party. The Indemnified Party shall fully cooperate with the Indemnifying Party and its insurer in the disposition of any such matter and the Indemnified Party will have the right and option to participate in (but not control) the defense of any Proceeding as to which this Article IX applies, with separate counsel at its election and cost. If the Indemnifying Party fails or declines to assume the defense of any Proceeding within 30 days after notice thereof, the Indemnified Party may assume the defense thereof for the account and at the risk of the Indemnifying Party. The Indemnifying Party shall pay promptly to the Indemnified Party any Damages to which the indemnity under this Article IX applies, as incurred. Section 9.02. Certain Limitations. (a) Except as otherwise provided in Section 7.01(d), the sole and exclusive remedy with respect to any breach of any representation, warranty, covenant or agreement contained herein and for the other matters described in Sections 9.01(a) and 9.01(b) (other than (i) with respect to a breach of the terms of a covenant or agreement, as to which Principal or Manufacturer, as the case may be, also shall be entitled to seek specific performance or other equitable relief and (ii) with respect to claims for fraud) shall be a claim for Damages (whether by contract, in tort or otherwise, and whether in law, in equity or both) made pursuant to this Article IX. No party shall be entitled to recover any punitive, incidental or consequential damages whatsoever under this Article IX except to the extent any such punitive, incidental or consequential damages shall be payable to a third party. (b) Notwithstanding anything to the contrary contained herein, although a party may be entitled to make a claim for indemnification pursuant to more than one section of -22- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. this Article IX, a party shall not be entitled to recover indemnification for the same claim under more than one section of this Article IX. ARTICLE X TERM AND TERMINATION Section 10.01. Term. This Agreement shall continue in full force and effect until the earlier of (a) the termination of the License Agreement, or (b) termination of this Agreement in accordance with Section 10.02 or Section 10.03 (the Effective Date until such termination, the "Term"). Section 10.02. Certain Termination Events. (a) Manufacturer shall have the right to terminate this Agreement upon *** written notice at any time during the Term (i) as to any permitted assignee or delegatee of Principal (other than an Affiliate of Principal) pursuant to Section 11.04, and (ii) as to any permitted sublicensee of Principal under the License Agreement (other than an Affiliate of Principal); provided, that (A) in either case, such assignee, delegatee or sublicensee shall have the right to have a third party manufacture on its behalf its requirements of the Product in accordance with the terms and conditions of this Agreement and ***. Notwithstanding the foregoing, nothing in this Section 10.02(a) shall limit the right of Manufacturer to terminate this Agreement pursuant to Section 10.03 or any other provision of this Article X. (b) Except as otherwise contemplated by Sections 3.06, 3.07, 3.09 and 10.02(c), either Manufacturer or Principal shall have the right to terminate this Agreement if the other commits any continuing or material breach of any of the provisions of this Agreement and (in the case of a breach which is capable of remedy) fails to remedy the same within 60 days after receipt of written notice giving full particulars of the breach and requiring it to be so remedied; provided, that neither Manufacturer nor Principal may terminate this Agreement if the other's breach cannot reasonably be cured within 60 days so long as such breaching party commences efforts to cure within such 60-day period and thereafter diligently pursues the same through completion. (c) In the event that at any time during the Term Manufacturer shall, during any period of six consecutive months, fail to supply *** of the aggregate number of units of the Product (which number of units shall be determined with reference to the number of units estimated to be yielded by each Batch ordered by Principal as reflected in Exhibit A) ordered pursuant to Purchase Orders properly submitted by Principal during such period (other than (w) by reason of a circumstance contemplated by Section 11.14, (x) by reason of an Excused Vendor Default, (y) by reason of the fault of Principal, or (z) in connection with a delivery accepted by Principal pursuant to Section 3.07(a)), Principal shall have the right to: (i) have a third party manufacture on its behalf that portion of Principal's requirements of the Product which Manufacturer is not able to supply; (ii) terminate this Agreement; or -23- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (iii) withdraw any Purchase Orders submitted pursuant to Section 3.03; provided, that in the event Principal shall elect to terminate this Agreement pursuant to clause (ii) or withdraw any Purchase Orders pursuant to clause (iii) of this Section 10.02(c), Principal shall, to the extent requested by Manufacturer, purchase from Manufacturer at Manufacturer's cost all Materials purchased by Manufacturer for the Manufacture and delivery of the Product to Principal. (d) Either Manufacturer or Principal may terminate this Agreement with immediate effect with respect to any Product that is permanently and completely withdrawn from the market in the Territory for serious adverse health or safety reasons. (e) Either Manufacturer or Principal may terminate this Agreement with immediate effect in the event a Force Majeure Event as to the other shall exist and be continuing for a period of 180 consecutive days. Principal may terminate this Agreement with immediate effect in the event an Excused Vendor Default shall exist and be continuing for a period of 180 consecutive days. Section 10.03. Optional Termination by Manufacturer. (a) In the event that Manufacturer and Principal reach an agreement under Section 7.09(a) pursuant to which Manufacturer establishes a second site of Manufacturer for purposes of manufacturing the Product, Manufacturer shall be entitled at its option and as a matter of right, to terminate this Agreement ***. (b) In the event that Manufacturer and Principal do not reach an agreement under Section 7.09(a) pursuant to which Manufacturer establishes a second site of Manufacturer for purposes of manufacturing the Product, Manufacturer shall be entitled, at its option and as a matter of right, to terminate this Agreement ***. Section 10.04. Obligations on Termination. Within 30 days of any expiration or termination of this Agreement, (a) Principal shall cease to use and shall deliver to Manufacturer, upon written request, all Confidential Information of Manufacturer, except for any documents or records that Principal is required to retain by Applicable Law, and (b) Manufacturer shall cease to use and shall deliver to Principal, upon written request, all Confidential Information of Principal except for any documents or records that Manufacturer is required to retain by Applicable Law. Additionally, upon termination, Manufacturer shall, at Principal's option, provide such support as may be reasonably necessary to transfer in a timely manner the Manufacture of the Product to a third party. Section 10.05. Effect of Termination. Upon termination, this Agreement shall forthwith become void and of no further force or effect, except for the following provisions, which shall remain in full force and effect: (a) Section 7.01 (Confidentiality), (b) this Section 10.05, (c) Section 11.10 (Governing Law), (d) Section 11.12 (Entire Agreement), and (e) Section 11.13 (Expenses). The rights and remedies provided in this Article X shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law. Any termination of this -24- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Agreement shall not affect (i) any right or claim hereunder that arises prior to such termination, which claims and rights shall survive any such termination, or (ii) except as set forth in the License Agreement, any of the rights or obligations of either Manufacturer or Principal under the License Agreement or the Transaction Agreement. Section 10.06. Anticipatory Breach. (a) ***. (b) ***. (c) ***. (d) ***. (e) ***. ARTICLE XI MISCELLANEOUS Section 11.01. Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier or registered or certified mail, return receipt requested, addressed as follows: if to Manufacturer: Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, Florida 33186 Attention: CEO & General Counsel Telecopy: 305-964-3340 with copies (which shall not constitute notice) to: King & Spalding LLP 1730 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Attention: Glenn C. Campbell Telecopy: 202-626-3737 if to Principal: Shire Pharmaceuticals Ireland Limited Pharmapark Chapelizod -25- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Dublin 20 Ireland Attention: General Counsel Telecopy: 011-353-1623-7469 with copies (which shall not constitute notice) to: Shire Pharmaceuticals Group plc Hampshire International Business Park Chineham Basingstoke Hampshire RG24 8EP United Kingdom Attention: Group General Counsel Telecopy: 011-44-1256-894710 and to: Ulmer & Berne LLP 600 Vine Street, Suite 2800 Cincinnati, Ohio 45202 Attention: Scott P. Kadish Telecopy: 513-762-6245 or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such communication shall be deemed to have been delivered (a) when delivered, if delivered personally, (b) when sent (with written confirmation received), if sent by facsimile transmission on a Business Day, (c) on the first Business Day after dispatch (with written confirmation received), if sent by facsimile transmission on a day other than a Business Day, (d) on the second Business Day after dispatch, if sent by air courier, and (e) on the fifth Business Day after mailing, if sent by mail. Section 11.02. Disputes. In the event of any controversy or claim arising out of, relating to or in connection with any provision of this Agreement, or the rights or obligations of the parties hereunder, the parties shall try to settle their differences amicably between themselves. Any party may initiate such informal dispute resolution by sending written notice of the dispute to the other parties, and within 10 days after such notice, appropriate representatives of the parties shall meet for attempted resolution by good faith negotiations. If such representatives are unable to resolve promptly such disputed matter, it shall be referred to the presidents of Manufacturer and Principal, or their respective designees, for discussion and resolution. If such personnel are unable to resolve such dispute within 30 days of initiating such negotiations, the parties agree first to try in good faith to settle the dispute by mediation in Washington, D.C. under the Commercial Mediation Rules of the American Arbitration Association. If following any such mediation the parties still have not been able to resolve any such dispute, the parties agree to submit the dispute to final and binding arbitration before a single arbitrator in -26- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Washington, D.C. under the Commercial Arbitration Rules of the American Arbitration Association. The parties agree that a judgment may be entered on the arbitrator's award in any court of competent jurisdiction. The arbitrator in reviewing any claim under this Agreement shall have the exclusive authority to determine any issues as to the arbitrability of any such claim or related disputes under this Agreement. In reaching a decision, the arbitrator shall interpret, apply and be bound by this Agreement and by Applicable Law. The arbitrator shall have no authority to add to, detract from or modify this Agreement or any Applicable Law in any respect. The arbitrator may not grant any remedy or relief that a court of competent jurisdiction could not grant, nor any relief or remedy greater than that sought by the parties, nor any punitive, incidental or consequential damages, except to the extent any such punitive, incidental or consequential damages shall be payable to a third party. Any up-front costs of the arbitrator shall be borne equally by the parties; provided, however, that the non-prevailing party in any such arbitration shall pay, and to the extent applicable reimburse the prevailing party for, the costs and expenses of the arbitrator, including costs and expenses payable to the American Arbitration Association and to the arbitrator; and provided further, that in the event each party prevails as to certain claims in connection with any such arbitration, the fees of the arbitrator shall be paid and/or reimbursed in accordance with the decision of the arbitrator. Each party shall bear its own costs incurred in connection with attorneys' fees and related expenses. Notwithstanding the foregoing provisions of this Section 11.02, nothing in this Agreement shall limit or in any way restrict the ability of any party to seek injunctive or other equitable relief in a court or other judicial body. Section 11.03. Independent Contractors. In making and performing this Agreement, the parties are acting and shall act as independent contractors. Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship between the parties hereto. No party shall have the authority to obligate another party in any respect, and no party shall hold itself out as having any such authority. All personnel of Manufacturer shall be solely employees of Manufacturer and shall not represent themselves as employees of Principal. All personnel of Principal shall be solely employees of Principal and shall not represent themselves as employees of Manufacturer. Section 11.04. Assignment. Prior to the date on which Shire has paid Manufacturer the full amount of the Milestone Payments, Principal shall not have the right to assign this Agreement or delegate any of its rights, interests, duties or obligations hereunder. On and after the date Shire has paid Manufacturer the full amount of the Milestone Payments, Principal shall have the right to assign this Agreement or delegate any of its rights, interests, duties or obligations; provided, that (a) Principal shall give written notice of such assignment or delegation to Manufacturer, and (b) the assignee or delegatee shall confirm in writing to and for the benefit of Manufacturer that it will comply with the covenants and agreements of Principal hereunder. Manufacturer shall not have the right to assign this Agreement or delegate any of its rights, interests duties or obligations hereunder without the prior written consent of Principal, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, at any time during the term of this Agreement either party may assign this Agreement to any of its Affiliates without the prior written consent of the other parties; provided, that no such assignment of this Agreement shall relieve the assignor of any of its obligations or liabilities under this Agreement. Notwithstanding the foregoing, any party may assign this Agreement without the other parties' prior written consent in connection with the transfer or sale of all or substantially all of its assets -27- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. or business or its merger or consolidation with another Person upon written notice to the other parties. Any attempted assignment in violation of this Section 11.04 shall be void. Section 11.05. Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 11.06. Amendments. This Agreement shall not be modified, amended or supplemented except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto. Section 11.07. No Waiver. The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege conferred in this Agreement, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. Section 11.08. Counterparts. This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures of each of the parties hereto. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument. Each party may execute this Agreement on a facsimile of the Agreement. In addition, facsimile signatures of authorized signatories of any party shall be valid and binding and delivery of a facsimile signature by any party shall constitute due execution and delivery of this Agreement. Section 11.09. Interpretation. The article and section headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and singular shall include the plural. Unless the context otherwise requires, the term "party" when used herein means a party hereto. References herein to a party or other Person include their respective successors and assigns. The words "include," "includes" and "including" when used herein shall be deemed to be followed by the phrase "without limitation" unless such phrase otherwise appears. Unless the context otherwise requires, references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words "hereof," "hereby" and "herein" and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision hereof. With regard to each and every term and condition of this Agreement, the parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time -28- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. the parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which party actually prepared, drafted or requested any term or condition of this Agreement. Section 11.10. Governing Law. This Agreement and any claims, disputes or causes of action relating to or arising out of this Agreement shall be construed in accordance with and governed by the substantive laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. Section 11.11. Unenforceability. If any provisions of this Agreement are determined to be invalid or unenforceable in any jurisdiction, such provisions shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof or affecting the validity or enforceability of any of such provisions of this Agreement in any other jurisdiction. The parties will use their best efforts to substitute the invalid or unenforceable provision with a valid and enforceable one which conforms, as nearly as possible, with the original intent of the parties. Section 11.12. Entire Agreement. (a) This Agreement, together with the other Transaction Documents, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, commitments, arrangements, negotiations or understandings, whether oral or written, between the parties hereto and their respective Affiliates with respect thereto. There are no agreements, covenants or undertakings with respect to the subject matter of this Agreement other than those expressly set forth or referred to herein and no representations or warranties of any kind or nature whatsoever, express or implied, are made or shall be deemed to be made herein by the parties hereto, except those expressly made in this Agreement and the other Transaction Documents. (b) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET FORTH IN THE PRECEDING SENTENCE, (I) NEITHER MANUFACTURER NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES, IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE BUSINESS OR THE PRODUCT GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF MANUFACTURER OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE, AND (II) MANUFACTURER EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND -29- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. WARRANTIES OF MERCHANTABILITY. PRINCIPAL ACKNOWLEDGES THAT MANUFACTURER HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY MANUFACTURER OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE BUSINESS OR THE PRODUCT OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY. Section 11.13. Expenses. Except as expressly set forth herein, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions, including attorneys', accountants' and other professional fees and expenses. Section 11.14. Force Majeure. If the performance of this Agreement or any obligation hereunder (except the payment of money) by any party is prevented or hindered, by reason of any cause beyond the reasonable control of the affected party, including fire, flood, riot, war, explosions, acts of God (including hurricanes and tropical storms), acts of a public enemy, labor disturbances, any governmental action (a "Force Majeure Event") or the inability of Manufacturer to obtain sufficient Materials to perform under this Agreement by reason of an Excused Vendor Default, the party so affected, upon notice to the other parties, shall be excused from such performance, provided that the party so affected shall use diligent effort to avoid or remove such cause or causes of non-performance and shall continue to perform hereunder with the utmost dispatch whenever such cause or causes are removed. -30- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first above written. NOVEN PHARMACEUTICALS, INC. By: -------------------------- Name: Title: SHIRE PHARMACEUTICALS IRELAND LIMITED By: -------------------------- Name: Title: -31- EX-11 4 g81253exv11.txt EX-11 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 Noven Pharmaceuticals, Inc. Computation of Earnings per Share (in thousands except per share amounts) 2002 2001 2000 ------- ------- ------- BASIC EARNINGS: - --------------- Net income $13,879 $12,091 $19,634 Weighted average number of common shares outstanding 22,532 22,367 21,914 ======= ======= ======= Basic earnings per share $ 0.62 $ 0.54 $ 0.90 ======= ======= ======= DILUTED EARNINGS: - ----------------- Net income $13,879 $12,091 $19,634 Weighted average number of common shares outstanding 22,532 22,367 21,914 Potential dilution on exercise of stock options 789 1,144 1,335 ------- ------- ------- Weighted average number of common shares outstanding, as adjusted 23,321 23,511 23,249 ======= ======= ======= Diluted earnings per share $ 0.60 $ 0.51 $ 0.84 ======= ======= ======= EX-21 5 g81253exv21.txt EX-21 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT NAME STATE OF ORGANIZATION ---- --------------------- Vivelle Ventures LLC Delaware EX-23.1 6 g81253exv23w1.txt EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 333-64081 of Noven Pharmaceuticals, Inc. on Form S-8, in Registration Statement No. 333-56293 of Noven Pharmaceuticals, Inc. on Form S-3 and in Registration Statement No. 333-90835 of Noven Pharmaceuticals, Inc. on Form S-8 of our report dated February 14, 2003, except with respect to the matter discussed in the fourth paragraph of Note 14, as to which the date is February 24, 2003 and February 26, 2003 as to Note 15, appearing in this Annual Report on Form 10-K of Noven Pharmaceuticals, Inc. for the year ended December 31, 2002. Deloitte & Touche LLP Miami, Florida March 18, 2003 EX-23.2 7 g81253exv23w2.txt EX-23.2 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-64081 and No. 333-90835) and Form S-3 (No. 333-56293) of Noven Pharmaceuticals, Inc. of our report dated January 31, 2003 relating to the financial statements of Vivelle Ventures LLC, which appears in this Form 10-K of Noven Pharmaceuticals, Inc. PricewaterhouseCoopers LLP Florham Park, New Jersey March 20, 2003 EX-99.1 8 g81253exv99w1.txt EX-99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATIONS Certification of Principal Executive Officer I, Robert C. Strauss, President, Chief Executive Officer and Chairman of the Board of Noven Pharmaceuticals, Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Noven Pharmaceuticals, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ ROBERT C. STRAUSS - -------------------------------------------------------------------- Name: Robert C. Strauss Title: President, Chief Executive Officer and Chairman of the Board Date: March 21, 2003 EX-99.2 9 g81253exv99w2.txt EX-99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATIONS Certification of Principal Financial Officer I, James B. Messiry, Vice President and Chief Financial Officer of Noven Pharmaceuticals, Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Noven Pharmaceuticals, Inc.; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ JAMES B. MESSIRY - ------------------------------------------------------- Name: James B. Messiry Title: Vice President and Chief Financial Officer Date: March 21, 2003 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.25

                                                                   EXHIBIT 10.25










                              TRANSACTION AGREEMENT



                          DATED AS OF FEBRUARY 26, 2003



                                  BY AND AMONG



                          NOVEN PHARMACEUTICALS, INC.,



                                  SHIRE US INC.



                                       AND



                         SHIRE PHARMACEUTICALS GROUP PLC

                                TABLE OF CONTENTS



                                                                                                                PAGE
                                                                                                                ----
                                                                                                              
ARTICLE I                  DEFINITIONS........................................................................    1

         Section 1.01.     Definitions........................................................................    1
         Section 1.02.     Other Definitions..................................................................    7

ARTICLE II                 TRANSACTIONS AND CLOSING...........................................................    8

         Section 2.01.     Closing. ..........................................................................    8
         Section 2.02.     Closing Transactions...............................................................    8
         Section 2.03.     Regulatory Approval................................................................    8
         Section 2.04.     Transaction Consideration..........................................................    9
         Section 2.05.     Milestone Payments.................................................................   10
         Section 2.06.     Limited Right of Set-Off...........................................................   10
         Section 2.07.     Determination of Annual Net Sales..................................................   10
         Section 2.08.     Assignment of Contracts and Rights; Cooperation....................................   11

ARTICLE III                PURCHASE AND SALE OF ASSETS........................................................   12

         Section 3.01.     Purchase and Sale of Purchased Assets..............................................   12
         Section 3.02.     Excluded Assets....................................................................   13

ARTICLE IV                 ASSUMPTION OF LIABILITIES..........................................................   13

         Section 4.01.     Assumption of Assumed Liabilities..................................................   13
         Section 4.02.     Excluded Liabilities...............................................................   14

ARTICLE V                  REPRESENTATIONS AND WARRANTIES.....................................................   14

         Section 5.01.     Representations and Warranties of Purchaser and Guarantor..........................   14
         Section 5.02.     Representations and Warranties of Seller...........................................   17
         Section 5.03.     Knowledge..........................................................................   20

ARTICLE VI                 COVENANTS AND AGREEMENTS OF SELLER.................................................   20

         Section 6.01.     Conduct of Business................................................................   20
         Section 6.02.     Access to Information; Cooperation After Closing Date..............................   21
         Section 6.03.     Maintenance of Insurance Policies..................................................   21

ARTICLE VII                COVENANTS AND AGREEMENTS OF PURCHASER..............................................   22

         Section 7.01.     Cooperation After Closing Date.....................................................   22
         Section 7.02.     Insurance..........................................................................   22
         Section 7.03.     Certain Intellectual Property Matters..............................................   22
         Section 7.04.     Purchaser Guaranty.................................................................   22


                                                                                                              
ARTICLE VIII               COVENANTS AND AGREEMENTS OF THE PARTIES............................................   23

         Section 8.01.     Confidentiality....................................................................   23
         Section 8.02.     Press Releases.....................................................................   24
         Section 8.03.     Additional Formulations and Improvements...........................................   25
         Section 8.04.     Tax Matters........................................................................   25
         Section 8.05.     Further Assurances.................................................................   25
         Section 8.06.     Certain Filings; Consents..........................................................   25
         Section 8.07.     Antitrust Laws.....................................................................   26

ARTICLE IX                 REGULATORY MATTERS.................................................................   26

         Section 9.01.     Regulatory Responsibility..........................................................   26
         Section 9.02.     Regulatory Procedures..............................................................   26

ARTICLE X                  CONDITIONS TO CLOSING..............................................................   28

         Section 10.01.    Conditions to Obligations of Each Party............................................   28
         Section 10.02.    Conditions to Obligation of Purchaser and Guarantor................................   29
         Section 10.03.    Conditions to Obligation of Seller.................................................   29
         Section 10.04.    Updated Disclosure Schedules.......................................................   29
         Section 10.05.    Effect of Waiver...................................................................   30

ARTICLE XI                 SURVIVAL; INDEMNIFICATION..........................................................   30

         Section 11.01.    Survival of Provisions.............................................................   30
         Section 11.02.    Indemnification....................................................................   30
         Section 11.03.    Certain Limitations................................................................   33

ARTICLE XII                TERMINATION........................................................................   33

         Section 12.01.    Termination........................................................................   33
         Section 12.02.    Effect of Termination..............................................................   34

ARTICLE XIII               MISCELLANEOUS......................................................................   34

         Section 13.01.    Notices. ..........................................................................   34
         Section 13.02.    Disputes...........................................................................   36
         Section 13.03.    Independent Contractors............................................................   37
         Section 13.04.    Assignment.........................................................................   37
         Section 13.05.    Binding Effect; Benefit............................................................   37
         Section 13.06.    Amendments.........................................................................   37
         Section 13.07.    No Waiver..........................................................................   38
         Section 13.08.    Counterparts.......................................................................   38
         Section 13.09.    Interpretation.....................................................................   38
         Section 13.10.    Governing Law......................................................................   38
         Section 13.11.    Unenforceability...................................................................   38
         Section 13.12.    Entire Agreement...................................................................   39
         Section 13.13.    Expenses...........................................................................   39



                                      -ii-

                                                                                                              
         Section 13.14.    Disclosure.........................................................................   40
         Section 13.15.    Guarantor Obligations..............................................................   40




                                LIST OF EXHIBITS

                        
Exhibit A                  Trademarks




                               LIST OF ATTACHMENTS

                        
Attachment I               Form of Assignment Agreement (Closing)
Attachment II              Form of Assignment Agreement (Regulatory Approval)
Attachment III             Form of License Agreement
Attachment IV              Form of Noncompetition Agreement (Purchaser)
Attachment V               Form of Noncompetition Agreement (Seller)
Attachment VI              Form of Toll Conversion and Supply Agreement
Attachment VII             Letter from Seller to the FDA
Attachment VIII            Letter from Purchaser to the FDA
Attachment IX              Press Release (Seller)
Attachment X               Press Release (Purchaser)
Attachment XI              Purchaser Guaranty






                                     -iii-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                             TRANSACTION AGREEMENT

      This TRANSACTION AGREEMENT (together with any Schedules and Attachments
hereto, this "Agreement"), is made as of this 26th day of February 2003, by and
among NOVEN PHARMACEUTICALS, INC., a Delaware corporation ("Seller"), SHIRE US
INC., a New Jersey corporation ("Purchaser"), and SHIRE PHARMACEUTICALS GROUP
PLC, a corporation organized under the laws of England and Wales ("Guarantor").

                                   WITNESSETH:

      WHEREAS, Seller is engaged in the business of developing transdermal drug
delivery systems and in connection therewith has developed the Technology and
the Product;

      WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, Seller and Purchaser desire to enter into a transaction pursuant to
which, among other things, (a) Seller will transfer to Purchaser certain of the
assets held, owned or used by Seller in connection with the Business and assign
certain liabilities and obligations associated with the Business to Purchaser,
(b) Seller and Purchaser will enter into the License Agreement pursuant to which
Seller will license to Purchaser the Technology, and (c) Seller and Purchaser
will enter into the Toll Conversion and Supply Agreement pursuant to which
Seller will supply Purchaser with all of its requirements of the Product for
sale within the Territory;

      WHEREAS, in order to induce Seller to enter into this Agreement, Guarantor
is willing to join in this Agreement and guarantee the obligations of Purchaser
hereunder on the terms and conditions set forth herein; and

      WHEREAS, in connection with the Contemplated Transactions, Seller and
Purchaser desire to enter into certain ancillary agreements and arrangements to
effect the transactions contemplated by this Agreement;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      Section 1.01. Definitions. As used herein, the following capitalized terms
have the following meanings:

      "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention
Deficit Disorder.

      "Affiliate" means, when used with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the subject Person. For

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


purposes of this Agreement, "control" means the direct or indirect ownership of
over 50% of the outstanding voting securities of a Person.

      "Annual Net Sales" means, as of any calendar quarter, the gross amount
invoiced by Purchaser (or any Affiliate, successor, assignee or sublicensee of
Purchaser) on all sales of the Product in the Territory during the 12-month
period ending on the last day of such calendar quarter, less (i) discounts
actually allowed, (ii) credits actually allowed for claims, allowances or
returned products, (iii) prepaid freight, and (iv) sales taxes, value added
taxes, duties and other governmental charges or rebates actually paid in
connection with the sale (but excluding Income Taxes) to the extent not
reimbursed.

      "Antitrust Laws" means all United States federal and state, and any
foreign, statutes, rules, regulations, orders, decrees, administrative and
judicial doctrines, and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade.

      "Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, treaty, law, ordinance, rule,
regulation, administrative interpretation, order, writ, injunction, judicial
decision, decree or other requirement of any Governmental Authority applicable
to such Person or any of such Person's respective properties, assets, officers,
directors, employees, consultants or agents (in connection with such officers',
directors', employees', consultants' or agents' activities on behalf of such
Person).

      "Assignment Agreement (Closing)" means the Bill of Sale, Assignment and
Assumption Agreement, in the form contemplated by Attachment I to this
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.

      "Assignment Agreement (Regulatory Approval)" means the Bill of Sale and
Assignment Agreement, in the form contemplated by Attachment II to this
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.

      "Business" means the business as conducted by Seller prior to the date of
this Agreement consisting of the development, manufacture, testing and clinical
and non-clinical trials of the Product, and which business, upon receipt of the
Regulatory Approval, shall additionally consist of marketing, advertising,
promoting, distributing, selling, using and otherwise disposing of the Product.

      "Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York, USA are authorized or required by
law to close.

      "Closing Date" means the date of the Closing as determined pursuant to
Section 2.01.

      "Code of Federal Regulations," or "C.F.R." means the codification of the
general and permanent rules published in the Federal Register by the Executive
department and agencies of the United States federal government. Title 21 of the
C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act.


                                      -2-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      "Confidential Information" means all secret, confidential or proprietary
data, know-how and related information, including all INDs, NDAs, Regulatory
Applications, Regulatory and Clinical Materials and related filings,
applications and data, the content of any unpublished patent applications,
operating methods and procedures, marketing, manufacturing, distribution and
sales methods and systems, sales figures, pricing policies and price lists and
other business information and shall include all information disclosed or
accessed by the parties pursuant to the provisions this Agreement.

      "Contemplated Transactions" means the transactions contemplated by the
Transaction Documents.

      "Damages" means all liabilities, demands, obligations, assessments,
judgments, levies, losses, fines, penalties, damages (including compensatory
damages), costs and expenses, including reasonable attorneys', accountants',
investigators', and experts' fees and expenses, reasonably sustained or incurred
in connection with the defense or investigation of any Proceedings (including
any Proceedings to establish insurance coverage).

      "DEA" means the United States Drug Enforcement Administration and any
successor agency thereto.

      "FDA" means the United States Food and Drug Administration and any
successor agency thereto.

      "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21
U.S.C. Section 301, et. seq., as amended, and the regulations promulgated
thereunder, as amended from time to time.

      "GAAP" means generally accepted accounting principles in effect in the
United States from time to time.

      "Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization
(including any national or international securities exchange and The NASDAQ
Stock Market), commission, tribunal or organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.

      "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

      "Income Taxes" means Taxes on net income or gain and franchise Taxes where
the amount of such franchise Taxes is measured by reference to net income or
gain.

      "IND" means an Investigational New Drug Application, as defined in the 21
C.F.R. Section 312.3.


                                      -3-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      "Intellectual Property" means (i) all patents, copyrights, technology,
know-how, processes, trade secrets, inventions (including inventions conceived
prior to the Closing Date but not documented as of the Closing Date),
proprietary data, formulae, research and development data and computer software
programs, (ii) all trademarks, trade names, service marks and service names,
(iii) all registrations, applications, recordings and common-law rights relating
thereto, all rights to sue at law or in equity for any infringement or other
impairment thereto, including the right to receive all proceeds and damages
therefrom, and all rights to obtain renewals, continuations, divisions or other
extensions of legal protections pertaining thereto, and (iv) all other United
States, state and foreign intellectual property.

      "License Agreement" means the License Agreement, in the form contemplated
by Attachment III to this Agreement, as the same may be amended, supplemented or
otherwise modified from time to time.

      "Lien" means, with respect to any asset, any mortgage, lien, claim,
pledge, charge, security interest or other encumbrance of any kind in respect of
such asset.

      "Manufacturing Facility" means Seller's facility located at 11960 S.W.
144th Street, Miami, Florida 33186.

      "Material Adverse Effect" means (i) with respect to the Business, a
material adverse effect on the assets, financial condition or results of
operations of the Business taken as a whole, or (ii) with respect to any other
Person, a material adverse effect on the assets, financial condition or results
of operations of such Person and its Subsidiaries taken as a whole; provided,
that the receipt by Seller of any notice, correspondence or other communication
from the FDA (other than a Non-Approval Notice) and any questions or issues
raised by the FDA (other than those raised in connection with the issuance of a
Non-Approval Notice) shall not be deemed as having a Material Adverse Effect on
the Business.

      "New Drug Application" or "NDA" means an application, including amendments
and supplements thereto, filed by a Person with the FDA to obtain FDA approval
of a new drug or therapy, as the context indicates, as defined in 21 C.F.R.
Section 314.3.

      "Non-Approval Notice" means the issuance of a written notice by the FDA
notifying Seller that the Product NDA is not approved.

      "Noncompetition Agreement (Purchaser)" means the Noncompetition Agreement
(Purchaser), in the form contemplated by Attachment IV to this Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.

      "Noncompetition Agreement (Seller)" means the Noncompetition Agreement
(Seller), in the form contemplated by Attachment V to this Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.

      "Noven Patents" has the meaning specified in the License Agreement.


                                      -4-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      "Permitted Liens" means any of the following: (i) statutory Liens or
landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's, or
other like Liens arising in the ordinary course of business with respect to
amounts not yet overdue for a period of 60 days or amounts being contested in
good faith by appropriate Proceedings; (ii) rights and licenses granted to
others in any Intellectual Property; (iii) Liens that have not had, and could
not reasonably be expected to have, a Material Adverse Effect on the Business;
and (iv) Liens disclosed in the Disclosure Schedules.

      "Person" means an individual, a corporation, a general partnership, a
limited partnership, a limited liability company, a limited liability
partnership, an association, a trust or any other entity or organization,
including a Governmental Authority.

      "Proceedings" means governmental, judicial, administrative or adversarial
proceedings (public or private), litigation, suits, arbitration, disputes,
claims, causes of action or investigations.

      "Product" means the transdermal methylphenidate drug delivery system that
has and is being developed, manufactured and tested by Seller, and for which
there is currently pending the Product NDA.

      "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by
Seller on December 12, 1997, seeking approval to develop, test and perform
clinical and non-clinical trials of the Product, along with any amendments,
correspondence or supplements thereto and incorporated therein.

      "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by
Seller on June 27, 2002, seeking approval to commercially market the Product for
the treatment of ADHD, along with any amendments, correspondence or supplements
thereto and incorporated therein.

      "Product Study" means any investigation of, or request for, clinical or
non-clinical studies (including any Phase IV clinical studies) that may be
requested by the FDA with respect to the Product at any time, whether prior or
subsequent to Regulatory Approval of the Product.

      "Regulatory and Clinical Materials" means all documents, supporting
materials and other materials relating to the Regulatory Application, any
regulatory approval or other matter required to be submitted to any Regulatory
Authority in relation to the Product, including IND and NDA and documents,
supporting materials and other materials relating to any drug master file,
investigators' brochures, clinical studies (including any Phase IV clinical
studies), safety data, adverse event reports, questionnaires, consultants
reports, correspondence (including correspondence with any Regulatory
Authority), batch reports, protocols, specifications, quality assurance, quality
control, customer queries and any responses thereto, and any compilation or
evaluations thereof, and question and answer scripts.

      "Regulatory Application" means the applications submitted by Seller to the
FDA seeking approval for the development, manufacture, testing, storage,
transport, marketing, advertisement,


                                      -5-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


promotion, sale, use, distribution or other disposal of the Product in all or
any portion of the Territory, including the Product IND and the Product NDA.

      "Regulatory Approval" means the issuance of an approval letter (as defined
in 21 C.F.R. Section 314.3) by the FDA pursuant to 21 C.F.R. 314.105 approving
the Product NDA and approving the Product for manufacturing, marketing, sale,
distribution and use in the United States, irrespective of any postmarketing
study commitments agreed to by Seller and/or Purchaser, including the
performance of one or more postmarketing Product Studies.

      "Regulatory Authority" means a Governmental Authority that has the
authority over the manufacture, use, storage, import, export, clinical testing,
transport, marketing, sale or distribution of the Product in all or any portion
of the Territory, including the FDA.

      "Regulatory Standards" has the meaning specified in the Toll Conversion
and Supply Agreement.

      "Securities Laws" means the United States Securities Act of 1933, as
amended, the United States Securities Exchange Act of 1934, as amended, and any
other similar law or regulation of a Governmental Authority, or any successor to
any such laws or regulations, together with any rules, regulations or listing
standards or agreements of any national or international securities exchange or
The NASDAQ Stock Market.

      "Seller Indemnity Cap Amount" means ***.

      "Shire Ireland" means Shire Pharmaceuticals Ireland Limited, a Republic of
Ireland corporation.

      "Subsidiary" as it relates to any Person, shall mean with respect to such
Person, any other Person of which the specified Person, either directly or
through or together with any other of its Subsidiaries, owns more than 50% of
the voting power in the election of directors or their equivalents, other than
as affected by events of default.

      "Technology" has the meaning specified in the License Agreement.

      "Territory" means the entire world.

      "Toll Conversion and Supply Agreement" means the Toll Conversion and
Supply Agreement, in the form contemplated by Attachment VI to this Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.

      "Trademark" means the registered trademark owned by Seller set forth on
Exhibit A, and all variations thereof.

      "Transaction Documents" means this Agreement, the Assignment Agreement
(Closing), the Assignment Agreement (Regulatory Approval), the License
Agreement, the Toll Conversion and Supply Agreement, the Noncompetition
Agreement (Purchaser), the Noncompetition Agreement (Seller), the Purchaser
Guaranty, any agreements or documents prepared or executed


                                      -6-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


pursuant to the transactions contemplated by such agreements, any exhibits or
attachments to any of the foregoing and any other written agreement signed by
Seller and Purchaser that is expressly identified as a Transaction Document, as
any of the foregoing may be amended, supplemented or otherwise modified from
time to time.

      "United States Applicable Law" means any Applicable Law of any United
States Governmental Authority.

      "United States Governmental Authority" means a Governmental Authority
organized under the laws of the United States of America, any state thereof or
the District of Columbia.

      Section 1.02. Other Definitions. Each of the following terms is defined in
the section of this Agreement referenced opposite such term.



         Term                                                                             Section
         ----                                                                             -------
                                                                                       
         Agreement......................................................................  Preamble
         Assumed Liabilities............................................................  4.01
         Closing........................................................................  2.01
         Closing Payment................................................................  2.02(f)
         Contracts......................................................................  3.01(a)
         Disclosing Party...............................................................  8.01
         Excluded Assets................................................................  3.02
         Excluded Liabilities...........................................................  4.02
         Guarantor......................................................................  Preamble
         Indemnified Party..............................................................  11.02(c)
         Indemnifying Party.............................................................  11.02(c)
         Indemnity Deductible Amount....................................................  11.02(a)
         IRS............................................................................  2.04
         Milestone Payments.............................................................  2.05
         Milestones.....................................................................  2.05
         Obligations....................................................................  13.15
         Offer..........................................................................  8.03(a)
         Offered Agreement..............................................................  8.03(a)
         Offeree........................................................................  8.03(a)
         Offeror........................................................................  8.03(a)
         Purchased Assets...............................................................  3.01
         Purchaser......................................................................  Preamble
         Purchaser Indemnitees..........................................................  11.02(b)
         Receiving Party................................................................  8.01
         Regulatory Approval Payment....................................................  2.03(d)
         Second Generation Product......................................................  8.03(c)
         Seller.........................................................................  Preamble
         Seller Indemnitees.............................................................  11.02(a)
         Termination Fee................................................................  12.02
         Transaction Consideration......................................................  2.04




                                      -7-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

                                                                                       
         Voluntary Termination Date.....................................................  12.01(b)




                                   ARTICLE II
                            TRANSACTIONS AND CLOSING

      Section 2.01. Closing. Subject to the terms and conditions set forth
herein, the closing (the "Closing") of the Contemplated Transactions shall take
place at 10:00 a.m. at the offices of King & Spalding LLP, 1730 Pennsylvania
Avenue, NW, Washington, D.C. 20006 on March 21, 2003; provided, however, that if
all of the conditions to Closing set forth in Article X have not been satisfied
(or waived) as of that date, the Closing shall, subject to the terms and
conditions set forth herein, take place on the third Business Day following the
satisfaction or waiver (by the party entitled to waive the condition) of all
conditions to Closing set forth in Article X, or at such other time and place as
the parties may agree. The Closing shall become effective at 12:01 a.m.,
Washington, D.C. time on the Closing Date.

      Section 2.02. Closing Transactions. Upon the terms and subject to the
conditions set forth in this Agreement, the parties agree that at the Closing,
among other things:


            (a) except as otherwise contemplated in Section 2.03(a), Seller will
transfer to Purchaser the Purchased Assets and Purchaser will assume the Assumed
Liabilities;

            (b) to effect the transfer of the Purchased Assets and the
assumption of the Assumed Liabilities contemplated by the foregoing clause (a),
Seller and Purchaser will execute and deliver the Assignment Agreement
(Closing);

            (c) Seller and Shire Ireland will execute and deliver the License
Agreement, and the Toll Conversion and Supply Agreement;

            (d) Seller and Purchaser will execute and deliver the Noncompetition
Agreement (Purchaser) and the Noncompetition Agreement (Seller);

            (e) Purchaser will execute and deliver to and for the benefit of
Seller the Purchaser Guaranty; and

            (f) Purchaser will pay and deliver to Seller US$25,000,000 in
immediately available funds (the "Closing Payment"), by wire transfer to an
account or accounts designated by Seller by written notice to Purchaser at least
two Business Days prior to the Closing Date (or such shorter notice as Purchaser
shall agree to accept); and

            (g) Seller and Purchaser will execute and deliver closing
certificates and other documents, agreements and notices as are reasonably
required in order to effectuate the Contemplated Transactions.

      Section 2.03. Regulatory Approval. Upon the terms and subject to the
conditions set forth in this Agreement, within three days after Seller's receipt
of Regulatory Approval for the


                                      -8-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


Product or, if Seller receives such Regulatory Approval prior to the Closing
Date, on the Closing Date:

            (a) Seller will transfer to Purchaser the Regulatory Application,
the Regulatory and Clinical Materials and the Trademark;

            (b) to effect the transfer of the Regulatory Application, the
Regulatory and Clinical Materials and the Trademark, Seller and Purchaser will
execute and deliver the Assignment Agreement (Regulatory Approval);

            (c) Seller will deliver a letter to the FDA, in the form attached
hereto as Attachment VII, notifying the FDA of the transfer of the Regulatory
Application, to Purchaser;

            (d) Purchaser will deliver a letter to the FDA, in the form attached
hereto as Attachment VIII, notifying the FDA of Purchaser's assumption of the
Regulatory Application from Seller; and

            (e) Purchaser will pay and deliver to Seller US$50,000,000 (which
amount is in addition to the US$25,000,000 contemplated by Section 2.02(f)) in
immediately available funds (the "Regulatory Approval Payment"), by wire
transfer to an account or accounts designated by Seller by written notice to
Purchaser at least two Business Days prior to the date of such payment (or such
shorter notice as Purchaser shall agree to accept).

      Section 2.04. Transaction Consideration. The consideration to be paid to
Seller for the sale of the Purchased Assets and the license of the Technology
pursuant to the License Agreement (the "Transaction Consideration"), shall, in
the aggregate, consist of the following:

            (a) the Closing Payment;

            (b) the Regulatory Approval Payment;

            (c) the Milestone Payments; and

            (d) the assumption by Purchaser of the Assumed Liabilities in
accordance with this Agreement.

After the Closing, the parties shall make consistent use of the allocation, fair
market value and useful lives specified in Schedule 2.04 hereto for all Tax
purposes and in any and all filings, declarations and reports with the Internal
Revenue Service (the "IRS") in respect thereof, including the reports required
to be filed under Section 1060 of the Internal Revenue Code, as amended, if
applicable, it being understood that Purchaser shall prepare and deliver IRS
Form 8594 to Seller within 45 days after the Closing Date if such form is
required to be filed with the IRS. In any Proceeding related to the
determination of any Tax, neither Purchaser nor Seller shall contend or
represent that the allocation of the Transaction Consideration set forth in
Schedule 2.04 is incorrect.


                                      -9-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 2.05. Milestone Payments. Purchaser shall pay and deliver to
Seller three payments in an aggregate amount equal to US$75,000,000
(collectively, the "Milestone Payments"), upon the achievement of certain
milestones determined with reference to Purchaser's Annual Net Sales of the
Product (the "Milestones"), as follows:

            (a) Purchaser shall pay and deliver to Seller US$25,000,000 in
immediately available funds within 45 days after the last day of the first
calendar quarter during which the Annual Net Sales of the Product become equal
to or greater than US$25,000,000;

            (b) Purchaser shall pay and deliver to Seller US$25,000,000 in
immediately available funds within 45 days of the last day of the first calendar
quarter during which the Annual Net Sales of the Product become equal to or
greater than US$50,000,000; and

            (c) Purchaser shall pay and deliver to Seller US$25,000,000 in
immediately available funds within 45 days of the last day of the first calendar
quarter during which the Annual Net Sales of the Product become equal to or
greater than US$75,000,000;

provided, that if more than one Milestone shall be achieved in any single
calendar quarter, each Milestone Payment corresponding to the achievement of
such Milestones shall be paid and delivered to Seller within 45 days of the last
day of such quarter in accordance with this Section 2.05.

      Section 2.06. Limited Right of Set-Off. Purchaser and Guarantor hereby
covenant and agree that except as otherwise expressly provided in this Section
2.06, each payment of the Transaction Consideration provided for in this Article
II shall be paid and delivered to Seller when due and payable in accordance with
the provisions of this Article II, and neither Purchaser nor Guarantor shall
have any right to set off against any amounts due or to become due to Seller
hereunder, any amounts that may become payable to Purchaser and/or Guarantor by
Seller pursuant to any provision of the Transaction Documents, any provision of
Applicable Law or otherwise; provided however, that notwithstanding the
foregoing, Purchaser may set off against any unpaid payment of the Transaction
Consideration due and payable to Seller hereunder any amounts due and payable to
Purchaser by Seller which amounts (a) are not subject to dispute between Seller
and Purchaser, or (b) have been determined to be due and payable pursuant to a
final and nonappealable judgment of a court of competent jurisdiction or a
final, nonappealable and binding arbitration award. ***.

      Section 2.07. Determination of Annual Net Sales.


            (a) Quarterly Reports. From the Closing until the payment in full of
the Milestone Payments, Purchaser shall provide financial reports to Seller on a
quarterly basis within 45 days after the last day of each calendar quarter,
setting forth the amount of Annual Net Sales of the Product for the 12-month
period ending as of the end of each such calendar quarter. Seller and Purchaser
hereby acknowledge and agree that such reports shall constitute Confidential
Information for purposes of this Agreement and shall be held as confidential by
Seller in accordance with Section 8.01 hereof.


                                      -10-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (b) Generation of Annual Net Sales. Until the payment in full of the
Milestone Payments, Purchaser shall exercise reasonable commercial efforts to
maximize the Annual Net Sales of the Product, and ***.

            (c) Disputes. In the event Seller shall dispute the correctness of
Purchaser's calculation of Annual Net Sales for any 12-month period, Seller
shall, within 45 days of receipt of any such calculation, provide written notice
to Purchaser of such objection, setting forth in writing and in reasonable
detail the reasons therefor. Seller and Purchaser shall endeavor in good faith
to resolve any disputed matters within 45 days after Purchaser's receipt of
Seller's notice of objections. If Seller and Purchaser are unable to resolve the
disputed matters within such 45-day period, Seller and Purchaser shall select a
nationally known independent accounting firm (which firm shall not be the then
regular auditors of Seller, Purchaser or Guarantor) to resolve the matters in
dispute, and the determination of such firm in respect of the correctness of
each matter remaining in dispute shall be conclusive and binding on Seller and
Purchaser. In connection with the resolution of any dispute under this Section
2.07(c), each party shall bear its own costs and expenses and share the costs
and expenses of any independent accounting firm selected to resolve such
disputes, except that if Purchaser is determined to have underreported the
amount of Annual Net Sales for the period subject to such dispute by ten percent
or more, or if any such understatement shall have resulted in Purchaser not
paying Seller a Milestone Payment to which Seller was entitled, then Purchaser
shall reimburse Seller for any and all reasonable, actual out-of-pocket expenses
incurred by Seller in connection with the dispute, including any costs and
expenses payable to the independent accounting firm and any other costs and
expenses incurred by Seller in connection with such dispute resolution process.
Notwithstanding anything to the contrary in this Section 2.07(c), Seller's
failure to dispute the correctness of Purchaser's calculation of Annual Net
Sales for any 12-month period shall not prevent Seller from disputing the
calculation of Annual Net Sales for any calendar quarter of such undisputed
12-month period in connection with its dispute of any subsequent 12-month period
in accordance with this Section 2.07(c); provided however, that in the event
Seller shall dispute Purchaser's calculation of Annual Net Sales pursuant to
this Section 2.07(c), the final resolution of such dispute as to each of the
four calendar quarters of such 12-month period shall be binding upon Seller, and
shall not be further subject to dispute by Seller in connection with any
disputes as to future 12-month periods.

      Section 2.08. Assignment of Contracts and Rights; Cooperation. Anything in
the Transaction Documents to the contrary notwithstanding, nothing in this
Agreement or in any of the Transaction Documents shall constitute an agreement
to assign or otherwise sell, convey or transfer any Purchased Asset or any
claim, right or benefit arising thereunder or resulting therefrom, or to enter
into any other agreement or arrangement with respect thereto, if any such
attempted assignment, sale, conveyance, transfer, manufacture or supply, or
entering into any agreement or arrangement pursuant thereto would, without the
consent or approval of any Person (including any Governmental Authority),
constitute a breach of, or other contravention under, any Contract or in any way
adversely affect the rights of Seller or Purchaser thereunder. With respect to
any such Contract or any claim, right or benefit arising thereunder or resulting
therefrom, promptly after the date hereof, the parties hereto will use
reasonable commercial efforts (but without any payment of money by Seller,
Purchaser any of their respective Affiliates to any third party) to obtain the
written consent of the other parties to any such Contract for the


                                      -11-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


assignment thereof to Purchaser, or written confirmation from such parties
reasonably satisfactory in form and substance to Seller and Purchaser confirming
that such consent is not required. If such consent is not obtained with respect
to any such Contract or if an attempted assignment thereof would be ineffective
or would adversely affect the rights of Seller or Purchaser thereunder, the
parties will cooperate in a mutually agreeable arrangement under which Purchaser
would obtain the benefits thereunder in accordance with this Agreement,
including subcontracting or subleasing to Purchaser, subject to Applicable Law
and the terms of such Contract. In such case, Seller shall, until such time as
any required consents shall have been obtained, act as the agent of the
Purchaser in order to obtain for Purchaser the benefits of such Contract as
though the Contract had been assigned to the Purchaser. If Seller shall
thereafter obtain a required consent to a Contract retained by Seller pursuant
to this Section 2.08, such Contract shall thereupon be transferred to Purchaser
without need of further action by Seller or Purchaser or of further
documentation.

                                  ARTICLE III
                           PURCHASE AND SALE OF ASSETS

      Section 3.01. Purchase and Sale of Purchased Assets. Subject to the terms
and conditions of this Agreement, as of the Closing Date (or, as to subsections
(c), (d) and (e) of this Section 3.01, if Seller shall not have received
Regulatory Approval prior to the Closing Date, then as of the date contemplated
by Section 2.03), Seller shall sell, transfer, convey, assign and deliver to
Purchaser, and Purchaser shall purchase and accept, all right, title and
interest in and to the Purchased Assets. The "Purchased Assets" shall consist of
the following items and no others:

            (a) to the extent assignable, (i) all of the contracts listed in
Schedule 3.01(a), and (ii) any and all contracts entered into by Seller with the
prior written consent of Purchaser after the date of this Agreement and prior to
the Closing Date in connection with any Product Studies assumed by Seller
pursuant to Section 9.02(b)(i) (collectively, the "Contracts");

            (b) the domain name MethyPatch.com;

            (c) the Regulatory Application;

            (d) the Regulatory and Clinical Materials; and

            (e) the Trademark.

Notwithstanding that the Regulatory Application, including the Product IND and
the Product NDA, shall constitute a Purchased Asset under this Agreement,
Purchaser covenants and agrees that it will not make, have made, manufacture or
have manufactured any Product and will purchase all of its requirements of the
Product from Seller pursuant to the terms and conditions of the License
Agreement and the Toll Conversion and Supply Agreement, except as otherwise
expressly permitted by the terms of the Toll Conversion and Supply Agreement;
provided however, that Purchaser may manufacture or have manufactured the
Product to the extent the Toll Conversion and Supply Agreement is terminated but
the License Agreement remains in effect.


                                      -12-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 3.02. Excluded Assets. Notwithstanding anything to the contrary
contained herein, and subject to the transfer of any of the rights, title and
interest in and to the assets transferred by Seller under any of the Transaction
Documents, the Purchased Assets shall not include, and Seller shall retain all
of its rights, title and interest in and to, all assets, properties or rights of
Seller and its Affiliates other than those specifically enumerated as Purchased
Assets in Section 3.01 (the "Excluded Assets"). Without limiting the generality
of the foregoing, to the extent not expressly listed as a Purchased Asset in
Section 3.01, the Purchased Assets shall not include:

            (a) any Intellectual Property owned, licensed or otherwise used by
Seller or any of its Affiliates;

            (b) any right, title or interest in Seller's or any of its
Affiliates' corporate name, corporate service mark or corporate logo used with
respect to the Product;

            (c) any original books or records of Seller (other than the
Regulatory and Clinical Materials);

            (d) the labor of any employees of Seller;

            (e) any refunds of Income Taxes or any prepaid Income Taxes arising
from or with respect to the Purchased Assets prior to the Closing Date or
arising from or with respect to the operations of the Business for periods (or
portions thereof) ending on or prior to the Closing Date;

            (f) any assets of Seller and its Affiliates not held or owned by or
used exclusively in connection with the Business;

            (g) any assets used in the manufacture of the Product;

            (h) any licenses or permits relating to the manufacture of the
Product, including any regulatory approvals issued to Seller by the FDA, the DEA
or any other Governmental Authority;

            (i) any rights or claims of Seller under any of the Transaction
Documents or the agreements and instruments delivered to Seller by Purchaser or
Guarantor pursuant to any of the Transaction Documents; or

            (j) any assets related to Excluded Liabilities.


                                   ARTICLE IV
                            ASSUMPTION OF LIABILITIES

      Section 4.01. Assumption of Assumed Liabilities. Subject to the terms and
conditions of this Agreement, as of the Closing Date, Purchaser shall assume,
and shall be solely and


                                      -13-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


exclusively liable with respect to, and shall pay, perform, discharge and
satisfy when due, the following liabilities and obligations of Seller arising
out of or relating to the Business, (collectively, the "Assumed Liabilities"):

            (a) all liabilities and obligations, whether accrued, liquidated,
contingent, matured or unmatured, at or prior to the Closing, that Purchaser is
expressly assuming pursuant to this Agreement; and

            (b) all liabilities of Seller and its Affiliates under the Contracts
arising on or after the Closing Date.

      Section 4.02. Excluded Liabilities. The "Excluded Liabilities" are all
liabilities or obligations not expressly included in the definition of Assumed
Liabilities, it being agreed that Purchaser and Guarantor are not assuming any
liability of Seller other than the Assumed Liabilities. Without limiting the
foregoing, "Excluded Liabilities" include the following:

            (a) all liabilities and obligations for any Income Taxes arising
from or related to the Business and the Purchased Assets in respect of any
period (or portion thereof) ending on or before the Closing Date or arising from
the payment to or receipt by Seller of the Transaction Consideration or any
portion thereof;

            (b) all liabilities and obligations, whether presently in existence
or arising after the Closing Date, relating to fees, commissions or expenses
owed to any broker, finder, investment banker, accountant, attorney or other
intermediary or advisor employed by Seller in connection with the Contemplated
Transactions;

            (c) all liabilities and obligations in respect of accounts payable
of the Business existing on the Closing Date; and

            (d) all liabilities and obligations, whether presently in existence
or arising after the Closing Date, relating to or arising primarily out of
Excluded Assets including any liability or obligation to any current or former
employee or independent contractor of Seller.


                                   ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

      Section 5.01. Representations and Warranties of Purchaser and Guarantor.
Each of Purchaser and Guarantor represents and warrants to Seller as of the date
hereof and as of the Closing Date that:


            (a) Organization. Each of Purchaser and Guarantor is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. As of the Closing Date, Purchaser will be
duly qualified to do business in each jurisdiction where the character of its
business (after giving effect to the Contemplated Transactions) make such
qualifications necessary to carry on its business.


                                      -14-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (b) Power, Authority and Enforceability. Each of Purchaser and
Guarantor has full corporate power and authority to enter into and perform the
Transaction Documents and to consummate the Contemplated Transactions. The
Transaction Documents have been or shall be duly executed and delivered by duly
authorized signatories of each Purchaser and Guarantor, as the case may be. The
Transaction Documents are valid and binding obligations of Purchaser and
Guarantor, as the case may be, enforceable against each of Purchaser and
Guarantor in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally.

            (c) Compliance With Law. Except for violations or infringements that
have not had, or would not reasonably be expected to have, a Material Adverse
Effect on Purchaser or the Business, as the case may be, Purchaser is and has
been in compliance in all respects with any Applicable Law (statutory, judicial
or otherwise), ordinances, regulations, judgments, orders, directives,
injunctions, writs, decrees, or awards of any Governmental Authority.

            (d) Governmental Authorization. The execution, delivery and
performance by Purchaser and Guarantor of the Transaction Documents requires no
action by or in respect of, consents or approvals of, or filing with, any
Governmental Authority other than (i) the notices to the FDA described in
Sections 2.03(c) and 2.03(d), (ii) compliance with any applicable requirements
of any Antitrust Laws (including the HSR Act), and (iii) the actions, consents,
approvals, permits or filings expressly referred to in this Agreement.

            (e) No Violation. Neither the execution and delivery of the
Transaction Documents nor the consummation by Purchaser and Guarantor of the
Contemplated Transactions, will (i) conflict with or result in a breach of any
of the terms, conditions or provisions of Purchaser's or Guarantor's certificate
of incorporation or other governing or charter document, or of any statute or
administrative regulation, or, to the best of their knowledge, of any order,
writ, injunction, judgment or decree of any court or governmental authority or
of any arbitration award or any agreement binding upon Purchaser or Guarantor or
their respective assets, (ii) assuming compliance with the matters set forth in
Section 5.01(d), to the best of their knowledge, contravene or conflict with, or
constitute a violation of, any provisions of any Applicable Law binding upon
Purchaser or Guarantor, or (iii) assuming compliance with the matters set forth
in Section 5.01(d), constitute a default under, or give rise to any right of
termination, cancellation or acceleration of, or to a loss of any benefit to
which Purchaser or Guarantor is entitled under any provision of any contract,
agreement or other instrument of any license, franchise, permit or similar
authorization held by Purchaser or Guarantor and which default would have a
Material Adverse Effect on Purchaser, Guarantor or the Business.

            (f) No Default. Neither Purchaser nor Guarantor is a party to any
unexpired, undischarged or unsatisfied written or oral contract, agreement,
indenture, mortgage, debenture, note or other instrument under the terms of
which performance by Purchaser or Guarantor according to the terms of the
Transaction Documents will be a default, or whereby timely performance by
Purchaser and Guarantor according to the terms of any of the Transaction
Documents may be prohibited, prevented or delayed and which in either case would
have a Material Adverse Effect on Purchaser, Guarantor or the Business.


                                      -15-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (g) Litigation. There is no Proceeding pending or, to knowledge of
Purchaser or Guarantor, threatened against Purchaser or Guarantor or any of
their respective Affiliates before any court, arbitrator, administrative agency
or other tribunal which (i) could reasonably be expected to have a Material
Adverse Effect upon Purchaser or the Business, (ii) could reasonably be expected
to prevent Purchaser or Guarantor from executing any Transaction Document or
consummating the Contemplated Transactions, or (iii) could reasonably be
expected to prevent or interfere with Seller's ability to obtain the Regulatory
Approval.

            (h) Licenses and Permits. Subject to receipt of Regulatory Approval
of the Product and compliance with the requirements of any Antitrust Laws
(including the HSR Act), Purchaser has all licenses, franchises, permits and
other similar authorizations affecting, or relating in any way to, the Business
and the Product required by Applicable Law to be obtained by Purchaser to permit
Purchaser to conduct the Business in the manner contemplated by the Transaction
Documents and to market, promote, distribute, use, sell, or otherwise dispose of
the Product after the Closing Date.

            (i) Inspections. Purchaser and Guarantor are informed and
sophisticated participants in the Contemplated Transactions and have engaged
expert advisors experienced in the evaluation and purchase of assets such as the
Business and the license of intellectual property such as the Technology.
Purchaser and Guarantor have undertaken an investigation, have been provided
with, have evaluated and have relied upon certain documents and information,
(including the Product IND and the Product NDA, each in its entirety) to assist
Purchaser and Guarantor in making an informed and intelligent decision with
respect to the execution of the Transaction Documents. Each of Purchaser and
Guarantor shall undertake prior to Closing such further investigation and
request such additional documents and information as each deems necessary. Each
of Purchaser and Guarantor acknowledges that Seller makes no representation or
warranty as to the prospects, financial or otherwise, of the Business or the
sale of the Product, and that any projections, estimates or forecasts of future
results or events provided by or on behalf of Seller are subject to uncertainty
and to the assumptions used in their preparation. Purchaser agrees that it shall
accept the Purchased Assets and the Assumed Liabilities as they exist on the
Closing Date (or, if any of such Purchased Assets are transferred to Purchaser
after the Closing Date pursuant to Section 2.03, on the date of such transfer)
based on Purchaser's inspection, examination and determination with respect
thereto as to all matters, and without reliance upon any express or implied
representations or warranties of any nature, whether in writing, orally or
otherwise, made by or on behalf of or imputed to Seller, except as expressly set
forth in the Transaction Documents. Notwithstanding the foregoing, nothing
herein shall in any way limit Purchaser's or Guarantor's ability to rely fully
on the representations, warranties and agreements of Seller expressly contained
in the Transaction Documents.

            (j) Financing. Each of Purchaser and Guarantor has available to it
cash, marketable securities or other investments or available sources of credit
to enable it to effectuate the Contemplated Transactions on the terms and
conditions set forth in the Transaction Documents.

            (k) Finder's Fees. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Purchaser or Guarantor


                                      -16-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


who might be entitled to any fee or commission from Seller upon effectuation of
the Contemplated Transactions.

            (l)   Regulatory Approval. Purchaser and Guarantor acknowledge that
as of the date of this Agreement, no Regulatory Approval has been issued to
permit the marketing, promotion, sale, distribution, use or other disposal of
the Product by Purchaser, and further acknowledge the possibility that such
Regulatory Approval may not be issued prior to or after the Closing Date.

            (m)   Generic Drug Enforcement Act. Neither Purchaser, it Affiliates
nor any of their respective officers, directors, employees, agents or
consultants have been charged with or convicted under federal law for conduct
relating to the development or approval of, or otherwise relating to the
regulation of, any product under the Generic Drug Enforcement Act of 1992 or any
other relevant statute, law or regulation.

            (n)   Insurance. Schedule 5.01(n) contains a true and complete list
of all product liability, comprehensive general liability and property casualty
insurance policies maintained by Purchaser and/or Shire Ireland which will be
maintained by Purchaser and/or Shire Ireland after the Closing Date in
connection with the Business. Each of such policies is in full force and effect
in the amounts indicated.

      Section 5.02. Representations and Warranties of Seller. Seller represents
and warrants to Purchaser and Guarantor as of the date hereof and as of the
Closing Date that:

            (a)   Organization. Seller is a corporation duly organized, existing
and in good standing under the laws of the State of Delaware. Seller has all
necessary corporate power and authority to engage in the Business in the
Territory as such business is now being conducted.

            (b)   Power, Authority and Enforceability. Seller has full corporate
power and authority to enter into and perform the Transaction Documents and to
consummate the Contemplated Transactions. The Transaction Documents have been or
shall be duly executed and delivered by duly authorized signatories of Seller.
The Transaction Documents are valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally.

            (c)   Compliance with Law. Except as set forth on Schedule 5.02(c)
and except for violations or infringements that have not had, or would not
reasonably be expected to have, a Material Adverse Effect on the Business or any
of the Purchased Assets, Seller, and its operation of the Business, is and has
been in compliance in all respects with any and all Applicable Law (statutory,
judicial or otherwise), ordinances, regulations, judgments, orders, directives,
injunctions, writs, decrees or awards of any Governmental Authority.

            (d)   Governmental Authorization. The execution, delivery and
performance by Seller of the Transaction Documents requires no action by or in
respect of, consents or approvals


                                      -17-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


of, or filing with, any Governmental Authority other than (i) the notices to the
FDA described in Sections 2.03(c) and 2.03(d), (ii) compliance with any
applicable requirements of any Antitrust Laws (including the HSR Act), and (iii)
the actions, consents, approvals, permits or filings set forth in Schedule
5.02(d) or otherwise expressly referred to in this Agreement.

            (e)   No Violation. Except as set forth on Schedule 5.02(e), neither
the execution and delivery of the Transaction Documents by Seller nor the
consummation by Seller of the Contemplated Transactions will (i) conflict with
or result in a breach of any of the terms, conditions or provisions of Seller's
certificate of incorporation or bylaws, or of any statute or administrative
regulation, or, to the best of its knowledge, of any order, writ, injunction,
judgment or decree of any court or governmental authority or of any arbitration
award or any material agreement binding upon Seller or any of its Affiliates,
(ii) assuming compliance with the matters set forth in Section 5.02(d), to the
best of its knowledge, contravene or conflict with, or constitute a violation
of, any provisions of any Applicable Law binding upon Seller or any of its
Affiliates, or (iii) assuming compliance with the matters set forth in Section
5.02(d), constitute a default under, or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which Seller or
any of its Affiliates is entitled under any provision of any contract, agreement
or other instrument or any license, franchise, permit or similar authorization
held by Seller or any of its Affiliates and which default would have a Material
Adverse Effect on Seller or the Business.

            (f)   No Default. Neither Seller nor any of its Affiliates is a
party to any unexpired, undischarged or unsatisfied written or oral contract,
agreement, indenture, mortgage, debenture, note or other instrument under the
terms of which performance by Seller according to the terms of the Transaction
Documents will be a default, or whereby timely performance by Seller according
to the terms of any of the Transaction Documents may be prohibited, prevented or
delayed and which default would have a Material Adverse Effect on Seller or the
Business.

            (g)   Litigation. Except as set forth on Schedule 5.02(g), there is
no Proceeding pending or, to the knowledge of Seller, threatened against Seller
or any of its Affiliates before any court, arbitrator, administrative agency or
other tribunal which (i) could reasonably be expected to have a Material Adverse
Effect on the Business, the Product or any of the Purchased Assets, (ii) could
reasonably be expected to prevent Seller from executing any of the Transaction
Documents or consummating the Contemplated Transactions or (iii) could
reasonably be expected to prevent or interfere with Seller's ability to obtain
the Regulatory Approval.

            (h)   Absence of Certain Changes. Except (A) as disclosed in the
Product IND or the Product NDA, or (B) as set forth in Schedule 5.02(h), from
January 8, 2003 to the date of this Agreement there has not been:

                  (i)   any event or occurrence that has had a Material Adverse
      Effect on the Business, other than events or occurrences resulting from
      changes, whether actual or prospective, in general conditions applicable
      to the industries in which the Business is involved or general economic
      conditions;


                                      -18-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (ii)  any damage, destruction or other casualty loss affecting
      the Business or any assets that would constitute Purchased Assets if
      owned, held or used by Seller on the Closing Date that has had a Material
      Adverse Effect on the Business; or

                  (iii) any cancellation, compromise, waiver or release by
      Seller or, to the knowledge of Seller, by any third party, of any claim or
      right (or a series of related claims or rights) related to the Business,
      other than cancellations, compromises, waivers or releases in the ordinary
      course of business that, in the case of any cancellation compromise,
      waiver or release by any third party, has had a Material Adverse Effect on
      the Business.

            (i)   Title to the Purchased Assets. Except as set forth in Schedule
5.02(i), Seller has good and marketable title to or, as the case may be, a valid
contract right in the Purchased Assets, free and clear of any Liens (other than
Permitted Liens).

            (j)   Licenses and Permits. Except as set forth in Schedule 5.02(j)
and subject to compliance with the requirements of any Antitrust Laws (including
the HSR Act), Seller and its Affiliates have all licenses, franchises, permits
and other similar authorizations affecting, or relating in any way to, the
Business required by Applicable Law to be obtained by Seller and its Affiliates
to permit Seller and its Affiliates to conduct the Business in substantially the
same manner as the Business has heretofore been conducted and to consummate the
Contemplated Transactions.

            (k)   Finder's Fees. There is no investment banker, broker, finder
or other intermediary that has been retained by or is authorized to act on
behalf of Seller who might be entitled to any fee or commission from Purchaser
or Guarantor upon consummation of the Contemplated Transactions.

            (l)   Contracts. Seller has heretofore delivered to Purchaser a true
and complete copy of the Contract listed on Schedule 3.01(a). Such Contract is
in full force and effect as a legal, binding and enforceable obligation of
Seller, and, to the knowledge of Seller, no event has occurred which constitutes
or with the giving of notice or passage of time, or both, would constitute, a
default thereunder by Seller or any other party thereto. Except as set forth in
Schedule 3.01(a), no consent of any third party is required to assign the
Contract to Purchaser.

            (m)   Insurance. Schedule 5.02(m) contains a true and complete list
of all product liability, comprehensive general liability and property casualty
insurance policies maintained by Seller in connection with the Business. Each of
such policies is in full force and effect in the amounts indicated.

            (n)   Manufacturing Facility. The Manufacturing Facility is in
substantial compliance with all Regulatory Standards and, to the knowledge of
Seller, there are no pending uncorrected citations or adverse conditions
affecting the Manufacturing Facility that would have a Material Adverse Effect
on the Business.


                                      -19-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (o)   Intellectual Property. To the extent set forth in the License
Agreement, except as set forth in Schedule 5.02(o), (i) Seller has the right to
grant to Purchaser the rights granted under the License Agreement (other than
rights contemplated by the FDC Act as to which Seller makes no representation)
unencumbered by any Liens (other than Permitted Liens), (ii) to the knowledge of
Seller, Seller has not received any written notice alleging any infringement by
Seller of any intellectual property rights of another Person in respect of the
Product or the Noven Patents, (iii) to the knowledge of Seller, the Noven
Patents are valid and enforceable and Seller has no knowledge of any
infringement by a third party of any of the claims in the Noven Patents, (iv) to
the knowledge of Seller, making, having made, using or selling the Product does
not infringe any patent or other rights of any third party, and (v) the rights
granted to Purchaser under the License Agreement do not conflict with rights
granted by Seller to any other Person. Notwithstanding the foregoing, the
parties acknowledge and understand that, as of the Closing Date, (x) Seller does
not have approval from the FDA or any other Regulatory Authority to market,
offer to sell or sell the Product, (y) the Product has not been established by
the FDA or any other Regulatory Authority as safe or effective, and (z)
Purchaser is not authorized by Seller or Applicable Law to represent that the
Product has been approved for sale or is safe or effective. To the knowledge of
Seller, except for rights contemplated by the FDC Act as to which Seller makes
no representation, the Technology represents all data, information (whether
proprietary to Seller or not), technology, know-how, processes, methods, skills,
trade secrets, developments, discoveries and inventions, including patents,
necessary to manufacture the Product.

      Section 5.03. Knowledge. Where a representation or warranty contained in
this Article V is stated to be to a party's knowledge, this knowledge shall mean
to the actual knowledge of the party's executive officers and shall be deemed as
a representation that a reasonable inquiry or investigation of the subject
matter thereof has been made of such individuals and shall thus include matters
that a prudent individual could reasonably be expected to discover or otherwise
become aware of during the course of such inquiry or investigation; it being
understood and agreed by Purchaser that, with respect to the representations and
warranties set forth in Section 5.02(o), a reasonable inquiry or investigation
shall not require and shall not include requesting or obtaining a
non-infringement opinion in respect of the Product.

                                   ARTICLE VI
                       COVENANTS AND AGREEMENTS OF SELLER

      Section 6.01. Conduct of Business. Except (i) with the written consent of
Purchaser (which consent shall not be unreasonably withheld or delayed), (ii) as
set forth in Schedule 6.01, (iii) as permitted below or required by Applicable
Law, or (iv) in accordance with the terms and conditions of Contracts in
existence on the date of this Agreement, from the date of this Agreement until
the Closing Date, Seller shall:

            (a)   conduct the Business only in accordance with its usual,
regular and ordinary course of business in substantially the same manner as
conducted prior to the date hereof;


                                      -20-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (b)   use reasonable commercial efforts to diligently pursue receipt
of Regulatory Approval pending the Closing;

            (c)   maintain the Contracts in full force and effect, and comply
with all material obligations under the Contracts and not amend or terminate any
Contract; and

            (d)   subject to the limitations set forth in Section 6.02, allow
Purchaser and its representatives access to the books, records, and employees of
Seller at all times reasonably requested by Purchaser to verify Seller's
compliance with the foregoing obligations.

      Section 6.02. Access to Information; Cooperation After Closing Date.
Except as may be necessary to comply with any Applicable Laws and subject to any
applicable privileges (including the attorney-client privilege), from the date
of this Agreement until the Closing Date, and from and after the Closing Date,
Seller shall, at Purchaser's expense (a) afford Purchaser and its
representatives reasonable access upon reasonable prior notice during normal
business hours to all employees, offices, properties, agreements, records, books
and affairs of Seller and provide copies of such information concerning the
Business as Purchaser may reasonably request for any proper purpose, (b)
instruct the employees and representatives of Seller to provide reasonable
cooperation to Purchaser in its investigation of the Business prior to the
Closing, and (c) cooperate fully with Purchaser with respect to matters relating
to the conduct of the Business prior to the Closing, including in the defense or
pursuit of any Purchased Asset, Assumed Liability or Indemnified Claim, or any
claim, allegation or action that relates to occurrences involving a Purchased
Asset, Assumed Liability, Indemnified Claim or the Business prior to the
Closing; provided, that Purchaser shall reimburse Seller for any out-of-pocket
expenses incurred by Seller in connection with any such defense, claim or
action. Notwithstanding the foregoing, neither Purchaser nor its representatives
shall have access to (i) any records or data of Seller related to Seller's costs
of manufacturing any product including the Product (except as otherwise
expressly provided in the Toll Conversion and Supply Agreement) or Seller's
pricing policies or price lists or (ii) personnel records of Seller relating to
individual performance or evaluation records, medical histories or records or
other information that in Seller's good faith opinion is sensitive or the
disclosure of which could subject any Seller to risk of liability.

      Section 6.03. Maintenance of Insurance Policies. Except for the
replacement of existing insurance policies with substantially similar policies
upon expiration of existing policies, on and after the date of this Agreement
and until the Closing Date, Seller shall not take or fail to take any action if
such action or inaction, as the case may be, would adversely affect the
applicability of any insurance (including reinsurance) maintained by Seller and
in effect on the date of this Agreement that covers all or any part of the
assets that would constitute Purchased Assets (if owned, held or used by Seller
on the Closing Date), or the Business. Seller shall not have any obligation to
maintain the effectiveness of any such insurance policy after the Closing Date
or to make any monetary payment in connection with any such policy for any
period after the Closing Date.


                                      -21-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                                  ARTICLE VII
                      COVENANTS AND AGREEMENTS OF PURCHASER

      Section 7.01. Cooperation After Closing Date. Except as may be necessary
to comply with any Applicable Law and any applicable privileges (including the
attorney-client privilege), on and after the Closing Date, Purchaser shall, at
Seller's expense, (a) afford Seller and its representatives reasonable access
upon reasonable prior notice during normal business hours, to all employees,
offices, properties, agreements, records, books and affairs of Purchaser and
provide copies of such information concerning the Business as Seller may
reasonably request for any proper purpose, including in connection with (i) the
preparation of any Tax Returns, (ii) any judicial, quasi-judicial,
administrative, Tax, audit or arbitration proceeding, (iii) the preparation of
any financial statements or reports, and (iv) the defense or pursuit of any
claims, allegations or actions that relate to or may relate to any Excluded
Assets, Excluded Liabilities or Indemnified Claims; provided, that Seller may
review Purchaser's books and records concerning, and conduct an investigation
into, Annual Net Sales only pursuant to and during the times permitted by
Section 2.07(c), and (b) cooperate fully with Seller with respect to the defense
or pursuit of any Excluded Liability, Excluded Asset or Indemnified Claim, or of
any claim, allegation or action that relates to occurrences involving an
Excluded Liability, Excluded Asset, Indemnified Claim or the Business after the
Closing; provided, that Seller shall reimburse Purchaser for any out-of-pocket
expenses incurred by Purchaser in connection with any such defense, claim or
action.

      Section 7.02. Insurance. Purchaser acknowledges and agrees that from and
after the Closing Date, neither Purchaser, the Business, any property owned or
leased by any of the foregoing, nor the Purchased Assets shall be insured under
any insurance policies maintained by Seller, except (a) in the case of a claims
made policy, to the extent a claim has been reported prior to the Closing Date,
and (b) in the case of a policy that is an occurrence policy, to the extent the
accident, event or occurrence that results in an insurable loss occurs prior to
the Closing Date and has been or will be noticed to the respective carrier in
accordance with the requirements of such policy.

      Section 7.03. Certain Intellectual Property Matters. Purchaser hereby
acknowledges and agrees that except as otherwise specifically contemplated by
the License Agreement, Purchaser is not obtaining any rights in or to use any
Intellectual Property owned, licensed or otherwise used by Seller, and Purchaser
is not obtaining any rights in or licenses with respect to the name "Noven" or
any derivative thereof. Purchaser further acknowledges and agrees that except as
expressly contemplated herein, Purchaser shall not use any trademark, logo or
trade name of Seller or any trademarks, logos or trade names that are
confusingly similar thereto or that are a translation or transliteration thereof
into any language or alphabet. To the knowledge of Purchaser, no artwork or
labeling related to the Product shall violate or infringe any patent, copyright
or trademark laws or rights of any third party.

      Section 7.04. Purchaser Guaranty. As a material inducement for Seller to
enter into this Agreement and the other Transaction Documents and to consummate
the Contemplated Transactions, Purchaser shall execute and deliver to and for
the benefit of Seller the Purchaser Guaranty for the purpose of guaranteeing the
performance by Shire Ireland of all of its duties and obligations under the
Transaction Documents to which it is a party.


                                      -22-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                                  ARTICLE VIII
                     COVENANTS AND AGREEMENTS OF THE PARTIES

      Section 8.01. Confidentiality.

            (a)   Pursuant to the terms of this Agreement, each party (in such
capacity, the "Disclosing Party"), has disclosed and will be disclosing to the
other parties and/or their Affiliates or representatives (in such capacity, the
"Receiving Party"), certain Confidential Information of the Disclosing Party.
The Receiving Party shall make no use of such Confidential Information except in
the exercise of its rights and the performance of its obligations set forth in
this Agreement. The Receiving Party shall use the same efforts to keep secret,
and prevent the disclosure to third parties of, Confidential Information of the
Disclosing Party as it would use with respect to its own Confidential
Information. Confidential Information disclosed by the Disclosing Party shall
remain the sole and absolute property of the Disclosing Party, subject to the
rights granted herein. The above restrictions on the use and disclosure of
Confidential Information shall not apply to any information which (i) is already
known to the Receiving Party at the time of disclosure by the Disclosing Party,
as demonstrated by competent proof, (ii) is or becomes generally available to
the public other than through any act or omission of the Receiving Party in
breach of this Agreement, (iii) is acquired by the Receiving Party from a third
party who is not, directly or indirectly, under an obligation of confidentiality
to the Disclosing Party with respect to same, or (iv) is developed independently
by the Receiving Party without use, direct or indirect, of information that is
required to be held confidential hereunder.

            (b)   In the event the Receiving Party is required (i) by Applicable
Law to disclose Confidential Information of the Disclosing Party to any
Regulatory Authorities to obtain Regulatory Approval for the Product or to
comply with the requirement of any Regulatory Authority, (ii) to disclose
Confidential Information of the Disclosing Party to respond to an inquiry of a
Regulatory Authority or Governmental Authority concerning the Product, or (iii)
to disclose Confidential Information of the Disclosing Party in a judicial,
administrative or arbitration proceeding to enforce such party's rights under
this Agreement, it may do so only if it (A) provides the Disclosing Party with
as much advance written notice as possible of the required disclosure, (B)
cooperates with the Disclosing Party in any attempt to prevent or limit the
disclosure, and (C) limits disclosure, if any, to the specific purpose at issue.

            (c)   Notwithstanding the provisions of this Section 8.01:

                  (i)   Purchaser shall be permitted to disclose to its
      distributors, wholesalers and other direct customers such Confidential
      Information relating to the Product as Purchaser shall reasonably
      determine to be necessary or useful in order to effectively market and
      distribute the Product;

                  (ii)  Seller shall be permitted to disclose such Confidential
      Information relating to the Product as Seller shall reasonably determine
      to be necessary or useful in order to effectively perform its obligations
      under the Toll Conversion and Supply Agreement;


                                      -23-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (iii) Seller shall be permitted to disclose such Confidential
      Information relating to the Product as it shall reasonably determine to be
      necessary or useful in order to pursue or obtain any regulatory approvals
      in respect of any other transdermal drug delivery products;

                  (iv)  each of Seller and Purchaser shall be permitted to
      disclose to a Regulatory Authority such Confidential Information relating
      to the Product as it shall reasonably determine (but only after consulting
      with the other party to the extent practicable) to be necessary to comply
      with the provisions of Applicable Law; and

                  (v)   nothing in this Section 8.01 shall be interpreted to
      limit the ability of either Seller or Purchaser to disclose its own
      Confidential Information to the other party or any other Person on such
      terms and subject to such conditions as it deems advisable or appropriate;

provided, however, that in each such case any third party recipients of any
Confidential Information (other than a Regulatory Authority or other
Governmental Authority) undertake substantially the same confidentiality
obligation as the parties hereunder with respect to such Confidential
Information.

            (d)   The parties agree that, with effect from the date of this
Agreement, the terms of this Section 8.01 shall supersede and replace the
confidentiality obligations of the parties under the letter of intent between
Seller and Purchaser dated as of January 8, 2003, which agreement is hereby
terminated and of no further force or effect.

            (e)   Each of Seller and Purchaser acknowledge and agree that the
terms and conditions of this Agreement shall be considered Confidential
Information of each party and shall be treated accordingly. Notwithstanding the
foregoing, Purchaser acknowledges and agrees that Seller may be required to
disclose some or all of the information included in this Agreement in order to
comply with its obligations under the Securities Laws, and hereby consents to
such disclosure to the extent deemed advisable or appropriate by counsel to
Seller (but only after consulting with Purchaser to the extent practicable).

            (f)   Each party specifically recognizes that any breach by it of
this Section 8.01 may cause irreparable injury to the other party and that
actual damages may be difficult to ascertain, and in any event, may be
inadequate. Accordingly (and without limiting the availability of legal or
equitable, including injunctive, remedies under any other provisions of this
Agreement), each party agrees that in the event of any such breach,
notwithstanding the provisions of Section 13.02 or Article XII hereof, the other
party shall be entitled to seek, by way of private litigation in the first
instance, injunctive relief and such other legal and equitable remedies as may
be available.

      Section 8.02. Press Releases. Prior to the Closing, no party shall issue
any publicity, news or press release or make any public statement, written or
oral, with respect to this Agreement, any of the Contemplated Transactions or to
the existence of an arrangement among the parties without the prior written
approval of the other parties or except as may be required by


                                      -24-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


Applicable Law or any listing agreement with any national securities exchange,
in which case no party shall issue any such press release or make any such
public statement without prior consultation with the other parties and without
complying with Applicable Law; provided, however, that each of Seller and
Purchaser hereby agree to the release by the other, on or after the date of this
Agreement, of a press release substantially in the forms attached hereto as
Attachment IX and Attachment X, respectively. Notwithstanding the foregoing, no
provision of this Agreement shall relieve any of the parties of their respective
obligations under Section 8.01.

      Section 8.03. Additional Formulations and Improvements.

            (a)   ***.

            (b)   ***.

            (c)   ***.

      Section 8.04. Tax Matters. All transfer Taxes and similar fees and
governmental charges and all sales, use and similar Taxes and governmental
charges resulting from or relating to the transfer of the Purchased Assets to
Purchaser by Seller or resulting from or relating to the Contemplated
Transactions, shall be shared equally by Seller and Purchaser. The parties will
cooperate to minimize all such sales, transfer and/or use Taxes, recording fees
and personal property title application fees.

      Section 8.05. Further Assurances. The parties shall execute such further
documents, and perform such further acts as may be reasonably necessary to
transfer and convey the Purchased Assets to Purchaser on the terms herein
contained, and to otherwise comply with the terms of this Agreement and to
consummate the Contemplated Transactions, including providing information
reasonably requested by other Persons necessary for such Persons to evaluate
whether to consent to the assignment of any Contracts or related rights or
obligations. Seller and Purchaser shall execute and deliver, as appropriate or
required and as the case may be, such other documents, certificates, agreements
and other writings and to take such other actions as may be necessary or
desirable to consummate or implement the Contemplated Transactions. Except as
otherwise expressly set forth in the Transaction Documents, nothing in this
Section 8.05 or elsewhere in the Transaction Documents shall require any of
Seller, Purchaser or any of their respective Affiliates to make any payments or
issue any guarantee in order to obtain any consents or approvals necessary or
desirable in connection with the consummation of the Contemplated Transactions.

      Section 8.06. Certain Filings; Consents. Seller and Purchaser shall
cooperate with each other (a) in determining whether any action by or in respect
of, or filing with, any Governmental Authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
Contracts, in connection with the consummation of the Contemplated Transactions,
and (b) subject to the terms and conditions of this Agreement, in taking any
such actions or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.


                                      -25-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 8.07. Antitrust Laws. Seller and Purchaser shall make the filings
required under the HSR Act and any other Antitrust Laws on or before the third
day following the date of this Agreement (or, if such third day is not a
Business Day, on the first Business Day thereafter). Seller and Purchaser shall
also comply at the earliest practicable date with any request for additional
information, documents, or other materials received from the Federal Trade
Commission or the Department of Justice or any other Governmental Authority,
including international competition authorities. Purchaser shall use all
reasonable commercial efforts to resolve objections, if any, that may be
asserted by any Governmental Authority with respect to the Contemplated
Transactions under any Antitrust Laws, including the HSR Act, the Sherman Act,
as amended, the Clayton Act, as amended, and the Federal Trade Commission Act,
as amended. If any judicial or administrative action or proceeding is initiated
(or threatened to be initiated) challenging the Contemplated Transactions as
violative of any Antitrust Law or any other Applicable Law and Seller desires to
oppose any such action or proceeding, the parties shall each cooperate to
contest and resist any such action or proceeding, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction, ruling, decision,
finding or other order (whether temporary, preliminary, or permanent) until such
time as a final, non-appealable order has been entered.

                                   ARTICLE IX
                               REGULATORY MATTERS

      Section 9.01. Regulatory Responsibility. Following the transfer of the
Regulatory Application and the Regulatory and Clinical Materials pursuant to
this Agreement, and except as otherwise contemplated in Section 4.02, Section
9.02 or in any of the Transaction Documents, Purchaser shall be solely
responsible for maintaining the Regulatory Application and obtaining all further
regulatory approvals regarding the Product, as well as all ongoing regulatory
compliance relating to the Product. For a period of up to one year after the
date of the transfer of the Regulatory Application and Regulatory and Clinical
Materials, Seller shall reasonably assist Purchaser by providing information
regarding the regulatory compliance activities performed by Seller prior to such
transfer in order to ensure an orderly transition of regulatory responsibilities
regarding the Business. Notwithstanding anything to the contrary herein,
Purchaser hereby covenants and agrees that neither it nor any of its Affiliates
or representatives shall amend, supplement or otherwise modify the Product IND
or the Product NDA in any manner, including for the purpose of obtaining
regulatory approval for improvements upon and additional formulations of the
Product, without the prior written consent of Seller, which consent shall not be
unreasonably withheld or delayed.

      Section 9.02. Regulatory Procedures.

            (a)   In the event the Regulatory Approval has not been issued prior
to the Closing Date, Seller and Purchaser shall cooperate in good faith after
the Closing Date to obtain Regulatory Approval of the Product. Except as
otherwise provided herein, Seller shall use reasonable commercial efforts to
diligently pursue receipt of Regulatory Approval.

            (b)   Notwithstanding anything to the contrary in this Article IX:


                                      -26-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (i)   If at any time after the date of this Agreement and
      prior to the Closing Date the FDA shall request that a Product Study be
      conducted, Seller shall have the option to assume exclusive control of
      such Product Study; provided, that (A) if such Product Study shall be
      required to be completed prior to Regulatory Approval and as a
      prerequisite to such Regulatory Approval, and if Seller shall not have
      assumed control of such Product Study as of the Closing Date, the
      provisions of subsection (ii) below shall apply from and after the Closing
      Date, and (B) if such Product Study shall be required to be either (1)
      commenced prior to the date of Regulatory Approval but may be completed
      after the date of Regulatory Approval and the completion is not a
      prerequisite to Regulatory Approval, or (2) commenced and completed after
      the date of Regulatory Approval, then, and in either case, the provisions
      of subsection (iii) below shall apply from and after the Closing Date.

                  (ii)  If at any time after the Closing Date and prior to
      receipt by Seller of Regulatory Approval, the FDA shall request that a
      Product Study be conducted, and such Product Study shall be required to be
      completed prior to Regulatory Approval and as a prerequisite to such
      Regulatory Approval, Seller shall have the option to assume exclusive
      control of such Product Study and to conduct such Product Study in its
      discretion and at its expense by providing notice of such election to
      Purchaser within 60 days of the date of any such request for a Product
      Study. In the event that Seller shall refuse to conduct any such Product
      Study within such 60-day period (whether by written notice to Purchaser of
      such refusal or by lapse of such 60-day period), Purchaser shall have the
      option to assume exclusive control of such Product Study and conduct such
      Product Study in its discretion and at its expense by providing notice to
      Seller of its election within 60 days from the date of Seller's refusal.
      In the event Purchaser shall so elect to conduct any such Product Study
      within such 60-day period, Seller shall transfer to Purchaser the
      Regulatory Application and any Regulatory and Clinical Materials, to the
      extent and only to the extent necessary to permit Purchaser to conduct
      such Product Study. In the event Purchaser shall refuse to conduct any
      such Product Study (whether by written notice to Seller of such refusal or
      by lapse of such 60-day period), Seller shall have the option to (A)
      conduct such Product Study in its discretion and at its expense
      notwithstanding its prior refusal, or (B) within two years from the date
      of such request for a Product Study, repurchase from Purchaser all of the
      Purchased Assets transferred hereunder and terminate the license to the
      Technology granted to Purchaser under the License Agreement, for an
      aggregate consideration of *** and on other terms and conditions to be
      negotiated by Seller and Purchaser in good faith; provided, that nothing
      in this Section 9.02(b)(ii) shall require Seller to (x) exercise either of
      the options contemplated in subsections (A) or (B) of this sentence, or
      (y) take or refrain from taking any action in response to Purchaser's
      refusal to conduct such Product Study.

                  (iii) If at any time after the Closing Date and prior to
      receipt by Seller of Regulatory Approval the FDA shall request that a
      Product Study be conducted, and such Product Study shall be required to be
      either (A) commenced prior to the date of Regulatory Approval, but may be
      completed after the date of Regulatory Approval and the completion is not
      a prerequisite to Regulatory Approval, or (B) commenced and completed
      after Regulatory Approval, then, and in either case, Purchaser shall
      assume


                                      -27-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      exclusive control of such Product Study and conduct such Product Study in
      its discretion and at its expense. In such event, Seller shall transfer to
      Purchaser the Regulatory Application and any Regulatory and Clinical
      Materials, to the extent and only to the extent necessary to permit
      Purchaser to conduct such Product Study.

            (c)   If (i) at any time after the Closing Date Seller or Purchaser
shall receive a Non-Approval Notice, or (ii) Regulatory Approval shall not have
been obtained by the second anniversary of the Closing Date, then in either
case, Purchaser shall have the right to demand that Seller repurchase from
Purchaser all of the Purchased Assets transferred hereunder and terminate the
license to the Technology granted to Purchaser under the License Agreement, for
an aggregate consideration of US$5,000,000 and on other terms and conditions to
be negotiated by Seller and Purchaser in good faith; provided, that Purchaser
shall provide written notice of such demand within 90 days of the issuance of
such Non-Approval Notice or the second anniversary of the Closing Date, as the
case may be.

                                   ARTICLE X
                              CONDITIONS TO CLOSING

      Section 10.01. Conditions to Obligations of Each Party. The obligations of
Seller, Purchaser and Guarantor to consummate the Closing are subject to the
satisfaction (or waiver by each of Seller, Purchaser and Guarantor) of the
following conditions:

            (a)   any applicable waiting period (and any extension thereof)
under the HSR Act relating to the Contemplated Transactions shall have expired
or been terminated, and there shall not be (i) any Proceeding pending in which a
United States Governmental Authority is seeking to enjoin the Contemplated
Transactions, or (ii) a final, nonappealable order entered by a United States
Governmental Authority that enjoins or otherwise prohibits the Contemplated
Transactions;

            (b)   no provision of any United States Applicable Law and no
judgment, injunction, order or decree shall prohibit the Closing;

            (c)   no Proceeding shall be pending or threatened in writing before
any court or other United States Governmental Authority that seeks to prohibit
the Closing, or impose damages or obtain other relief in connection with the
Contemplated Transactions that (i) is brought by any United States Governmental
Authority having jurisdiction in respect thereof, or (ii) is brought by any
Person (other than a Governmental Authority) if in the case of this clause (ii)
such Proceeding reasonably could be expected to prohibit the Closing or result
in a Material Adverse Effect on the Business; and

            (d)   all actions by or in respect of, or filings with, any United
States Governmental Authority required to permit the consummation of the Closing
shall have been taken or made.


                                      -28-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 10.02. Conditions to Obligation of Purchaser and Guarantor. The
obligations of Purchaser and Guarantor to consummate the Closing are subject to
the satisfaction (or waiver by Purchaser or Guarantor) of the following further
conditions:

            (a)   (i) Seller shall have performed in all material respects all
of its obligations under this Agreement required to be performed by it at or
prior to Closing, (ii) the representations and warranties of Seller contained
herein shall be true and correct at and as of the date of this Agreement and as
of the Closing Date, as if made at and as of each such date, except that those
representations and warranties that by their express terms are made as of a
specific date shall be required to be true and correct only as of such date, in
each case except for inaccuracies that could not reasonably be expected to have
a Material Adverse Effect on the Business, and (iii) Purchaser shall have
received a certificate signed by an officer of Seller to the foregoing effect;

            (b)   since the date of this Agreement, no event shall have occurred
that has had a Material Adverse Effect on the Business, other than those
resulting from changes, whether actual or prospective, in general conditions
applicable to the industries in which the Business is involved or general
economic conditions; and

            (c)   Seller shall have executed and delivered, on or before the
Closing Date, the Transaction Documents.

      Section 10.03. Conditions to Obligation of Seller. The obligation of
Seller to consummate the Closing is subject to the satisfaction (or waiver by
Seller) of the following further conditions:

            (a)   (i) each of Purchaser and Guarantor shall have performed in
all material respects all of their respective obligations under this Agreement
required to be performed by them at or prior to Closing, (ii) the
representations and warranties of Purchaser and Guarantor contained herein shall
be true and correct at and as of the date of this Agreement and as of the
Closing Date, as if made at and as of each such date, except that those
representations and warranties that by their express terms are made as of a
specific date shall be required to be true and correct only as of such date, in
each case except for inaccuracies that could not reasonably be expected to have
a Material Adverse Effect on Purchaser, Guarantor or the Business, and (iii)
Seller shall have received certificates signed by an officer of each of
Purchaser and Guarantor to the foregoing effect; and

            (b)   Purchaser shall have executed and delivered, on or before the
Closing Date, the Transaction Documents.

      Section 10.04. Updated Disclosure Schedules. At any time prior to the
Closing, Seller shall be entitled to deliver to Purchaser and Guarantor updates
to, or substitutions of, the Disclosure Schedules; provided, that such updates
or substitutions are clearly marked as such and are addressed to Purchaser and
Guarantor at their respective addresses listed in Section 13.01. In the event
that Seller delivers updated or substitute Disclosure Schedules within three
days of any scheduled Closing Date, Purchaser and Guarantor shall be entitled to
extend, by written notice to Seller, the scheduled Closing Date to the third day
after receipt of the updated or substitute Disclosure Schedules, or if such day
is not a Business Day, to the next Business Day. The delivery by Seller of
updated or substitute


                                      -29-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


Disclosure Schedules shall not prejudice any rights of Purchaser or Guarantor
under this Agreement, including the right to claim that the representations and
warranties of Seller, when made on the date of this Agreement, were untrue.
Notwithstanding the foregoing, in the event Seller delivers updated or
substituted Disclosure Schedules, and as a result of such updated or substituted
Disclosure Schedules the closing condition set forth in Section 10.02(a)(ii) is
not satisfied, Purchaser shall have the right to terminate this Agreement by
written notice to Seller within three days after delivery of such updated or
substituted Disclosure Schedules (or if such day is not a Business Day, on the
next Business Day); provided, that unless any representation or warranty of
Seller updated by such updated or substituted Disclosure Schedules shall have
been untrue when made on the date of this Agreement, neither Purchaser nor
Guarantor shall have any claim for Damages or any other remedy against Seller
arising out of such representations and warranties other than the right to
terminate this Agreement pursuant to this Section 10.04; and provided further,
that if Purchaser and Guarantor shall consummate the Closing notwithstanding the
condition to closing set forth in Section 10.02(a)(ii), the updated or
substitute Disclosure Schedules shall replace, in whole or in part as the case
may be, the Disclosure Schedules previously delivered hereunder for all
purposes.

      Section 10.05. Effect of Waiver. Any waiver by Purchaser of the conditions
specified in 10.02(a)(ii), and any waiver by Seller of the conditions specified
in Section 10.03(a)(ii), if made knowingly, shall also be deemed a waiver of any
claim for Damages arising out of, resulting from or related to the matters
waived.

                                   ARTICLE XI
                            SURVIVAL; INDEMNIFICATION

      Section 11.01. Survival of Provisions.

            (a)   The rights of the respective parties to make a claim for
breach of any of the representations or warranties made in this Agreement shall
survive the Closing Date and remain in full force and effect for a period of ***
thereafter, except that the representations and warranties contained in Sections
5.01(a), 5.01(b), 5.02(a), 5.02(b) and 5.02(i) shall survive indefinitely.

            (b)   The rights of the respective parties to make a claim for
breach of any of the covenants, agreements, duties or obligations set forth in
this Agreement that, by their terms, are to have effect after the Closing Date
shall survive the Closing Date and remain in full force and effect for the
period contemplated thereby until such covenants, agreements, duties and
obligations have been fully performed in accordance with their respective terms,
or if no period is so contemplated, indefinitely.

      Section 11.02. Indemnification. In order to distribute among themselves
the responsibility for claims arising out of this Agreement, and except as
otherwise specifically provided for herein, from and after the Closing Date, the
parties shall indemnify each other as provided in this Section 11.02.


                                      -30-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (a)   Indemnification Obligations of Purchaser. From and after the
Closing Date, Purchaser shall defend, indemnify and hold Seller, its Affiliates,
and each of their respective officers, directors, agents, employees and
shareholders (collectively, "Seller Indemnitees"), harmless from and against any
and all Damages which Seller Indemnitees may incur or suffer, or with which any
of them may be faced arising out of:

                  (i)   the storage, handling, use, marketing, advertising,
      promotion, distribution or sale of the Product by Purchaser and/or its
      Affiliates, sublicensees, distributors or agents in the Territory, the
      conduct of the Business by Purchaser and/or its Affiliates, sublicensees,
      distributors or agents in the Territory or Purchaser's ownership or use of
      the Purchased Assets, in each case on and after the Closing Date,
      including (A) liabilities for product liability and returned goods, (B)
      liabilities in respect of product warranty obligations or services and any
      returned Product sold, (C) governmental and nongovernmental chargebacks,
      rebates or discounts with respect to the Product, and (D) liabilities
      relating to errors and omissions or claims of design and other defects
      with respect to any Product sold, including any clinical and non-clinical
      trials conducted on or after the Closing Date by Purchaser;

                  (ii)  the breach by Purchaser or Guarantor of this Agreement
      including (A) any material inaccuracy in or material breach of any
      representation or warranty made by Purchaser or Guarantor in this
      Agreement; provided, however, that (1) Purchaser shall not have any
      liability under this Section 11.02(a)(ii)(A) unless and until, and then
      only to the extent, the aggregate, cumulative amount of such Damages
      exceeds *** (the "Indemnity Deductible Amount"), and (2) in no event shall
      the aggregate, cumulative liability of Purchaser for Damages under this
      Section 11.02(a)(ii)(A) exceed ***; and provided further that Purchaser
      shall only have liability under this Section 11.02(a)(ii)(A) to the extent
      a Seller Indemnitee provides written notice to Purchaser of its claim for
      indemnification within the applicable period of limitations contemplated
      in Section 11.01(a), and (B) any material breach by Purchaser of, or
      material failure by Purchaser or Guarantor to comply with, any of their
      covenants or obligations pursuant to this Agreement, including those
      covenants and obligations which are a part of Purchaser's responsibility
      for the Assumed Liabilities;

                  (iii) the enforcement by Seller Indemnitees of their rights
      under this Section 11.02(a);

                  (iv)  Purchaser's material violation of any Applicable Law;
      and

                  (v)   arising out of or related in any way to the Assumed
      Liabilities (including Purchaser's failure to perform or in the due course
      pay and discharge any Assumed Liability);

provided, however, that, in each such case, Purchaser shall not be liable
hereunder to the extent such Damages arise from misconduct or negligence of, or
a violation of any Applicable Law by, Seller, its Affiliates, agents, employees
or contractors, or from the breach by Seller of the provisions of any of the
Transaction Documents.


                                      -31-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (b)   Indemnification Obligations of Seller. From and after the
Closing Date, Seller shall defend, indemnify and hold Purchaser, its Affiliates,
and each of their respective officers, directors, agents, employees,
shareholders or members (collectively, "Purchaser Indemnitees"), harmless from
and against any and all Damages which Purchaser Indemnitees may incur or suffer,
or with which any of them may be faced arising out of:

                  (i)   the storage, handling, use, marketing, advertising,
      promotion, distribution or sale of the Product by Seller and/or its
      Affiliates, sublicensees, distributors or agents in the Territory, the
      conduct of the Business by Seller and/or its Affiliates, sublicensees,
      distributors or agents in the Territory, or Seller's ownership or use of
      the Purchased Assets, in each case, prior to the Closing Date, excluding
      all Assumed Liabilities, and on and after the date of a repurchase
      contemplated by Section 9.02(b)(ii) or 9.02(c);

                  (ii)  the breach by Seller of this Agreement including (A) any
      material inaccuracy in or material breach of any representation or
      warranty made by Seller in this Agreement; provided, however, that (1)
      Seller shall not have any liability under this Section 11.02(b)(ii)(A)
      unless and until, and then only to the extent, the aggregate, cumulative
      amount of such Damages exceeds the Indemnity Deductible Amount, and (2) in
      no event shall the aggregate, cumulative liability of Seller for Damages
      under this Section 11.02(b)(ii)(A) exceed the Seller Indemnity Cap Amount;
      and provided further that Seller shall only have liability under this
      Section 11.02(b)(ii)(A) to the extent a Purchaser Indemnitee provides
      written notice to Seller of its claim for indemnification within the
      applicable period of limitations contemplated in Section 11.01(a), and (B)
      any material breach by Seller of, or material failure by Seller to comply
      with, any of its covenants or obligations pursuant to this Agreement;

                  (iii) the enforcement by Purchaser Indemnitees of their rights
      under this Section 11.02(b);

                  (iv)  Seller's material violation of any Applicable Law; and

                  (v)   arising out of or in any way related to the Excluded
      Liabilities;

provided, however, that (x) in each such case, Seller shall not be liable
hereunder to the extent such Damages arise from misconduct or negligence of, or
violation of Applicable Law by, Purchaser, its Affiliates, agents, employees or
contractors, or from the breach by Purchaser of the provisions of any of the
Transaction Documents, ***.

            (c)   Procedure. If any Proceeding arises as to which a right of
indemnification provided in this Article XI applies, the Person seeking
indemnification (the "Indemnified Party"), shall within 20 days notify the party
obligated under this Article XI to indemnify the Indemnified Party (the
"Indemnifying Party"), thereof in writing, except to the extent that such
failure to notify within 20 days does not prejudice the Indemnifying Party's
ability to defend or contest any such Proceeding, and allow the Indemnifying
Party and its insurers the opportunity to assume direction and control of the
defense against such Proceeding, at its sole expense, including the


                                      -32-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


settlement thereof at the sole option of the Indemnifying Party or its insurers;
provided, however, that the Indemnifying Party may not enter into any compromise
or settlement without the prior written consent of the Indemnified Party unless
such compromise or settlement includes as an unconditional term thereof the
giving by each plaintiff or claimant to the Indemnified Party of a release from
all liability in respect of such claim and only if such compromise or settlement
does not include any admission of legal wrongdoing on the part of the
Indemnified Party. The Indemnified Party shall fully cooperate with the
Indemnifying Party and its insurer in the disposition of any such matter and the
Indemnified Party will have the right and option to participate in (but not
control) the defense of any Proceeding as to which this Article XI applies, with
separate counsel at its election and cost. If the Indemnifying Party fails or
declines to assume the defense of any such Proceeding within 30 days after
notice thereof, the Indemnified Party may assume the defense thereof for the
account and at the risk of the Indemnifying Party. The Indemnifying Party shall
pay promptly to the Indemnified Party any Damages to which the indemnity under
this Article XI applies, as incurred.

      Section 11.03. Certain Limitations.

            (a)   Except as otherwise provided in Section 8.01(f), the sole and
exclusive remedy with respect to any breach of any representation, warranty,
covenant or agreement contained herein and for the other matters described in
Sections 11.02(a) and 11.02(b) (other than (i) with respect to a breach of the
terms of a covenant or agreement, as to which Purchaser or Seller, as the case
may be, also shall be entitled to seek specific performance or other equitable
relief and (ii) with respect to claims for fraud) shall be a claim for Damages
(whether by contract, in tort or otherwise, and whether in law, in equity or
both) made pursuant to this Article XI. No party shall be entitled to recover
any punitive, incidental or consequential damages whatsoever under this Article
XI except to the extent any such punitive, incidental or consequential damages
shall be payable to a third party.

            (b)   Notwithstanding anything to the contrary contained herein,
although a party may be entitled to make a claim for indemnification pursuant to
more than one section of this Article XI, a party shall not be entitled to
recover indemnification for the same claim under more than one section of this
Article XI.

                                   ARTICLE XII
                                   TERMINATION

      Section 12.01. Termination. This Agreement may be terminated at any time
prior to the Closing Date:

            (a)   by mutual written agreement of Seller and Purchaser;

            (b)   by Seller or Purchaser if the Closing shall not have been
consummated by April 15, 2003 (as such date may be extended pursuant to this
clause (b), the "Voluntary Termination Date"); provided, however, that neither
Seller nor Purchaser may terminate this Agreement pursuant to this clause (b) if
the Closing shall not have been consummated by the Voluntary Termination Date by
reason of the failure of such party or any of its Affiliates to


                                      -33-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


perform in all material respects any of its or their respective covenants or
agreements contained in this Agreement; and provided further, that if the only
reason the Closing shall not have occurred on or prior to April 15, 2003 is that
the condition set forth in Section 10.01(a) has not been satisfied by such date,
neither Seller nor Buyer may unilaterally terminate this Agreement until May 31,
2003;

            (c)   by either Seller or Purchaser if there shall be any United
States Applicable Law that makes consummation of the Contemplated Transactions
illegal or otherwise prohibited or if consummation of the Contemplated
Transactions would violate any nonappealable final order, decree or judgment of
any United States Governmental Authority having competent jurisdiction over such
Person; or

            (d)   by Purchaser pursuant to Section 10.04.

Any party desiring to terminate this Agreement pursuant to this Section 12.01
shall give written notice of such termination to the other parties to this
Agreement.

      Section 12.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 12.01, (a) this Agreement shall forthwith become void and
of no further force or effect, except for the following provisions, which shall
remain in full force and effect: (i) the representations and warranties set
forth in Sections 5.01(k) and 5.02(k) (Finder's Fees), (ii) Section 8.01
(Confidentiality), (iii) Section 8.02 (Press Releases), (iv) Section 8.04 (Tax
Matters), (v) this Section 12.02, (vi) Section 13.10 (Governing Law), (vii)
Section 13.12 (Entire Agreement), (viii) Section 13.13 (Expenses), and (ix)
Section 13.15 (Guaranty), and except that any and all claims arising prior to
such termination shall survive such termination; and (b) except as otherwise set
forth herein, such termination shall be without liability of any party to any
other party to this Agreement; provided, however, that if the Contemplated
Transactions fail to close as a result of a breach of the provisions of this
Agreement by any party, such party shall be fully liable for any and all Damages
incurred or suffered by the other parties as a result of all such breaches if
the other parties are ready, willing and able to otherwise satisfy their
respective obligations under the Transaction Documents. Notwithstanding the
foregoing, in the event Purchaser shall terminate this Agreement pursuant to
Section 10.04 by reason of the failure of the closing condition set forth in
Section 10.02(a)(ii), Seller shall have no liability to either Purchaser or
Guarantor arising out of such termination unless, and only to the extent that,
any representation or warranty of Seller shall have been untrue when made on the
date of this Agreement. The rights and remedies provided in this Section 12.02
shall be cumulative and not exclusive of any rights or remedies provided by
Applicable Law.

                                  ARTICLE XIII
                                  MISCELLANEOUS

      Section 13.01. Notices. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
delivered personally or sent by facsimile transmission, air courier, or
registered or certified mail, return receipt requested, addressed as follows:


                                      -34-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            if to Seller:

                  Noven Pharmaceuticals, Inc.
                  11960 S.W. 144th Street
                  Miami, Florida  33186
                  Attention:  CEO & General Counsel
                  Telecopy:  305-964-3340

            with copies (which shall not constitute notice) to:

                  King & Spalding LLP
                  1730 Pennsylvania Avenue, N.W.
                  Washington, D.C.  20006
                  Attention:  Glenn C. Campbell
                  Telecopy:  202-626-3737

            if to Purchaser:

                  Shire US Inc.
                  One Riverfront Place
                  Newport, Kentucky  41071
                  Attention:  General Counsel
                  Telecopy:  859-669-8414

            with copies (which shall not constitute notice) to:

                  Shire Pharmaceuticals Group plc
                  Hampshire International Business Park
                  Chineham
                  Basingstoke
                  Hampshire  RG24 8EP
                  United Kingdom
                  Attention:  Group General Counsel
                  Telecopy:  011-44-1256-894710

            and to:
                  Ulmer & Berne LLP
                  600 Vine Street, Suite 2800
                  Cincinnati, Ohio 45202
                  Attention:  Scott P. Kadish
                  Telecopy:  513-762-6245

            if to Guarantor:

                  Shire Pharmaceuticals Group plc


                                      -35-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  Hampshire International Business Park
                  Chineham
                  Basingstoke
                  Hampshire  RG24 8EP
                  United Kingdom
                  Attention:  Group General Counsel
                  Telecopy:  011-44-1256-894710

            with copies (which shall not constitute notice) to:

                  Ulmer & Berne LLP
                  600 Vine Street, Suite 2800
                  Cincinnati, Ohio 45202
                  Attention:  Scott P. Kadish
                  Telecopy:  513-762-6245

or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (a) when delivered, if
delivered personally, (b) when sent (with written confirmation received), if
sent by facsimile transmission on a Business Day, (c) on the first Business Day
after dispatch (with written confirmation received), if sent by facsimile
transmission on a day other than a Business Day, (d) on the second Business Day
after dispatch, if sent by air courier, and (e) on the fifth Business Day after
mailing, if sent by mail.

      Section 13.02. Disputes. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, or
the rights or obligations of the parties hereunder, the parties shall try to
settle their differences amicably between themselves. Any party may initiate
such informal dispute resolution by sending written notice of the dispute to the
other parties, and within 10 days after such notice, appropriate representatives
of the parties shall meet for attempted resolution by good faith negotiations.
If such representatives are unable to resolve promptly such disputed matter, it
shall be referred to the presidents of Seller, Purchaser and/or Guarantor, as
the case may be, or their respective designees, for discussion and resolution.
If such personnel are unable to resolve such dispute within 30 days of
initiating such negotiations, the parties agree first to try in good faith to
settle the dispute by mediation in Washington, D.C. under the Commercial
Mediation Rules of the American Arbitration Association. If following any such
mediation the parties still have not been able to resolve any such dispute, the
parties agree to submit the dispute to final and binding arbitration before a
single arbitrator in Washington, D.C. under the Commercial Arbitration Rules of
the American Arbitration Association. The parties agree that a judgment may be
entered on the arbitrator's award in any court of competent jurisdiction. The
arbitrator in reviewing any claim under this Agreement shall have the exclusive
authority to determine any issues as to the arbitrability of any such claim or
related disputes under this Agreement. In reaching a decision, the arbitrator
shall interpret, apply and be bound by this Agreement and by Applicable Law. The
arbitrator shall have no authority to add to, detract from or modify this
Agreement or any Applicable Law in any respect. The arbitrator may not grant any
remedy or relief that a court of competent jurisdiction


                                      -36-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


could not grant, nor any relief or remedy greater than that sought by the
parties nor any punitive, incidental or consequential damages, except to the
extent any such punitive, incidental or consequential damages shall be payable
to a third party. Any up-front costs of the arbitrator shall be borne equally by
the parties; provided, however, that the non-prevailing party in any such
arbitration shall pay, and to the extent applicable reimburse the prevailing
party for, the costs and expenses of the arbitrator, including costs and
expenses payable to the American Arbitration Association and to the arbitrator;
and provided further, that in the event each party prevails as to certain claims
in connection with any such arbitration, the fees of the arbitrator shall be
paid and/or reimbursed in accordance with the decision of the arbitrator. Each
party shall bear its own costs incurred in connection with attorneys' fees and
related expenses. Notwithstanding the foregoing provisions of this Section
13.02, nothing in this Agreement shall limit or in any way restrict the ability
of either party to seek injunctive or other equitable relief in a court or other
judicial body. For purposes of this Section 13.02, neither the Milestone
Payments nor any other portion of the Transaction Consideration shall constitute
punitive, incidental or consequential damages.

      Section 13.03. Independent Contractors. In making and performing the
Transaction Documents, the parties are acting and shall act as independent
contractors. Nothing in this Agreement shall be deemed to create an agency,
joint venture or partnership relationship among the parties hereto. No party
shall have the authority to obligate another party in any respect, and no party
shall hold itself out as having any such authority. All personnel of Seller
shall be solely employees of Seller and shall not represent themselves as
employees of Purchaser or Guarantor. All personnel of Purchaser and Guarantor
shall be solely employees of Purchaser and Guarantor and shall not represent
themselves as employees of Seller.

      Section 13.04. Assignment. No party shall have a right to assign this
Agreement or delegate any of its rights, interests, duties or obligations
hereunder without the prior written consent of the other parties (which consent
may be granted in such parties' sole discretion); provided, however, that any
party may assign this Agreement to any of its Affiliates without the prior
written consent of the other parties; and provided, further that no such
assignment of this Agreement shall relieve the assignor of any of its
obligations or liabilities under this Agreement. Notwithstanding the foregoing,
any party may assign this Agreement without the other parties' prior written
consent in connection with the transfer or sale of all or substantially all of
its assets or business or its merger or consolidation with another Person upon
written notice to the other parties. Any attempted assignment in violation of
this Section 13.04 shall be void.

      Section 13.05. Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the parties hereto, and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

      Section 13.06. Amendments. This Agreement shall not be modified, amended
or supplemented except pursuant to an instrument in writing executed and
delivered on behalf of each of the parties hereto.


                                      -37-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 13.07. No Waiver. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or conditions of
this Agreement, to exercise any right or privilege conferred in this Agreement,
or the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.

      Section 13.08. Counterparts. This Agreement shall become binding when any
one or more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original as against the
party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument. Each party may execute this
Agreement on a facsimile of the Agreement. In addition, facsimile signatures of
authorized signatories of either party shall be valid and binding and delivery
of a facsimile signature by either party shall constitute due execution and
delivery of this Agreement.

      Section 13.09. Interpretation. The article and section headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement. As used in this Agreement, any
reference to the masculine, feminine or neuter gender shall include all genders,
the plural shall include the singular, and singular shall include the plural.
Unless the context otherwise requires, the term "party" when used herein means a
party hereto. References herein to a party or other Person include their
respective successors and assigns. The words "include," "includes" and
"including" when used herein shall be deemed to be followed by the phrase
"without limitation" unless such phrase otherwise appears. Unless the context
otherwise requires, references herein to Articles, Sections, Schedules and
Attachments shall be deemed references to Articles and Sections of, and
Schedules and Attachments to, this Agreement. Unless the context otherwise
requires, the words "hereof," "hereby" and "herein" and words of similar meaning
when used in this Agreement refer to this Agreement in its entirety and not to
any particular Article, Section or provision hereof. With regard to each and
every term and condition of this Agreement, the parties understand and agree
that the same have or has been mutually negotiated, prepared and drafted, and
that if at any time the parties desire or are required to interpret or construe
any such term or condition or any agreement or instrument subject thereto, no
consideration shall be given to the issue of which party actually prepared,
drafted or requested any term or condition of this Agreement.

      Section 13.10. Governing Law. This Agreement and any claims, disputes or
causes of action relating to or arising out of this Agreement shall be construed
in accordance with and governed by the substantive laws of the State of
Delaware, without giving effect to the conflict of laws principles thereof.

      Section 13.11. Unenforceability. If any provisions of this Agreement are
determined to be invalid or unenforceable in any jurisdiction, such provisions
shall be ineffective to the extent of such invalidity or unenforceability in
such jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof or affecting the validity or enforceability of any of


                                      -38-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


such provisions of this Agreement in any other jurisdiction. The parties will
use their best efforts to substitute the invalid or unenforceable provision with
a valid and enforceable one which conforms, as nearly as possible, with the
original intent of the parties.

      Section 13.12. Entire Agreement.

            (a)   This Agreement, together with the other Transaction Documents,
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements,
commitments, arrangements, negotiations or understandings, whether oral or
written, among the parties hereto and their respective Affiliates with respect
thereto. There are no agreements, covenants or undertakings with respect to the
subject matter of this Agreement other than those expressly set forth or
referred to herein and no representations or warranties of any kind or nature
whatsoever, express or implied, are made or shall be deemed to be made herein by
the parties hereto, except those expressly made in this Agreement and the
Transaction Documents.

            (b)   THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO
REPRESENTATION, WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR
AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE
EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE
GENERALITY OF THE DISCLAIMER SET FORTH IN THE PRECEDING SENTENCE, (I) NEITHER
SELLER NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATIONS OR WARRANTIES, IN ANY PRESENTATION OR WRITTEN INFORMATION
RELATING TO THE BUSINESS GIVEN OR TO BE GIVEN IN CONNECTION WITH THE
CONTEMPLATED TRANSACTIONS, IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF
SELLER OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO
STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH
FILING OR CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A
REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE, AND (II) SELLER EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A
PARTICULAR PURPOSE AND WARRANTIES OF MERCHANTABILITY. EACH OF PURCHASER AND
GUARANTOR ACKNOWLEDGES THAT SELLER HAS INFORMED IT THAT NO PERSON HAS BEEN
AUTHORIZED BY SELLER OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR
WARRANTY IN RESPECT OF THE BUSINESS OR IN CONNECTION WITH THE CONTEMPLATED
TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE
TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY.

      Section 13.13. Expenses. Except as expressly set forth herein, each party
hereto shall bear all fees and expenses incurred by such party in connection
with, relating to or arising out of the execution, delivery and performance of
this Agreement and the consummation of the Contemplated Transactions, including
attorneys', accountants' and other professional fees and expenses.


                                      -39-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 13.14. Disclosure. Certain information set forth in the Disclosure
Schedules has been included and disclosed solely for informational purposes and
may not be required to be disclosed pursuant to the terms and conditions of this
Agreement. The disclosure of any such information shall not be deemed to
constitute an acknowledgement or agreement that the information is required to
be disclosed in connection with the representations and warranties made in this
Agreement or that the information is material, nor shall any information so
included and disclosed be deemed to establish a standard of materiality or
otherwise be used to determine whether any other information is material.

      Section 13.15. Guarantor Obligations. Guarantor hereby absolutely,
unconditionally and irrevocably guarantees, as principal obligor, and not merely
as surety, to Seller and its successors and assigns (a) the due and punctual
payment in full of the Transaction Consideration, the discharge of the Assumed
Liabilities and all other obligations of Purchaser hereunder, including
Purchaser's indemnification obligations under Article XI and Purchaser's
obligations under the Transaction Documents, and (b) the performance by Shire
Ireland of all of its duties and obligations under the Transaction Documents to
which it is a party (collectively, the "Obligations"). The foregoing obligation
of Guarantor constitutes a continuing guaranty of payment, and not of
collection, and is and shall be absolute and unconditional under any and all
circumstances, including circumstances that might otherwise constitute a legal
or equitable discharge of a surety or guarantor. Guarantor waives any right to
require that resort for payment first be had by Seller against Purchaser and/or
Shire Ireland, as the case may be. The obligation of Guarantor hereunder shall
not be discharged, impaired or otherwise affected by the failure of Seller to
assert any claim or demand against Purchaser and/or Shire Ireland, as the case
may be, or to enforce any remedy hereunder. Notwithstanding the foregoing, (i)
nothing in this Section 13.15 shall create any liabilities or obligations for
Guarantor to the extent Purchaser and/or Shire Ireland, as the case may be,
would not have liability or otherwise be responsible to Seller hereunder, and
(ii) Guarantor shall have the right to assert as a defense (including rights of
set off and counterclaim) to any of its obligations hereunder any defense that
would be available to it had it duly authorized and entered into the Obligations
directly.


                                      -40-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
date first above written.

                                    NOVEN PHARMACEUTICALS, INC.



                                    By:        /s/ Robert C. Strauss
                                       ---------------------------------------
                                       Name:   Robert C. Strauss
                                       Title:  President, CEO and Chairman



                                    SHIRE US INC.

                                    By:        /s/ William A. Nuerge
                                       ---------------------------------------
                                       Name:   William A. Nuerge
                                       Title:  President and CEO



                                    SHIRE PHARMACEUTICALS GROUP PLC

                                    By:        /s/ Kevin T. Anderson
                                       ---------------------------------------
                                       Name:   Kevin T. Anderson
                                       Title:  Attorney in Fact


                                      -41-



                                                                  ATTACHMENT III

                                LICENSE AGREEMENT

                        DATED AS OF ____________ __, 2003

                                 BY AND BETWEEN

                           NOVEN PHARMACEUTICALS, INC.

                                       AND

                      SHIRE PHARMACEUTICALS IRELAND LIMITED




                                TABLE OF CONTENTS



                                                                                               PAGE
                                                                                            
ARTICLE I                  DEFINITIONS.......................................................   1

         Section 1.01.     Definitions.......................................................   1
         Section 1.02.     Other Definitions.................................................   5

ARTICLE II                 LICENSE GRANTS....................................................   5

         Section 2.01.     License Grant:  Patents...........................................   5
         Section 2.02.     Limitations on License Granted Under Section 2.01.................   6
         Section 2.03.     Quality Control...................................................   6
         Section 2.04.     Sublicense........................................................   6

ARTICLE III                INTELLECTUAL PROPERTY MATTERS.....................................   7

         Section 3.01.     Infringement or Other Actions Regarding the Technology............   7
         Section 3.02.     Other Third Party Claims..........................................   7
         Section 3.03.     Maintenance of Noven Patents......................................   8

ARTICLE IV                 CONFIDENTIALITY...................................................   8

         Section 4.01.     Confidentiality...................................................   8
         Section 4.02.     Press Releases...................................................   10

ARTICLE V                  REPRESENTATIONS AND WARRANTIES OF SHIRE IRELAND..................   10

         Section 5.01.     Representations and Warranties of Shire Ireland..................   10

ARTICLE VI                 INDEMNIFICATION..................................................   11

         Section 6.01.     Indemnification..................................................   11
         Section 6.02.     Certain Limitations..............................................   12

ARTICLE VII                TERM AND TERMINATION.............................................   13

         Section 7.01.     Term.............................................................   13
         Section 7.03.     Effect of Termination............................................   13

ARTICLE VIII               MISCELLANEOUS....................................................   14

         Section 8.01.     Notices..........................................................   14
         Section 8.02.     Disputes.........................................................   15
         Section 8.03.     Independent Contractors..........................................   16
         Section 8.04.     Assignment.......................................................   16
         Section 8.05.     Binding Effect; Benefit..........................................   16
         Section 8.06.     Amendments.......................................................   16



                                      -i-



                                                                                               PAGE
                                                                                            
         Section 8.07.     No Waiver........................................................   16
         Section 8.08.     Counterparts.....................................................   17
         Section 8.09.     Interpretation...................................................   17
         Section 8.10.     Governing Law....................................................   17
         Section 8.11.     Unenforceability.................................................   17
         Section 8.12.     Entire Agreement.................................................   18
         Section 8.13.     Expenses.........................................................   18
         Section 8.14.     Force Majeure....................................................   19


                                LIST OF EXHIBITS

Exhibit A                  Noven Patents


                                      -ii-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

                                LICENSE AGREEMENT

      This LICENSE AGREEMENT (together with any Exhibits and Schedules hereto,
this "Agreement") is entered into as of this ___ day of ________ 2003 (the
"Effective Date"), by and between NOVEN PHARMACEUTICALS, INC., a Delaware
corporation ("Noven"), and SHIRE PHARMACEUTICALS IRELAND LIMITED, a Republic of
Ireland corporation ("Shire Ireland").

                              W I T N E S S E T H:

      WHEREAS, Noven, and Shire US Inc., a New Jersey corporation ("Shire"), and
Shire Pharmaceuticals Group plc, a corporation organized under the laws of
England and Wales, are parties to the Transaction Agreement, dated as of
February 26, 2003 (the "Transaction Agreement"), pursuant to which Noven has
agreed to transfer to Shire certain of the assets held, owned or used by Noven
in connection with the Business;

      WHEREAS, simultaneously with the execution of this Agreement, Noven and
Shire Ireland are entering into a Toll Conversion and Supply Agreement (the
"Toll Conversion and Supply Agreement"), pursuant to which Noven will
manufacture and supply to Shire Ireland certain of Shire Ireland's requirements
of the Product for sale within the Territory; and

      WHEREAS, Noven desires to license to Shire Ireland the Technology on the
terms and conditions set forth in this Agreement;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein and for other good and valuable consideration,
including the payments to be made to Noven by Shire in accordance with the
Transaction Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:

                                   ARTICLE I
                                   DEFINITIONS

      Section 1.01. Definitions. As used herein, the following capitalized terms
have the following meanings:

      "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention
Deficit Disorder.

      "Affiliate" means, when used with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the subject Person. For purposes of this Agreement, "control" means the direct
or indirect ownership of over 50% of the outstanding voting securities of a
Person.



          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      "Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, treaty, law, ordinance, rule,
regulation, administrative interpretation, order, writ, injunction, judicial
decision, decree or other requirement of any Governmental Authority applicable
to such Person or any of such Person's respective properties, assets, officers,
directors, employees, consultants or agents (in connection with such officers',
directors', employees', consultants' or agents' activities on behalf of such
Person).

      "Business" means the business as conducted by Noven prior to the Effective
Date consisting of the development, manufacture, testing and clinical and
non-clinical trials of the Product, and which business, upon receipt of the
Regulatory Approval, shall additionally consist of marketing, advertising,
promoting, distributing, selling, using and otherwise disposing of the Product.

      "Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York, USA are authorized or required by
law to close.

      "Code of Federal Regulations," or "C.F.R." means the codification of the
general and permanent rules published in the Federal Register by the Executive
department and agencies of the United States federal government. Title 21 of the
C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act.

      "Competing Product" means ***.

      "Confidential Information" means all secret, confidential or proprietary
data, know-how and related information, including all INDs, NDAs, Regulatory
Applications, Regulatory and Clinical Materials and related filings,
applications and data, the content of any unpublished patent applications,
operating methods and procedures, marketing, manufacturing, distribution and
sales methods and systems, sales figures, pricing policies and price lists and
other business information and shall include all information disclosed or
accessed by the parties pursuant to the provisions this Agreement.

      "Contemplated Transactions" means the transactions contemplated by the
Transaction Documents.

      "Damages" means all liabilities, demands, obligations, assessments,
judgments, levies, losses, fines, penalties, damages (including compensatory
damages), costs and expenses, including reasonable attorneys', accountants',
investigators', and experts' fees and expenses, reasonably sustained or incurred
in connection with the defense or investigation of any Proceedings (including
any Proceedings to establish insurance coverage).

      "Develop" means, with respect to the Product, to conduct clinical and
non-clinical development and commercialization activities, including (subject to
the requirements and restrictions of Applicable Law) the right to market and
sell the Product throughout the Territory, which activities shall not, in any
event, include modifications to the structure or composition of the Product and
shall not include any right to manufacture the Product.

      "FDA" means the United States Food and Drug Administration and any
successor agency


                                      -2-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      thereto.

      "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21
U.S.C.Section 301 et seq., as amended, and the regulations promulgated
thereunder, as amended from time to time.

      "Field" means therapeutic uses of the Product, whether or not for the
treatment of ADHD.

      "GAAP" means generally accepted accounting principles in effect in the
United States from time to time.

      "Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization
(including any national or international securities exchange and The NASDAQ
Stock Market), commission, tribunal or organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.

      "IND" means an Investigational New Drug Application, as defined in the 21
C.F.R.Section 312.3.

      "Inventions" means the inventions relating to the Product that are owned
by Noven during the term of this Agreement and are the subject of the Noven
Patents.

      "Milestone Payments" has the meaning specified in the Transaction
Agreement.

      "New Drug Application," or "NDA," means an application, including
amendments and supplements thereto, filed by a Person with the FDA to obtain FDA
approval of a new drug or therapy, as the context indicates, as defined in 21
C.F.R. Section 314.3.

      "Noven Patents" means all patents and patent applications, as listed in
Exhibit A, in the Territory covering Inventions for use in the Field in the
Territory, and any improvement patents, reissues, confirmations, renewals,
extensions, counterparts, divisions, continuations, continuations-in-part or
patents-of-addition issued or assigned to Noven of the patents or patent
applications listed in Exhibit A, but only to the extent covering the Product in
the Field in the Territory. Subject to the parties reaching an agreement
pursuant to Section 8.03(c) of the Transaction Agreement, the term "Noven
Patents" also shall include any of Noven's future patents and patent
applications for Inventions relating to methylphenidate.

      "Person" means an individual, a corporation, a general partnership, a
limited partnership, a limited liability company, a limited liability
partnership, an association, a trust or any other entity or organization,
including a Governmental Authority.

      "Proceedings" means governmental, judicial, administrative or adversarial
proceedings (public or private), litigation, suits, arbitration, disputes,
claims, causes of action or investigations.


                                      -3-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      "Product" means the transdermal methylphenidate drug delivery system that
has and is being developed, manufactured and tested by Noven, and for which
there is currently pending the Product NDA, and all improvements, modifications
and variations to the transdermal methylphenidate drug delivery system made by
Noven or its Affiliates during the term of this Agreement.

      "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by
Noven on December 12, 1997, seeking approval to develop, test and perform
clinical and non-clinical trials of the Product, along with any amendments,
correspondence or supplements thereto and incorporated therein.

      "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by
Noven on June 27, 2002, seeking approval to commercially market the Product for
the treatment of ADHD, along with any amendments, correspondence or supplements
thereto and incorporated therein.

      "Regulatory and Clinical Materials" means all documents, supporting
materials and other materials relating to the Regulatory Application, any
regulatory approval or other matter required to be submitted to any Regulatory
Authority in relation to the Product, including IND and NDA and documents,
supporting materials and other materials relating to any drug master file,
investigators' brochures, clinical studies (including any Phase IV clinical
studies), safety data, adverse event reports, questionnaires, consultants
reports, correspondence (including correspondence with any Regulatory
Authority), batch reports, protocols, specifications, quality assurance, quality
control, customer queries and any responses thereto, and any compilation or
evaluations thereof, and question and answer scripts.

      "Regulatory Application" means the applications submitted by Noven to the
FDA seeking approval for the development, manufacture, testing, storage,
transport, marketing, advertisement, promotion, sale, use, distribution or other
disposal of the Product in all or any portion of the Territory, including the
Product IND and the Product NDA.

      "Regulatory Approval" has the meaning specified in the Transaction
Agreement.

      "Regulatory Authority" means a Governmental Authority that has the
authority over the manufacture, use, storage, import, export, clinical testing,
transport, marketing, sale or distribution of the Product in all or any portion
of the Territory, including the FDA.

      "Securities Laws" means the United States Securities Act of 1933, as
amended, the United States Securities Exchange Act of 1934, as amended, and any
other similar law or regulation of a Governmental Authority, or any successor to
any such laws or regulations, together with any rules, regulations or listing
standards or agreements of any national or international securities exchange or
The NASDAQ Stock Market.

      "Subsidiary" as it relates to any Person, shall mean with respect to such
Person, any other Person of which the specified Person, either directly or
through or together with any other of its Subsidiaries, owns more than 50% of
the voting power in the election of directors or their


                                      -4-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

equivalents, other than as affected by events of default.

      "Technology" means any and all data, information (whether proprietary to
Noven or not), technology, know-how, processes, methods, skills, trade secrets,
developments, discoveries and inventions, owned by Noven, to the extent but only
to the extent related to the Product, including the Noven Patents.
Notwithstanding the foregoing, Technology shall not include data, information
(whether proprietary to Noven or not), technology, know-how, processes, methods,
skills, trade secrets, developments, discoveries and inventions related to the
manufacture of the Product or specifications, processes or procedures relating
thereto, except to the extent required to obtain Regulatory Approval for the
Product.

      "Territory" means the entire world.

      "Transaction Documents" has the meaning specified in the Transaction
Agreement.

      Section 1.02. Other Definitions. Each of the following terms is defined in
the section of this Agreement referenced opposite such term.



         Term                                                         Section
                                                                   
         Agreement...............................................     Preamble
         Disclosing Party........................................     4.01
         Effective Date..........................................     Preamble
         Indemnified Party.......................................     6.01(c)
         Indemnifying Party......................................     6.01(c)
         Noven...................................................     Preamble
         Noven Indemnitees.......................................     6.01(a)
         Obligations.............................................     8.15
         Receiving Party.........................................     4.01
         Shire...................................................     Recitals
         Shire Ireland...........................................     Preamble
         Shire Ireland Indemnitees...............................     6.01(b)
         Toll Conversion and Supply Agreement....................     Recitals
         Transaction Agreement...................................     Recitals


                                   ARTICLE II
                                 LICENSE GRANTS

      Section 2.01. License Grant: Patents. Except as otherwise provided herein
and subject to the terms and conditions of this Agreement, including the
provisions of Article VII, with effect from the Effective Date, Noven hereby
grants to Shire Ireland an unconditional, irrevocable, royalty-free, perpetual,
exclusive license in the Territory of rights under the Noven Patents, including
the right to grant sublicenses in accordance with Section 2.04, to Develop, use,
make, have made, sell or otherwise dispose of the Product under the Technology;
provided, however, that notwithstanding the foregoing, Shire Ireland shall not
have the right to make or have made the Product other than (a) as expressly
contemplated or provided in the Toll Conversion and


                                      -5-


Supply Agreement, or (b) following the termination of the Toll Conversion and
Supply Agreement in accordance with its terms. Notwithstanding the foregoing,
nothing in this Agreement shall limit in any way Noven's right (i) to make or
have made the Product under the terms and conditions of the Toll Conversion and
Supply Agreement or for the other purposes contemplated by clause (ii) or clause
(iii) of this sentence, (ii) to Develop, use or otherwise dispose of the
Product, or to authorize another Person to Develop, use or otherwise dispose of
the Product, for the purpose of conducting research or clinical trials of
improved transdermal methylphenidate drug delivery products or other products
with an indication for ADHD, or of products for indications other than ADHD and
which do not include delivery of methylphenidate, or (iii) to Develop, use,
promote, sell or otherwise dispose of a product other than the Product, whether
on its own, together with another Person or through a license or other grant of
rights to another Person.

      Section 2.02. Limitations on License Granted Under Section 2.01. Shire
Ireland shall not be entitled to exercise the rights granted to it under Section
2.01 unless such rights are exercised pursuant to an effective and active
Regulatory Approval and in accordance with all Applicable Laws.

      Section 2.03. Quality Control. Shire Ireland shall only Develop, market,
promote, sell, distribute, use or otherwise dispose of the Product, and any
materials used in connection with the Product, including any labeling, packaging
and advertising, in accordance with all Applicable Laws. Notwithstanding the
fact that Shire Ireland shall be obligated to ensure that the Product is
manufactured, stored, marketed, promoted, sold, distributed, used or otherwise
disposed of in accordance with Applicable Law, Noven shall have the right to
take any and all actions it deems necessary or appropriate (including seeking or
obtaining preliminary or permanent injunctive relief) to ensure that the Product
is used in a manner consistent with the terms and conditions of this Agreement,
in a manner consistent with Applicable Law.

      Section 2.04. Sublicense. Prior to the date on which Shire has paid Noven
the full amount of the Milestone Payments, Shire Ireland shall not have the
right to sublicense any of the rights granted by Noven under Section 2.01. On
and after the date Shire has paid Noven the full amount of the Milestone
Payments, Shire Ireland shall have the right to sublicense the rights granted by
Noven under Section 2.01; provided, that (i) Shire Ireland shall give written
notice of such sublicense to Noven, (ii) the sublicensee shall confirm in
writing to and for the benefit of Noven that it will comply with the covenants
and agreements of Shire Ireland hereunder, and (iii) no such sublicense pursuant
to this Section 2.04 shall relieve Shire Ireland of any of its obligations or
liabilities under this Agreement. Except as otherwise provided in the Toll
Conversion and Supply Agreement, Noven shall have no obligation to supply the
Product to any sublicensee of Shire Ireland (or of any Affiliate, successor,
assignee or delegatee of Shire Ireland, as the case may be) pursuant to this
Section 2.04. Notwithstanding the foregoing, Shire Ireland may sublicense the
rights granted by Noven under Section 2.01 to any of its Affiliates without the
prior written consent of Noven; provided, that no such sublicense shall relieve
Shire Ireland of any of its obligations or liabilities under this Agreement.



                                      -6-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

                                  ARTICLE III
                          INTELLECTUAL PROPERTY MATTERS

      Section 3.01. Infringement or Other Actions Regarding the Technology.

            (a) If, at any time on or after the Effective Date, either party
shall become aware of any infringement or threatened infringement of the Noven
Patents or any unfair competition, inappropriate or unauthorized use,
disparagement or other tortious act by any third party in relation to the
Technology, then the party having such knowledge shall give prompt notice
thereof to the other party.

            (b) Subject to Section 3.02, Shire Ireland shall have the right to
take such action as it deems appropriate to protect and enforce the Noven
Patents in the Territory against any Competing Product, including initiating an
appropriate Proceeding or threatening to initiate an appropriate Proceeding to
prevent or eliminate the infringement of such Noven Patents with regard to any
Competing Product, or the unfair competition, inappropriate or unauthorized use,
disparagement or other tortious act by any third party in relation to the
Technology in the Territory. Subject to Section 3.01(c) below, Noven agrees to
cooperate with Shire Ireland if and to the extent reasonably requested by Shire
Ireland, including joining as a party to such Proceeding, if necessary to
maintain standing.

            (c) ***.

            (d) ***.

            (e) All amounts awarded as damages, profits or otherwise in
connection with any action specified in Section 3.01(b) taken by Shire Ireland
shall be ***. If Shire Ireland elects not to take any action of the nature
specified in Section 3.01(b) within 60 days of becoming aware or receiving
notice under Section 3.01(a) of any infringement, threatened infringement,
unfair competition, disparagement or other tortious act identified in Section
3.01(a), Shire Ireland shall give Noven notice of such decision, and Noven
thereafter shall have the right to take any action of the nature specified in
Section 3.01(b). In such event, all amounts awarded as damages, profits or
otherwise in connection with any action taken by Noven shall be ***.

            (f) Notwithstanding the provisions of Section 3.01(b), Noven shall
have the right, and Shire Ireland shall not have the right, to take such actions
as it deems appropriate to protect and enforce the Technology in any Proceeding
other than a Proceeding seeking to protect or enforce the Technology in the
Territory against a Competing Product. All amounts awarded as damages, profits
or otherwise in connection with any action specified in this Section 3.01(f)
taken by Noven shall be paid to and become the sole property of Noven.

      Section 3.02. Other Third Party Claims.

            (a) If, at any time on or after the Effective Date, any party shall
become aware of any Proceeding or threat of any Proceeding by a third party
alleging that any of the Noven Patents (or any


                                      -7-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

claims asserted in the Noven Patents) are invalid or unenforceable, or otherwise
seeking to limit the scope, construction or interpretation of any of the Noven
Patents (or any claims asserted in the Noven Patents), such party shall promptly
notify the other parties of the same.

            (b) ***.

            (c) ***.

            Section 3.03. Maintenance of Noven Patents. Noven shall pay all
necessary maintenance and related expenses to maintain the Noven Patents in
those jurisdictions within the Territory where the Noven Patents are currently
filed as of the Effective Date. Noven shall, from and after the Effective Date,
upon the request and at the expense of Shire Ireland, use reasonable commercial
efforts to file additional applications and to take such other reasonable
actions necessary to obtain protection of the Noven Patents in additional
jurisdictions within the Territory. Noven agrees to consult with Shire Ireland
with regard to the prosecution of the Noven Patents to the extent relating to
the Product.

                                   ARTICLE IV
                                 CONFIDENTIALITY

            Section 4.01. Confidentiality.

                  (a) Pursuant to the terms of this Agreement, each party (in
such capacity, the "Disclosing Party"), has disclosed and will be disclosing to
the other parties and/or their Affiliates or representatives (in such capacity,
the "Receiving Party"), certain Confidential Information of the Disclosing
Party. The Receiving Party shall make no use of such Confidential Information
except in the exercise of its rights and the performance of its obligations set
forth in this Agreement. The Receiving Party shall use the same efforts to keep
secret, and prevent the disclosure to third parties of, Confidential Information
of the Disclosing Party as it would use with respect to its own Confidential
Information. Confidential Information disclosed by the Disclosing Party shall
remain the sole and absolute property of the Disclosing Party, subject to the
rights granted herein. The above restrictions on the use and disclosure of
Confidential Information shall not apply to any information which (i) is already
known to the Receiving Party at the time of disclosure by the Disclosing Party,
as demonstrated by competent proof, (ii) is or becomes generally available to
the public other than through any act or omission of the Receiving Party in
breach of this Agreement, (iii) is acquired by the Receiving Party from a third
party who is not, directly or indirectly, under an obligation of confidentiality
to the Disclosing Party with respect to same, or (iv) is developed independently
by the Receiving Party without use, direct or indirect, of information that is
required to be held confidential hereunder.

                  (b) In the event the Receiving Party is required (i) by
Applicable Law to disclose Confidential Information of the Disclosing Party to
any Regulatory Authorities to obtain Regulatory Approval for the Product or to
comply with the requirement of any Regulatory Authority, (ii) to disclose
Confidential Information of the Disclosing Party to respond to an inquiry of a
Regulatory Authority or Governmental Authority concerning the Product, or (iii)
to disclose Confidential Information of the Disclosing Party in a judicial,
administrative or


                                      -8-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

arbitration proceeding to enforce such party's rights under this Agreement, it
may do so only if it (A) provides the Disclosing Party with as much advance
written notice as possible of the required disclosure, (B) cooperates with the
Disclosing Party in any attempt to prevent or limit the disclosure, and (C)
limits disclosure, if any, to the specific purpose at issue.

                  (c) Notwithstanding the provisions of this Section 4.01:

                        (i) Shire Ireland shall be permitted to disclose to its
distributors, wholesalers and other direct customers such Confidential
Information relating to the Product as Shire Ireland shall reasonably determine
to be necessary or useful in order to effectively market and distribute the
Product;

                        (ii) Noven shall be permitted to disclose such
Confidential Information relating to the Product as Noven shall reasonably
determine to be necessary or useful in order to effectively perform its
obligations under the Toll Conversion and Supply Agreement;

                        (iii) Noven shall be permitted to disclose such
Confidential Information relating to the Product as it shall reasonably
determine to be necessary or useful in order to pursue or obtain any regulatory
approvals in respect of any other transdermal drug delivery products;

                        (iv) each of Noven and Shire Ireland shall be permitted
to disclose to a Regulatory Authority such Confidential Information relating to
the Product as it shall reasonably determine (but only after consulting with the
other parties to the extent practicable) to be necessary to comply with the
provisions of Applicable Law; and

                        (v) nothing in this Section 4.01 shall be interpreted to
limit the ability of either Noven or Shire Ireland to disclose its own
Confidential Information to the other parties or any other Person on such terms
and subject to such conditions as it deems advisable or appropriate;

provided, however, that in each such case any third party recipients of any
Confidential Information (other than a Regulatory Authority or other
Governmental Authority) undertake substantially the same confidentiality
obligation as the parties hereunder with respect to such Confidential
Information.

            (d) Each of Noven and Shire Ireland acknowledge and agree that the
terms and conditions of this Agreement shall be considered Confidential
Information of each party and shall be treated accordingly. Notwithstanding the
foregoing, Shire Ireland acknowledges and agrees that Noven may be required to
disclose some or all of the information included in this Agreement in order to
comply with its obligations under the Securities Laws, and hereby consents to
such disclosure to the extent deemed advisable or appropriate by counsel to
Noven (but only after consulting with Shire Ireland to the extent practicable).

            (e) Each party specifically recognizes that any breach by it of this
Section 4.01


                                      -9-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

may cause irreparable injury to the other parties and that actual damages may be
difficult to ascertain, and in any event, may be inadequate. Accordingly (and
without limiting the availability of legal or equitable, including injunctive,
remedies under any other provisions of this Agreement), each party agrees that
in the event of any such breach, notwithstanding the provisions of Section 8.02
or Article VI hereof, the other parties shall be entitled to seek, by way of
private litigation in the first instance, injunctive relief and such other legal
and equitable remedies as may be available.

            Section 4.02. Press Releases. Except as may be required by
Applicable Law, no party shall originate any publicity, press or news release or
other public announcement, written or oral, whether to the public press or
otherwise, relating to this Agreement, or to the existence of an arrangement
between the parties, without the prior written approval of the other parties. In
the event disclosure of this Agreement, or any of the terms and conditions of
this Agreement is required by Applicable Law, the party required to so disclose
such information shall, to the extent possible, provide to the other parties for
their prior approval (such approval not to be unreasonably withheld or delayed)
a written copy of such public announcement. When practicable, the party required
to disclose such information will provide such copy to the other parties at
least five Business Days prior to disclosure.

                                   ARTICLE V
                 REPRESENTATIONS AND WARRANTIES OF SHIRE IRELAND

      Section 5.01. Representations and Warranties of Shire Ireland. Shire
Ireland represents and warrants to Noven as of the Effective Date that:

            (a) Organization. Shire Ireland is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. As of the Closing Date, Shire Ireland will be duly qualified to
do business in each jurisdiction where the character of its business (after
giving effect to the Contemplated Transactions) make such qualifications
necessary to carry on its business.

            (b) Power, Authority and Enforceability. Shire Ireland has full
corporate power and authority to enter into and perform this Agreement and to
consummate the transactions contemplated herein. This Agreement has been or
shall be duly executed and delivered by duly authorized signatories of Shire
Ireland. This Agreement constitutes a valid and binding obligation of Shire
Ireland, enforceable against Shire Ireland in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally.

            (c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation by Shire Ireland of the transactions contemplated
hereby, will (i) conflict with or result in a breach of any of the terms,
conditions or provisions of Shire Ireland's certificate of incorporation or
other governing or charter document, or of any statute or administrative
regulation, or, to the best of its knowledge, of any order, writ, injunction,
judgment or decree of


                                      -10-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

any court or governmental authority or of any arbitration award or any agreement
binding upon Shire Ireland or its assets, or (ii) to the best of its knowledge,
contravene or conflict with, or constitute a violation of, any provisions of any
Applicable Law binding upon Shire Ireland.

            (d) No Default. Shire Ireland is not a party to any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by Shire Ireland according to the terms of this Agreement will be a
default, or whereby timely performance by Shire Ireland according to the terms
of this Agreement may be prohibited, prevented or delayed.

                                   ARTICLE VI
                                 INDEMNIFICATION

      Section 6.01. Indemnification. In order to distribute between themselves
the responsibility for claims arising out of this Agreement, and except as
otherwise specifically provided for herein, from and after the Effective Date,
the parties shall indemnify each other as provided in this Section 6.01.

            (a) Indemnification Obligations of Shire Ireland. From and after the
Effective Date, Shire Ireland shall defend, indemnify and hold Noven, its
Affiliates, and each of their respective officers, directors, agents, employees
and shareholders (collectively, "Noven Indemnitees"), harmless from and against
any and all Damages which Noven Indemnitees may incur or suffer, or with which
any of them may be faced arising out of:

                  (i) the breach by Shire Ireland of this Agreement including
any material breach by Shire Ireland of, or material failure by Shire Ireland to
comply with, any of its covenants or obligations pursuant to this Agreement;

                  (ii) the enforcement by Noven Indemnitees of their rights
under this Section 6.01(a); and

                  (iii) Shire Ireland's material violation of any Applicable
Law;

provided, however, that, in each such case, Shire Ireland shall not be liable
hereunder to the extent such Damages arise from misconduct or negligence of, or
a violation of any Applicable Law by Noven, its Affiliates, agents, employees or
contractors, or from the breach by Noven of the provisions of any of the
Transaction Documents.

            (b) Indemnification Obligations of Noven. From and after the
Effective Date, Noven shall defend, indemnify and hold Shire Ireland, its
Affiliates, and each of their respective officers, directors, agents, employees,
shareholders or members (collectively, "Shire Ireland Indemnitees") harmless
from and against any and all Damages which Shire Ireland Indemnitees may incur
or suffer, or with which any of them may be faced arising out of:

                  (i) the breach by Noven of this Agreement including any
material breach by Noven of, or material failure by Noven to comply with, any of
its covenants or


                                      -11-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

obligations pursuant to this Agreement;

                  (ii) the enforcement by Shire Ireland Indemnitees of their
rights under this Section 6.01(b); and

                  (iii) Noven's material violation of any Applicable Law;

provided, however, that, in each such case, Noven shall not be liable hereunder
to the extent such Damages arise from misconduct or negligence of, or a
violation of any Applicable Law by Shire Ireland, its Affiliates, agents,
employees or contractors, or from the breach by Shire Ireland of any of the
provisions of the Transaction Documents.

            (c) Procedure. If any Proceeding arises as to which a right of
indemnification provided in this Article VI applies, the Person seeking
indemnification (the "Indemnified Party"), shall within 20 days notify the party
obligated under this Article VI to indemnify the Indemnified Party (the
"Indemnifying Party"), thereof in writing, except to the extent that such
failure to notify within 20 days does not prejudice the Indemnifying Party's
ability to defend or contest any such Proceeding, and allow the Indemnifying
Party and its insurers the opportunity to assume direction and control of the
defense against such Proceeding, at its sole expense, including the settlement
thereof at the sole option of the Indemnifying Party or its insurers; provided,
however, that the Indemnifying Party may not enter into any compromise or
settlement without the prior written consent of the Indemnified Party unless
such compromise or settlement includes as an unconditional term thereof the
giving by each plaintiff or claimant to the Indemnified Party of a release from
all liability in respect of such claim and only if such compromise or settlement
does not include any admission of legal wrongdoing on the part of the
Indemnified Party. The Indemnified Party shall fully cooperate with the
Indemnifying Party and its insurer in the disposition of any such matter and the
Indemnified Party will have the right and option to participate in (but not
control) the defense of any Proceeding as to which this Article VI applies, with
separate counsel at its election and cost. If the Indemnifying Party fails or
declines to assume the defense of any such Proceeding within 30 days after
notice thereof, the Indemnified Party may assume the defense thereof for the
account and at the risk of the Indemnifying Party. The Indemnifying Party shall
pay promptly to the Indemnified Party any Damages to which the indemnity under
this Article VI applies, as incurred.

      Section 6.02. Certain Limitations.

            (a) Except as otherwise provided in Section 4.01(e), the sole and
exclusive remedy with respect to any breach of any representation, warranty,
covenant or agreement contained herein and for the other matters described in
Sections 6.01(a) and 6.01(b) (other than (i) with respect to a breach of the
terms of a covenant or agreement, as to which Shire Ireland or Noven, as the
case may be, also shall be entitled to seek specific performance or other
equitable relief and (ii) with respect to claims for fraud) shall be a claim for
Damages (whether by contract, in tort or otherwise, and whether in law, in
equity or both) made pursuant to this Article VI. No party shall be entitled to
recover any punitive, incidental or consequential damages whatsoever under this
Article VI, except to the extent any such punitive, incidental or consequential
damages are payable to a third party.


                                      -12-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

            (b) Notwithstanding anything to the contrary contained herein,
although a party may be entitled to make a claim for indemnification pursuant to
more than one section of this Article VI, a party shall not be entitled to
recover indemnification for the same claim under more than one section of this
Article VI.

                                  ARTICLE VII
                              TERM AND TERMINATION

      Section 7.01. Term. This Agreement and the license granted hereunder shall
terminate and be of no further force or effect upon the earlier of:

            (a) the date of a termination of the Toll Conversion and Supply
Agreement by Noven pursuant to Section 10.02(b) thereof, but only if such
termination occurs prior to payment in full of each of the Milestone Payments;

            (b) the termination of this Agreement pursuant to Section
9.02(b)(ii) or Section 9.02(c) of the Transaction Agreement; or

            (c) the termination of this Agreement in accordance with Section
7.02.

      Section 7.02. Certain Termination Events.

            (a) ***.

            (b) This Agreement shall terminate and shall be of no further force
or effect on the date on which the last of the Noven Patents in force in the
Territory shall (a) expire by its terms, or (b) be adjudicated invalid or
unenforceable in the Territory by the judgment of a court of competent
jurisdiction, which judgment shall not be subject to appeal; provided, that
following any such termination, nothing in this Agreement shall limit the right
of Shire Ireland to market and sell the Product.

      Section 7.03. Effect of Termination. Upon termination, this Agreement
shall forthwith become void and of no further force or effect, except for the
following provisions, which shall remain in full force and effect: (a) Section
4.01 (Confidentiality), (b) Section 4.02 (Press Releases), (c) this Section
7.03, (d) Section 8.10 (Governing Law), (e) Section 8.12 (Entire Agreement) and
(f) Section 8.13 (Expenses). The rights and remedies provided in this Article
VII shall be cumulative and not exclusive of any rights or remedies provided by
Applicable Law. Any termination of this Agreement shall not affect any right or
claim hereunder that arises prior to such termination, which claims and rights
shall survive any such termination.


                                      -13-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

                                  ARTICLE VIII
                                  MISCELLANEOUS

      Section 8.01. Notices. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
delivered personally or sent by facsimile transmission, air courier or
registered or certified mail, return receipt requested, addressed as follows:

                  if to Noven:

                           Noven Pharmaceuticals, Inc.
                           11960 S.W. 144th Street
                           Miami, Florida  33186
                           Attention:  CEO & General Counsel
                           Telecopy:  305-964-3340

                  with copies (which shall not constitute notice) to:

                           King & Spalding LLP
                           1730 Pennsylvania Avenue, N.W.
                           Washington, D.C.  20006
                           Attention:  Glenn C. Campbell
                           Telecopy:  202-626-3737

                  if to Shire Ireland:

                           Shire Pharmaceuticals Ireland Limited
                           Pharmapark
                           Chapelizod
                           Dublin 20
                           Ireland
                           Attention:  General Counsel
                           Telecopy:  011-353-1623-7469

                  with copies (which shall not constitute notice) to:

                           Shire Pharmaceuticals Group plc
                           Hampshire International Business Park
                           Chineham
                           Basingstoke
                           Hampshire  RG24 8EP
                           United Kingdom
                           Attention:  Group General Counsel
                           Telecopy:  011-44-1256-894710


                                      -14-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

                  and to:

                           Ulmer & Berne LLP
                           600 Vine Street, Suite 2800
                           Cincinnati, Ohio 45202
                           Attention:  Scott P. Kadish
                           Telecopy:  513-762-6245

or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (a) when delivered, if
delivered personally, (b) when sent (with written confirmation received), if
sent by facsimile transmission on a Business Day, (c) on the first Business Day
after dispatch (with written confirmation received), if sent by facsimile
transmission on a day other than a Business Day, (d) on the second Business Day
after dispatch, if sent by air courier, and (e) on the fifth Business Day after
mailing, if sent by mail.

      Section 8.02. Disputes. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, or
the rights or obligations of the parties hereunder, the parties shall try to
settle their differences amicably between themselves. Any party may initiate
such informal dispute resolution by sending written notice of the dispute to the
other parties, and within 10 days after such notice, appropriate representatives
of the parties shall meet for attempted resolution by good faith negotiations.
If such representatives are unable to resolve promptly such disputed matter, it
shall be referred to the presidents of Noven and Shire Ireland, or their
respective designees, for discussion and resolution. If such personnel are
unable to resolve such dispute within 30 days of initiating such negotiations,
the parties agree first to try in good faith to settle the dispute by mediation
in Washington, D.C. under the Commercial Mediation Rules of the American
Arbitration Association. If following any such mediation the parties still have
not been able to resolve any such dispute, the parties agree to submit the
dispute to final and binding arbitration before a single arbitrator in
Washington, D.C. under the Commercial Arbitration Rules of the American
Arbitration Association. The parties agree that a judgment may be entered on the
arbitrator's award in any court of competent jurisdiction. The arbitrator in
reviewing any claim under this Agreement shall have the exclusive authority to
determine any issues as to the arbitrability of any such claim or related
disputes under this Agreement. In reaching a decision, the arbitrator shall
interpret, apply and be bound by this Agreement and by Applicable Law. The
arbitrator shall have no authority to add to, detract from or modify this
Agreement or any Applicable Law in any respect. The arbitrator may not grant any
remedy or relief that a court of competent jurisdiction could not grant, nor any
relief or remedy greater than that sought by the parties, nor any punitive,
incidental or consequential damages, except to the extent any such punitive,
incidental or consequential damages are payable to a third party. Any up-front
costs of the arbitrator shall be borne equally by the parties; provided,
however, that the non-prevailing party in any such arbitration shall pay, and to
the extent applicable reimburse the prevailing party for, the costs and expenses
of the arbitrator, including costs and expenses payable to the American
Arbitration Association and to the arbitrator; and provided further, that in the
event each party prevails as to certain claims in connection with any such
arbitration, the fees of the arbitrator shall be paid and/or reimbursed in


                                      -15-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

accordance with the decision of the arbitrator. Each party shall bear its own
costs incurred in connection with attorneys' fees and related expenses.
Notwithstanding the foregoing provisions of this Section 8.02, nothing in this
Agreement shall limit or in any way restrict the ability of any party to seek
injunctive or other equitable relief in a court or other judicial body.

      Section 8.03. Independent Contractors. In making and performing this
Agreement, the parties are acting and shall act as independent contractors.
Nothing in this Agreement shall be deemed to create an agency, joint venture or
partnership relationship between the parties hereto. No party shall have the
authority to obligate another party in any respect, and no party shall hold
itself out as having any such authority. All personnel of Noven shall be solely
employees of Noven and shall not represent themselves as employees of Shire
Ireland. All personnel of Shire Ireland shall be solely employees of Shire
Ireland and shall not represent themselves as employees of Noven.

      Section 8.04. Assignment. Prior to the date on which Shire has paid Noven
the full amount of the Milestone Payments, Shire Ireland shall not have the
right to assign this Agreement or delegate any of its rights, interests, duties
or obligations hereunder. On and after the date Shire has paid Noven the full
amount of the Milestone Payments, Shire Ireland shall have the right to assign
this Agreement or delegate any of its rights, interests, duties or obligations;
provided, that (i) Shire Ireland shall give written notice of such assignment or
delegation to Noven, (ii) the assignee or delegatee shall confirm in writing to
and for the benefit of Noven that it will comply with the covenants and
agreements of Shire Ireland hereunder, and (iii) no such assignment or
delegation pursuant to this Section 8.04 shall relieve Shire Ireland of any of
its obligations or liabilities under this Agreement. Notwithstanding the
foregoing, at any time during the term of this Agreement any party may assign
this Agreement to any of its Affiliates without the prior written consent of the
other parties; provided, that no such assignment of this Agreement shall relieve
the assignor of any of its obligations or liabilities under this Agreement.
Notwithstanding the foregoing, any party may assign this Agreement without the
other parties' prior written consent in connection with the transfer or sale of
all or substantially all of its assets or business or its merger or
consolidation with another Person upon written notice to the other parties.
Except as otherwise provided in the Toll Conversion and Supply Agreement, Noven
shall have no obligation to supply the Product to any assignee or delegatee of
Shire Ireland pursuant to this Section 8.04. Any attempted assignment in
violation of this Section 8.04 shall be void.

      Section 8.05. Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the parties hereto, and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

      Section 8.06. Amendments. This Agreement shall not be modified, amended or
supplemented except pursuant to an instrument in writing executed and delivered
on behalf of each of the parties hereto.

      Section 8.07. No Waiver. The failure in any one or more instances of a
party to insist


                                      -16-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

upon performance of any of the terms, covenants or conditions of this Agreement,
to exercise any right or privilege conferred in this Agreement, or the waiver by
said party of any breach of any of the terms, covenants or conditions of this
Agreement, shall not be construed as a subsequent waiver of any such terms,
covenants, conditions, rights or privileges, but the same shall continue and
remain in full force and effect as if no such forbearance or waiver had
occurred. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.

      Section 8.08. Counterparts. This Agreement shall become binding when any
one or more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original as against the
party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument. Each party may execute this
Agreement on a facsimile of the Agreement. In addition, facsimile signatures of
authorized signatories of any party shall be valid and binding and delivery of a
facsimile signature by any party shall constitute due execution and delivery of
this Agreement.

      Section 8.09. Interpretation. The article and section headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement. As used in this Agreement, any
reference to the masculine, feminine or neuter gender shall include all genders,
the plural shall include the singular, and singular shall include the plural.
Unless the context otherwise requires, the term "party" when used herein means a
party hereto. References herein to a party or other Person include their
respective successors and assigns. The words "include," "includes" and
"including" when used herein shall be deemed to be followed by the phrase
"without limitation" unless such phrase otherwise appears. Unless the context
otherwise requires, references herein to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this Agreement. Unless the context otherwise requires, the
words "hereof," "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision hereof. With regard to each and every term and
condition of this Agreement, the parties understand and agree that the same have
or has been mutually negotiated, prepared and drafted, and that if at any time
the parties desire or are required to interpret or construe any such term or
condition or any agreement or instrument subject thereto, no consideration shall
be given to the issue of which party actually prepared, drafted or requested any
term or condition of this Agreement.

      Section 8.10. Governing Law. This Agreement and any claims, disputes or
causes of action relating to or arising out of this Agreement shall be construed
in accordance with and governed by the substantive laws of the State of
Delaware, without giving effect to the conflict of laws principles thereof.

      Section 8.11. Unenforceability. If any provisions of this Agreement are
determined to be invalid or unenforceable in any jurisdiction, such provisions
shall be ineffective to the extent of such invalidity or unenforceability in
such jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof or affecting the validity or enforceability of any of such
provisions of this Agreement in any other jurisdiction. The parties will use
their best efforts


                                      -17-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

to substitute the invalid or unenforceable provision with a valid and
enforceable one which conforms, as nearly as possible, with the original intent
of the parties.

      Section 8.12. Entire Agreement.

            (a) This Agreement, together with the other Transaction Documents,
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements,
commitments, arrangements, negotiations or understandings, whether oral or
written, between the parties hereto and their respective Affiliates with respect
thereto. There are no agreements, covenants or undertakings with respect to the
subject matter of this Agreement other than those expressly set forth or
referred to herein and no representations or warranties of any kind or nature
whatsoever, express or implied, are made or shall be deemed to be made herein by
the parties hereto, except those expressly made in this Agreement and the other
Transaction Documents.

            (b) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION,
WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN
MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN
THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET
FORTH IN THE PRECEDING SENTENCE, (I) NEITHER NOVEN NOR ANY OF ITS AFFILIATES HAS
MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES, IN ANY
PRESENTATION OR WRITTEN INFORMATION RELATING TO THE BUSINESS OR THE TECHNOLOGY
GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, IN ANY
FILING MADE OR TO BE MADE BY OR ON BEHALF OF NOVEN OR ANY OF ITS AFFILIATES WITH
ANY GOVERNMENTAL AUTHORITY OR REGULATORY AUTHORITY, AND NO STATEMENT MADE IN ANY
SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN
ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY
HEREUNDER OR OTHERWISE, AND (II) NOVEN EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND
WARRANTIES OF MERCHANTABILITY. SHIRE IRELAND ACKNOWLEDGES THAT NOVEN HAS
INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY NOVEN OR ANY OF ITS AFFILIATES
TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE BUSINESS OR THE
TECHNOLOGY OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN
WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS
TO WHICH THEY ARE A PARTY.

      Section 8.13. Expenses. Except as expressly set forth herein, each party
hereto shall bear all fees and expenses incurred by such party in connection
with, relating to or arising out of the execution, delivery and performance of
this Agreement and the consummation of the Contemplated Transactions, including
attorneys', accountants' and other professional fees and expenses.


                                      -18-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      Section 8.14. Force Majeure. If the performance of this Agreement or any
obligation hereunder (except the payment of money) by any party is prevented or
hindered, by reason of any cause beyond the reasonable control of the affected
party, including fire, flood, riot, war, explosions, acts of God (including
hurricanes and tropical storms), acts of a public enemy, labor disturbances or
any governmental action, the party so affected, upon notice to the other
parties, shall be excused from such performance; provided that the party so
affected shall use diligent effort to avoid or remove such cause or causes of
non-performance and shall continue to perform hereunder with the utmost dispatch
whenever such cause or causes are removed.

                                      -19-



          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
date first above written.

                                         NOVEN PHARMACEUTICALS, INC.

                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:



                                         SHIRE PHARMACEUTICALS IRELAND LIMITED

                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:


                                      -20-


                                                                   ATTACHMENT VI

                      TOLL CONVERSION AND SUPPLY AGREEMENT

                        DATED AS OF ____________ __, 2003

                                 BY AND BETWEEN

                           NOVEN PHARMACEUTICALS, INC.

                                       AND

                      SHIRE PHARMACEUTICALS IRELAND LIMITED

                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                   
ARTICLE I           DEFINITIONS.............................................   1

     Section 1.01.  Definitions.............................................   1
     Section 1.02.  Other Definitions.......................................   6

ARTICLE II          MANUFACTURE AND SUPPLY..................................   6

     Section 2.01.  Supply of Product.......................................   6
     Section 2.02.  Materials...............................................   7
     Section 2.03.  Labeling................................................   7
     Section 2.04.  Compliance with Applicable Law..........................   7
     Section 2.05.  Steering Committee......................................   8

ARTICLE III         FORECASTS, ORDERS, DELIVERY AND ACCEPTANCE..............   8

     Section 3.01.  Forecasts...............................................   8
     Section 3.02.  Initial Order...........................................   9
     Section 3.03.  Future Orders...........................................   9
     Section 3.04.  Annual Installed Capacity...............................   9
     Section 3.05.  Active Ingredient Quota.................................   9
     Section 3.06.  Excused Vendor Default..................................   9
     Section 3.07.  Delivery................................................  10
     Section 3.08.  Shipment................................................  10
     Section 3.09.  Acceptance of Product...................................  11

ARTICLE IV          CONVERSION PRICE AND PAYMENT............................  12

     Section 4.01.  Invoice.................................................  12
     Section 4.02.  Conversion Price........................................  12
     Section 4.03.  Adjustment of Product Gross Cost Resulting
                    from Adjustments to Active Ingredient Cost..............  12
     Section 4.04.  Active Ingredient Supplier..............................  13
     Section 4.05.  Adjustment Pursuant to Producer Price Index.............  13
     Section 4.06.  Adjustment for Modification of Specifications...........  13
     Section 4.07.  Taxes...................................................  14
     Section 4.08.  Adjustment for Late Deliveries..........................  14

ARTICLE V           MANUFACTURING STANDARDS AND QUALITY ASSURANCE...........  14

     Section 5.01.  Product Warranties......................................  14
     Section 5.02.  Manufacturing Standards; Release of Product.............  15
     Section 5.03.  Specifications..........................................  15


                                                                   
ARTICLE VI          AUDITS AND INSPECTION RIGHTS............................  15

     Section 6.01.  Records and Audits......................................  15
     Section 6.02.  Inspections by Governmental or Regulatory Agencies......  15

ARTICLE VII         ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES......  16

     Section 7.01.  Confidentiality.........................................  16
     Section 7.02.  Safety..................................................  17
     Section 7.03.  Product Recall..........................................  17
     Section 7.04.  Insurance...............................................  18
     Section 7.05.  Ultimate Use of Product.................................  18
     Section 7.06.  Intellectual Property Matters...........................  18
     Section 7.07.  No Debarred Persons.....................................  19
     Section 7.08.  Labeling................................................  19
     Section 7.09.  Second Source Arrangements..............................  19

ARTICLE VIII        REPRESENTATIONS AND WARRANTIES OF PRINCIPAL.............  19

     Section 8.01.  Representations and Warranties of Principal.............  19

ARTICLE IX          INDEMNIFICATION.........................................  20

     Section 9.01.  Indemnification.........................................  20
     Section 9.02.  Certain Limitations.....................................  22

ARTICLE X           TERM AND TERMINATION....................................  23

     Section 10.01. Term....................................................  23
     Section 10.02. Certain Termination Events..............................  23
     Section 10.03. Optional Termination by Manufacturer....................  24
     Section 10.04. Obligations on Termination..............................  24
     Section 10.05. Effect of Termination...................................  24
     Section 10.06. Anticipatory Breach.....................................  25

ARTICLE XI          MISCELLANEOUS...........................................  25

     Section 11.01. Notices.................................................  25
     Section 11.02. Disputes................................................  26
     Section 11.03. Independent Contractors.................................  27
     Section 11.04. Assignment..............................................  27
     Section 11.05. Binding Effect; Benefit.................................  28
     Section 11.06. Amendments..............................................  28
     Section 11.07. No Waiver...............................................  28
     Section 11.08. Counterparts............................................  28
     Section 11.09. Interpretation..........................................  28
     Section 11.10. Governing Law...........................................  29
     Section 11.11. Unenforceability........................................  29



                                      -ii-

                                                                   
     Section 11.12. Entire Agreement........................................  29
     Section 11.13. Expenses................................................  30
     Section 11.14. Force Majeure...........................................  30



                                      -iii-

                                LIST OF EXHIBITS

                 
Exhibit A           Negotiated Batch Yield
Exhibit B           Specifications
Exhibit C           Form of Purchase Order
Exhibit D           Estimated Conversion Price Based on Negotiated Batch Yield
Exhibit D1          Form of Manufacturer Invoicing to Principal
Exhibit E           Quality Assurance Agreement
Exhibit F           Mechanism for Adjustment of Product Gross Price Resulting
                    from Adjustment to Active Ingredient Cost



                                      -iv-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

                      TOLL CONVERSION AND SUPPLY AGREEMENT

      This TOLL CONVERSION AND SUPPLY AGREEMENT (together with any Exhibits and
Schedules hereto, this "Agreement"), is made as of this __ day of _______ 2003
(the "Effective Date"), by and between NOVEN PHARMACEUTICALS, INC., a Delaware
corporation ("Manufacturer"), and SHIRE PHARMACEUTICALS IRELAND LIMITED, a
Republic of Ireland corporation ("Principal").

                              W I T N E S S E T H:

      WHEREAS, Manufacturer, and Shire US Inc., a New Jersey corporation
("Shire"), and Shire Pharmaceuticals Group plc, a corporation organized under
the laws of England and Wales, are parties to the Transaction Agreement, dated
as of February 26, 2003 (the "Transaction Agreement"), pursuant to which
Manufacturer has agreed to transfer to Shire certain of the assets held, owned
or used by Manufacturer in connection with the Business;

      WHEREAS, simultaneously with the execution of this Agreement, Manufacturer
and Principal are entering into a License Agreement (the "License Agreement"),
pursuant to which Manufacturer will license to Principal the exclusive rights to
the Technology to use, sell or otherwise dispose of the Product in the
Territory;

      WHEREAS, Manufacturer desires to manufacture the Product and to supply
Principal with certain of its requirements of the Product for sale in accordance
with the License Agreement; and

      WHEREAS, Principal desires to purchase certain of its requirements of the
Product from Manufacturer pursuant to the terms and conditions set forth in this
Agreement;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      Section 1.01. Definitions.. As used herein, the following capitalized
terms have the following meanings:

      "Active Ingredient" means methylphenidate base.

      "Active Ingredient Cost" means ***.

      "ADHD" means Attention Deficit Hyperactivity Disorder and/or Attention
Deficit Disorder.

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

      "Affiliate" means, when used with respect to a Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the subject Person. For purposes of this Agreement, "control" means the direct
or indirect ownership of over 50% of the outstanding voting securities of a
Person.

      "Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, treaty, law, ordinance, rule,
regulation, administrative interpretation, order, writ, injunction, judicial
decision, decree or other requirement of any Governmental Authority applicable
to such Person or any of such Person's respective properties, assets, officers,
directors, employees, consultants or agents (in connection with such officers',
directors', employees', consultants' or agents' activities on behalf of such
Person).

      "Batch" means, as to each size of the Product, respectively, the actual
number of complete and usable units of such size of the Product yielded from a
standard size kettle of raw materials as determined by applicable FDA validation
requirements and blended for production of such size, it being understood and
agreed that the actual yield obtained by Manufacturer from any such Batch will
vary from time to time. The estimated number of units of each size of the
Product expected to be yielded from each Batch produced thereof, as of the
Effective Date, shall be as described in Exhibit A hereto, as such exhibit may
be amended, modified or otherwise supplemented from time to time in accordance
with the terms of this Agreement.

      "Business" means the business as conducted by Manufacturer prior to the
Effective Date consisting of the development, manufacture, testing and clinical
and non-clinical trials of the Product, and which business, upon receipt of the
Regulatory Approval, shall additionally consist of marketing, advertising,
promoting, distributing, selling, using and otherwise disposing of the Product.

      "Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York, USA are authorized or required by
law to close.

      "Code of Federal Regulations," or "C.F.R." means the codification of the
general and permanent rules published in the Federal Register by the Executive
department and agencies of the United States federal government. Title 21 of the
C.F.R. contains the regulations promulgated by the FDA pursuant to the FDC Act.

      "Confidential Information" means all secret, confidential or proprietary
data, know-how and related information, including all INDs, NDAs, Regulatory
Applications, Regulatory and Clinical Materials and related filings,
applications and data, the content of any unpublished patent applications,
operating methods and procedures, marketing, manufacturing, distribution and
sales methods and systems, sales figures, pricing policies and price lists and
other business information and shall include all information disclosed or
accessed by the parties pursuant to the provisions this Agreement.

      "Contemplated Transactions" means the transactions contemplated by the
Transaction Documents.

                                      -2-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      "Conversion Price" means ***.

      "Damages" means all liabilities, demands, obligations, assessments,
judgments, levies, losses, fines, penalties, damages (including compensatory
damages), costs and expenses, including reasonable attorneys', accountants',
investigators', and experts' fees and expenses, reasonably sustained or incurred
in connection with the defense or investigation of any Proceedings (including
any Proceedings to establish insurance coverage).

      "DEA" means the United States Drug Enforcement Administration and any
successor agency thereto.

      "Excused Vendor Default" means ***.

      "FDA" means the United States Food and Drug Administration and any
successor agency thereto.

      "FDC Act" means the United States Federal Food, Drug and Cosmetic Act, 21
U.S.C. Section 301 et seq., as amended, and the regulations promulgated
thereunder, as amended from time to time.

      "GAAP" means generally accepted accounting principles in effect in the
United States from time to time.

      "GMP" means the current Good Manufacturing Practices as that term is
defined by the FDA which are in force or hereafter adopted by the FDA in (i) its
applicable regulations promulgated or issued thereunder, and (ii) good
manufacturing practices as required by applicable regulations of any Regulatory
Authority.

      "Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization
(including any national or international securities exchange and The NASDAQ
Stock Market), commission, tribunal or organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.

      "IND" means an Investigational New Drug Application, as defined in 21
C.F.R. Section 312.3.

      "Intellectual Property" means (i) all patents, copyrights, technology,
know-how, processes, trade secrets, inventions (including inventions conceived
prior to the Effective Date but not documented as of the Effective Date),
proprietary data, formulae, research and development data and computer software
programs, (ii) all trademarks, trade names, service marks and service names,
(iii) all registrations, applications, recordings and common-law rights relating
thereto, all rights to sue at law or in equity for any infringement or other
impairment thereto, including the right to receive all proceeds and damages
therefrom, and all rights to obtain renewals, continuations, divisions or other
extensions of legal protections pertaining thereto, and (iv) all other United
States, state and foreign intellectual property.

                                      -3-


          Confidential Materials omitted and filed separately with the
        Securities and Exchange Commission. Asterisks denote omissions.

      "Manufacture" means to formulate, process, produce, package, handle,
store, hold, label, test, analyze, sample, release and ship the Product in
accordance with the terms of the Specifications.

      "Manufacturing Facility" means Manufacturer's facility located at 11960
S.W. 144th Street, Miami, Florida 33186, or such other FDA-approved facility of
Manufacturer approved by Principal for the purpose of Manufacture hereunder.

      "Materials" means all ingredients, items or substances (including those
that may not appear in the Product) used or required for use by Manufacturer to
Manufacture the Product, including the Active Ingredient, all other active drug
ingredients, excipients, packaging components, printed materials and
manufacturing materials that may have direct Product contact.

      "Milestone Payments" has the meaning specified in the Transaction
Agreement.

      "New Drug Application" or "NDA" means an application, including amendments
and supplements thereto, filed by a Person with the FDA to obtain FDA approval
of a new drug or therapy, as the context indicates, as defined in 21 C.F.R.
Section 314.3.

      "Out of Trend Event" means ***.

      "Person" means an individual, a corporation, a general partnership, a
limited partnership, a limited liability company, a limited liability
partnership, an association, a trust or any other entity or organization,
including a Governmental Authority.

      "Proceedings" means governmental, judicial, administrative or adversarial
proceedings (public or private), litigation, suits, arbitration, disputes,
claims, causes of action or investigations.

      "Product" means the transdermal methylphenidate drug delivery system that
has and is being developed, manufactured and tested by Manufacturer and for
which there is currently pending the Product NDA, and all improvements,
modifications and variations to the transdermal methylphenidate drug delivery
system made by Manufacturer or its Affiliates during the term of the License
Agreement. ***.

      "Product IND" means the IND (IND File No. 54,732) submitted to the FDA by
Manufacturer on December 12, 1997, seeking approval to develop, test and perform
clinical and non-clinical trials of the Product, along with any amendments,
correspondence or supplements thereto and incorporated therein.

      "Product NDA" means the NDA (NDA File No. 21-514) submitted to the FDA by
Manufacturer on June 27, 2002, seeking approval to market the Product for the
treatment of ADHD, along with any amendments, correspondence or supplements
thereto and incorporated therein.

      "Regulatory and Clinical Materials" means all documents, supporting
materials and other materials relating to the Regulatory Application, any
regulatory approval or other matter required

                                      -4-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

to be submitted to any Regulatory Authority in relation to the Product,
including IND and NDA and documents, supporting materials and other materials
relating to any drug master file, investigators' brochures, clinical studies
(including any Phase IV clinical studies), safety data, adverse event reports,
questionnaires, consultants reports, correspondence (including correspondence
with any Regulatory Authority), batch reports, protocols, specifications,
quality assurance, quality control, customer queries and any responses thereto,
and any compilation or evaluations thereof, and question and answer scripts.

      "Regulatory Application" means the applications submitted by Manufacturer
to the FDA seeking approval for the development, manufacture, testing, storage,
transport, marketing, advertisement, promotion, sale, use, distribution or other
disposal of the Product in all or any portion of the Territory, including the
Product IND and the Product NDA.

      "Regulatory Approval" has the meaning specified in the Transaction
Agreement.

      "Regulatory Authority" means a Governmental Authority that has the
authority over the manufacture, use, storage, import, export, clinical testing,
transport, marketing, sale or distribution of the Product in all or any portion
of the Territory, including the FDA and the DEA.

      "Regulatory Standards" means (i) the facility license requirements of all
regulatory agencies applicable to the equipment and facilities used in the
Manufacture of the Product or used in the storage of Materials, (ii) any laws,
regulations, policies, or standards of any Governmental Authority that apply to
Manufacturer's Manufacture of the Product or the storage of Materials, and (iii)
any conditions or specifications contained in the Product IND, the Product NDA
or the Regulatory Approval for the Materials and the Product.

      ***.

      "Securities Laws" means the United States Securities Act of 1933, as
amended, the United States Securities Exchange Act of 1934, as amended, and any
other similar law or regulation of a Governmental Authority, or any successor to
any such laws or regulations, together with any rules, regulations or listing
standards or agreements of any national or international securities exchange or
The NASDAQ Stock Market.

      "Specifications" means, collectively, the Manufacturer manufacturing,
packaging and standard testing procedures for the Product, including all
applicable control procedures and analytical test methods contained therein, as
described in Exhibit B attached hereto, as such exhibit may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Agreement.

      "Subsidiary" as it relates to any Person, shall mean with respect to such
Person, any other Person of which the specified Person, either directly or
through or together with any other of its Subsidiaries, owns more than 50% of
the voting power in the election of directors or their equivalents, other than
as affected by events of default.

      "Technology" has the meaning specified in the License Agreement.

                                      -5-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

      "Territory" means the United States of America.

      "Transaction Documents" has the meaning specified in the Transaction
Agreement.

      Section 1.02. Other Definitions. Each of the following terms is defined in
the section of this Agreement referenced opposite such term.



Term                                                                    Section
- ----                                                                    -------
                                                                     
Agreement.............................................................  Preamble
Alternative Supplier..................................................  7.09(b)
Annual Installed Capacity.............................................  3.04
Disclosing Party......................................................  7.01
Force Majeure Event...................................................  11.14
Effective Date........................................................  Preamble
Indemnified Party.....................................................  9.01(c)
Indemnifying Party....................................................  9.01(c)
Index.................................................................  4.05(a)
License Agreement.....................................................  Recitals
Manufacturer..........................................................  Preamble
Manufacturer Indemnitees..............................................  9.01(a)
Manufacturing Problem.................................................  10.06(a)
Obligations...........................................................  11.15
Principal.............................................................  Preamble
Principal Indemnitees.................................................  9.01(b)
Purchase Order........................................................  3.03
Quality Assurance Agreement...........................................  5.02
Receiving Party.......................................................  7.01
Rejection Notice......................................................  3.09(a)
Shortfall.............................................................  10.06(d)
Steering Committee....................................................  2.05
Shire.................................................................  Recitals
Technical Dispute.....................................................  3.09(c)
Term..................................................................  10.01
Transaction Agreement.................................................  Recitals



                                   ARTICLE II
                             MANUFACTURE AND SUPPLY

      Section 2.01. Supply of Product. Subject to the terms and conditions of
this Agreement, the Transaction Agreement and the License Agreement, from and
after the Effective Date, Manufacturer shall Manufacture on a toll basis and
deliver exclusively for and to Principal the Product ordered by Principal
pursuant to the terms of this Agreement, and, except as otherwise expressly
provided herein, Principal shall order and purchase from Manufacturer at least
***

                                      -6-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

(calculated on a calendar year basis) of Principal's requirements of the Product
for sale, use or other disposal within the Territory. Notwithstanding the
foregoing, Manufacturer's obligation to supply Product to Principal hereunder is
subject to exception for an Excused Vendor Default and, in respect of the Active
Ingredient, also subject to the payment by Principal for the Active Ingredient
in the quantities requested by Manufacturer from time to time and the ordering
by Principal of the quantities requested for delivery at the times requested by
Manufacturer from time to time.

      Section 2.02. Materials. Subject to the terms and conditions of this
Agreement, the Transaction Agreement and the License Agreement, Manufacturer
shall (a) procure at its expense from third parties sufficient quantities of
Materials as required from time to time for the Manufacture of the Product;
provided, that Principal shall procure at its sole expense sufficient quantities
of Active Ingredient as are requested from time to time by Manufacturer for the
Manufacture of the Product, and (b) ensure that all Materials used by
Manufacturer conform to the Specifications and are tested in accordance with,
and will meet, all applicable Regulatory Standards including GMPs.

      Section 2.03. Labeling. Manufacturer covenants and agrees that the
labeling, including any inserts, utilized in the packaging of the Product will
conform to the package and/or label copy provided by Principal, which packaging
and labeling shall be in compliance with the terms and conditions of the Quality
Assurance Agreement.

      Section 2.04. Compliance with Applicable Law. Principal hereby covenants
and agrees that Principal and its Affiliates shall store, handle, transport,
market, promote, sell, distribute, use and otherwise dispose of any Product
supplied by Manufacturer, and any materials used in connection with such
Product, including any labeling, packaging and advertising, in accordance with
all Applicable Laws.

                                      -7-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

      Section 2.05. Steering Committee.

            (a)   To facilitate the Manufacture of Product hereunder,
Manufacturer and Principal shall each within 30 days of the Effective Date
nominate representatives from their respective employees, full time consultants
or Affiliates to a Steering Committee (the "Steering Committee") to serve in an
advisory capacity with respect to their respective obligations under this
Agreement to (i) review manufacturing operations for the purpose of considering,
proposing and developing improvements to the ordering and manufacturing process
and to the way the parties communicate and interact, (ii) consider strategic
planning and facilitate manufacturing operations, (iii) provide ongoing advisory
services with respect to manufacturing services hereunder, and (iv) attempt to
resolve amicably any disputes arising between Manufacturer and Principal with
respect to day-to-day operations. The Steering Committee is intended to provide
a mechanism to foster a better working relationship between the parties. Except
as otherwise expressly provided herein, the Steering Committee shall not have
any authority or responsibility hereunder or require any matter to be brought
(and no party shall be required to bring any matter) before the Steering
Committee prior to pursuing any available remedy. Furthermore, no action of the
Steering Committee shall conflict or be inconsistent with the terms of this
Agreement absent an amendment to this Agreement agreed to by the parties in
writing.

            (b)   Manufacturer and Principal shall appoint as members of the
Steering Committee a reasonable number of suitably qualified and experienced
representatives of each of Manufacturer and Principal and shall each designate
one member appointed by it to be the principal contact in relation to the day to
day management of and administration of this Agreement. Each of Manufacturer and
Principal shall appoint no more than four persons to the Steering Committee.

            (c)   The Steering Committee shall meet at regular intervals on such
dates and at such locations as may be agreed upon by Manufacturer and Principal,
by video or telephone conference. In particular, the Steering Committee shall
strive to meet at least once per quarter, but in any event shall meet no less
than twice per year during the term of this Agreement unless otherwise agreed by
Manufacturer and Principal. The Steering Committee may also meet upon 15 days'
written request by either Manufacturer or Principal, should circumstances
necessitate such a meeting.


                                   ARTICLE III
                   FORECASTS, ORDERS, DELIVERY AND ACCEPTANCE

      Section 3.01. Forecasts. Within seven Business Days after the first day of
each calendar month during the Term, Principal will provide Manufacturer with a
non-binding (except as otherwise provided in Section 3.03), rolling 12-month
forecast of its requirements for Batches of the Product. Such 12-month forecast
shall indicate the number of Batches of each size of the Product, as well as the
number of Batches of placebos of each size of the Product, forecasted to be
ordered by Principal for each month. Principal shall use reasonable commercial
efforts to ensure that its forecasts are as accurate as possible.

                                      -8-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

      Section 3.02. Initial Order. Manufacturer and Principal hereby acknowledge
and agree that, in order to address Principal's initial requirements for the
commercial launch of the Product and for the month after commercial launch***.

      Section 3.03. Future Orders. From and after the initial production period
contemplated by Section 3.02, Principal shall submit to Manufacturer standard
form purchase orders in the form of Exhibit C hereto (each, a "Purchase Order"),
for each order placed by Principal pursuant to this Agreement. With respect to
each of the 12-month forecasts to be provided by Principal in accordance with
Section 3.01, the quantities set forth for the first three months of each such
12-month period shall constitute firm and binding orders for such forecasted
quantities and shall be subject to binding Purchase Orders. The quantities set
forth for the fourth, fifth and six months of each such 12-month period shall
constitute partially binding orders, such that Principal shall be bound to
purchase, for any particular month, *** of the Batches of each size of the
Product forecasted by Principal for such month at the time that such month was
the sixth month in any 12-month forecast; provided, that upon request by
Principal, Manufacturer shall attempt in good faith to supply a quantity of the
Product in excess of *** of the Batches previously forecasted by Principal for
any such month. Each Purchase Order shall indicate a specific delivery date,
which date shall be no sooner than 90 days after submission of any such Purchase
Order to Manufacturer. Principal shall be bound to purchase, and Manufacturer,
subject to Sections 3.06, 3.07 and 11.14, shall be bound to Manufacture and
deliver to Principal by the applicable delivery date, the Product ordered
pursuant to each Purchase Order properly submitted to Manufacturer. Each
Purchase Order shall be placed in a minimum quantity, as to each size of the
Product, equal to one Batch of such Product size and in increments of additional
Batches thereafter. In the event that the terms and conditions of any Purchase
Order are inconsistent with or conflict with the terms and conditions of this
Agreement, the terms and conditions of this Agreement shall govern.

      Section 3.04. Annual Installed Capacity. Manufacturer and Principal
acknowledge and agree that Manufacturer's maximum installed capacity for
production of the Product for the remainder of calendar year 2003 is *** units
of Product per month (the "Annual Installed Capacity"). ***. For calendar years
after 2003, the Steering Committee shall consult to evaluate and review the
Annual Installed Capacity as represented by Manufacturer to Principal from time
to time and the then effective forecasts delivered by Principal to identify any
potential shortfalls in Manufacturer's capacity that need to be addressed by
Manufacturer and Principal. Forecasts submitted by Principal pursuant to Section
3.01 and orders placed by Principal pursuant to Sections 3.02 and 3.03, as to
any month, shall be for quantities of the Product that fall within
Manufacturer's Annual Installed Capacity for such month.

      Section 3.05. Active Ingredient Quota. On April 1 of each calendar year,
Principal shall deliver to Manufacturer a forecast of its requirements of the
Product for the following calendar year, for the purpose of assisting
Manufacturer in projecting its demand for the Active Ingredient for such
calendar year for submission to and approval by the DEA. The Steering Committee
shall consult in good faith in September of each calendar year in order to
determine whether any adjustments to such projection and the related quota are
appropriate.

      Section 3.06. Excused Vendor Default. In the event Manufacturer or
Principal shall become aware of an actual or potential Excused Vendor Default
that such party reasonably

                                      -9-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

anticipates will adversely affect Manufacturer's ability to ship on the delivery
date set forth in any Purchase Order such party shall provide notice thereof to
the other as soon as practicable. In the event of such an Excused Vendor
Default, Manufacturer and Principal shall cooperate to establish a reasonable
new delivery date. Manufacturer's failure to meet any delivery date set forth in
a Purchase Order by reason of an Excused Vendor Default shall neither (a)
constitute a breach by Manufacturer of the terms of this Agreement pursuant to
Section 10.02(b), nor (b) be considered as a delivery failure for purposes of
Section 4.08 or Section 10.02(c).

      Section 3.07. Delivery. The actual number of units delivered pursuant to
any Purchase Order for the Manufacture of the Product shall be equal to the
number of units of each size of the Product or placebos of the Product, as the
case may be, produced in each Batch thereof, subject to reduction of the number
of units produced in any Batch by the number of units not suitable for release
or otherwise retained pursuant to the provisions of the Quality Assurance
Agreement. In the event Manufacturer shall deliver less than *** of the units
ordered by Principal pursuant to any Purchase Order (which number of units shall
be determined with reference to the number of units estimated to be yielded by
each Batch ordered by Principal as reflected on Exhibit A), Manufacturer shall
notify Principal in writing of the amount of such shortfall upon delivery of the
Product to Principal. Principal shall, within 30 days of receipt of such
delivery, either (a) accept such delivery in full satisfaction of the Purchase
Order (as to quantity only and not in waiver of Principal's opportunity to
reject such Product pursuant to Section 3.09), or (b) issue a replacement
Purchase Order for an additional Batch of the Product, and Manufacturer shall
use reasonable commercial efforts to deliver such Product within 60 days of the
date of such replacement Purchase Order; provided, that in either case Principal
shall accept and pay Manufacturer the Conversion Price for the units of Product
delivered and Manufacturer shall, to the extent applicable, be subject to the
financial provisions of Section 4.08. Principal's failure to issue a replacement
Purchase Order within such 30-day period shall be deemed as an acceptance of
such delivery pursuant to subsection (a) above. Any replacement Purchase Order
submitted by Principal to Manufacturer pursuant to this Section 3.07 shall be
subject to the same terms and conditions of this Agreement as a Purchase Order
submitted pursuant to Section 3.03.

      Section 3.08. Shipment. Title to and insurable interest in the Active
Ingredient shall remain with Principal at all times during Manufacture of the
Product. Shipment of the Product shall be FOB Manufacturer's Manufacturing
Facility. Title to shipments of the Product (other than that portion
constituting the Active Ingredient) and risk of loss in respect thereof shall
pass to Principal upon placement of such shipments at the disposal of
Principal's designated carrier at Manufacturer's Manufacturing Facility.
Principal shall ensure the use of temperature-controlled vehicles for shipment
of the Product to ensure that the viability of the Product is maintained in
accordance with the Specifications. All actual transportation costs and all
costs and charges associated with shipping the Product shall be borne entirely
by Principal; provided, that Manufacturer shall arrange for and pay the costs of
handling and transporting the Product to Principal and shall invoice Principal
for such costs and expenses. Principal shall deliver to Manufacturer a list of
preferred carriers, and Manufacturer shall select the carrier therefrom.

                                      -10-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

      Section 3.09. Acceptance of Product.

            (a)   Principal shall, (i) in the case of defects which are
determinable by testing upon receipt in accordance with standard quality control
procedures or are otherwise apparent, within 30 days after Principal receives
delivery of shipment of the Product, or (ii) in the case of latent defects,
within 30 days from the date that Principal should have discovered such defect,
notify Manufacturer in writing of any rejection of any such Product (a
"Rejection Notice"), on the basis of (A) any non-compliance with the
Specifications of all or any part of said shipment or the occurrence of an Out
of Trend Event that gives rise to a right of rejection under Section 3.09(f), or
(B) failure of any such shipment to conform with any product warranty set forth
in Section 5.01, to the extent such non-compliance or failure is not due to the
fault of Principal. Failure to provide a possible Rejection Notice to
Manufacturer within the applicable 30-day period shall constitute acceptance by
Principal of the shipment, and Manufacturer shall have no liability for any
deviations for which it has not received notice within such 30-day period. Any
such possible Rejection Notice shall state in reasonable detail (sufficient to
enable Manufacturer to identify the nature of the problem for tests or studies
to be conducted by or on its behalf or to dispute the same) the reason why
Principal believes the Product may not be acceptable to Principal. Principal
shall, within five days of the delivery by Principal of any such possible
Rejection Notice, provide samples of the Product being rejected, if appropriate,
and copies of written reports relating to tests, studies or investigations
performed to that date by or on behalf of Principal on the Batch of the Product
being rejected.

            (b)   Principal's test results or basis for rejection shall be
conclusive unless Manufacturer notifies Principal, within 30 days of receipt by
Manufacturer of the Rejection Notice, that it disagrees with such test results
or basis for rejection. If Principal and Manufacturer fail to agree within 10
days after Manufacturer's notice to Principal as to whether any Product
identified in the Rejection Notice deviates from the Specifications,
representative samples of the Batch of the Product in question shall be
submitted to a mutually acceptable independent laboratory or consultant (if not
a laboratory analysis issue) for analysis or review. The results of such
evaluation shall be binding upon the parties. If Manufacturer and Principal
determine by agreement or if such evaluation certifies that the Product was
properly rejected by Principal, Principal may reject the Product in the manner
contemplated by Section 3.09(e). The party that is determined to have been
incorrect in its determination of whether the Product should be rejected shall
pay the costs of any such evaluation. ***.

            (c)   In the event of a dispute (other than disputes in relation to
the matters set out in Section 3.09(b)) between Manufacturer and Principal that
is exclusively related to technical aspects of the manufacturing, packaging,
labeling, quality control testing, handling, storage or other activities under
this Agreement (a "Technical Dispute"), Manufacturer and Principal shall make
all reasonable efforts to resolve the dispute by amicable negotiations pursuant
to Section 11.02.

            (d)   If any order of the Product is rejected by Principal,
Principal's duty to pay all amounts payable to Manufacturer in respect of the
rejected Product shall be suspended unless the rejection is rescinded as per
Section 3.09(b). If only a portion of an order is rejected, only the duty to pay
the amount allocable to such portion shall be suspended.

                                      -11-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

            (e)   In the event an order or partial order is rejected by
Principal pursuant to the provisions of this Section 3.09, Principal shall
return to Manufacturer (or, at the election of Manufacturer, destroy and provide
evidence of such destruction to Manufacturer) any units of such rejected
Product. Manufacturer shall, at Principal's election, (i) credit the original
invoice in respect of the rejected Product and re-invoice Principal for the
units that were not rejected and offset any reasonable expenses related to the
return or destruction against other amounts then due Manufacturer hereunder, or
(ii) at Manufacturer's cost and expense, replace such rejected Product with
conforming Product as soon as practicable after Manufacturer's receipt of
Principal's instructions to deliver replacement Product and credit Principal any
reasonable expenses related to the return or destruction of the rejected
Product; provided, however, that in either case Manufacturer shall have no
liability or obligation to Principal under this Section 3.09(e) if it is
determined that any such defect is attributable to the failure by any Person
(including Principal) to properly store, transport or care for any unit of such
Product after such Product left Manufacturer's possession.

            (f)   If an Out of Trend Event shall occur, Manufacturer and
Principal shall commence a review of the relevant data and commence an
investigation in accordance with the terms and conditions of the Quality
Assurance Agreement. The results of such investigation shall be reviewed by the
Steering Committee or its designees and if the Steering Committee or its
designees determines that the Out of Trend Event is reasonably expected to
result in a recall or other adverse event and Principal decides not to release
the Batch that is the subject of the Out of Trend Event, Principal shall be
entitled to reject such Product within 30 days of such determination.

                                   ARTICLE IV
                          CONVERSION PRICE AND PAYMENT

      Section 4.01. Invoice. Manufacturer shall invoice Principal promptly
following the release and shipment of an order of the Product. Subject to the
provisions of Section 3.09(d) and Section 3.09(e), payment for each delivery of
the Product to Principal shall be due within 30 days after the date of
Manufacturer's invoice. All payments required to be made hereunder shall be paid
in United States dollars and made by corporate check drawn on a United States
bank or a United States branch of a foreign bank, or by wire transfer of
immediately available funds to the financial institution, account number and
account party's name designated in writing by Manufacturer to Principal from
time to time. Overdue invoices shall bear interest at the rate of 1.5% per month
until such amount is paid.

      Section 4.02. Conversion Price. Subject to adjustment as set forth in this
Article IV, Principal agrees to pay Manufacturer the Conversion Price per unit
of the Product, which Conversion Price for units of each size of the Product,
and for placebos of the Product, respectively, as of the Effective Date shall be
as set forth in Exhibit D. ***.

      Section 4.03. Adjustment of Product Gross Cost Resulting from Adjustments
to Active Ingredient Cost. Manufacturer and Principal acknowledge that changes
in the Active Ingredient Cost will impact the calculations of Product Gross Cost
as presented on Exhibit D1. Exhibit F

                                      -12-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

provides the mechanism for adjusting Product Gross Cost for changes in the
Active Ingredient Cost. In the event of any change in the Active Ingredient
Cost, Principal shall advise Manufacturer in writing of such change.

      Section 4.04. Active Ingredient Supplier. In the event Principal shall
purchase the Active Ingredient from any supplier other than the supplier of the
Active Ingredient specified in the Product NDA, Principal shall make any
required filings with applicable Regulatory Authorities and shall pay and/or
reimburse Manufacturer for (a) the cost of auditing alternative suppliers of the
Active Ingredient, and (b) the qualification or other costs and expenses of
changing suppliers of the Active Ingredient, including any changeover costs
(such as, for example, scrap and waste costs) associated with the selection of a
new supplier of the Active Ingredient. Any alternative supplier of the Active
Ingredient selected by Principal shall conform to Manufacturer's alternative raw
materials acceptance process, which determination shall be made in
Manufacturer's sole discretion. A copy of Manufacturer's alternative raw
materials acceptance process will be provided to Principal upon signing of this
Agreement.

      Section 4.05. Adjustment Pursuant to Producer Price Index.

            (a)   On January 1, 2005 and on January 1 of each year thereafter,
the Conversion Price shall be adjusted pursuant to the Producer Price Index for
Pharmaceutical Preparations published by the U.S. Department of Labor, Bureau of
Labor Statistics (the "Index"). Any such adjustment shall be determined by
multiplying the respective Conversion Price for each size of the Product, and
for placebos of the Product, by a fraction, the numerator of which shall be the
value of the Index set forth in this Section 4.05(a) for the month of June of
the year prior to the year in which the computation is made, and the denominator
of which shall be the value of the Index for June 2003. For example, when
adjusting the Conversion Price in January 2005, the numerator shall be the Index
value for June 2004 and the denominator shall be the Index value for June 2003.
Notwithstanding the foregoing, for any given calendar year no increase of the
Conversion Price in excess of *** shall be made pursuant to this Section
4.05(a).

            (b)   Should the publication of said Index be discontinued by said
U.S. Department of Labor, then such other indexes as may be published by said
Department most nearly approaching said discontinued Index shall be used in
determining the adjustment hereunder. Should said Department discontinue the
publication of any such index, then such index as may be published by another
United States governmental agency, as most nearly approximating the Index, shall
govern and be substituted as the Index hereunder.

      Section 4.06. Adjustment for Modification of Specifications. In the event
a change in the Specifications pursuant to Section 5.03 shall result in
increased packaging or production costs to Manufacturer, (a) ***, (b) Principal
shall reimburse Manufacturer for the costs of implementing any changes requested
by Principal in labeling, packaging and preprinting of backing or pouch
materials and of discontinuing stock of the same due to such changes, and (c)
any inventory of Manufacturer, including work-in-progress and finished goods
rendered obsolete or rejected as a result of a formula, process, artwork or
packaging change requested by Principal or required by any Regulatory Authority
shall be reimbursed to Manufacturer by Principal at Manufacturer's standard
cost.

                                      -13-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 4.07. Taxes. In addition to the Conversion Price provided for in
this Article IV, Principal shall reimburse Manufacturer for any federal,
provincial or local excise or other tax or assessment that Manufacturer may be
required to pay upon the sale, production or transportation of the Product
(excluding taxes based on Manufacturer's income or Manufacturer's franchise fees
or taxes and excluding amounts Manufacturer is required to pay in connection
with the importation of Material).

      Section 4.08. Adjustment for Late Deliveries. In the event that a
particular order of the Product is not delivered within 30 days of the delivery
date set forth on the applicable Purchase Order therefor, Principal may, in its
sole discretion, on the 31st day after such delivery date, impose a ***
reduction in the Conversion Price for such order and may, in the event such
order has not been delivered within 60 days and/or 90 days after such
acknowledged delivery date, in its sole discretion, on the 61st and/or 91st day
after such delivery date, impose additional *** reductions in the Conversion
Price for each such shipment; provided, that Principal shall only have rights
pursuant to this Section 4.08 in the event Manufacturer shall fail to deliver
Product pursuant to a Purchase Order for any reason other than yield variations;
and provided further, that Manufacturer shall have no rights pursuant to this
Section 4.08 in the event that the cause for such late delivery is due to (a) a
circumstance contemplated by Section 11.14, (b) an Excused Vendor Default, or
(c) the fault of Principal.

                                    ARTICLE V
                  MANUFACTURING STANDARDS AND QUALITY ASSURANCE

      Section 5.01. Product Warranties. Manufacturer hereby covenants and agrees
that:

            (a) Manufacturer will Manufacture and deliver to Principal the
Product in accordance with, and the Product will conform with, the
Specifications for such product and all requirements set forth in the Product
NDA, including specifications and requirements relating to composition, purity,
appearance and stability, and the Product shall be capable of maintaining such
until the applicable expiration date for such Product;

            (b) Manufacturer will comply with all Applicable Laws relating to
the Manufacture of such Product, including all then current GMPs applicable to
the Manufacture of the Product which are in force or hereafter adopted by the
FDA or any successor agency thereto, and it will ship the Product in accordance
with DEA requirements and Applicable Law;

            (c) the Product shall not be misbranded, adulterated, manufactured,
packaged or transported in violation of Articles 501, 502, 505 or 506A of the
FDC Act, as amended from time to time; and

            (d) all Product supplied by Manufacturer hereunder shall be
transferred to Principal free and clear of all liens, title claims,
encumbrances, security interests and other third party claims.


                                      -14-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 5.02. Manufacturing Standards; Release of Product. Each Batch of
the Product manufactured by Manufacturer shall comply with the provisions of the
Quality Assurance Agreement attached hereto as Exhibit E (the "Quality Assurance
Agreement").

      Section 5.03. Specifications. The Specifications may be amended only by
mutual agreement of Manufacturer and Principal, provided, that notwithstanding
the foregoing, Manufacturer may unilaterally amend the Specifications at any
time prior to receipt of Regulatory Approval to the extent required by any
Regulatory Authority. In the event of an amendment to the Specifications
pursuant to this Section 5.03 the Conversion Price shall be adjusted in
accordance with Section 4.06.

                                   ARTICLE VI
                          AUDITS AND INSPECTION RIGHTS

      Section 6.01. Records and Audits.

            (a) Manufacturer shall keep complete and accurate records concerning
costs incurred in qualifying additional suppliers of the Active Ingredient and
costs incurred in implementing changes in Specifications and any other costs and
expenses relevant to the changes in the amounts payable to Manufacturer
hereunder. Such records shall be kept in accordance with GAAP applied on a
consistent basis. If Manufacturer or Principal shall invoke any of Sections 4.04
or 4.06, then Manufacturer shall, at Principal's request and expense, make those
records applicable to such Section available for examination by independent
certified public accountants or auditors designated by Principal and approved by
Manufacturer, which approval shall not be unreasonably withheld or delayed;
provided, that Principal shall only have access to such records of Manufacturer
in connection with the invocation of the provisions of either Section 4.04 or
4.06.

            (b) Principal shall keep complete and accurate records concerning
the Active Ingredient Cost. Such records shall be kept in accordance with GAAP
applied on a consistent basis. If Manufacturer or Principal shall invoke Section
4.03, then Principal shall, at Manufacturer's request and expense, make such
records available for examination by independent certified public accountants or
auditors designated by Manufacturer and approved by Principal, which approval
shall not be unreasonably withheld or delayed; provided, that Manufacturer shall
only have access to such records of Principal in connection with the invocation
of the provisions of Section 4.03.

      Section 6.02. Inspections by Governmental or Regulatory Agencies.
Manufacturer shall promptly give Principal advance notice, to the extent that
advance notice is given to Manufacturer, of any site visit to the Manufacturing
Facility by any Governmental Authority the purpose of which is to inspect the
manufacture, storage, disposal or transportation of the Product in accordance
with the terms and conditions of the Quality Assurance Agreement.


                                      -15-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                                   ARTICLE VII
               ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

      Section 7.01. Confidentiality.

            (a) Pursuant to the terms of this Agreement, each party (in such
capacity, the "Disclosing Party"), has disclosed and will be disclosing to the
other parties and/or their Affiliates or representatives (in such capacity, the
"Receiving Party"), certain Confidential Information of the Disclosing Party.
The Receiving Party shall make no use of such Confidential Information except in
the exercise of its rights and the performance of its obligations set forth in
this Agreement. The Receiving Party shall use the same efforts to keep secret,
and prevent the disclosure to third parties of, Confidential Information of the
Disclosing Party as it would use with respect to its own Confidential
Information. Confidential Information disclosed by the Disclosing Party shall
remain the sole and absolute property of the Disclosing Party, subject to the
rights granted herein. The above restrictions on the use and disclosure of
Confidential Information shall not apply to any information which (i) is already
known to the Receiving Party at the time of disclosure by the Disclosing Party,
as demonstrated by competent proof, (ii) is or becomes generally available to
the public other than through any act or omission of the Receiving Party in
breach of this Agreement, (iii) is acquired by the Receiving Party from a third
party who is not, directly or indirectly, under an obligation of confidentiality
to the Disclosing Party with respect to same, or (iv) is developed independently
by the Receiving Party without use, direct or indirect, of information that is
required to be held confidential hereunder.

            (b) In the event the Receiving Party is required (i) by Applicable
Law to disclose Confidential Information of the Disclosing Party to any
Regulatory Authorities to obtain Regulatory Approval for the Product or to
comply with the requirement of any Regulatory Authority, (ii) to disclose
Confidential Information of the Disclosing Party to respond to an inquiry of a
Regulatory Authority or Governmental Authority concerning the Product, or (iii)
to disclose Confidential Information of the Disclosing Party in a judicial,
administrative or arbitration proceeding to enforce such party's rights under
this Agreement, it may do so only if it (A) provides the Disclosing Party with
as much advance written notice as possible of the required disclosure, (B)
cooperates with the Disclosing Party in any attempt to prevent or limit the
disclosure, and (C) limits disclosure, if any, to the specific purpose at issue.

            (c) Notwithstanding the provisions of this Section 7.01:

                  (i) Principal shall be permitted to disclose to its
      distributors, wholesalers and other direct customers such Confidential
      Information relating to the Product as Principal shall reasonably
      determine to be necessary or useful in order to effectively market and
      distribute the Product;

                  (ii) Manufacturer shall be permitted to disclose such
      Confidential Information relating to the Product as Manufacturer shall
      reasonably determine to be necessary or useful in order to effectively
      perform its obligations under this Agreement;


                                      -16-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (iii) Manufacturer shall be permitted to disclose such
      Confidential Information relating to the Product as it shall reasonably
      determine to be necessary or useful in order to pursue or obtain any
      regulatory approvals in respect of any other transdermal drug delivery
      products;

                  (iv) each of Manufacturer and Principal shall be permitted to
      disclose to a Regulatory Authority such Confidential Information relating
      to the Product as it shall reasonably determine (but only after consulting
      with the other parties to the extent practicable) to be necessary to
      comply with the provisions of Applicable Law; and

                  (v) nothing in this Section 7.01 shall be interpreted to limit
      the ability of either Manufacturer or Principal to disclose its own
      Confidential Information to the other parties or any other Person on such
      terms and subject to such conditions as it deems advisable or appropriate;

provided, however, that in each such case any third party recipients of any
Confidential Information (other than a Regulatory Authority or other
Governmental Authority) undertake substantially the same confidentiality
obligation as the parties hereunder with respect to such Confidential
Information.

            (d) Each of Manufacturer and Principal acknowledge and agree that
the terms and conditions of this Agreement shall be considered Confidential
Information of each party and shall be treated accordingly. Notwithstanding the
foregoing, Principal acknowledges and agrees that Manufacturer may be required
to disclose some or all of the information included in this Agreement in order
to comply with its obligations under the Securities Laws, and hereby consents to
such disclosure to the extent deemed advisable or appropriate by counsel to
Manufacturer (but only after consulting with Principal to the extent
practicable).

            (e) Each party specifically recognizes that any breach by it of this
Section 7.01 may cause irreparable injury to the other parties and that actual
damages may be difficult to ascertain, and in any event, may be inadequate.
Accordingly (and without limiting the availability of legal or equitable,
including injunctive, remedies under any other provisions of this Agreement),
each party agrees that in the event of any such breach, notwithstanding the
provisions of Section 11.02 or Article IX hereof, the other parties shall be
entitled to seek, by way of private litigation in the first instance, injunctive
relief and such other legal and equitable remedies as may be available.

      Section 7.02. Safety. Manufacturer shall comply with all applicable health
and safety regulations, policies and procedures relating to the manufacture and
packaging of the Product, including the transmission by Manufacturer to its
employees of health and safety information relating to the Product, its
manufacture, storage, disposal and transportation.

      Section 7.03. Product Recall. Product recalls shall be conducted in
accordance with the terms of the Quality Assurance Agreement. Each of
Manufacturer and Principal shall make a permanent, complete and accurate record
of all costs incurred by its connection with any Product recall, a copy of which
shall be delivered to the other as soon after the completion of such recall


                                      -17-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


or seizure as practically may be done. If the cause of or reason for said recall
or seizure arises from or is attributable to Manufacturer's negligence or breach
of this Agreement, Manufacturer shall reimburse Principal for all reasonable
costs incurred by Principal in effecting such recall or seizure. If the cause of
or reason for said recall or seizure is directly attributable to the negligence
of, or breach of this Agreement by, Principal, Principal shall reimburse
Manufacturer for all reasonable costs incurred by Manufacturer at Principal's
request in effecting such recall or seizure. If Manufacturer and Principal
cannot agree which party is at fault, then an independent technical expert,
acceptable to both, will be designated to make the determination. The so
designated technical expert shall not be an employee, consultant, officer,
director or shareholder of or otherwise associated with any party or an
Affiliate of any party. The technical expert's determination shall be, in the
absence of fraud or manifest error, binding and conclusive upon the parties.

      Section 7.04. Insurance. Throughout the Term, each of Manufacturer and
Principal shall maintain commercial liability insurance, including blanket
commercial liability insurance covering the obligation of that party under this
Agreement through the term of this Agreement and for five years thereafter,
which insurance shall afford limits of not less than *** per occurrence, (and in
the aggregate only with respect to personal injury liability) for bodily injury
liability, products liability, property damage liability, contractual liability
and completed operations liability with an insurance carrier qualified to do
business in the United States. Each of Manufacturer and Principal shall promptly
furnish to the other evidence of the maintenance of the insurance required
hereunder and shall name the other as an "additional insured" under a broad form
vendor's endorsement to such insurance policy. In case any such policies are
written on a "claims made" basis, such policies shall remain in effect for a
period of five years following the expiration or earlier termination of this
Agreement. Notwithstanding the foregoing, the obligation of each of Manufacturer
and Principal to obtain insurance in accordance with this Section 7.04 is
subject to the availability of such insurance from nationally recognized
carriers at reasonable rates and on reasonable terms and conditions, which
reasonableness shall be determined in the judgment of each party, respectively,
in accordance with such party's past practices in the ordinary course of
business. In the event either party shall be unable to obtain insurance as
contemplated by this Section 7.04, such party shall notify the other party as
soon as practicable and shall have the right to self-insure such coverage;
provided that any party opting to so self-insure shall provide to the other
party reasonable information regarding its self-insurance program.

      Section 7.05. Ultimate Use of Product. Manufacturer and Principal
acknowledge and agree that Manufacturer has no control over the ultimate use of
the Product and Manufacturer shall have no liability in connection with any such
use, provided, that such liability does not result from Manufacturer's
negligence or breach of the terms of this Agreement.

      Section 7.06. Intellectual Property Matters. Manufacturer and Principal
acknowledge and agree that all matters governing the ownership, license, and
rights, title and interest in and to the Technology and any other Intellectual
Property associated with the Product, including any improvements, inventions,
discoveries or other future developments related thereto, shall be governed by
the terms and conditions of the License Agreement.


                                      -18-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      Section 7.07. No Debarred Persons. Each of Manufacturer and Principal
covenants and agrees that it has not and will not use in any capacity the
services of any Person debarred under subsections (a) or (b) of Section 306 of
the FDC Act in connection with its performance of this Agreement.

      Section 7.08. Labeling. All labeling and artwork approved, designated or
supplied by Principal shall be in compliance with all Applicable Laws and
Regulatory Standards. Compliance with all federal, state and local laws shall be
the sole responsibility of Principal, provided that Manufacturer shall process
such packaging and labeling in accordance with the Specifications and all
applicable Regulatory Standards, including the GMPs.

      Section 7.09. Second Source Arrangements.

            (a) For a period commencing on the Closing Date and expiring ***,
Manufacturer and Principal shall consult in good faith with a view toward
determining whether they are able to reach an agreement upon terms and
conditions on which Manufacturer shall establish a second site of Manufacturer
for purposes of the Manufacture of the Product.

            (b) In the event that, by ***, Manufacturer and Principal are unable
to reach agreement upon the terms and conditions on which Manufacturer shall
establish a second site of Manufacturer for purposes of the Manufacture of the
Product, Principal shall be entitled to take steps to qualify a third-party
second source supplier of the Product (the "Alternative Supplier"), which
Alternative Supplier shall be subject to approval of Manufacturer, which
approval shall not be unreasonably withheld or delayed. All costs and expenses,
including out-of-pocket expenses incurred by Manufacturer, associated with
qualifying an Alternative Supplier shall be borne by Principal.

            (c) Upon the written request of Principal, in the event Principal
seeks to qualify an Alternative Supplier pursuant to Section 7.09(b),
Manufacturer shall provide reasonable assistance to such Alternative Supplier
and access to such of its Confidential Information and Technology as may be
reasonably necessary for the Alternative Supplier to Manufacture the Product for
sale to Principal.

      Section 7.10. Active Ingredient Supply Arrangement. ***.

                                  ARTICLE VIII
                   REPRESENTATIONS AND WARRANTIES OF PRINCIPAL

      Section 8.01. Representations and Warranties of Principal. Principal
represents and warrants to Manufacturer as of the Effective Date that:

            (a) Organization. Principal is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. As of the Closing Date, Principal will be duly qualified to do
business in each jurisdiction where the character of its business (after giving
effect to the Contemplated Transactions) make such qualifications necessary to
carry on its business.


                                      -19-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


            (b) Power, Authority and Enforceability. Principal has full
corporate power and authority to enter into and perform this Agreement and to
consummate the transactions contemplated herein. This Agreement has been or
shall be duly executed and delivered by duly authorized signatories of
Principal. This Agreement constitutes a valid and binding obligation of
Principal, enforceable against Principal in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally.

            (c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation by Principal of the transactions contemplated
hereby, will (i) conflict with or result in a breach of any of the terms,
conditions or provisions of Principal's certificate of incorporation or other
governing or charter document, or of any statute or administrative regulation,
or, to the best of its knowledge, of any order, writ, injunction, judgment or
decree of any court or governmental authority or of any arbitration award or any
agreement binding upon Principal or its assets, or (ii) to the best of its
knowledge, contravene or conflict with, or constitute a violation of, any
provisions of any Applicable Law binding upon Principal.

            (d) No Default. Principal is not a party to any unexpired,
undischarged or unsatisfied written or oral contract, agreement, indenture,
mortgage, debenture, note or other instrument under the terms of which
performance by Principal according to the terms of this Agreement will be a
default, or whereby timely performance by Principal according to the terms of
this Agreement may be prohibited, prevented or delayed.

                                   ARTICLE IX
                                 INDEMNIFICATION

      Section 9.01. Indemnification. In order to distribute between themselves
the responsibility for claims arising out of this Agreement, and except as
otherwise specifically provided for herein, from and after the Effective Date,
the Manufacturer and Principal shall indemnify each other as provided in this
Section 9.01.

            (a) Indemnification Obligations of Principal. From and after the
Effective Date, Principal shall defend, indemnify and hold Manufacturer, its
Affiliates and each of their respective officers, directors, agents, employees
and shareholders (collectively, "Manufacturer Indemnitees"), harmless from and
against any and all Damages which Manufacturer Indemnitees may incur or suffer,
or with which any of them may be faced arising out of:

                  (i) the storage, handling, use, marketing, advertising,
      promotion, distribution or sale of the Product by Principal and/or its
      Affiliates, sublicensees, distributors or agents in the Territory and the
      conduct of the Business by Principal and/or its Affiliates, sublicensees,
      distributors or agents in the Territory, including (A) liabilities for
      product liability and returned goods, (B) liabilities in respect of
      product warranty obligations or services and any returned Product sold,
      (C) governmental and nongovernmental chargebacks, rebates or discounts
      with respect to the Product, and (D)


                                      -20-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


      liabilities relating to errors and omissions or claims of design and other
      defects with respect to any Product sold, including any clinical and
      non-clinical trials;

                  (ii) the breach by Principal of or any of its Affiliates
      sublicensees, distributors or agents of this Agreement including any
      material breach by Principal of, or material failure by Principal to
      comply with, any of its covenants or obligations pursuant to this
      Agreement;

                  (iii) the enforcement by Manufacturer Indemnitees of their
      rights under this Section 9.01(a);

                  (iv) any negligence or willful misconduct by Principal under
      this Agreement or by Principal or its Affiliates in the conduct of the
      Business or in connection with the Product or the Technology;

                  (v) Principal's material violation of any Applicable Law; and

                  (vi) any bodily injury, illness or death of any person caused
      or alleged to be caused by the use, distribution or sale of the Product
      (except to the extent any such bodily injury, illness or death shall be
      the result of a breach by Manufacturer of its covenants and obligations
      set forth in Section 5.01);

provided, however, that, in each such case, Principal shall not be liable
hereunder to the extent such Damages arise from misconduct or negligence of, or
a violation of any Applicable Law by, Manufacturer, its Affiliates, agents,
employees, or contractors, or from the breach by Manufacturer of the provisions
of any of the Transaction Documents.

            (b) Indemnification Obligations of Manufacturer. From and after the
Effective Date, Manufacturer shall defend, indemnify and hold Principal, its
Affiliates and each of their respective officers, directors, agents, employees,
shareholders or members (collectively, "Principal Indemnitees") harmless from
and against any and all Damages which Principal Indemnitees may incur or suffer,
or with which any of them may be faced arising out of:

                  (i) the breach by Manufacturer of this Agreement including any
      material breach by Manufacturer of, or material failure by Manufacturer to
      comply with, any of its covenants or obligations pursuant to this
      Agreement;

                  (ii) the enforcement by Principal Indemnitees of their rights
      under this Section 9.01(b);

                  (iii) any negligence or willful misconduct by Manufacturer
      under this Agreement or by Manufacturer or its Affiliates in the conduct
      of the Business or in connection with the Product or the Technology;

                  (iv) Manufacturer's material violation of any Applicable Law;
      and


                                      -21-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (v) any bodily injury, illness or death of any person to the
      extent any such bodily injury, illness or death shall be the result of a
      breach by Manufacturer of its covenants and obligations set forth in
      Section 5.01;

provided, however, that, in each such case, Manufacturer shall not be liable
hereunder to the extent such Damages arise from misconduct or negligence of, or
a violation of any Applicable Law by, Principal, its Affiliates, agents,
employees, or contractors, or from the breach by Principal of the provisions of
any of the Transaction Documents.

            (c) Procedure. If any Proceeding arises as to which a right of
indemnification provided in this Article IX applies, the Person seeking
indemnification (the "Indemnified Party"), shall within 20 days notify the party
obligated under this Article IX to indemnify the Indemnified Party (the
"Indemnifying Party"), thereof in writing, except to the extent that such
failure to notify within 20 days does not prejudice the Indemnifying Party's
ability to defend or contest any such Proceeding, and allow the Indemnifying
Party and its insurers the opportunity to assume direction and control of the
defense against such Proceeding, at its sole expense, including the settlement
thereof at the sole option of the Indemnifying Party or its insurers; provided,
however, that the Indemnifying Party may not enter into any compromise or
settlement without the prior written consent of the Indemnified Party unless
such compromise or settlement includes as an unconditional term thereof the
giving by each plaintiff or claimant to the Indemnified Party of a release from
all liability in respect of such claim and only if such compromise or settlement
does not include any admission of legal wrongdoing on the part of the
Indemnified Party. The Indemnified Party shall fully cooperate with the
Indemnifying Party and its insurer in the disposition of any such matter and the
Indemnified Party will have the right and option to participate in (but not
control) the defense of any Proceeding as to which this Article IX applies, with
separate counsel at its election and cost. If the Indemnifying Party fails or
declines to assume the defense of any Proceeding within 30 days after notice
thereof, the Indemnified Party may assume the defense thereof for the account
and at the risk of the Indemnifying Party. The Indemnifying Party shall pay
promptly to the Indemnified Party any Damages to which the indemnity under this
Article IX applies, as incurred.

      Section 9.02. Certain Limitations.

            (a) Except as otherwise provided in Section 7.01(d), the sole and
exclusive remedy with respect to any breach of any representation, warranty,
covenant or agreement contained herein and for the other matters described in
Sections 9.01(a) and 9.01(b) (other than (i) with respect to a breach of the
terms of a covenant or agreement, as to which Principal or Manufacturer, as the
case may be, also shall be entitled to seek specific performance or other
equitable relief and (ii) with respect to claims for fraud) shall be a claim for
Damages (whether by contract, in tort or otherwise, and whether in law, in
equity or both) made pursuant to this Article IX. No party shall be entitled to
recover any punitive, incidental or consequential damages whatsoever under this
Article IX except to the extent any such punitive, incidental or consequential
damages shall be payable to a third party.

            (b) Notwithstanding anything to the contrary contained herein,
although a party may be entitled to make a claim for indemnification pursuant to
more than one section of


                                      -22-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


this Article IX, a party shall not be entitled to recover indemnification for
the same claim under more than one section of this Article IX.

                                    ARTICLE X
                              TERM AND TERMINATION

      Section 10.01. Term. This Agreement shall continue in full force and
effect until the earlier of (a) the termination of the License Agreement, or (b)
termination of this Agreement in accordance with Section 10.02 or Section 10.03
(the Effective Date until such termination, the "Term").

      Section 10.02. Certain Termination Events.

            (a) Manufacturer shall have the right to terminate this Agreement
upon *** written notice at any time during the Term (i) as to any permitted
assignee or delegatee of Principal (other than an Affiliate of Principal)
pursuant to Section 11.04, and (ii) as to any permitted sublicensee of Principal
under the License Agreement (other than an Affiliate of Principal); provided,
that (A) in either case, such assignee, delegatee or sublicensee shall have the
right to have a third party manufacture on its behalf its requirements of the
Product in accordance with the terms and conditions of this Agreement and ***.
Notwithstanding the foregoing, nothing in this Section 10.02(a) shall limit the
right of Manufacturer to terminate this Agreement pursuant to Section 10.03 or
any other provision of this Article X.

            (b) Except as otherwise contemplated by Sections 3.06, 3.07, 3.09
and 10.02(c), either Manufacturer or Principal shall have the right to terminate
this Agreement if the other commits any continuing or material breach of any of
the provisions of this Agreement and (in the case of a breach which is capable
of remedy) fails to remedy the same within 60 days after receipt of written
notice giving full particulars of the breach and requiring it to be so remedied;
provided, that neither Manufacturer nor Principal may terminate this Agreement
if the other's breach cannot reasonably be cured within 60 days so long as such
breaching party commences efforts to cure within such 60-day period and
thereafter diligently pursues the same through completion.

            (c) In the event that at any time during the Term Manufacturer
shall, during any period of six consecutive months, fail to supply *** of the
aggregate number of units of the Product (which number of units shall be
determined with reference to the number of units estimated to be yielded by each
Batch ordered by Principal as reflected in Exhibit A) ordered pursuant to
Purchase Orders properly submitted by Principal during such period (other than
(w) by reason of a circumstance contemplated by Section 11.14, (x) by reason of
an Excused Vendor Default, (y) by reason of the fault of Principal, or (z) in
connection with a delivery accepted by Principal pursuant to Section 3.07(a)),
Principal shall have the right to:

                  (i) have a third party manufacture on its behalf that portion
      of Principal's requirements of the Product which Manufacturer is not able
      to supply;

                  (ii) terminate this Agreement; or


                                      -23-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                  (iii) withdraw any Purchase Orders submitted pursuant to
      Section 3.03;

provided, that in the event Principal shall elect to terminate this Agreement
pursuant to clause (ii) or withdraw any Purchase Orders pursuant to clause (iii)
of this Section 10.02(c), Principal shall, to the extent requested by
Manufacturer, purchase from Manufacturer at Manufacturer's cost all Materials
purchased by Manufacturer for the Manufacture and delivery of the Product to
Principal.

            (d) Either Manufacturer or Principal may terminate this Agreement
with immediate effect with respect to any Product that is permanently and
completely withdrawn from the market in the Territory for serious adverse health
or safety reasons.

            (e) Either Manufacturer or Principal may terminate this Agreement
with immediate effect in the event a Force Majeure Event as to the other shall
exist and be continuing for a period of 180 consecutive days. Principal may
terminate this Agreement with immediate effect in the event an Excused Vendor
Default shall exist and be continuing for a period of 180 consecutive days.

      Section 10.03. Optional Termination by Manufacturer.

            (a) In the event that Manufacturer and Principal reach an agreement
under Section 7.09(a) pursuant to which Manufacturer establishes a second site
of Manufacturer for purposes of manufacturing the Product, Manufacturer shall be
entitled at its option and as a matter of right, to terminate this Agreement
***.

            (b) In the event that Manufacturer and Principal do not reach an
agreement under Section 7.09(a) pursuant to which Manufacturer establishes a
second site of Manufacturer for purposes of manufacturing the Product,
Manufacturer shall be entitled, at its option and as a matter of right, to
terminate this Agreement ***.

      Section 10.04. Obligations on Termination. Within 30 days of any
expiration or termination of this Agreement, (a) Principal shall cease to use
and shall deliver to Manufacturer, upon written request, all Confidential
Information of Manufacturer, except for any documents or records that Principal
is required to retain by Applicable Law, and (b) Manufacturer shall cease to use
and shall deliver to Principal, upon written request, all Confidential
Information of Principal except for any documents or records that Manufacturer
is required to retain by Applicable Law. Additionally, upon termination,
Manufacturer shall, at Principal's option, provide such support as may be
reasonably necessary to transfer in a timely manner the Manufacture of the
Product to a third party.

      Section 10.05. Effect of Termination. Upon termination, this Agreement
shall forthwith become void and of no further force or effect, except for the
following provisions, which shall remain in full force and effect: (a) Section
7.01 (Confidentiality), (b) this Section 10.05, (c) Section 11.10 (Governing
Law), (d) Section 11.12 (Entire Agreement), and (e) Section 11.13 (Expenses).
The rights and remedies provided in this Article X shall be cumulative and not
exclusive of any rights or remedies provided by Applicable Law. Any termination
of this


                                      -24-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


Agreement shall not affect (i) any right or claim hereunder that arises prior to
such termination, which claims and rights shall survive any such termination, or
(ii) except as set forth in the License Agreement, any of the rights or
obligations of either Manufacturer or Principal under the License Agreement or
the Transaction Agreement.

      Section 10.06. Anticipatory Breach.

            (a) ***.

            (b) ***.

            (c) ***.

            (d) ***.

            (e) ***.

                                   ARTICLE XI
                                  MISCELLANEOUS

      Section 11.01. Notices. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
delivered personally or sent by facsimile transmission, air courier or
registered or certified mail, return receipt requested, addressed as follows:

                  if to Manufacturer:

                           Noven Pharmaceuticals, Inc.
                           11960 S.W. 144th Street
                           Miami, Florida  33186
                           Attention:  CEO & General Counsel
                           Telecopy:  305-964-3340

                  with copies (which shall not constitute notice) to:

                           King & Spalding LLP
                           1730 Pennsylvania Avenue, N.W.
                           Washington, D.C.  20006
                           Attention:  Glenn C. Campbell
                           Telecopy:  202-626-3737

                  if to Principal:

                           Shire Pharmaceuticals Ireland Limited
                           Pharmapark
                           Chapelizod


                                      -25-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


                           Dublin 20
                           Ireland
                           Attention:  General Counsel
                           Telecopy:  011-353-1623-7469

                  with copies (which shall not constitute notice) to:

                           Shire Pharmaceuticals Group plc
                           Hampshire International Business Park
                           Chineham
                           Basingstoke
                           Hampshire  RG24 8EP
                           United Kingdom
                           Attention:  Group General Counsel
                           Telecopy:  011-44-1256-894710

                  and to:

                           Ulmer & Berne LLP
                           600 Vine Street, Suite 2800
                           Cincinnati, Ohio 45202
                           Attention:  Scott P. Kadish
                           Telecopy:  513-762-6245

or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be deemed to have been delivered (a) when delivered, if
delivered personally, (b) when sent (with written confirmation received), if
sent by facsimile transmission on a Business Day, (c) on the first Business Day
after dispatch (with written confirmation received), if sent by facsimile
transmission on a day other than a Business Day, (d) on the second Business Day
after dispatch, if sent by air courier, and (e) on the fifth Business Day after
mailing, if sent by mail.

      Section 11.02. Disputes. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, or
the rights or obligations of the parties hereunder, the parties shall try to
settle their differences amicably between themselves. Any party may initiate
such informal dispute resolution by sending written notice of the dispute to the
other parties, and within 10 days after such notice, appropriate representatives
of the parties shall meet for attempted resolution by good faith negotiations.
If such representatives are unable to resolve promptly such disputed matter, it
shall be referred to the presidents of Manufacturer and Principal, or their
respective designees, for discussion and resolution. If such personnel are
unable to resolve such dispute within 30 days of initiating such negotiations,
the parties agree first to try in good faith to settle the dispute by mediation
in Washington, D.C. under the Commercial Mediation Rules of the American
Arbitration Association. If following any such mediation the parties still have
not been able to resolve any such dispute, the parties agree to submit the
dispute to final and binding arbitration before a single arbitrator in


                                      -26-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


Washington, D.C. under the Commercial Arbitration Rules of the American
Arbitration Association. The parties agree that a judgment may be entered on the
arbitrator's award in any court of competent jurisdiction. The arbitrator in
reviewing any claim under this Agreement shall have the exclusive authority to
determine any issues as to the arbitrability of any such claim or related
disputes under this Agreement. In reaching a decision, the arbitrator shall
interpret, apply and be bound by this Agreement and by Applicable Law. The
arbitrator shall have no authority to add to, detract from or modify this
Agreement or any Applicable Law in any respect. The arbitrator may not grant any
remedy or relief that a court of competent jurisdiction could not grant, nor any
relief or remedy greater than that sought by the parties, nor any punitive,
incidental or consequential damages, except to the extent any such punitive,
incidental or consequential damages shall be payable to a third party. Any
up-front costs of the arbitrator shall be borne equally by the parties;
provided, however, that the non-prevailing party in any such arbitration shall
pay, and to the extent applicable reimburse the prevailing party for, the costs
and expenses of the arbitrator, including costs and expenses payable to the
American Arbitration Association and to the arbitrator; and provided further,
that in the event each party prevails as to certain claims in connection with
any such arbitration, the fees of the arbitrator shall be paid and/or reimbursed
in accordance with the decision of the arbitrator. Each party shall bear its own
costs incurred in connection with attorneys' fees and related expenses.
Notwithstanding the foregoing provisions of this Section 11.02, nothing in this
Agreement shall limit or in any way restrict the ability of any party to seek
injunctive or other equitable relief in a court or other judicial body.

      Section 11.03. Independent Contractors. In making and performing this
Agreement, the parties are acting and shall act as independent contractors.
Nothing in this Agreement shall be deemed to create an agency, joint venture or
partnership relationship between the parties hereto. No party shall have the
authority to obligate another party in any respect, and no party shall hold
itself out as having any such authority. All personnel of Manufacturer shall be
solely employees of Manufacturer and shall not represent themselves as employees
of Principal. All personnel of Principal shall be solely employees of Principal
and shall not represent themselves as employees of Manufacturer.

      Section 11.04. Assignment. Prior to the date on which Shire has paid
Manufacturer the full amount of the Milestone Payments, Principal shall not have
the right to assign this Agreement or delegate any of its rights, interests,
duties or obligations hereunder. On and after the date Shire has paid
Manufacturer the full amount of the Milestone Payments, Principal shall have the
right to assign this Agreement or delegate any of its rights, interests, duties
or obligations; provided, that (a) Principal shall give written notice of such
assignment or delegation to Manufacturer, and (b) the assignee or delegatee
shall confirm in writing to and for the benefit of Manufacturer that it will
comply with the covenants and agreements of Principal hereunder. Manufacturer
shall not have the right to assign this Agreement or delegate any of its rights,
interests duties or obligations hereunder without the prior written consent of
Principal, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, at any time during the term of this Agreement either party may assign
this Agreement to any of its Affiliates without the prior written consent of the
other parties; provided, that no such assignment of this Agreement shall relieve
the assignor of any of its obligations or liabilities under this Agreement.
Notwithstanding the foregoing, any party may assign this Agreement without the
other parties' prior written consent in connection with the transfer or sale of
all or substantially all of its assets


                                      -27-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


or business or its merger or consolidation with another Person upon written
notice to the other parties. Any attempted assignment in violation of this
Section 11.04 shall be void.

      Section 11.05. Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the parties hereto and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

      Section 11.06. Amendments. This Agreement shall not be modified, amended
or supplemented except pursuant to an instrument in writing executed and
delivered on behalf of each of the parties hereto.

      Section 11.07. No Waiver. The failure in any one or more instances of a
party to insist upon performance of any of the terms, covenants or conditions of
this Agreement, to exercise any right or privilege conferred in this Agreement,
or the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.

      Section 11.08. Counterparts. This Agreement shall become binding when any
one or more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original as against the
party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument. Each party may execute this
Agreement on a facsimile of the Agreement. In addition, facsimile signatures of
authorized signatories of any party shall be valid and binding and delivery of a
facsimile signature by any party shall constitute due execution and delivery of
this Agreement.

      Section 11.09. Interpretation. The article and section headings contained
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement. As used in this Agreement, any
reference to the masculine, feminine or neuter gender shall include all genders,
the plural shall include the singular, and singular shall include the plural.
Unless the context otherwise requires, the term "party" when used herein means a
party hereto. References herein to a party or other Person include their
respective successors and assigns. The words "include," "includes" and
"including" when used herein shall be deemed to be followed by the phrase
"without limitation" unless such phrase otherwise appears. Unless the context
otherwise requires, references herein to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this Agreement. Unless the context otherwise requires, the
words "hereof," "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision hereof. With regard to each and every term and
condition of this Agreement, the parties understand and agree that the same have
or has been mutually negotiated, prepared and drafted, and that if at any time


                                      -28-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


the parties desire or are required to interpret or construe any such term or
condition or any agreement or instrument subject thereto, no consideration shall
be given to the issue of which party actually prepared, drafted or requested any
term or condition of this Agreement.

      Section 11.10. Governing Law. This Agreement and any claims, disputes or
causes of action relating to or arising out of this Agreement shall be construed
in accordance with and governed by the substantive laws of the State of
Delaware, without giving effect to the conflict of laws principles thereof.

      Section 11.11. Unenforceability. If any provisions of this Agreement are
determined to be invalid or unenforceable in any jurisdiction, such provisions
shall be ineffective to the extent of such invalidity or unenforceability in
such jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof or affecting the validity or enforceability of any of such
provisions of this Agreement in any other jurisdiction. The parties will use
their best efforts to substitute the invalid or unenforceable provision with a
valid and enforceable one which conforms, as nearly as possible, with the
original intent of the parties.

      Section 11.12. Entire Agreement.

            (a) This Agreement, together with the other Transaction Documents,
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements,
commitments, arrangements, negotiations or understandings, whether oral or
written, between the parties hereto and their respective Affiliates with respect
thereto. There are no agreements, covenants or undertakings with respect to the
subject matter of this Agreement other than those expressly set forth or
referred to herein and no representations or warranties of any kind or nature
whatsoever, express or implied, are made or shall be deemed to be made herein by
the parties hereto, except those expressly made in this Agreement and the other
Transaction Documents.

            (b) THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION,
WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN
MADE OR RELIED UPON BY ANY PARTY HERETO OTHER THAN THOSE EXPRESSLY SET FORTH IN
THE TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET
FORTH IN THE PRECEDING SENTENCE, (I) NEITHER MANUFACTURER NOR ANY OF ITS
AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR
WARRANTIES, IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE BUSINESS
OR THE PRODUCT GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED
TRANSACTIONS, IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF MANUFACTURER
OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE
IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR
CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR
WARRANTY HEREUNDER OR OTHERWISE, AND (II) MANUFACTURER EXPRESSLY DISCLAIMS ANY
IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND


                                      -29-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


WARRANTIES OF MERCHANTABILITY. PRINCIPAL ACKNOWLEDGES THAT MANUFACTURER HAS
INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY MANUFACTURER OR ANY OF ITS
AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE BUSINESS OR
THE PRODUCT OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN
WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS
TO WHICH THEY ARE A PARTY.

      Section 11.13. Expenses. Except as expressly set forth herein, each party
hereto shall bear all fees and expenses incurred by such party in connection
with, relating to or arising out of the execution, delivery and performance of
this Agreement and the consummation of the Contemplated Transactions, including
attorneys', accountants' and other professional fees and expenses.

      Section 11.14. Force Majeure. If the performance of this Agreement or any
obligation hereunder (except the payment of money) by any party is prevented or
hindered, by reason of any cause beyond the reasonable control of the affected
party, including fire, flood, riot, war, explosions, acts of God (including
hurricanes and tropical storms), acts of a public enemy, labor disturbances, any
governmental action (a "Force Majeure Event") or the inability of Manufacturer
to obtain sufficient Materials to perform under this Agreement by reason of an
Excused Vendor Default, the party so affected, upon notice to the other parties,
shall be excused from such performance, provided that the party so affected
shall use diligent effort to avoid or remove such cause or causes of
non-performance and shall continue to perform hereunder with the utmost dispatch
whenever such cause or causes are removed.


                                      -30-

          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of date first above written.

                                                   NOVEN PHARMACEUTICALS, INC.


                                                   By:
                                                      --------------------------
                                                       Name:
                                                       Title:



                                                   SHIRE PHARMACEUTICALS IRELAND
                                                   LIMITED


                                                   By:
                                                      --------------------------
                                                      Name:
                                                      Title:


                                      -31-

EX-11

                                                                      EXHIBIT 11

                           Noven Pharmaceuticals, Inc.
                        Computation of Earnings per Share
                     (in thousands except per share amounts)

                                                      2002       2001       2000
                                                   -------    -------    -------
BASIC EARNINGS:
- ---------------

Net income                                         $13,879    $12,091    $19,634

Weighted average number
   of common shares outstanding                     22,532     22,367     21,914
                                                   =======    =======    =======

Basic earnings per share                           $  0.62    $  0.54    $  0.90
                                                   =======    =======    =======


DILUTED EARNINGS:
- -----------------

Net income                                         $13,879    $12,091    $19,634

Weighted average number
   of common shares outstanding                     22,532     22,367     21,914

Potential dilution on exercise of stock options
                                                       789      1,144      1,335
                                                   -------    -------    -------

Weighted average number
   of common shares outstanding,
   as adjusted                                      23,321     23,511     23,249
                                                   =======    =======    =======

Diluted earnings per share                         $  0.60    $  0.51    $  0.84
                                                   =======    =======    =======

EX-21

                                                                      EXHIBIT 21


                           SUBSIDIARIES OF THE REGISTRANT

         NAME                                 STATE OF ORGANIZATION
         ----                                 ---------------------
         Vivelle Ventures LLC                     Delaware

EX-23.1

                                                                    EXHIBIT 23.1

INDEPENDENT AUDITOR'S CONSENT



         We consent to the incorporation by reference in Registration Statement
No. 333-64081 of Noven Pharmaceuticals, Inc. on Form S-8, in Registration
Statement No. 333-56293 of Noven Pharmaceuticals, Inc. on Form S-3 and in
Registration Statement No. 333-90835 of Noven Pharmaceuticals, Inc. on Form S-8
of our report dated February 14, 2003, except with respect to the matter
discussed in the fourth paragraph of Note 14, as to which the date is February
24, 2003 and February 26, 2003 as to Note 15, appearing in this Annual Report
on Form 10-K of Noven Pharmaceuticals, Inc. for the year ended December 31,
2002.

Deloitte & Touche LLP

Miami, Florida
March 18, 2003

EX-23.2

                                                                    EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS



We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-64081 and No. 333-90835) and Form S-3 (No.
333-56293) of Noven Pharmaceuticals, Inc. of our report dated January 31, 2003
relating to the financial statements of Vivelle Ventures LLC, which appears in
this Form 10-K of Noven Pharmaceuticals, Inc.

PricewaterhouseCoopers LLP

Florham Park, New Jersey
March 20, 2003

EX-99.1

                                                                    EXHIBIT 99.1

                                 CERTIFICATIONS

                  Certification of Principal Executive Officer

I, Robert C. Strauss, President, Chief Executive Officer and Chairman of the
Board of Noven Pharmaceuticals, Inc., certify that:

1) I have reviewed this annual report on Form 10-K of Noven Pharmaceuticals,
Inc.;

2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ ROBERT C. STRAUSS
- --------------------------------------------------------------------

Name:    Robert C. Strauss
Title:   President, Chief Executive Officer and Chairman of the Board
Date:    March 21, 2003

EX-99.2

                                                                    EXHIBIT 99.2
                                   CERTIFICATIONS

                  Certification of Principal Financial Officer

I, James B. Messiry, Vice President and Chief Financial Officer of Noven
Pharmaceuticals, Inc., certify that:

1) I have reviewed this annual report on Form 10-K of Noven Pharmaceuticals,
Inc.;

2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the
registrant's disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's Board of Directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ JAMES B. MESSIRY
- -------------------------------------------------------
Name:    James B. Messiry
Title:   Vice President and Chief Financial Officer
Date:    March 21, 2003