10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

Commission file number 0-17254

NOVEN PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

STATE OF DELAWARE	59-2767632
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

11960 S.W. 144th Street, Miami, FL 33186

(Address of principal executive offices) (Zip Code)

(305) 253-5099 )

(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

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

Class	Outstanding at October 31, 2008
Common stock $.0001 par value	24,897,085

NOVEN PHARMACEUTICALS, INC.

INDEX

	Page No.
PART I — FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007		3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007		4
Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income for the Nine Months Ended September 30, 2008		5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007		6
Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3 - Quantitative and Qualitative Disclosures About Market Risk		52
Item 4 - Controls and Procedures		52
PART II — OTHER INFORMATION
Item 1 - Legal Proceedings		53
Item 1A - Risk Factors		53
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		54
Item 5 - Other Information		54
Item 6 - Exhibits		55
SIGNATURES		56
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Cautionary Factors: Statements in this report that are not descriptions of historical facts are “forward-looking statements” provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. Our actual results, performance and achievements may be materially different from those expressed or implied by such statements and readers should consider the risks and uncertainties associated with our business that are discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007 as supplemented by Part II — Item 1A — “Risk Factors” of this quarterly report on Form 10-Q, as well as other reports filed from time to time with the Securities and Exchange Commission.

Trademark Information: Lithobid^®, Pexeva^® and Stavzor^® are registered trademarks, and Mesafem^™ is a trademark of Noven Therapeutics, LLC; Vivelle^® is a registered trademark of Novartis Pharmaceuticals Corporation; Estradot^® (foreign) and Vivelle-Dot^® are registered trademarks, and Menorest is a trademark, of Novartis AG; CombiPatch^® and Estalis^® (United States) are registered trademarks of Vivelle Ventures LLC; and Daytrana^® is a registered trademark of Shire Pharmaceuticals Ireland Limited.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data) (unaudited)

	September 30,			December 31,
	2008			2007
Assets
Current Assets:
Cash and cash equivalents	$	65,288		$	13,973
Short-term investments available-for-sale, at fair value		—			21,565
Accounts receivable (less allowances of $477 at 2008 and $252 at 2007)		7,511			6,956
Accounts receivable — Novogyne, net		6,156			8,683
Inventories		15,162			12,136
Net deferred income tax asset, current portion		10,703			7,614
Prepaid income taxes		5,374			4,925
Prepaid and other current assets		3,362			5,251
		113,556			81,103
Non-current Assets:
Property, plant and equipment, net		34,921			36,213
Investments in auction rate securities		15,460			32,835
Investment in Novogyne		27,173			24,310
Net deferred income tax asset, non-current portion		63,172			58,053
Intangible assets, net		37,607			38,773
Goodwill		14,407			14,734
Deposits and other non-current assets		887			677
		193,627			205,595
	$	307,183		$	286,698
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	9,285		$	8,399
Accrued compensation and related liabilities		5,718			9,801
Other accrued liabilities		21,727			15,270
Current portion of long-term obligations		3,420			3,421
Deferred product revenue — Stavzor®		1,432			—
Deferred license and contract revenues, current portion		32,451			20,188
		74,033			57,079
Non-current Liabilities:
Long-term obligations, less current portion		47			8,438
Deferred license and contract revenues, non-current portion		82,621			85,056
Other non-current liabilities		1,109			1,831
		83,777			95,325
Total Liabilities		157,810			152,404
Commitments and Contingencies (Note 14)
Stockholders’ Equity:
Preferred stock — authorized 100,000 shares par value $.01 per share; no shares issued or outstanding		—			—
Common stock — authorized 80,000,000 shares, par value $.0001 per share; 25,219,370 and 24,881,867 issued at September 30, 2008 and December 31, 2007		3			2
Additional paid-in capital		121,848			118,561
Retained earnings		33,161			20,855
Accumulated other comprehensive loss		(515	)		—
Treasury stock, at cost - 322,345 shares at September 30, 2008 and December 31, 2007		(5,124	)		(5,124	)
Common stock held in trust		(1,412	)		(950	)
Deferred compensation obligation		1,412			950
		149,373			134,294
	$	307,183		$	286,698

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

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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Revenues:
Product revenues — Novogyne:
Product sales, net	$	5,945		$	5,801		$	13,929		$	15,974
Royalties		2,258			2,100			6,787			5,764
Total net product revenues — Novogyne		8,203			7,901			20,716			21,738
Product revenues, net — third parties		11,131			8,789			34,357			25,620
Total net product revenues		19,334			16,690			55,073			47,358
License and contract revenues		6,371			5,125			16,717			12,611
Total net revenues		25,705			21,815			71,790			59,969
Costs and Expenses:
Cost of products sold — Novogyne		3,994			4,286			10,783			10,530
Cost of products sold — third parties		10,933			5,525			28,236			17,522
Total cost of products sold		14,927			9,811			39,019			28,052
Acquired in-process research and development		—			100,150			—			100,150
Research and development		4,041			3,649			10,653			10,300
Selling and marketing		7,326			3,103			17,485			3,564
General and administrative		11,147			8,770			27,075			19,439
Total costs and expenses		37,441			125,483			94,232			161,505
Reversal of contingent milestone liability		5,000			—			5,000			—
Loss from operations		(6,736	)		(103,668	)		(17,442	)		(101,536	)
Equity in earnings of Novogyne		13,849			10,948			34,545			25,025
Interest income, net		344			1,306			1,466			4,751
Income (loss) before income taxes		7,457			(91,414	)		18,569			(71,760	)
Provision (benefit) for income taxes		2,253			(32,377	)		6,263			(25,335	)
Net income (loss)	$	5,204		$	(59,037	)	$	12,306		$	(46,425	)
Basic earnings (loss) per share	$	0.21		$	(2.38	)	$	0.50		$	(1.87	)
Diluted earnings (loss) per share	$	0.21		$	(2.38	)	$	0.50		$	(1.87	)
Weighted average number of common shares outstanding:
Basic		24,638			24,792			24,600			24,787
Diluted		24,766			24,792			24,703			24,787

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

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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income

(in thousands, except share amounts)

(unaudited)

										Accumulated
						Additional				Other
	Common Stock					Paid-in		Retained		Comprehensive			Treasury
	Shares			Amount		Capital		Earnings		Loss			Stock			Other			Total
Balance at December 31, 2007		24,560		$	2	$	118,561	$	20,855	$	—		$	(5,124	)	$	—		$	134,294
Issuance of shares pursuant to employee equity plan		3			1		29		—		—			—			—			30
Stock-based compensation expense and issuance of shares to officers and outside directors		334			—		3,258		—		—			—			—			3,258
Common stock held in trust		(32	)		—		—		—		—			—			(462	)		(462	)
Deferred compensation obligation		32			—		—		—		—			—			462			462
Comprehensive income:
Net income		—			—		—		12,306		—			—			—			12,306
Other comprehensive income:
Unrealized loss on investments in auction rate securities		—			—		—		—		(515	)		—			—			(515	)
Comprehensive income																			$	11,791
Balance at September 30, 2008		24,897		$	3	$	121,848	$	33,161	$	(515	)	$	(5,124	)	$	—		$	149,373

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

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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months ended September 30,
	2008			2007
Cash flows from operating activities:
Net income (loss)	$	12,306		$	(46,425	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation, amortization and certain other noncash items		6,665			4,422
Disposal of property, plant and equipment		656			46
Inventory write-offs		5,022			1,068
Reversal of contingent milestone liability		(5,000	)		—
Stock-based compensation expense		3,258			3,118
Acquired in-process research and development expense		—			100,150
Income tax benefits on exercise of stock options		—			461
Excess tax benefit from exercise of stock options		—			(390	)
Deferred income tax benefit		(8,208	)		(49,464	)
Recognition of deferred license and contract revenues		(16,717	)		(12,611	)
Equity in earnings of Novogyne		(34,545	)		(25,025	)
Distributions from Novogyne		28,982			18,465
Changes in operating assets and liabilities:
Increase in accounts receivable — trade, net		(555	)		(375	)
Decrease in milestone payment receivable — Shire		—			25,000
Decrease in accounts receivable — Novogyne, net		2,527			790
Increase in inventories		(8,048	)		(2,813	)
Decrease in prepaid income taxes		2,251			4,505
Decrease (increase) in prepaid and other current assets		1,109			(910	)
Increase in deposits and other assets		(176	)		(2	)
Increase (decrease) in accounts payable and accrued expenses		1,258			(4,983	)
Decrease in accrued compensation and related liabilities		(4,046	)		(509	)
Increase in other accrued liabilities		6,457			11,244
Increase in deferred license and contract revenues		26,545			31,620
Increase in deferred product revenue — Stavzor ®		1,432			—
Increase in other liabilities		145			419
Cash flows provided by operating activities		21,318			57,801
Cash flows from investing activities:
Purchases of property, plant and equipment		(2,997	)		(2,257	)
Payments for intangible assets		(1,734	)		(256	)
Acquisition of JDS, net of cash acquired		—			(130,353	)
Purchase of company-owned life insurance		(335	)		(260	)
Purchases of investments		(62,800	)		(1,276,473	)
Proceeds from sale of investments		101,225			1,359,828
Cash flows provided by (used in) investing activities		33,359			(49,771	)
Cash flows from financing activities:
Issuance of common stock from exercise of stock options		30			2,531
Purchase of treasury stock		—			(5,124	)
Excess tax benefit from exercise of stock options		—			390
Payments of long-term obligations		(3,392	)		(3,718	)
Cash flows used in financing activities		(3,362	)		(5,921	)
Net increase in cash and cash equivalents		51,315			2,109
Cash and cash equivalents, beginning of period		13,973			9,144
Cash and cash equivalents, end of period	$	65,288		$	11,253

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

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NOVEN PHARMACEUTICALS, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

     Since its incorporation in Delaware in 1987, Noven Pharmaceuticals, Inc. (“Noven”) has been primarily engaged in the research, development, manufacturing and marketing of advanced transdermal drug delivery technologies and prescription transdermal products.

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

     On August 14, 2007 (the “Closing Date”), Noven acquired JDS Pharmaceuticals, LLC (“JDS”), a privately-held specialty pharmaceutical company that currently markets and sells three branded prescription psychiatry products through a targeted sales force, and is advancing the clinical development of Mesafem^™, our developmental non-hormonal product for vasomotor symptoms (hot flashes). Effective January 8, 2008, JDS’s name was changed to Noven Therapeutics, LLC (“Noven Therapeutics”). With the acquisition of Noven Therapeutics, Noven now operates in two segments distinguished along product categories: (i) the “Noven Transdermals” segment, which currently engages in the research, development, manufacturing and licensing to partners of transdermal drug delivery technologies and prescription transdermal products; and (ii) the “Noven Therapeutics” segment, which currently engages in the development, marketing and sales of pharmaceutical products. See Note 15 — “Segment Data” for Noven’s segment reporting.

     In management’s opinion, the accompanying unaudited condensed consolidated financial statements of Noven contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position of Noven, the results of its operations, and its cash flows for the periods presented. Noven’s business is subject to numerous risks and uncertainties including, but not limited to, those set forth in Part I — Item 1A of Noven’s Annual Report on Form 10-K for the year ended December 31, 2007 (“Form 10-K”), and as supplemented by Part II — Item 1A — “Risk Factors” of this quarterly report on Form 10-Q. Accordingly, the results of operations and cash flows for the periods presented are not, and should not be construed as, necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2008 or for periods thereafter.

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

     In July 2008, the United States Food and Drug Administration (“FDA”) granted final approval for Stavzor^® (valproic acid delayed release capsules) in the treatment of manic episodes associated with bipolar disorder, adjunctive therapy in multiple seizure types (including epilepsy), and prophylaxis of migraine headaches. During the three months ended September 30, 2008, Noven made a $1.5 million milestone payment to Banner Pharmacaps Inc. (“Banner”) upon receiving FDA approval for Stavzor^®. Upfront and

7

milestone payments made to third parties in connection with research and development collaborations prior to regulatory approval are expensed as incurred. Payments made to third parties subsequent to regulatory approval are capitalized and amortized through cost of products sold over the shorter of the period over which the economic benefit is expected to be realized or their remaining legal lives. Noven Therapeutics commercially launched Stavzor^® in August 2008. Noven sells Stavzor^® to pharmaceutical wholesalers and chain drug stores. These companies have the right to return Stavzor^® for up to one year after product expiration. As a result of the commercial launch of Stavzor^® in the third quarter of 2008, Noven does not have sufficient sales history to reasonably estimate product returns. Under Statement of Financial Accounting Standards (“SFAS”) No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS No. 48”), Noven cannot recognize revenue on product shipments until it can reasonably estimate returns relating to these shipments. In accordance with SFAS No. 48, Noven defers recognition of revenue and the associated costs on product shipments of Stavzor^® to Noven’s customers until such time as Stavzor^® units are dispensed through patient prescriptions, since Noven’s customers are no longer permitted to return the product after it has been dispensed. Noven estimates the volume of prescription units dispensed at pharmacies based on data provided by external sources. These sources poll pharmacies, hospitals, mail order and other retail outlets for Stavzor^® prescriptions and project this sample on a national level. Noven will recognize revenue based on prescription units dispensed until Noven has sufficient history to reasonably estimate its product returns. No net revenues were recognized for Stavzor^® during the third quarter of 2008.

     Certain reclassifications have been made to the prior period’s statements of operations and statement of cash flows to conform to the current period’s presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS:

     The following information updates the discussion of recent accounting pronouncements in Note 2 of the consolidated financial statements included in Noven’s Form 10-K.

     In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the Securities Exchange and Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” Noven does not expect adoption of SFAS No. 162 to have a material impact on its consolidated financial condition, results of operations or cash flows.

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

8

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. Noven does not expect adoption of SFAS No. 161 to have a material impact on its consolidated financial condition, results of operations or cash flows.

     In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 07-03, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-03”). This EITF requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed or upon a determination that the entity does not expect the goods to be delivered or services to be rendered. EITF 07-03 is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Consistent with this EITF, beginning January 1, 2008 Noven capitalizes non-refundable advance payments for goods and services to be used in future research and development. Such payments are expensed at the time the related goods and services are received or when management determines that the goods and services will not be received. No material advance payments were made during the nine months ended September 30, 2008, thus adoption did not materially impact Noven’s consolidated financial condition, results of operations or cash flows.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of SFAS No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and applies to all entities. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Noven did not elect the fair value option for its available-for-sale investments. Consequently, Noven continues to account for these instruments in accordance with SFAS No. 115 wherein unrealized gains and losses are recognized in equity as a component of other comprehensive income unless a decline in value is judged to be other than temporary, in which case the loss would be immediately charged to operations.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosure about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. In February 2008 the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). Under FSP 157-2, the provisions of SFAS No. 157 will be adopted for financial instruments in 2008 and, when required, for nonfinancial assets and nonfinancial liabilities in 2009 (except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis). Adoption of SFAS No. 157 did not affect Noven’s consolidated financial condition, results of operations or cash flows. However, as a result of illiquid conditions in the market for auction rate securities, Noven was required to employ financial models and valuation techniques to value its investments in auction rate securities. SFAS No. 157 requires disclosure about the inputs used to determine the fair value of Noven’s investments. These disclosures are provided in Note 5.

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3. CASH FLOW INFORMATION:

     Income Tax and Interest Payments

     Cash payments for income taxes were $13.2 million and $16.2 million for the nine months ended September 30, 2008 and 2007, respectively. In 2002, the State of New Jersey enacted legislation that requires Novogyne to remit estimated state income tax payments on behalf of its owners, Noven and Novartis. For the nine months ended September 30, 2008 and 2007, Novogyne paid $2.7 million and $5.2 million, respectively, to the New Jersey Department of Revenue, representing Noven’s portion of Novogyne’s estimated state income tax payment. These payments were deemed distributions to Noven from Novogyne. Noven received tax refunds directly from the State of New Jersey of $2.7 million and $2.4 million during the nine months ended September 30, 2008 and 2007, respectively, related to these state income tax payments made on Noven’s behalf. Cash payments for interest were not material for the nine months ended September 30, 2008 and 2007.

     Non-cash Operating Activities

     Noven recorded a $0.5 million income tax benefit as additional paid-in capital derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options for the nine months ended September 30, 2007.

     Non-cash Investing Activities

     Noven recorded $0.5 million in unrealized losses on its investments in auction rate securities for the nine months ended September 30, 2008. The unrealized losses were recorded as a reduction of stockholders’ equity through other comprehensive income.

4. INVESTMENTS AVAILABLE-FOR-SALE:

     At September 30, 2008, Noven held investments in auction rate securities (classified as available-for-sale) with a par value and fair value of $16.0 and $15.5 million, respectively. Auction rate securities are floating rate debt securities with long-term nominal maturities, the interest rates of which are reset periodically (typically every seven to thirty-five days) through a Dutch auction process. These periodic auctions have historically provided a liquid market for auction rate securities, as this mechanism generally allowed existing investors to rollover their holdings and continue to own their respective securities at then-existing market rates or to liquidate their holdings by selling their securities at par value. Beginning in February 2008, as part of the ongoing credit market crisis, several auction rate securities from various issuers have failed to receive sufficient order interest from potential investors to clear successfully, resulting in auction failures. Historically, when investor demand was insufficient, the banks running the auctions would step in and purchase the remaining securities in order to prevent an auction failure. However, since early 2008, the banks have been allowing these auctions to fail. As a result of failed auctions, these investments now pay interest at a rate defined by the governing documents or indenture.

     Noven liquidated $39.0 million of auction rate securities at par value during the nine months ended September 30, 2008. During the three months ended March 31, 2008, Noven recorded an unrealized loss of $0.5 million to reduce the investments to fair value. From March 31, 2008 through September 30, 2008, Noven determined that no additional loss was required to be recorded. The unrealized loss has been recorded as a reduction of stockholders’ equity through other comprehensive income. Because the investments are tax-exempt, there is no related tax effect.

     Noven’s auction rate security investments are collateralized primarily by tax-exempt municipal bonds and, to a lesser extent, guaranteed student loans. Noven does not hold any auction rate securities collateralized by mortgages or collateralized debt obligations. Noven believes its investments are of high

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credit quality, as all are investment grade and the majority are rated AA or higher. Furthermore, management currently has the intent and believes it has the ability to hold these investments until the anticipated recovery in fair value occurs. Based on these factors, Noven believes the decline in fair value of these investments is due to general market conditions and is temporary in nature. Noven will continue to monitor the market for its auction rate security investments. If management determines in a future period that a decline in fair value is other than temporary, then in accordance with SFAS No. 115, Noven would be required to recognize a realized loss in operations in the period when such determination is made.

5. FAIR VALUE MEASUREMENTS:

     Noven adopted SFAS No. 157, “Fair Value Measurements” in 2008. SFAS No. 157, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS No. 157 clarifies that fair value is an exit price, representing the amount expected to be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. To increase consistency and comparability in fair value measurements and related disclosures, SFAS No. 157 sets forth a three-tier hierarchy for the inputs used to measure fair value based on the degree to which such inputs are observable in the marketplace, as follows:

(i)	Level 1 — observable inputs such as quoted prices in active markets;
(ii)	Level 2 — inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
(iii)	Level 3 — unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

     During the nine months ended September 30, 2008, Noven recorded a $0.5 million unrealized loss on its investments in auction rate securities which are classified as available-for-sale under SFAS No. 115. As of September 30, 2008, the total par value and fair value of Noven’s investments were $16.0 million and $15.5 million, respectively. Due to continuing auction failures beginning in February 2008, Noven utilized valuation models to determine the fair values of its investments in auction rate securities. The fair values of the investments were calculated based on the following: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (iii) consideration of the probabilities of default, auction failure, or repurchase at par for each period; and (iv) consideration of third party credit enhancement. These estimated fair values could change significantly based on future market conditions.

     Changes to investments measured at fair value on a recurring basis using unobservable inputs (Level 3) during the nine months ended September 30, 2008 were as follows (in thousands):

Balance at December 31, 2007	$	54,400
Purchases of investments		550
Sales of investments at par		(38,975	)
Unrealized losses recorded as other comprehensive loss		(515	)
Balance at September 30, 2008	$	15,460

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6. INVENTORIES:

     The following are the major classes of Noven’s inventories (in thousands):

	September 30,		December 31,
	2008		2007
Finished goods	$	3,452	$	3,171
Work in process		2,216		1,532
Raw materials		9,494		7,433
Total	$	15,162	$	12,136

     During the nine months ended September 30, 2008, Noven recorded a $5.0 million charge to cost of products sold related to the write-off of inventories. These write-offs were primarily related to an equipment failure in transdermal manufacturing during the three months ended March 31, 2008 which resulted in $1.8 million of Novogyne product write-offs and $1.0 million of third party HT product write-offs, as well as inventory write-offs during the nine months ended September 30, 2008 of approximately $1.4 million due to Daytrana^® product that exhibited high peel force characteristics and $0.8 million related to scrap and expired material in the ordinary course of business.

     Shire plc (“Shire”) retains title to the active methylphenidate ingredient (“AMI”) in Daytrana^®. The value of the AMI is neither included in Daytrana^® product revenues nor in Noven’s cost of products sold. Noven records AMI maintained at its manufacturing facility as consignment inventory and bears certain manufacturing risks of loss related to the AMI. These risks include the contractual obligation of Noven to reimburse Shire for the cost of AMI if Noven does not meet certain minimum yields of the finished product. Shire has a reciprocal obligation to pay Noven if the yield requirements are exceeded. Noven slightly exceeded the yield requirements for the nine months ended September 30, 2008 for product shipped to Shire, resulting in an immaterial payment from Shire to Noven. During the nine months ended September 30, 2008, Noven used $4.2 million of AMI in the finished product. Noven had $3.7 million and $2.6 million of consignment AMI inventory on hand at September 30, 2008 and December 31, 2007, respectively, which is not reflected in the inventory table above. Noven owed Shire approximately $1.6 million and $0.5 million as of September 30, 2008 and December 31, 2007, respectively, primarily as a result of product that did not meet the product’s release liner removal specification.

7. GOODWILL AND INTANGIBLE ASSETS:

     All of Noven’s goodwill arose from the JDS acquisition in August 2007 and, thus, relates to the Noven Therapeutics segment. The carrying amount of goodwill is $14.4 million and $14.7 million at September 30, 2008 and December 31, 2007, respectively. Goodwill is tested for impairment annually in the fourth quarter or more frequently, when events or other changes in circumstances indicate that the carrying value of goodwill may not be recoverable. If after testing the intangible assets and goodwill, Noven determines that these assets are impaired, then Noven would be required to write-down the impaired asset to fair value and record a corresponding expense in the period when the determination is made. Such a write-down and corresponding expense could have a material adverse effect on Noven’s results of operations.

     During the nine months ended September 30, 2008, certain events occurred related to the JDS acquisition, resulting in a $0.3 million net reduction in goodwill as follows:

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• As part of the JDS acquisition, a portion of the purchase price was placed in escrow to be distributed upon final determination of the amount of net working capital purchased by Noven. In June 2008, Noven reached a final agreement with the prior owners of JDS with respect to the net working capital adjustment, which agreement resulted in a $1.1 million payment to Noven from the escrow account. As a result of the working capital adjustment, Noven adjusted the amount due from escrow by $1.0 million and recorded a corresponding increase of $1.0 million to goodwill.

• Also as part of the JDS acquisition, Noven recognized a favorable lease asset related to office space in New York and a liability for employee relocation costs, based on a tentative determination that Noven would exit the New York location by May 2008. During the second quarter of 2008, management decided to retain the New York office space through its remaining contractual term and not to require relocation of the remaining personnel based in New York. As a result of these decisions, Noven revised the value of the acquired favorable lease asset and reversed the unused relocation liability, resulting in a $1.3 million reduction in goodwill.

     Noven’s intangible assets, all of which are subject to amortization, are summarized in the table below as of September 30, 2008 and December 31, 2007 (amounts in thousands):

								Weighted-
						Net		Average
	Gross Carrying		Accumulated			Carrying		Remaining
	Amount		Amortization			Amount		Life (years)
As of September 30, 2008
Patent development costs	$	4,777	$	(2,938	)	$	1,839		7.2
Acquired product intangibles		39,290		(4,286	)		35,004		9.0
Non-competition agreements		530		(249	)		281		1.6
Favorable lease		790		(307	)		483		2.0
	$	45,387	$	(7,780	)	$	37,607		8.8
As of December 31, 2007
Patent development costs	$	4,542	$	(2,573	)	$	1,969		8.1
Acquired product intangibles		37,790		(1,549	)		36,241		10.0
Non-competition agreements		530		(82	)		448		2.4
Favorable lease		227		(112	)		115		0.8
	$	43,089	$	(4,316	)	$	38,773		9.8

     The intangible assets for acquired products, non-competition agreements and favorable lease included in the tables above resulted primarily from the JDS acquisition. In addition, during the three months ended September 30, 2008, Noven made a $1.5 million milestone payment to Banner upon FDA approval for Stavzor^®. The payment was included in acquired product intangibles and is being amortized over the estimated life of the product. Amortization expense totaled $1.2 million and $0.5 million for the three months ended September 30, 2008 and 2007, respectively. Amortization expense totaled $3.5 million and $0.8 million for the nine months ended September 30, 2008 and 2007, respectively.

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     Noven estimates that the annual amortization expense for intangible assets held at September 30, 2008 for each of the five years through 2013 is as follows (amounts in thousands):

	Remainder		Years Ending December 31,
	of 2008		2009		2010		2011		2012		2013
Cost of goods sold:
Intellectual property	$	1,065	$	4,192	$	4,146	$	4,085	$	4,069	$	4,008
General and administrative:
Non-compete and favorable lease agreements		116		413		236		—		—		—
Total	$	1,181	$	4,605	$	4,382	$	4,085	$	4,069	$	4,008

8. OTHER ACCRUED LIABILITIES:

     Other accrued liabilities consist of the following (amounts in thousands):

	September 30,		December 31,
	2008		2007
Income taxes payable	$	4,063	$	2,414
Accrued medicaid and other rebates		2,759		4,065
Accrued market withdrawal costs		7,287		3,300
Allowance for product returns		3,135		1,875
Other accrued liabilities		4,483		3,616
Total other accrued liabilities	$	21,727	$	15,270

9. EQUITY PLANS:

     Prior to January 1, 2006, all awards granted to employees under Noven’s 1999 Long-Term Incentive Plan (the “1999 Plan”) were stock options. In 2006, Noven began granting stock-settled stock appreciation rights (“SSARs”) and nonvested shares of common stock (“restricted stock”). Noven accounts for these awards in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment”. At September 30, 2008, there were 1,967,083 stock options and 1,586,213 SSARs issued and outstanding under the 1999 Plan.

     Noven has granted a total of 388,780 shares of restricted stock under the 1999 Plan. The following table summarizes the information regarding Noven’s restricted stock at September 30, 2008 (share amounts in thousands):

				Weighted
				Average
				Grant-Date
	Shares			Fair Value
Nonvested at
December 31, 2007		6		$	22.86
Granted		328			9.90
Vested		(94	)		11.40
Nonvested at
September 30, 2008		240		$	9.67

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     Noven granted 70,847 and 26,244 shares of restricted stock to Noven’s non-employee directors in June 2008 and May 2007, respectively, as compensation for Board services. The shares vest over each director’s one-year service period at the end of each calendar quarter beginning with the end of the second quarter. As the shares vest, those shares that have been deferred by non-employee directors under Noven’s deferred compensation plan are transferred into a rabbi trust maintained by Noven. In accordance with EITF Issue No. 97-14, “Accounting for Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested”, the deferred shares were recorded at their fair value and classified as common stock held in trust. Since the deferral relates to Noven common stock, an offsetting amount was recorded as deferred compensation obligation in the stockholders’ equity section of the consolidated balance sheets. At September 30, 2008 and December 31, 2007 there were a total of 80,167 and 48,300 shares of common stock in the rabbi trust, respectively. Restricted stock grants during the nine months ended September 30, 2008 include an aggregate 257,345 shares of restricted stock granted to certain executive officers in 2008.

     Noven has granted a total of 50,000 restricted stock units under the 1999 Plan. These restricted stock units were awarded to Noven’s former Chief Executive Officer in January 2008 as part of a separation agreement. The fair value of this award (approximately $0.7 million) was charged to operations in 2007.

     The assumptions used to value the SSARs for the three months ended September 30, 2008 and 2007 were as follows:

	2008			2007
Volatility		51.3	%		41.8	%
Risk free interest rate		3.08	%		4.50	%
Expected life (years)		4.8			4.0
Dividend yield		0.0	%		0.0	%

     Total stock-based compensation recognized in Noven’s consolidated statements of operations for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Selling and marketing	$	6	$	111	$	329	$	333
General and administrative		726		783		2,353		2,039
Research and development		113		127		289		381
Total cost of products sold		68		121		287		365
	$	913	$	1,142	$	3,258	$	3,118
Tax benefit recognized related to compensation expense	$	279	$	359	$	1,083	$	1,020

     Stock-based compensation costs of $0.1 million for each of the three months ended September 30, 2008 and 2007, and $0.3 million and $0.4 million for the nine months ended September 30, 2008 and 2007, respectively, were included in manufacturing expenses, which are included in the determination of inventory costs. In any given period, the amount of stock-based compensation costs included in ending inventory is immaterial. There were no stock-based compensation costs capitalized as part of fixed assets for the three and nine months ended September 30, 2008 or 2007.

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     Cash received from options exercised under all share-based payment arrangements for the nine months ended September 30, 2008 and 2007 was $30,000 and $2.5 million, respectively. The tax benefit from option exercises under stock-based compensation arrangements for the nine months ended September 30, 2008 was immaterial due to the small number of exercises during the period. The tax benefit realized on the tax deductions from option exercises under stock-based compensation arrangements was $0.5 million for the nine months ended September 30, 2007, of which $0.4 million was reported as cash flow from financing activities for the nine months ended September 30, 2007.

     Stock option and SSAR transactions under the 1999 Plan are summarized as follows for the nine months ended September 30, 2008 (options/SSARs and aggregate intrinsic value in thousands):

								Weighted
				Weighted				Average
				Average		Aggregate		Remaining
	Options/			Exercise		Intrinsic		Contractual
	SSARs			Price		Value		Term
Outstanding at
December 31, 2007		3,511		$	16.83
Granted		593			10.11
Exercised		(3	)		10.60	$	3
Canceled and expired		(548	)		18.08
Outstanding at
September 30, 2008		3,553		$	15.64	$	1,337		3.9
Outstanding and exercisable at end of the period		2,209		$	17.24	$	294		2.6

     As of September 30, 2008, the unamortized compensation expense that Noven expects to record in future periods related to currently outstanding unvested stock options, SSARs and restricted stock is approximately $10.5 million in the aggregate before the effect of income taxes, of which $1.2 million, $4.1 million, $3.0 million, $1.9 million and $0.3 million is expected to be incurred in the remainder of 2008 and in 2009, 2010, 2011 and 2012, respectively. The weighted-average period over which this compensation cost is expected to be recognized is 2.7 years. As of September 30, 2008, approximately 3,354,964 outstanding options/SSARs are vested or expected to vest. Such options have a weighted average exercise price of $15.79, $1.2 million aggregate intrinsic value and a weighted average remaining life of 3.74 years as of September 30, 2008.

10. INCOME TAXES:

     On January 1, 2007, Noven adopted the provisions of, and began accounting for uncertainty in income taxes in accordance with, FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109” (“FIN 48”). This interpretation requires companies to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before recognition in the financial statements. FIN 48 requires a two-step approach when evaluating a tax position based on recognition (Step 1) and measurement (Step 2).

     Upon adoption of FIN 48, and as a result of the recognition and measurement of Noven’s tax positions as of January 1, 2007, Noven recognized a charge of approximately $0.5 million to the January 1, 2007 retained earnings balance. The gross amount of unrecognized tax benefits as of the date of adoption, January

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1, 2007, was $0.9 million. If the $0.9 million were ultimately recognized, approximately $0.6 million would affect the effective tax rate due to approximately $0.3 million in related federal tax benefit. As of September 30, 2008 the gross amount of unrecognized tax benefits was approximately $1.2 million. If the $1.2 million is ultimately recognized, approximately $0.8 million would affect the effective tax rate due to approximately $0.4 million in related federal tax benefit. Interest and penalties related to income taxes are classified as a component of income tax expense. Approximately $0.4 million and $0.5 million were accrued for interest and penalties as of September 30, 2008 and December 31, 2007, respectively. Noven does not expect the gross amount of unrecognized tax benefits to significantly increase or decrease within twelve months after September 30, 2008. All of Noven’s unrecognized tax benefits pertain to state tax positions.

     Noven is periodically audited by federal and state taxing authorities. The outcome of these audits may result in Noven being assessed taxes in addition to amounts previously paid. The accruals are determined based upon Noven’s best estimate of possible assessments by the Internal Revenue Service (“IRS”) or other taxing authorities and are adjusted, from time to time, based upon changing facts and circumstances. Federal returns for years 2004 through 2007 remain open and subject to examination by the IRS. During the third quarter of 2008, the IRS initiated an examination of Noven’s federal income tax return for the year ended December 31, 2006. Noven does not expect the outcome of the examination to materially impact its tax liabilities. Noven files and remits state income taxes in various states where Noven has determined it is required to file state income taxes. Noven’s filings with those states remain open for audit for the years 2003 through 2007. Other than the examination of Noven’s 2006 federal income tax return and routine state tax inquiries, there are no other examinations currently taking place related to income taxes in any jurisdiction. It is possible that examinations may be initiated by any jurisdiction where Noven operates, or where it can be determined that Noven operates, and the results of which can materially change the amount of unrecognized income tax benefits for tax positions taken, which may increase Noven’s income tax liabilities or decrease the amount of deferred tax assets.

     At September 30, 2008 and December 31, 2007, net deferred tax assets were $73.9 million and $65.7 million, respectively. Realization of these deferred tax assets depends upon the generation of sufficient future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Noven Therapeutics files separate state income tax returns in states where Noven Therapeutics has determined that it is required to file state income taxes. As a result, state deferred tax assets relating to Noven Therapeutics are evaluated separately in determining whether the state deferred tax assets are realizable. Noven expects that Noven Therapeutics will incur taxable losses in the next few years due to future expected clinical trial expenditures related to product development and selling and marketing costs required to commercialize its products. These expected taxable losses create negative evidence indicating the need for a valuation allowance at September 30, 2008 and December 31, 2007. Noven’s valuation allowance for state deferred tax assets was $4.1 million and $3.2 million as of September 30, 2008 and December 31, 2007, respectively, due to uncertainties in realizing these state deferred tax assets based on Noven’s projection of future state taxable income relating to Noven Therapeutics. If Noven determines, based on future Noven Therapeutics profitability that these state deferred tax assets will more likely than not be realized, a release of all, or part, of the related valuation allowance could result in an immediate income tax benefit in the period the valuation allowance is released.

11. CONTRACT AND LICENSE AGREEMENTS:

SHIRE COLLABORATION

     Noven has developed a once-daily transdermal methylphenidate patch for Attention Deficit Hyperactivity Disorder (“ADHD”) called Daytrana^®. In the first quarter of 2003, Noven licensed to Shire the exclusive global rights to market Daytrana^® for payments by Shire of up to $150.0 million. In consideration for this licensing transaction, Shire agreed to pay Noven as follows: (i) $25.0 million was paid upon closing of the transaction in April 2003; (ii) $50.0 million was paid in April 2006 upon receipt of final marketing approval by the FDA; and (iii) three installments of $25.0 million each payable upon Shire’s achievement of

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$25.0 million, $50.0 million and $75.0 million in annual Daytrana^® net sales, respectively. Noven received the first $25.0 million sales milestone in the first quarter of 2007, the second $25.0 million sales milestone in the third quarter of 2007 and the third $25.0 million sales milestone in the third quarter of 2008. Noven is currently deferring and recognizing approval and sales milestones as license revenues on a straight-line basis, beginning on the date the milestone is achieved through the first quarter of 2013, which is Noven’s current best estimate of the end of the useful economic life of the product.

SYNTHON PHARMACEUTICALS COLLABORATION

     In November 2005, JDS, now Noven Therapeutics, entered into an asset purchase agreement with Synthon Pharmaceuticals, Inc. (“Synthon”) for the purchase of Pexeva^®. In this transaction, JDS purchased certain assets related to Pexeva^® including the New Drug Application (“NDA”), intellectual property (including patents and trademarks) and certain finished goods inventory. The purchase of Pexeva^® included a cash payment at the time of closing and an obligation to make certain future fixed payments and certain contingent payments.

     Following Noven’s acquisition of JDS, Noven became responsible for possible future contingent milestone payments of up to $11.5 million in the event sales of Pexeva^® achieve certain levels under the asset purchase agreement with Synthon, as further described as follows:

• $1.0 million milestone payable if annual net sales of Pexeva^® equal or exceed $7.0 million but are less than $8.0 million in each of 2007 or 2008, which milestone payment is increased to $2.0 million if annual net sales exceed $8.0 million in each of 2007 or 2008. Pexeva^® net sales exceeded the $8.0 million threshold for 2007 and are expected to exceed such thresholds in 2008.

• $1.25 million milestone payable for each of the first two years if annual net sales of Pexeva^® equal or exceed $10.0 million from 2007 to 2017. Pexeva^® net sales exceeded this threshold for 2007 and are expected to exceed such thresholds in 2008.

• $5.0 million milestone payable in the first year that annual net sales of Pexeva^® (or any paroxetine mesylate product) equal or exceed $30.0 million from 2007 through 2017.

     Noven accrued for these contingent milestone payments at the time of closing of the JDS acquisition based on projected future sales of Pexeva^® which indicated that the achievement of each of the specified sales levels was probable at the time. In the third quarter of 2008, Noven determined that the achievement of $30.0 million in annual net sales for Pexeva^® was no longer probable, resulting in a change in accounting estimate. The change results from lower forecasted long-term prescription growth than originally expected, as well as a redistribution of selling effort to support Stavzor^®, which was commercially launched in August 2008. In the third quarter of 2008, Noven recognized $5.0 million in operating income as a result of the reversal of the accrued liability for the final contingent milestone payment upon a determination that the achievement of the milestone was no longer probable. The change in accounting estimate resulted in a positive net income impact of $3.2 million after taxes ($0.13 diluted earnings per share) for the three and nine months ended September 30, 2008, respectively. Noven does not expect the impact of this change in accounting estimate to have a material impact on future periods.

     In April 2008, Noven made a milestone payment of $3.3 million to Synthon as a result of annual net sales of Pexeva^® exceeding $8.0 million in 2007. As of September 30, 2008 and December 31, 2007, $3.3 million and $11.5 million, respectively, of these milestones were reflected as liabilities on Noven’s consolidated balance sheets. In addition, Noven expects to trigger a $3.3 million milestone payment to Synthon based on 2008 sales.

BANNER PHARMACAPS COLLABORATION

     In April 2007, JDS entered into a development, license and supply agreement with Banner in which Banner licensed rights to a delayed release valproic acid product (“Stavzor^®”), as well as rights to future development of an extended release valproic acid product, in return for a payment at closing, royalties on future sales, and up to $6.0 million in potential development milestone payments. The agreement also provides that Banner will be the exclusive supplier of the products licensed under the agreement.

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     In September 2008, Noven made a $1.5 million milestone payment to Banner upon FDA approval for Stavzor^®. The remaining potential development milestone payments of up to $4.5 million are contingent upon the satisfaction of certain conditions related to the development of an extended release valproic acid product.

PROCTER & GAMBLE PHARMACEUTICALS COLLABORATION

     In August 2008, Noven entered into global license and supply agreements with Procter & Gamble Pharmaceuticals, Inc. (“P&GP”) relating to the development and commercialization of prescription transdermal patches for the treatment of Hypoactive Sexual Desire Disorder (“HSDD”) in women. The global license agreement supersedes and replaces the prior development letter agreement entered into between Noven and P&GP on April 28, 2003. Under the agreements, Noven granted P&GP an exclusive worldwide license to a testosterone patch for the treatment of HSDD in women, as well as potential next-generation patches in the same therapeutic category, and P&GP granted Noven exclusive supplier rights with respect to such licensed products. If the testosterone patch is ultimately approved and commercially launched, Noven would receive royalties and manufacturing fees under the agreements. Noven may also receive additional development and sales milestone payments related to the licensed products. The royalty payments are to be determined based on a percentage of P&GP’s quarterly sales of the licensed products. The milestone payments are contingent upon the achievement of certain sales milestones. Pursuant to the agreements, P&GP will fund any clinical development costs and will be responsible for any regulatory filings and marketing applications associated with any licensed products developed under the agreements.

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

     Noven shares in the earnings of Novogyne, after satisfaction of an annual preferred return of $6.1 million to Novartis, according to an established formula. Noven’s share of Novogyne’s earnings increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne earned sufficient income in the first quarter of 2008 and 2007 to meet Novartis’ annual preferred return for those periods and for Noven to recognize earnings from Novogyne under the formula.

     During the three and nine months ended September 30, 2008 and 2007, Noven had the following transactions with Novogyne (in thousands):

	Three Months				Nine Months
	2008		2007		2008		2007
Revenues:
Product sales	$	5,945	$	5,801	$	13,929	$	15,974
Royalties		2,258		2,100		6,787		5,764
	$	8,203	$	7,901	$	20,716	$	21,738
Reimbursed expenses	$	6,770	$	6,940	$	21,424	$	21,046

     Reimbursed expenses are primarily comprised of selling and marketing expenses paid by Noven on behalf of Novogyne. As of September 30, 2008 and December 31, 2007, Noven had amounts due from Novogyne of $6.2 million and $8.7 million, respectively.

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     The unaudited condensed statements of operations of Novogyne for the three and nine months ended September 30, 2008 and 2007 are as follows (in thousands):

	Three Months				Nine Months
	2008		2007		2008		2007
Gross revenues	$	53,281	$	45,224	$	148,629	$	125,432
Sales allowances		7,024		5,770		18,579		16,769
Sales return allowances		432		781		931		772
Sales allowances and returns		7,456		6,551		19,510		17,541
Net revenues		45,825		38,673		129,119		107,891
Cost of sales		8,893		8,152		25,489		22,994
Selling, general and administrative expenses		9,013		8,278		27,823		27,990
Income from operations		27,919		22,243		75,807		56,907
Interest income		341		286		782		783
Net income	$	28,260	$	22,529	$	76,589	$	57,690
Noven’s equity in earnings of Novogyne	$	13,849	$	10,948	$	34,545	$	25,025

     The activity in the Investment in Novogyne account for the nine months ended September 30, 2008 is as follows (in thousands):

Investment in Novogyne, beginning of period	$	24,310
Equity in earnings of Novogyne		34,545
Cash distributions from Novogyne		(28,982	)
Deemed distribution by Novogyne for state income tax payment		(2,700	)
Investment in Novogyne, end of period	$	27,173

     Subject to the approval of Novogyne’s management committee, Novogyne may, from time to time, distribute cash to Novartis and Noven based upon a contractual formula. For the three and nine months ended September 30, 2008, Noven received cash distributions representing return on investment of $11.7 million and $29.0 million, respectively, from Novogyne. For the three and nine months ended September 30, 2007, Noven received cash distributions representing return on investment of $7.5 million and $18.5 million, respectively, from Novogyne. In addition, as discussed in Note 3, tax payments of $2.7 million and $5.2 million were made by Novogyne on Noven’s behalf to the New Jersey Department of Revenue during the nine months ended September 30, 2008 and 2007, respectively. These amounts were recorded as reductions in the investment in Novogyne when received (or in the case of tax payments, when paid).

13. SHARE REPURCHASE PROGRAM:

     In September 2007, Noven’s Board of Directors authorized a share repurchase program under which Noven may acquire up to $25.0 million of its common stock. As of December 31, 2007, Noven had repurchased 322,345 shares of its common stock at an aggregate price of approximately $5.1 million. These shares remained in treasury as of September 30, 2008 and December 31, 2007. No shares were repurchased under the program during the nine months ended September 30, 2008.

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14. COMMITMENTS AND CONTINGENCIES:

HORMONE THERAPY (“HT”) STUDIES:

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

SUPPLY AGREEMENTS:

     Noven’s supply agreement with Novogyne for Vivelle-Dot^® products expired in January 2003. Novogyne’s designation of a new supplier and approval of a new supply agreement would require the affirmative vote of four of the five members of Novogyne’s Management Committee. Since Noven appoints two members of Novogyne’s Management Committee, both Novartis and Noven must agree on Novogyne’s supplier. In connection with a transition to Vivelle-Dot^®, effective December 2006, Noven ceased supplying Vivelle^® product to Novogyne.

     Noven and Shire are parties to a long-term supply agreement under which Noven manufactures and supplies Daytrana^® to Shire at a fixed price. During the three months ended September 30, 2008 and 2007, Noven’s net product sales of Daytrana^® to Shire were $1.8 million and $1.4 million, respectively. During the nine months ended September 30, 2008 and 2007, Noven’s net product sales of Daytrana^® to Shire were $7.5 million and $11.0 million, respectively. The supply agreement gives Shire the right to qualify a second manufacturing source and purchase a portion of its requirements from that source. If Shire were to exercise this right, Noven’s financial results from sales of Daytrana^® would be adversely affected.

LITIGATION, CLAIMS AND ASSESSMENTS:

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

     In April 2006, an individual plaintiff and her husband filed a complaint in the United States District Court, District of Minnesota against Noven, Novogyne, Novartis, Wyeth Inc. and Wyeth Pharmaceuticals, Inc. alleging liability in connection with personal injury claims allegedly arising from the use of HT products, including Noven’s CombiPatch^® product. The plaintiffs claim compensatory and other damages in an unspecified amount.

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     In July 2006, four complaints were filed in the United States District Court, District of Minnesota against Noven and other pharmaceutical companies by four separate individual plaintiffs, each filing alone or with her husband. Three of the complaints also name Novartis as a defendant, and of these, two name Novogyne as a defendant as well. Each complaint alleges liability in connection with personal injury claims allegedly arising from the use of HT products, including Vivelle^® in one case and CombiPatch^® in two of the cases. The plaintiffs in each case claim compensatory and other damages in an unspecified amount.

     In July 2008, one additional complaint was filed in the United States District Court, District of Minnesota against Wyeth Inc. and other named pharmaceutical companies, including Noven, Novogyne and Novartis. The complaint alleges liability in connection with personal injury claims allegedly arising from the use of HT products, including Vivelle-Dot^®. The plaintiffs claim compensatory and other damages in an unspecified amount.

     Each of the aforementioned federal court cases has been, or is expected to be, transferred to the federal multi-district litigation proceedings that are pending in the United States District Court, Eastern District of Arkansas.

     Novartis has advised Noven that Novartis is currently named as a defendant in at least 30 additional lawsuits that include approximately 31 plaintiffs that allege liability in connection with personal injury claims allegedly arising from the use of HT patches distributed and sold by Novartis and Novogyne, including Noven’s Vivelle-Dot^®, Vivelle^®, and CombiPatch^® products. Novogyne has been named as a defendant in one lawsuit in addition to the four lawsuits referenced above. Novartis has indicated that it will seek indemnification from Noven and Novogyne to the extent permitted by the agreements between and among Novartis, Novogyne and Noven. Novogyne’s aggregate limit under its claims-made insurance policy as of September 30, 2008 was $10.0 million. Novogyne has established reserves in the amount of $9.2 million with an offsetting insurance recovery of $6.9 million for expected defense and settlement expenses as well as for estimated future cases alleging use of Noven’s HT products. This accrual represents Novartis management’s best estimate as of September 30, 2008.

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

     Noven intends to vigorously defend all of the foregoing lawsuits, but the outcome of these lawsuits cannot ultimately be predicted.

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

FDA WARNING LETTER:

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

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     In July 2007, Noven received from the FDA a list of observations on Form 483 following an on-site inspection of its manufacturing facilities. The majority of the observations in the Form 483 related to the Daytrana^® patch and difficulties experienced by some patients in removing the release liner, including certain product lots that utilize the enhanced release liner. In July 2007, Noven submitted to the FDA its response to the Form 483.

     In the third quarter of 2007, Shire initiated two voluntary market withdrawals of a portion of the Daytrana^® product on the market primarily in response to feedback from patients and caregivers who experienced difficulty removing the release liner from some Daytrana^® patches. Noven paid Shire $3.3 million in February 2008 related to the withdrawals. These costs were charged to operations in 2007.

     In January 2008, Noven received a warning letter from the FDA in connection with the FDA’s July 2007 inspection of its manufacturing facilities. In the warning letter, which is posted at the FDA’s website, the FDA cited Current Good Manufacturing Practice deficiencies related to: (i) peel force specifications for removal of Daytrana’s^® release liner; and (ii) data supporting the peel force characteristics of Daytrana’s^® enhanced release liner throughout the product’s shelf life. Noven submitted its response to the warning letter on January 30, 2008. In March 2008, the Florida District Office of the FDA indicated that Noven’s response appears to be satisfactory and stated that Noven’s response had been forwarded to the FDA’s Center for Drug Evaluation and Research for further review. In April 2008, a Noven stability protocol identified certain Daytrana^® lots exhibiting high peel force characteristics. In June 2008, Shire initiated the voluntary recall of two lots of Daytrana^® that did not meet the product’s release liner removal specification. Noven has agreed to pay Shire $1.95 million related to Shire’s June 2008 recall, of which $0.25 million and $1.7 million were charged to operations in the first and second quarters of 2008, respectively. In August 2008, Shire initiated the voluntary recall of two additional lots of Daytrana^® that did not meet the product’s release liner removal specification. Noven has agreed to pay Shire $1.7 million related to Shire’s August 2008 recall, of which approximately $1.4 million has been charged to general and administrative expenses, $0.2 million was recorded as a reduction in revenues and $0.1 million was charged to cost of products sold in the three months ended September 30, 2008. For each of the recalls described above, the amounts reflected as reductions of revenue represent the amounts recognized for product which is expected to be returned. The charge to cost of products sold represents the value of AMI included in such product for which Noven is required to reimburse Shire. The amount charged to general and administrative expenses represents amounts Noven is obligated to reimburse Shire for direct costs of the recalls.

     Noven is in the process of implementing new product release testing intended to predict which Daytrana^® lots are at risk of developing peel force issues during the product’s shelf life. Product that fails to meet this test will be destroyed, which will result in increased Daytrana^® manufacturing costs, including reimbursements to Shire for the AMI for destroyed product. For the nine months ended September 30, 2008, Daytrana^® cost of products sold exceeded Noven’s Daytrana^® net revenues by $6.5 million. As a result of this new release testing, Noven’s cost of product sold for future Daytrana^® production is expected to increase materially to reflect Daytrana^® lots that fail to meet the new release testing standard, which will result in a continuing significantly negative gross margin for the product unless and until the peel force issue is resolved.

     In accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS No. 5”), Noven has determined that certain previously-manufactured lots that would not have met the new release testing standard are probable of being voluntarily withdrawn or recalled from the market prior to the expiration of their shelf life. Consequently, during the quarter ended September 30, 2008, Noven established a reserve of $4.3 million related to these affected lots. This reserve includes $1.7 million of estimated recall costs that Noven will be required to reimburse Shire if there are voluntary withdrawals or recalls. Of the $4.3 million reserve, approximately $1.7 million has been charged to general and administrative expenses, $1.1 million was recorded as a reduction in revenues and $1.5 million was charged to cost of products sold (of which $0.8 million relates to the cost of AMI as discussed in Note 6). Noven cannot assure that its costs related to this issue will not exceed the $4.3 million reserved amount. Although the new release testing is designed to reduce the likelihood that newly-manufactured product will be withdrawn or recalled in the future, Noven cannot assure that its testing procedures will detect all production issues or that there will not be future Daytrana^® market withdrawals or recalls.

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     Noven believes it has identified the root cause of, and has identified potential solutions related to, this issue, although it will take time to test the effectiveness of the potential solutions and to determine whether such solutions satisfactorily resolve the issue. Noven cannot assure that there will be a satisfactory resolution of the peel force issue. Failure to adequately address the issues raised by the FDA in the warning letter as well as the production and other issues involving Daytrana^® could result in additional regulatory action, including fines, recalls of products, injunctions, seizures, suspension of production or withdrawal of the approval of products. Any such regulatory action would be expected to have a material adverse effect on Noven, including the potential for litigation related to this matter, harm to Noven’s reputation and various costs associated with the foregoing.

CONTRACT AND LICENSE AGREEMENTS:

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

NOVEN THERAPEUTICS COMMITMENTS:

     Noven Therapeutics has certain commitments and contingencies related to contractual arrangements, primarily related to milestone payments for development, FDA submission, FDA approval and commercial sales of current and developmental products. As of September 30, 2008 and December 31, 2007, Noven Therapeutics was responsible for up to $18.7 million and $23.5 million in such contingent milestones, respectively. As of September 30, 2008 and December 31, 2007, $3.3 million and $11.5 million of these milestones, respectively, were reflected as liabilities in Noven’s consolidated balance sheets. As discussed in Note 11, in April 2008, Noven made a $3.3 million milestone payment to Synthon and, in September 2008, Noven made a $1.5 million milestone payment to Banner. In addition, as further discussed in Note 11, in the third quarter of 2008, Noven recognized $5.0 million in operating income as a result of the reversal of an accrued liability for the final contingent milestone payment upon a determination that the achievement of $30.0 million in annual net sales for Pexeva^® was no longer probable.

EMPLOYMENT AGREEMENT AND BONUS PLAN:

     In connection with the appointment of Noven’s President and Chief Executive Officer, Noven entered into an employment agreement, dated April 29, 2008 (the “Agreement”). The initial two-year term of the Agreement expires on April 28, 2010 and will continue for consecutive one-year terms unless it is terminated by either party under certain conditions. The President and Chief Executive Officer’s base salary under the Agreement is approximately $0.7 million, subject to increases at the discretion of the Board of Directors. The President and Chief Executive Officer’s annual target incentive bonus under Noven’s annual incentive plan during the term will be at least 75% of his base salary. In connection with the Agreement, the President and Chief Executive Officer was granted the following equity awards under the 1999 Plan: (i) SSARs with an aggregate fair value of $1.3 million to acquire 311,529 shares of Noven’s common stock at an exercise price of $9.10 per share (the market price on the grant date) which vest at a rate of 25% per year on each anniversary of the grant date; and (ii) 250,000 shares of restricted stock. The shares of restricted stock vest as follows: (a) 50,000 shares were immediately vested upon grant; (b) 50,000 shares vest ratably over three years; and (c) 150,000 shares vest in three equal parts upon Noven’s achievement of specified performance targets based on Noven’s pre-tax income.

     Noven has a formula bonus plan that includes company and individual performance goals. Under the plan, a fixed percentage of each eligible employee’s base salary is established as a target incentive bonus award for such employee. To the extent that actual company performance is equal to, exceeds or is less than

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the company performance targets, an employee’s bonus award may be equal to, greater than or less than his or her target award. An employee’s non-financial goals are then considered in determining his or her final bonus award. Management’s estimate of the bonus accrual is expensed over the year in which it is earned.

CREDIT FACILITY:

     In July 2008, Noven entered into an agreement for a $15.0 million credit facility. In connection with the credit facility and in lieu of granting a security interest in Noven’s assets, Noven granted a negative pledge in favor of the lender, whereby Noven agreed not to pledge, grant any security interest in, or allow any lien or encumbrance in or on, certain of Noven’s financial assets. As of September 30, 2008, no borrowings were outstanding under this facility.

15. SEGMENT DATA:

     The accounting policies of the segments are the same as those described in Note 2 of the notes to the financial statements included in Noven’s Form 10-K. The table below presents segment information for the periods identified and reconciles segment information to the applicable consolidated amounts. There are no inter-segment revenues. The results of the Noven Therapeutics segment are included in Noven’s consolidated results beginning on the date of acquisition (August 14, 2007). Consequently, Noven’s results for the three and nine months ended September 30, 2007 do not include the results of the Noven Therapeutics segment for the period prior to the Closing Date.

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	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in thousands):	2008			2007			2008			2007
Noven Transdermals:
Product revenues	$	14,527		$	13,365		$	37,986		$	44,033
License and contract revenues		6,371			5,125			16,717			12,611
Net revenues		20,898			18,490			54,703			56,644
Cost of products sold		(13,024	)		(8,998	)		(33,058	)		(27,239	)
Selling and marketing		(48	)		(332	)		(455	)		(793	)
Equity in earnings of Novogyne		13,849			10,948			34,545			25,025
Segment contribution		21,675			20,108			55,735			53,637
Noven Therapeutics:
Product revenues		4,807			3,325			17,087			3,325
Cost of products sold		(1,903	)		(813	)		(5,961	)		(813	)
Acquired in-process research and development		—			(100,150	)		—			(100,150	)
Selling and marketing		(7,278	)		(2,771	)		(17,030	)		(2,771	)
Reversal of contingent milestone liability		5,000			—			5,000			—
Segment contribution		626			(100,409	)		(904	)		(100,409	)
Unallocated income (expense):
Research and development		(4,041	)		(3,649	)		(10,653	)		(10,300	)
General and administrative		(11,147	)		(8,770	)		(27,075	)		(19,439	)
Interest income, net		344			1,306			1,466			4,751
Income (loss) before income taxes	$	7,457		$	(91,414	)	$	18,569		$	(71,760	)

     Segment assets consisted of the following as of September 30, 2008 and December 31, 2007 (in thousands):

	September 30,		December 31,
	2008		2007
Noven Transdermals	$	86,635	$	83,912
Noven Therapeutics		56,302		57,893
Assets not allocated to segments1		164,246		144,893
Total Assets	$	307,183	$	286,698

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

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16. SUBSEQUENT EVENT — TERMINATION AGREEMENT:

     On November 5, 2008, Noven entered into a letter agreement (the “Termination Agreement”) with Shire terminating Noven’s agreements with Shire for the development of an amphetamine patch. The Termination Agreement terminates the amphetamine letter agreements dated as of (i) June 15, 2004, (ii) May 4, 2007, and (iii) June 4, 2007. Under the Termination Agreement, rights to the developmental amphetamine patch were returned to Noven. Noven intends to pursue the further development and commercialization of the product. Shire will be entitled to a modest royalty if Noven elects to commercialize a product that incorporates intellectual property arising from the development project with Shire. As of September 30, 2008, Noven’s consolidated balance sheet reflected deferred license and contract revenue of $7.2 million related to this project. As a result of the termination of this project with Shire, Noven expects to recognize the $7.2 million as license and contract revenues in the fourth quarter of 2008.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following section addresses material aspects of our consolidated financial condition as of September 30, 2008, and our consolidated results of operations for the three months ended September 30, 2008 (the “2008 Quarter”) and September 30, 2007 (the “2007 Quarter”), and the nine months ended September 30, 2008 (the “2008 Period”) and September 30, 2007 (the “2007 Period”). The contents of this section include:

• An executive summary of our consolidated results of operations for the 2008 Quarter;

• An overview of Noven and our Novogyne joint venture;

• An overview of Noven Therapeutics;

• A review of certain items that may affect the historical or future comparability of our consolidated results of operations;

• An analysis of our consolidated results of operations and our liquidity and capital resources; and

• An outlook that includes our current financial guidance.

     This discussion should be read in conjunction with Noven’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2008 and 2007 and the related notes included elsewhere in this Form 10-Q, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” from our Form 10-K.

Executive Summary

     The following Executive Summary is qualified in its entirety by the more detailed discussion and analysis of our financial condition and results of operations appearing in this Item 2 as well as in our unaudited condensed consolidated financial statements and related notes included in this Form 10-Q.

     Our financial results for the 2008 Quarter included the results of operations of Noven Therapeutics (previously known as JDS Pharmaceuticals), a specialty pharmaceutical company that we acquired on August 14, 2007. The 2008 Quarter also included the recognition of $5.0 million in operating income due to the reversal of a $5.0 million accrued liability related to a future Pexeva^® contingent sales milestone. In addition, results for the 2008 Quarter included (i) a $1.7 million charge for reimbursements due to Shire for a voluntary recall of certain Daytrana^® product initiated by Shire in the 2008 Quarter, and (ii) a $4.3 million reserve related to previously-manufactured Daytrana^® product at risk of exceeding the product’s peel force specification during its shelf life (together, the “Daytrana^® Charges”).

     The 2007 Quarter included (i) a $100.2 million charge for the portion of the JDS Pharmaceuticals purchase price allocated to in-process research and development (the “IPR&D Charge”), and (ii) a $3.3 million charge related to reimbursements to Shire in connection with their voluntary withdrawal of certain lots of Daytrana^® product.

     For the 2008 Quarter, we reported net income of $5.2 million ($0.21 diluted earnings per share), compared to a net loss of $59.0 million ($2.38 loss per share) for the 2007 Quarter. Our net revenues in the 2008 Quarter were $25.7 million, an 18% increase over the 2007 Quarter. This increase reflects a full quarter of sales of Noven Therapeutics’ Pexeva^® and Lithobid^® products, as well as increased license and contract revenues, primarily due to amortization of deferred revenue from additional Daytrana^® sales milestone payments. The increase in net revenues was partially offset by a $1.3 million reduction in third quarter revenues, representing a portion of the Daytrana^® Charges.

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     Gross margin, as a percentage of net product revenues, was 23% in the 2008 Quarter compared to 41% in the 2007 Quarter. Cost of products sold in the 2008 Quarter included $1.6 million of the Daytrana^® Charges, as well as increased quality assurance activities and expenses, primarily related to Daytrana^® production. Due to new product release testing intended to identify and screen product at risk of exceeding the product’s peel force specification during the product’s shelf life, our cost of products sold for future Daytrana^® production is expected to increase materially to reflect Daytrana^® lots that fail to meet the new release testing standard, which is expected to result in a continuing significantly negative gross margin for the product unless and until the peel force issue affecting the product is resolved.

     The 2007 Quarter included the $100.2 million IPR&D Charge. Excluding the IPR&D Charge, research and development expenses in the 2008 Quarter increased $0.4 million to $4.0 million compared to the 2007 Quarter. Selling and marketing expenses increased to $7.3 million from $3.1 million in the 2007 Quarter, reflecting a full quarter of selling and marketing expenses at Noven Therapeutics as well as $3.3 million related to the August 2008 commercial launch of Stavzor^®. In the 2008 Quarter, general and administrative expenses increased $2.4 million, or 27%, reflecting $3.1 million of the Daytrana^® Charges and a full quarter of expenses at Noven Therapeutics.

     We recognized $13.8 million in earnings from Novogyne in the 2008 Quarter, an increase of 26% compared to the 2007 Quarter. Net revenues at Novogyne increased 18% to $45.8 million in the 2008 Quarter, primarily due to increased sales of Vivelle-Dot^®. Novogyne’s gross margin percentage for the 2008 Quarter increased slightly to 81%. Novogyne’s selling, general and administrative expenses for the 2008 Quarter were $9.0 million, a 9% increase over the 2007 Quarter. Novogyne’s net income for the 2008 Quarter increased 25% to $28.3 million compared to $22.5 million in the 2007 Quarter.

     At September 30, 2008, we had $65.3 million in cash and cash equivalents and $15.5 million in investments in auction rate securities, representing an aggregate $80.7 million in cash, cash equivalents and investments in auction rate securities. This compares with $14.0 million in cash and cash equivalents and $54.4 million in investments in auction rate securities at December 31, 2007, representing an aggregate $68.4 million in cash, cash equivalents and investments in auction rate securities. In the 2008 Quarter, we received the third and final $25.0 million milestone payment related to Shire’s sales of Daytrana^®. Also in the 2008 Quarter, we obtained a $15.0 million revolving credit facility; no amounts were borrowed under this facility as of September 30, 2008.

     Our investments in auction rate securities at September 30, 2008 had a fair value of $15.5 million and all were classified as non-current on our balance sheet following failed auctions occurring since February 2008. We liquidated $2.1 million and $39.0 million of these investments at par value in the 2008 Quarter and 2008 Period, respectively. The auction rate securities that we hold are collateralized primarily by tax-exempt municipal bonds and, to a much lesser extent, guaranteed student loans. We had recorded a temporary change in fair value of $0.5 million relating to our investments in auction rate securities in the first quarter of 2008; we did not record any additional change in fair value in either the second or third quarters of 2008.

     Total prescriptions for Vivelle-Dot^® increased 7% in the 2008 Quarter compared to the 2007 Quarter, and total prescriptions for Novogyne’s HT products, taken as a whole, increased 3%. By comparison, the U.S. HT market declined 5% for the same period. Total prescriptions for Daytrana^® decreased 14% in the 2008 Quarter compared to the 2007 Quarter, while prescriptions for ADHD stimulant therapies as a class increased 9% over the same period. Total prescriptions for Pexeva^® decreased 11% in the 2008 Quarter compared to the 2007 Quarter, while for the same period prescriptions for the selective serotonin re-uptake inhibitor (“SSRI”) class increased 2%. Reflecting ongoing generic substitution, total prescriptions for Lithobid^® decreased 30% in the 2008 Quarter compared to the 2007 Quarter.

     In July 2008, the FDA granted final approval for Stavzor^® (valproic acid delayed release capsules) in the treatment of manic episodes associated with bipolar disorder, adjunctive therapy in multiple seizure types (including epilepsy), and prophylaxis of migraine headaches. Noven Therapeutics commercially launched Stavzor^® in August 2008.

     In August 2008, we entered into global license and supply agreements with Procter & Gamble Pharmaceuticals, Inc. (“P&GP”) relating to the development and commercialization of prescription transdermal patches for the treatment of Hypoactive Sexual Desire Disorder (“HSDD”) in women. Under the agreements, we granted P&GP an exclusive worldwide license to a testosterone patch for the treatment of HSDD in women, as well as potential next-generation patches in the same therapeutic category. The agreements provide for payment to us of royalties and manufacturing fees, as well as development and sales milestones, relating to the licensed products. P&GP will fund any clinical development costs and will be responsible for any regulatory filings and marketing applications associated with the licensed products, as applicable.

     During the 2008 Quarter, we advanced preparations for a Phase 2 study of Mesafem^™, our developmental non-hormonal product for vasomotor symptoms (hot flashes), and patient screening for the study began in October 2008. Following an internal review and prioritization of projects in our drug development pipeline, we announced in November 2008 that we no longer intend to fund development of our Lithium QD and Stavzor^® ER projects. Also in November 2008, we announced that we had reacquired rights to our developmental amphetamine patch for ADHD upon termination of a prior collaborative development arrangement.

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Overview of Noven and our Novogyne Joint Venture

     Our transdermal business is focused on developing advanced transdermal patches. We presently derive the majority of our transdermal revenues from sales of transdermal patches for use in menopausal HT. In the United States, our HT products are marketed and sold by Novogyne Pharmaceuticals, the joint venture that we formed with Novartis in 1998. Our business, financial condition and results of operations are significantly dependent upon Novogyne and its marketing of our HT products in the United States. A discussion of Novogyne’s results of operations and their impact on our results can be found under the caption “Results of Operations—Equity in Earnings of Novogyne.” In all countries other than the United States, Canada and Japan, we have licensed the marketing rights to these products to Novartis Pharma, which is an affiliate of Novartis.

     We hold a 49% equity interest in Novogyne, and Novartis holds the remaining 51% equity interest. Under the terms of the joint venture agreements, we manufacture and supply our HT products to Novogyne, perform marketing, sales and promotional activities, and receive royalties from Novogyne based on Novogyne’s sales of the HT products. Novartis distributes Vivelle-Dot^® and CombiPatch^® and provides certain other services to Novogyne, including financial and accounting functions.

     Novartis is entitled to an annual $6.1 million preferred return from Novogyne, which has the effect of reducing our share of Novogyne’s income in the first quarter of each year. After the annual preferred return to Novartis, our share of Novogyne’s income increases as product sales increase, subject to a maximum of 49%. Our share of Novogyne’s income was $13.8 million and $10.9 million for the 2008 Quarter and the 2007 Quarter, respectively. The income we recognize from Novogyne is a non-cash item. Any cash we receive from Novogyne is in the form of cash distributions declared by Novogyne’s Management Committee. Accordingly, the amount of cash that we receive from Novogyne in any period is typically not the same as the amount of income we recognize from Novogyne for that period. For the 2008 Period and the 2007 Period, we received $29.0 million and $18.5 million, respectively, in distributions from Novogyne, which accounted for a substantial portion of our net operating cash flows for these periods. We expect that for the next several years a substantial portion of our earnings will be generated through our interest in Novogyne and a substantial portion of our cash flow will also be generated through our interest in Novogyne. Any failure by Novogyne to remain profitable or to continue to make distributions would have a material adverse effect on our consolidated results of operations and financial condition.

Overview of Noven Therapeutics

     Noven Therapeutics is a specialty pharmaceutical company that currently markets three branded prescription psychiatry products (Stavzor^®, Pexeva^® and Lithobid^®) and is advancing the development of Mesafem™, a non-hormonal therapy for the treatment of vasomotor symptoms associated with menopause. We will seek to leverage Noven Therapeutics’ marketing and sales infrastructure with next-generation psychiatry/CNS products, and with complementary products that we will seek to develop or acquire. We plan to increase our research and development expenses significantly over the next several years.

Certain Items that May Affect Historical or Future Comparability

     Set forth below are certain items that may affect the historical or future comparability of our consolidated results of operations and financial condition. Such disclosure is not intended to address every item that may affect the historical or future comparability of our consolidated results of operations or financial condition and such disclosure should be read in conjunction with the discussion and analysis of our consolidated results of operations, liquidity and capital resources and outlook appearing elsewhere in this Item 2.

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Acquisition of JDS Pharmaceuticals, LLC in 2007

     We acquired JDS (now Noven Therapeutics) on August 14, 2007. We accounted for the acquisition of JDS using the purchase method of accounting. The purchase price exceeded the amounts allocated to the tangible and intangible assets acquired and liabilities assumed by approximately $14.4 million, which has been recorded as goodwill, all of which is deductible for tax purposes.

     We acquired $39.1 million in identifiable intangible assets in the JDS acquisition, which relate to: (i) intellectual property rights associated with Noven Therapeutics’ products approved by the FDA; (ii) a favorable lease intangible asset; and (iii) non-competition agreements with two former executives of JDS. At September 30, 2008, the carrying amount of Noven’s intangible assets (excluding goodwill, but including certain intangibles unrelated to the JDS acquisition) totaled $37.6 million. Noven estimates that the annual amortization expense for intangible assets held at September 30, 2008 for each of the five years through 2013 will be as follows (amounts in thousands):

	Remainder		Years Ending December 31,
	of 2008		2009		2010		2011		2012		2013
Cost of goods sold:
Intellectual property	$	1,065	$	4,192	$	4,146	$	4,085	$	4,069	$	4,008
General and administrative:
Non-compete and favorable lease agreements		116		413		236		—		—		—
Total	$	1,181	$	4,605	$	4,382	$	4,085	$	4,069	$	4,008

     We test our goodwill acquired as a result of the JDS acquisition for impairment annually in the fourth quarter, or more frequently if indicators of impairment arise. Although we have not experienced any indicators which would call for an earlier impairment test, we cannot assure that goodwill will not be impaired when we perform our annual test in the fourth quarter. We are required to test our intangible assets with finite lives if events or changes in circumstances indicate that such assets might be impaired. If after testing our intangible assets and goodwill, we determine that these assets are impaired, then we would be required to write-down the impaired assets to fair value and record a corresponding expense in the period when the determination is made. Such a write-down and corresponding expense could have a material adverse effect on our results of operations.

     Following the acquisition of JDS, we became responsible for contingent milestone payments in the event that sales of Pexeva^® achieved certain levels specified under the asset purchase agreement with Synthon. At the closing date, we recorded a liability related to contingent milestone payments for which we determined it was probable that we would achieve the specified targets. In the third quarter of 2008, we concluded that it was no longer probable that we would achieve the final sales milestone. As a result, we recognized $5.0 million in operating income as a result of reversing the liability for this contingent milestone payment.

Daytrana^®

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

     In July 2007, we received from the FDA a list of observations on Form 483 following an on-site inspection of our manufacturing facilities. The majority of the observations in the Form 483 related to the Daytrana^® patch and difficulties experienced by some patients in removing the release liner, including certain product lots that utilize the enhanced release liner. In July 2007, we submitted to the FDA our response to the Form 483.

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     In the third quarter of 2007, Shire initiated two voluntary market withdrawals of a portion of the Daytrana^® product on the market primarily in response to feedback from patients and caregivers who experienced difficulty removing the release liner from some Daytrana^® patches. We paid Shire $3.3 million in February 2008 related to those withdrawals. This payment was charged to operations in 2007.

     In January 2008, we received a warning letter from the FDA in connection with the FDA’s July 2007 inspection of our manufacturing facilities. In the warning letter, which is posted at the FDA’s website, the FDA cited Current Good Manufacturing Practice deficiencies related to: (i) peel force specifications for removal of Daytrana’s^® release liner; and (ii) data supporting the peel force characteristics of Daytrana’s^® enhanced release liner throughout the product’s shelf life. We submitted our response to the warning letter on January 30, 2008. In March 2008, the Florida District Office of the FDA indicated that our response appears to be satisfactory and stated that our response had been forwarded to the FDA’s Center for Drug Evaluation and Research for further review. In April 2008, a Noven stability protocol identified certain Daytrana^® lots exhibiting high peel force characteristics. In June 2008, Shire initiated the voluntary recall of two lots of Daytrana^® that did not meet the product’s release liner removal specification. We have agreed to pay Shire $1.95 million related to their June 2008 recall, of which $0.25 million and $1.7 million were charged to operations in the first and second quarters of 2008, respectively. In August 2008, Shire initiated the voluntary recall of two additional lots of Daytrana^® that did not meet the product’s release liner removal specification. We have agreed to pay Shire $1.7 million related to their August 2008 recall, of which approximately $1.4 million has been charged to general and administrative expenses, $0.2 million was recorded as a reduction in revenues and $0.1 million was charged to cost of products sold in the 2008 Quarter. For each of the recalls described above, the amounts reflected as reductions of revenue represent the amounts recognized for product which is expected to be returned. The charge to cost of product sold represents the value of AMI included in such product for which we are required to reimburse Shire. The amount charged to general and administrative expenses represents amounts we are obligated to reimburse Shire for direct costs of the recalls.

     We are in the process of implementing new product release testing intended to predict which Daytrana^® lots are at risk of developing peel force issues during the product’s shelf life. Product that fails to meet this test will be destroyed, which will result in increased Daytrana^® manufacturing costs, including reimbursements to Shire for the AMI for destroyed product. For the 2008 Period, Daytrana^® cost of products sold exceeded our Daytrana^® net revenues by $6.5 million. As a result of this new release testing, our cost of product sold for future Daytrana^® production is expected to increase materially to reflect Daytrana^® lots that fail to meet the new release testing standard, which will result in a continuing significantly negative gross margin for the product unless and until the peel force issue is resolved.

     In accordance with SFAS No. 5, we have determined that certain previously-manufactured lots that would not have met the new release testing standard are probable of being voluntarily withdrawn or recalled from the market prior to the expiration of their shelf life. Consequently, during the quarter ended September 30, 2008, we established a reserve of $4.3 million related to these affected lots. This reserve includes $1.7 million of estimated recall costs that we will be required to reimburse Shire if there are voluntary withdrawals or recalls. Of the $4.3 million reserve, approximately $1.7 million has been charged to general and administrative expenses, $1.1 million was recorded as a reduction in revenues and $1.5 million was charged to cost of products sold. We cannot assure that our costs related to this issue will not exceed the $4.3 million reserved amount. Although the new release testing is designed to reduce the likelihood that newly-manufactured product will be withdrawn or recalled in the future, we cannot assure that our testing procedures will detect all production issues or that there will not be future Daytrana^® market withdrawals or recalls.

     We believe we have identified the root cause of, and have identified potential solutions related to, this issue, although it will take time to test the effectiveness of the potential solutions and to determine whether such solutions satisfactorily resolve the issue. We cannot assure that there

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will be a satisfactory resolution of the peel force issue. Failure to adequately address the issues raised by the FDA in the warning letter as well as the production and other issues involving Daytrana^® could result in additional regulatory action, including fines, recalls of products, injunctions, seizures, suspension of production or withdrawal of the approval of products. Any such regulatory action would be expected to have a material adverse effect on us, including the potential for litigation related to this matter, harm to our reputation and various costs associated with the foregoing.

Results of Operations

     Our business is comprised of two reportable segments distinguished along product categories: (i) Noven Transdermals, which currently engages in the research, development, manufacturing and licensing to partners of transdermal drug delivery technologies and prescription transdermal products, including product sales to Shire, Novartis Pharma and Novogyne as well as our equity in earnings of Novogyne; and (ii) Noven Therapeutics, which currently engages in the development, marketing, sales and distribution of pharmaceutical products.

     We evaluate segment performance based on segment contribution, which consists of segment gross margin less direct selling and marketing expenses, plus (in the case of Noven Transdermals) our equity in earnings of Novogyne. Research and development expenses, general and administrative expenses and interest income are not allocated to our operating segments. The contribution of our Noven Transdermals segment includes $13.8 million and $34.5 million of equity in earnings of Novogyne recognized in the 2008 Quarter and Period, respectively. We acquired the Noven Therapeutics business on August 14, 2007. Consequently, the results of the Noven Therapeutics segment are included in the 2007 Quarter and Period beginning on August 14, 2007. The negative contribution of our Noven Therapeutics segment in the 2008 Quarter (before the benefit from reversal of the contingent milestone liability) and Period reflects the impact of $7.3 million and $17.0 million, respectively, in selling and marketing expenses in support of Noven Therapeutics’ currently marketed products, including approximately $3.3 million of expenses in the 2008 Period related to the commercial launch of Stavzor^®. The negative contribution of our Noven Therapeutics segment during the 2007 Quarter and 2007 Period includes $100.2 million related to the immediate write-off of acquired IPR&D.

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	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in thousands):	2008			2007			2008			2007
Noven Transdermals:
Product revenues	$	14,527		$	13,365		$	37,986		$	44,033
License and contract revenues		6,371			5,125			16,717			12,611
Net revenues		20,898			18,490			54,703			56,644
Cost of products sold		(13,024	)		(8,998	)		(33,058	)		(27,239	)
Selling and marketing		(48	)		(332	)		(455	)		(793	)
Equity in earnings of Novogyne		13,849			10,948			34,545			25,025
Segment contribution		21,675			20,108			55,735			53,637
Noven Therapeutics:
Product revenues		4,807			3,325			17,087			3,325
Cost of products sold		(1,903	)		(813	)		(5,961	)		(813	)
Acquired in-process research and development		—			(100,150	)		—			(100,150	)
Selling and marketing		(7,278	)		(2,771	)		(17,030	)		(2,771	)
Reversal of contingent milestone liability		5,000			—			5,000			—
Segment contribution		626			(100,409	)		(904	)		(100,409	)
Unallocated income (expense):
Research and development		(4,041	)		(3,649	)		(10,653	)		(10,300	)
General and administrative		(11,147	)		(8,770	)		(27,075	)		(19,439	)
Interest income, net		344			1,306			1,466			4,751
Income (loss) before income taxes	$	7,457		$	(91,414	)	$	18,569		$	(71,760	)

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Three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2007

Revenues

     Total revenues for the three and nine months ended September 30, 2008 and 2007 are summarized as follows (dollar amounts in thousands):

	Three Months							Nine Months
	Ended September 30,				%			Ended September 30,				%
	2008		2007		Change			2008		2007		Change
Noven Transdermals
Novogyne:
Product sales	$	5,945	$	5,801		2	%	$	13,929	$	15,974		-13	%
Royalties		2,258		2,100		8	%		6,787		5,764		18	%
Product revenues — Novogyne		8,203		7,901		4	%		20,716		21,738		-5	%
Third Parties:
Product sales		6,236		5,372		16	%		17,015		22,056		-23	%
Royalties		88		92		-4	%		255		239		7	%
Product revenues — third parties		6,324		5,464		16	%		17,270		22,295		-23	%
Total product revenues		14,527		13,365		9	%		37,986		44,033		-14	%
License and contract revenues		6,371		5,125		24	%		16,717		12,611		33	%
Total Transdermals		20,898		18,490		13	%		54,703		56,644		-3	%
Noven Therapeutics
Third Parties:
Product sales		4,807		3,325		45	%		17,087		3,325		414	%
Net Revenues	$	25,705	$	21,815		18	%	$	71,790	$	59,969		20	%

Net Revenues

     As described in more detail below, our net revenues in the 2008 Quarter were $25.7 million, an increase of 18% compared to $21.8 million reported in the 2007 Quarter. This increase reflects the addition of $1.5 million in net revenues primarily associated with our sales of Pexeva^® and Lithobid^® products through Noven Therapeutics, which was acquired in August 2007. We also realized a $1.2 million, or 24%, increase in license and contract revenues compared to the 2007 Quarter. In addition, the 2008 Quarter benefited from the fulfillment of backorders that resulted from production issues related to our Noven Transdermals segment in the first quarter. The 2008 Quarter was adversely affected by an aggregate $1.3 million reduction in revenues related to certain previously-manufactured lots at risk of not meeting the peel force specification during the product’s shelf life.

     As described in more detail below, our net revenues in the 2008 Period were $71.8 million, an increase of 20% compared to $60.0 million reported in the 2007 Period. This increase reflects the addition of $13.8 million in net revenues primarily associated with our sales of Pexeva^® and Lithobid^® products through Noven Therapeutics. We also realized a $4.1 million, or 33%, increase in license and contract revenues compared to the 2007 Period. These increases were offset by a $6.0 million decrease in product revenues from our Noven Transdermals segment comprised primarily of a $3.6 million decrease in sales of Daytrana^® and a $2.4 million decrease in the sale of HT products in the 2008 Period.

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Product Revenues — Novogyne

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

     The $0.3 million increase in Novogyne product revenues for the 2008 Quarter primarily resulted from the timing of orders from Novogyne. By product, Vivelle-Dot^® increased $0.5 million, Combipatch^® decreased $0.4 million, and royalties increased $0.2 million due to increased sales by Novogyne to its customers for the 2008 Quarter.

     The $1.0 million decrease in Novogyne product revenues for the 2008 Period primarily resulted from a $2.1 million decline of Vivelle-Dot^® product revenues, partially offset by a $0.2 million increase in unit sales of CombiPatch^® due to the timing of orders from Novogyne, as well as an increase of $1.0 million in royalties due to increased sales by Novogyne to their customers for the 2008 Period. The decline in Vivelle-Dot^® product revenues is attributable to the timing of orders as prescriptions have increased period to period. The previously disclosed backlog of orders due to the first quarter production issues were substantially filled as of September 30, 2008.

Product Revenues — Third Parties

     Product revenues — third parties consist of: (i) sales of Estradot^®, Estalis^® and Menorest hormone therapy patches to Novartis Pharma at a price based on a percentage of Novartis Pharma’s net selling price (subject to certain minima) for resale primarily outside the United States and Japan, together with royalties generated from Novartis Pharma’s sales of Estradot^® in Canada; (ii) sales of Daytrana^® to Shire for commercial resale in the United States; (iii) beginning on August 14, 2007, Noven’s commercial sales of Pexeva^® and Lithobid^® to trade customers, including wholesalers, distributors and chain pharmacies; and (iv) beginning in August 2008, sales of Stavzor^® to trade customers, including wholesalers, distributors and chain pharmacies.

     The $0.9 million increase in product revenues — third parties in our Noven Transdermals segment for the 2008 Quarter compared to the 2007 Quarter consisted of a $0.4 million increase in sales of Daytrana^®, a $0.3 million increase in sales of Estradot^® and a $0.3 million increase in sales of Estalis^®, partially offset by a $0.2 million decline related to pricing. The increase in Daytrana^® sales was primarily due to the timing of orders. The 2008 Quarter was adversely affected by an aggregate $1.3 million reduction in revenues related to expected Daytrana^® product returns due to Shire’s August 2008 voluntary recall as well as certain previously-manufactured lots that would not have met the new release testing standard and are probable of being recalled or withdrawn during the product’s shelf life. The increase in Estradot^® and Estalis^® sales relates to the timing of orders from Novartis Pharma. With respect to pricing, we recognize the benefit from price increases for our third party HT product through periodic price reconciliation payments received from Novartis Pharma. We receive such payments from time to time upon Novartis Pharma’s determination that its actual sales price of our product entitles us to receive amounts in excess of the minimum transfer price at which we initially sold the product to Novartis Pharma. We recognized $1.3 million and $1.5 million of such payments in the 2008 Quarter and 2007 Quarter, respectively.

     The $5.0 million decrease in product revenues — third parties in our Noven Transdermals segment for the 2008 Period compared to the 2007 Period consisted of a $3.6 million decline in sales of Daytrana^®, a $0.8 million decline in third-party revenues from our HT products and a $0.6 million decline due to pricing. The decrease in Daytrana^® product revenues was largely attributable to delays in the release of product at the end of the 2008 Quarter, an aggregate $1.5 million reduction in revenues related to expected Daytrana^® product returns due to Shire’s voluntary recalls and certain previously-manufactured lots that would not have met the new release testing standard and are probable of being recalled or withdrawn during the product’s shelf life, the timing of orders and, to a lesser extent, decreased demand. The decline in third-party HT product revenues is attributable to the timing of orders and shipments. In addition, Noven realized a lower benefit from price increases for our third party HT product through periodic price reconciliation payments

36

received from Novartis as discussed above. We recognized $2.4 million and $3.1 million of such payments in the 2008 Period and 2007 Period, respectively.

     Noven Therapeutics, which was acquired in August 2007, generated $4.8 million and $17.1 million of net revenues in the 2008 Quarter and 2008 Period, respectively, from sales of Pexeva^® and Lithobid^® compared to $3.3 million in net revenues for the 2007 Quarter and 2007 Period from sales of Pexeva^® and Lithobid^®.

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

License and Contract Revenues

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

     License and contract revenues increased $1.2 million for the 2008 Quarter compared to the 2007 Quarter, primarily attributable to an increase in license revenues due to an increase in amortization of milestone payments received from Shire related to the license of Daytrana^®.

     License and contract revenues increased $4.1 million for the 2008 Period compared to the 2007 Period, attributable to a $3.4 million increase in license revenues primarily due to an increase in amortization of milestone payments received from Shire related to the license of Daytrana^®. In addition, contract revenues increased $0.7 million due to additional work performed on developmental products.

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Gross to Net Revenues

     We record revenues net of sales allowances for rebates, chargebacks, cash and other discounts, as well as sales returns allowances. Sales returns allowances for the Noven Transdermals segment consist of changes in allowances for returns for product recalls and/or products voluntarily withdrawn from the market, and, for the Noven Therapeutics segment, consist of changes in allowances for returns. The following table sets forth the reconciliation of our gross revenues to net revenues for the three and nine months ended September 30, 2008 and 2007, respectively (dollar amounts in thousands):

	Three Months Ended September 30,												Nine Months Ended September 30,
				% of						% of						% of						% of
				gross						gross						gross						gross
	2008			revenues			2007			revenues			2008			revenues			2007			revenues
Noven Transdermals:
Gross revenues	$	22,147			100	%	$	19,332			100	%	$	56,546			100	%	$	57,486			100	%
Sales returns allowances		(1,249	)		-6	%		(842	)		-4	%		(1,843	)		-3	%		(842	)		-1	%
Net revenues	$	20,898			94	%	$	18,490			96	%	$	54,703			97	%	$	56,644			99	%
Noven Therapeutics:
Gross revenues	$	9,208			100	%	$	5,066			100	%	$	28,849			100	%	$	5,066			100	%
Cash discounts		(190	)		-2	%		(99	)		-2	%		(575	)		-2	%		(99	)		-2	%
Medicaid, Medicare & State program rebates and credits including redemption offers		(2,168	)		-24	%		(1,164	)		-23	%		(5,746	)		-20	%		(1,164	)		-23	%
Chargebacks		(307	)		-3	%		(89	)		-2	%		(939	)		-3	%		(89	)		-2	%
Wholesaler fees		(90	)		-1	%		(198	)		-4	%		(1,292	)		-4	%		(198	)		-4	%
Sales returns allowances		(1,646	)		-18	%		(191	)		-4	%		(3,210	)		-11	%		(191	)		-4	%
Sales and returns allowances		(4,401	)		-48	%		(1,741	)		-34	%		(11,762	)		-41	%		(1,741	)		-34	%
Net revenues	$	4,807			52	%	$	3,325			66	%	$	17,087			59	%	$	3,325			66	%

Gross Margin

     This section discusses gross margins relating to our product revenues: (i) across all of our products (“Overall Gross Margin”); (ii) on our transdermal product revenues from Novogyne (“Gross Margin — Novogyne”), which for accounting purposes is considered a related party; (iii) on our transdermal product revenues from third parties (“Gross Margin — Third Parties”); and (iv) on our Noven Therapeutics products. Product revenues from third parties include HT product sales to Novartis Pharma for resale primarily outside the United States and Japan, as well as Daytrana^® product sales to Shire. Noven Therapeutics’ product revenues include sales of Pexeva^® and Lithobid^® to trade customers.

     For our Noven Transdermals segment, the allocation of manufacturing expenses impacts our determination of inventory costs and, consequently, gross margins for each of our products. Manufacturing expenses, which totaled $7.5 million and $24.0 million in the 2008 Quarter and the 2008 Period, respectively, include compensation and benefits, supplies and tools, equipment costs, depreciation and amortization, and insurance costs and represent a substantial portion of our inventory production costs. Manufacturing expenses for the 2007 Quarter and the 2007 Period were $6.4 million and $19.5 million, respectively. The allocation of manufacturing expenses among manufactured products requires us to make significant estimates that involve subjective and often complex judgments. Using different estimates would likely result in materially different results for Gross Margin — Novogyne and Gross Margin — Third Parties than are presented in the gross margin table below.

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

	Three Months Ended September 30,									Nine Months Ended September 30,
	2008					2007				2008					2007
Noven Transdermals
Novogyne:
Product revenues	$	8,203				$	7,901			$	20,716				$	21,738
Cost of products sold		3,994					4,286				10,783					10,530
Gross profit		4,209		51	%		3,615	46	%		9,933		48	%		11,208	52	%
Third Parties:
Product revenues		6,324					5,464				17,270					22,295
Cost of products sold		9,030					4,712				22,275					16,709
Gross profit (loss)		(2,706	)	-43	%		752	14	%		(5,005	)	-29	%		5,586	25	%
Total Noven Transdermals:
Product revenues		14,527					13,365				37,986					44,033
Cost of products sold		13,024					8,998				33,058					27,239
Gross profit		1,503		10	%		4,367	33	%		4,928		13	%		16,794	38	%
Noven Therapeutics
Product revenues		4,807					3,325				17,087					3,325
Cost of products sold		1,903					813				5,961					813
Gross profit		2,904		60	%		2,512	76	%		11,126		65	%		2,512	76	%
Total Company
Product revenues		19,334					16,690				55,073					47,358
Cost of products sold		14,927					9,811				39,019					28,052
Gross profit	$	4,407		23	%	$	6,879	41	%	$	16,054		29	%	$	19,306	41	%

     In general, Noven Therapeutics’ products have higher gross margins than our transdermal products because we sell Noven Therapeutics’ products directly to trade customers at wholesale and commercial prices. Our sales of HT products to Novogyne for resale in the United States have a higher gross margin than our other transdermal products, reflecting favorable pricing, larger production orders and other factors. Our sales of HT products to Novartis Pharma for resale in international markets generally have lower gross margins than sales of HT products sold to Novogyne due to, among other things, unfavorable pricing environments in foreign markets, and smaller production orders. Our gross margin on product sales of Daytrana^® to Shire has been negatively affected by the factors described below.

     As noted in the tables above, Overall Gross Margin declined in the 2008 Quarter compared to the 2007 Quarter. Overall Gross Margin in the 2008 Quarter was negatively affected by: (i) the addition of $1.1 million in manufacturing costs in our Noven Transdermals segment over the 2007 Quarter, primarily in the quality assurance/control area, of which $0.2 million related to costs associated with the Daytrana^® peel force issue; and (ii) cost of products sold in the 2008 quarter included $1.6 million of the Daytrana^® Charges. Overall Gross Margin in the 2008 Quarter benefited from the addition of our Pexeva^® and Lithobid^® products, which had net sales of $4.8 million and related cost of products sold of $1.9 million, resulting in a gross margin of 60% for those products.

     As noted in the tables above, Overall Gross Margin declined in the 2008 Period compared to the 2007 Period. Overall Gross Margin in the 2008 Period was negatively affected by: (i) inventory write-offs of $2.8 million, primarily related to an equipment failure in transdermal manufacturing (comprised of $1.8 million of Novogyne product write-offs and $1.0 million of third party HT product write-offs), as well as

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additional manufacturing costs incurred in the 2008 Period to address this issue; (ii) cost of products sold in the 2008 period included $1.7 million of the Daytrana^® Charges; (iii) inventory write-offs of approximately $0.8 million due to Daytrana^® product exhibiting high peel force characteristics; (iv) the addition of approximately $4.5 million in manufacturing costs in our Noven Transdermals segment over the 2007 Period, primarily in the quality assurance area, of which approximately $1.4 million related to costs associated with the Daytrana^® peel force issue; and (v) significantly lower product revenues in our Noven Transdermals segment, primarily related to the timing of shipments and delays in the release of Daytrana^® product at the end of the 2008 Quarter. Overall Gross Margin in the 2008 Period benefited from the addition of our Pexeva^® and Lithobid^® products, which together had net sales of $17.1 million and related cost of products sold of $6.0 million, resulting in a gross margin of 65% for those products and a decrease in product inventory at Novogyne which resulted in approximately $0.7 million of recognized deferred profit on product sold to Novogyne.

     We sell Daytrana^® finished product to Shire at a fixed cost, and consequently, our profit on product sales of Daytrana^® depends on our ability to manufacture the product efficiently and to fully utilize our facilities. For the 2008 Quarter, Daytrana^® net product revenues were $1.8 million and cost of products sold related to Daytrana^® was $5.6 million, resulting in negative gross margin for the product. This compares with Daytrana^® product revenues of $1.4 million and cost of products sold related to Daytrana^® of $2.0 million for the 2007 Quarter. For the 2008 Period, Daytrana^® net product revenues were $7.5 million and cost of products sold related to Daytrana^® was $14.0 million, resulting in negative gross margin for the product. This compares with Daytrana^® product revenues of $11.0 million and cost of products sold related to Daytrana^® of $9.5 million for the 2007 Period. Daytrana^® gross margin was negatively affected in the 2008 Quarter and the 2008 Period by the Daytrana^® charges as well as increased manufacturing and quality assurance related expenditures, including, as discussed above, approximately $1.4 million related to costs associated with the Daytrana^® peel force issue. We expect the peel force issue to continue to negatively affect margins as a result of increased Daytrana^® manufacturing costs, including reimbursements to Shire for the AMI for destroyed product. We expect that higher manufacturing and quality costs, including reimbursements to Shire for AMI on discarded product, will continue to result in significantly negative gross margin for the product unless and until the peel force issue is resolved.

     For the remainder of 2008, we expect to continue to incur increased quality assurance costs related to our continued efforts to improve our quality assurance systems and to address the issues raised by the FDA in the July 2007 Form 483 and January 2008 warning letter, and a significant portion of these continuing costs will be allocated to Daytrana^®, which will negatively affect the gross margin on sales of this product in the remainder of 2008 and beyond.

     Our expectations for gross margins for all of 2008 are addressed under “Outlook” below.

Operating Expenses

     Operating expenses for the three and nine months ended September 30, 2008 and 2007 are summarized as follows (dollar amounts in thousands):

	Three Months							Nine Months
	Ended September 30,							Ended September 30,
	2008		2007		% Change			2008		2007		% Change
Research and development	$	4,041	$	3,649		11	%	$	10,653	$	10,300		3	%
Acquired in-process research and development		—		100,150		N/M			—		100,150		N/M
Selling and marketing		7,326		3,103		136	%		17,485		3,564		391	%
General and administrative		11,147		8,770		27	%		27,075		19,439		39	%

N/M — Not Meaningful

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Research and Development

     Research and development expenses include costs associated with, among other things, product formulation, pre-clinical testing, clinical studies, regulatory and medical affairs, production for clinical and regulatory purposes, production related development engineering for developmental products, and the personnel associated with each of these functions. The $0.4 million increase in research and development expenses for the 2008 Quarter, compared to the 2007 Quarter, was primarily attributable to a $0.2 million increase in pre-clinical testing and clinical research costs in our Noven Transdermals segment and a $0.2 million increase in Noven Therapeutics’ expenses. The $0.4 million increase in research and development expenses for the 2008 Period, compared to the 2007 Period, was primarily attributable to the $2.0 million increase in Noven Therapeutics’ expenses, primarily related to regulatory and medical affairs expenses and clinical research, partially offset by a $1.6 million decrease in pre-clinical testing and clinical research costs in our Noven Transdermals segment.

Acquired In-Process Research and Development

     Immediately following the closing of the JDS acquisition, we expensed $100.2 million in the 2007 Quarter and the 2007 Period representing the portion of the purchase price allocated to in-process research and development in our acquisition of JDS. This amount represents the value assigned to projects that have been initiated and achieved material progress but (i) have not yet reached technological feasibility or have not yet reached the appropriate regulatory approval; (ii) have no alternative future use; and (iii) the fair value is estimable with reasonable certainty.

Selling and Marketing

     The $4.2 million and $13.9 million increases in selling and marketing costs for the 2008 Quarter and 2008 Period, compared to the 2007 Quarter and 2007 Period, respectively, were attributable to the addition of Noven Therapeutics in August 2007 and costs associated with the commercial launch of Stavzor^® in August 2008.

General and Administrative

     General and administrative expenses increased $2.4 million, or 27%, for the 2008 Quarter, compared to the 2007 Quarter. The increase was primarily due to the $1.7 million charge related to certain previously manufactured lots that would not have met the new release testing standard and therefore may not meet the peel force specification through the product’s shelf life, and $0.7 million loss from the disposal of assets.

     General and administrative expenses increased $7.6 million, or 39%, for the 2008 Period, compared to the 2007 Period. The increase was primarily attributable to a $1.7 million charge related to costs that we expect to owe Shire for certain previously-manufactured Daytrana^® lots that would not have met the new release testing standard and are probable of being recalled or withdrawn during the product’s shelf life, a $1.4 million increase in professional fees, mostly attributable to accounting, auditing and executive recruiting fees, a $1.0 million increase in charges related to reimbursements owed to Shire in connection with their voluntary recall of two lots of Daytrana^®, and a $1.4 million increase in other areas of general and administrative expense, primarily as a result of the addition of Noven Therapeutics. The increase was also attributable to a $0.8 million increase in salary and related benefits, $0.7 million loss on the disposal of assets and a $0.3 million increase in expenses relating to information management services and supplies.

Reversal of Contingent Milestone Liability

     In the 2008 Quarter, we recognized $5.0 million in operating income as a result of the reversal of an accrued liability for the final contingent milestone payment to Synthon upon a determination that the achievement of the final sales milestone of $30.0 million in annual net sales for Pexeva^® was no longer probable.

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Other Income and Expenses

Interest Income

     Interest income decreased $1.0 million and $3.3 million for the 2008 Quarter and the 2008 Period, compared to the 2007 Quarter and the 2007 Period, respectively. This decrease was primarily attributable to a decrease in cash available for investment as a result of the payment of $130.4 million in connection with the JDS acquisition in August 2007, as well as additional sales of auction rate securities at par during the 2008 Quarter and 2008 Period and lower interest rates on our remaining investments.

Income Taxes

     Our effective tax rate was approximately 34% and 35% for the 2008 Period and 2007 Period, respectively. The provision for income taxes is based on the Federal statutory and state income tax rates. Net deferred income tax assets are measured using the average graduated tax rate for the estimated amount of annual taxable income in the years that the liability is expected to be settled or the asset recovered. The effect of adjusting the expected tax rate related to the net deferred income tax assets is included in the provision for income taxes. The acquisition of JDS resulted in a significant increase in our deferred income tax assets, primarily due to the $100.2 million expense recognized in 2007 relating to in-process research and development that is not immediately deductible for tax purposes. As of September 30, 2008 we had a net deferred tax asset of $73.9 million compared to $65.7 million at December 31, 2007. Realization of this deferred tax asset depends upon the generation of sufficient future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Noven Therapeutics files separate state income tax returns in states where it has determined that it is required to file state income taxes. As a result, state deferred tax assets relating to Noven Therapeutics are evaluated separately in determining whether the state deferred tax assets are realizable. We expect that Noven Therapeutics will incur taxable losses in the next few years due to expected clinical trial expenditures related to product development. These expected taxable losses create negative evidence indicating the need for a valuation allowance at September 30, 2008. Our valuation allowance for state deferred tax assets was $4.1 million and $3.2 million as of September 30, 2008 and December 31, 2007, respectively, due to uncertainties in realizing these state deferred tax assets based on our projection of future state taxable income. If we determine, based on future profitability of Noven Therapeutics that these state deferred tax assets will more likely than not be realized, a release of all, or part, of the related valuation allowance could result in an immediate income tax benefit in the period the valuation allowance is released.

Equity in Earnings of Novogyne

     We share in the earnings of Novogyne according to an established formula after satisfaction of an annual preferred return of $6.1 million to Novartis. Our share of Novogyne’s earnings (a non-cash item) increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne earned sufficient income in each of the first quarters of 2008 and 2007 to meet Novartis’ annual preferred return for those periods and for us to recognize earnings from Novogyne under the formula. We report our share of Novogyne’s earnings as “Equity in earnings of Novogyne” in our unaudited condensed consolidated statements of operations.

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     Novogyne records revenues net of sales allowances for rebates, chargebacks, cash and other discounts and sales returns allowances. The financial results of Novogyne for the three and nine months ended September 30, 2008 and 2007 are summarized as follows (dollar amounts in thousands):

	Three Months Ended September 30,									Nine Months Ended September 30,
	2008			2007			% Change			2008			2007			% Change
Gross revenues	$	53,281		$	45,224			18	%	$	148,629		$	125,432			18	%
Sales allowances		7,024			5,770			22	%		18,579			16,769			11	%
Sales returns allowances		432			781			-45	%		931			772			21	%
Sales and returns allowances		7,456			6,551			14	%		19,510			17,541			11	%
Net revenues		45,825			38,673			18	%		129,119			107,891			20	%
Cost of sales		8,893			8,152			9	%		25,489			22,994			11	%
Gross profit		36,932			30,521			21	%		103,630			84,897			22	%
Gross margin percentage		81	%		79	%					80	%		79	%
Selling, general and administrative expenses		9,013			8,278			9	%		27,823			27,990			-1	%
Income from operations		27,919			22,243			26	%		75,807			56,907			33	%
Interest income		341			286			19	%		782			783			0	%
Net income	$	28,260		$	22,529			25	%	$	76,589		$	57,690			33	%
Noven’s equity in earnings of Novogyne	$	13,849		$	10,948			26	%	$	34,545		$	25,025			38	%

Novogyne Net Revenues

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

     Novogyne’s gross revenues increased $8.1 million for the 2008 Quarter compared to the 2007 Quarter. By product, Vivelle-Dot^® and CombiPatch^® increased $8.9 million and $0.7 million, respectively, while Vivelle^® (a discontinued product) decreased $1.5 million. The $8.9 million Vivelle-Dot^® increase consisted of a $4.4 million increase related to pricing and a $4.5 million increase in unit sales, which is consistent with increases in prescription trends. The $0.7 million CombiPatch^® increase was primarily attributable to a $0.4 million increase related to pricing.

     Novogyne’s gross revenues increased $23.2 million for the 2008 Period compared to the 2007 Period. By product, Vivelle-Dot^® and CombiPatch^® increased $26.3 million and $1.3 million, respectively, while Vivelle^® (a discontinued product) decreased $4.4 million. The $26.3 million Vivelle-Dot^® increase consisted of a $15.2 million increase related to pricing and a $11.1 million increase in unit sales, which is consistent with increases in prescription trends. The $1.3 million CombiPatch^® increase was attributable to a $1.4 million increase related to pricing, partially offset by a $0.1 million decline in unit sales which resulted from a continued decline in the market for combination therapies, and the impact of a competitive product.

     Sales allowances consist of chargebacks, Medicaid rebates, managed healthcare rebates, cash discounts and other allowances, which tend to fluctuate based on changes in gross revenues. For the 2008 Quarter and the 2007 Quarter, these sales allowances were 13% of gross revenues. For the 2008 Period and the 2007 Period, these sales allowances were also 13% of gross revenues.

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     Sales returns allowances consist of allowances for returns of expiring product. The activity in the sales returns allowances for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Sales returns allowances included in net revenues	$	432		$	781		$	931		$	772
Actual returns primarily for expiring product		(944	)		(880	)		(2,443	)		(2,354	)
Change in allowances for returns primarily for expiring product	$	(512	)	$	(99	)	$	(1,512	)	$	(1,582	)

     The decrease in sales returns allowances for the 2008 Quarter compared to the 2007 Quarter is attributable to lower actual returns as a percentage of related sales. The increase in sales returns allowances for the 2008 Period compared to the 2007 Period is attributable to an increase in sales volume as sales returns as a percentage of gross revenues remained relatively consistent in both periods.

Novogyne Gross Margin

     The increases in gross margin percentage for the 2008 Quarter and 2008 Period compared to the 2007 Quarter and the 2007 Period, respectively, were primarily related to higher sales of Vivelle-Dot^®, which has a higher gross margin than the other products sold by Novogyne, as well as price increases for all products.

Novogyne Selling, General and Administrative Expenses

     Novogyne’s selling, general and administrative expenses increased $0.7 million for the 2008 Quarter compared to the 2007 Quarter, primarily due to a $0.6 million increase in marketing administration expenses and a $0.6 million increase in sample expenses due to the timing of shipments by Noven to Novogyne. Novogyne’s policy is to immediately expense samples when shipped from Noven. These increases were partially offset by a $0.3 million decrease in advertising expenses and a $0.2 million decrease in sales force expenses.

     Novogyne’s selling, general and administrative expenses decreased $0.2 million for the 2008 Period compared to the 2007 Period, primarily due to a $0.8 million decrease in sample expenses due to the timing of shipments by Noven to Novogyne, as discussed above. These decreases were partially offset by a $0.3 million increase in litigation expenses, a $0.2 million increase in marketing administration expenses and a $0.1 million increase in sales force expenses.

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Liquidity and Capital Resources

     As of September 30, 2008 and December 31, 2007, we had the following (amounts in thousands):

	September 30,		December 31,
	2008		2007
Cash and cash equivalents	$	65,288	$	13,973
Short-term investments		—		21,565
Working capital		39,523		24,024

     In addition to our cash and working capital, as of September 30, 2008, we owned investments in auction rate securities with a fair value of $15.5 million. Due to the current illiquid market conditions and failed auctions, we have classified these investments as non-current; however, these investments have been a source of liquidity during 2008, including proceeds of $39.0 million from sales of these auction rate securities at par during the 2008 Period. On a combined basis, our cash and cash equivalents and investments in auction rate securities were as follows (amounts in thousands):

	September 30,		December 31,
	2008		2007
Cash and cash equivalents	$	65,288	$	13,973
Investment in auction rate securities:
Current		—		21,565
Non-current		15,460		32,835
Total cash and cash equivalents and investments	$	80,748	$	68,373

     Cash provided by (used in) operating, investing and financing activities for the 2008 Period and the 2007 Period is summarized as follows (amounts in thousands):

	2008			2007
Cash flows:
Operating activities	$	21,318		$	57,801
Investing activities		33,359			(49,771	)
Financing activities		(3,362	)		(5,921	)
Net cash flow	$	51,315		$	2,109

Operating Activities

     Net cash provided by operating activities for the 2008 Period primarily resulted from the receipt of $29.0 million in distributions from Novogyne and $25.0 million in milestone payments from Shire. Significant operating cash outflows during the 2008 Period included income tax payments of $13.2 million, payment to Shire of $3.3 million related to its 2007 withdrawal of certain Daytrana^® product and $3.1 million in payments related to insurance premiums. In addition, changes in working capital accounts, including an $8.0 million increase in inventories and a $4.0 million decrease in accrued compensation and related liabilities also partially offset the net cash provided by operating activities.

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     Net cash provided by operating activities for the 2007 Period primarily resulted from our receipt of $50.0 million in milestone payments from Shire, our receipt of $18.5 million in distributions from Novogyne, and our receipt of $5.9 million in connection with the development agreements with Shire for an amphetamine transdermal patch. These amounts were partially offset by changes in working capital due to the timing of certain payments, including $16.2 million in tax payments, $2.9 million related to insurance premiums and $2.6 million in compensation and related liabilities.

Investing Activities

     Noven has invested a portion of its cash in investments, which primarily consist of investment grade, auction rate securities, which are categorized as available-for-sale under the provisions of SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities”.

     Net cash provided by investing activities for the 2008 Period was primarily attributable to $39.0 million in sales of short-term investments at par, partially offset by $3.0 million in equipment purchases to support operations and a $1.5 million milestone payment to Banner upon approval of Stavzor^® in the 2008 Quarter.

     Net cash used in investing activities for the 2007 Period was primarily attributable to $130.4 million in acquisition costs related to the August 2007 acquisition of JDS and $2.3 million in equipment purchases to support operations and expansion of administrative offices, partially offset by $83.4 million in net proceeds from the sale of short-term investments.

Financing Activities

     Net cash used in financing activities for the 2008 Period was primarily attributable to a $3.3 million sales milestone payment to Synthon, an obligation recorded as part of the acquisition of JDS.

     Net cash used in financing activities for the 2007 Period was primarily attributable to the open-market purchase of $5.1 million of shares of our common stock under the stock repurchase program established in the 2007 Quarter and the payment of $3.7 million in long-term obligations assumed as part of the acquisition of JDS. These payments were offset by $2.5 million received in connection with the issuance of common stock from the exercise of stock options. In addition, the 2007 Period benefited from $0.4 million in excess tax deductions from the exercise of stock options.

Short-Term and Long-Term Liquidity

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

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

     During the 2008 Period, our cash and cash equivalents and investments in auction rate securities increased from $68.4 million to $80.7 million. The increase primarily resulted from the receipt of the third $25.0 million sales milestone payment from Shire. Excluding the milestone payment, our cash and cash equivalents and investments decreased by $12.6 million. This decrease primarily occurred during the first half of 2008 due to the payment of certain obligations previously charged to operations in 2007 and/or accrued as of December 31, 2007,

46

including (i) $5.4 million of employee severance, bonus and retention payments, (ii) $3.3 million of Daytrana^® voluntary market withdrawal costs, and (iii) a $3.3 million milestone payment related to Noven Therapeutics’ products. During the 2008 Quarter, our cash and cash equivalents and investments increased by $27.8 million, including the $25.0 million sales milestone payment received from Shire. We believe that our existing cash balances and expected collections of receivables, together with the available capacity under our credit facility (described below), will be sufficient to meet our operating needs and short-term capital requirements.

     We received the first $25.0 million sales milestone payment from Shire relating to their sales of Daytrana^® in the first quarter of 2007, the second $25.0 million Daytrana^® sales milestone payment in the 2007 Quarter and the third $25.0 million Daytrana^® sales milestone payment in the 2008 Quarter. We expect to pay income taxes related to the Daytrana^® milestone payments of approximately $2.3 million and $8.5 million during the remainder of 2008 and 2009, respectively.

     Our liquidity may be significantly and adversely impacted if we are unable to adequately resolve the issues raised by the FDA in the July 2007 Form 483 and in the warning letter we received in January 2008. No assurance can be given that Noven’s response to the warning letter will be acceptable to the FDA or satisfactorily address the FDA’s concerns. Failure to take effective corrective actions can result in FDA enforcement action such as monetary fines, product recalls, injunctions, seizures, suspension of production or withdrawal of product approval. Any enforcement action by the FDA would have a material adverse effect on us, including the potential loss of Daytrana^® sales, the potential loss of sales of other products, the potential for litigation related to this matter, harm to our reputation and various costs associated with the foregoing.

     As discussed elsewhere herein, we have agreed to reimburse Shire $1.95 million related to the June 2008 Daytrana^® recall and $1.7 million related to the August 2008 Daytrana^® recall. In addition, we reserved $4.3 million in the 2008 Quarter for certain previously-manufactured Daytrana^® lots that would not meet the new release testing standard and are probable of being voluntarily withdrawn or recalled from the market prior to expiration of their shelf life, and which therefore may require additional reimbursements to Shire.

     In April 2008, we made a $3.3 million milestone payment to Synthon based on achieving specified net sales of Pexeva^® during 2007. We expect to pay an additional $3.3 million milestone to Synthon in 2009 based on 2008 net sales of Pexeva^®.

     We expect that the increased sales and marketing expenses relating to the operations of Noven Therapeutics, including for the commercial launch of Stavzor^®, will continue during the remainder of 2008. We expect to fund the additional sales and marketing expenses from our operating cash flows, existing cash and investments.

     We have invested a significant portion of our cash in auction rate securities, which subjects us to the liquidity risk described in Part II — Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K. During the 2008 Period, we recorded a $0.5 million unrealized loss on our investments in auction rate securities, which are classified as available for sale under SFAS No. 115. As of September 30, 2008, the total par value and fair value of our investments in auction rate securities was $16.0 million and $15.5 million, respectively. Due to continuing auction failures beginning in February 2008, we utilized valuation models to determine the fair values of our investments in auction rate securities. The fair values of our investments were calculated based on the following: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; (iii) consideration of the probabilities of default, auction failure, or repurchase at par for each period; and (iv) consideration of third party credit enhancement. These estimated fair values could change significantly based on future market conditions.

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     Changes to investments measured at fair value on a recurring basis using unobservable inputs (Level 3) during the nine months ended September 30, 2008 were as follows (in thousands):

Balance at December 31, 2007	$	54,400
Purchases of investments		550
Sales of investments at par		(38,975	)
Unrealized losses recorded as other comprehensive loss		(515	)
Balance at September 30, 2008	$	15,460

     As a result of failed auctions, our auction rate securities pay interest at rates as defined by the governing documents or indenture. Due to uncertainty about when we will be able to liquidate these investments, we have classified our auction rate securities as non-current assets as of September 30, 2008.

     In July 2008, we entered into an agreement for a $15.0 million credit facility. In connection with the credit facility and in lieu of granting a security interest in our assets, we granted a negative pledge in favor of the lender whereby we agreed not to pledge, grant any security interest in, or allow any lien or encumbrance in or on, certain of our financial assets. As of the date of this report, no borrowings were outstanding under this facility.

     We paid approximately $125.0 million in cash to acquire JDS in August 2007 and incurred approximately $5.4 million in transaction-related costs. We funded the purchase price and related transaction expenses from our sale of short-term investments. In addition, we assumed approximately $16.1 million of accrued expenses and other current liabilities and assumed certain contractual arrangements under which we may be required to pay to third parties up to $18.7 million in product development and sales milestones. In April 2008, we paid Synthon $3.3 million in connection with a Pexeva^® sales milestone and in the 2008 Quarter we made a $1.5 million milestone payment to Banner upon FDA approval for Stavzor^®.

     Our liquidity for the 2007 Period benefited from $2.5 million received upon the exercise of stock options by employees. During the 2008 Period, proceeds from stock option exercises were not significant. We expect this amount to fluctuate from period to period depending on the performance of our common stock and equity award exercises. Beginning in 2006, we began granting SSARs to employees and restricted stock to non-employee directors in lieu of stock options. These types of awards do not provide cash to us upon their exercise. Accordingly, we expect that funds received from option exercises will become less of a source of funds over time.

     We currently have no long-term debt and have not drawn on the credit facility described above. To the extent the sources of liquidity described above are insufficient to fund our operations, we would expect to seek to obtain funds through a debt and/or equity financing. We cannot provide any assurance that such financing will be available, if at all, in a timely manner, or on favorable terms. If we are unable to obtain satisfactory financing, we may be required to delay or reduce our proposed expenditures, plant and equipment and strategic acquisitions. Furthermore, debt financing would likely require us to devote funds to service and ultimately repay such debt and could subject us to financial or operational covenants that could limit or hinder our ability to conduct our business.

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

     Capital expenditures totaled $3.0 million for the 2008 Period. We expect to fund our foreseeable capital expenditures from our operating cash flows, existing cash, short-term investments and debt.

48

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

     For the 2008 Period and 2007 Period, our equity in earnings of Novogyne and the recognition of deferred license and contract revenues (both of which are non-cash items) contributed significantly to our income before income taxes. Accordingly, our net income may not be reflective of our cash flow in any given period.

Aggregate Contractual Obligations

     There have been no material changes outside of the ordinary course of our business to our aggregate contractual obligations previously disclosed in our Form 10-K since December 31, 2007.

Critical Accounting Estimates

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

Recent Accounting Pronouncements

     For a discussion of recent accounting pronouncements see Note 2 — “Recent Accounting Pronouncements.”

Outlook

     A summary of our current financial guidance is provided below. Our guidance includes certain items related to the impact on our financial results of our acquisition of JDS Pharmaceuticals (now known as Noven Therapeutics), which we acquired in August 2007. This financial guidance supersedes all financial guidance that we may have previously provided. Any financial guidance previously provided in areas not addressed below, whether in prior filings with the Securities and Exchange Commission, press releases, public conference calls or otherwise, is no longer current and is hereby withdrawn. The forward-looking information contained in this section is based on our current assumptions and expectations, many of which are based upon matters beyond our control. In particular, for purposes of this guidance we have assumed that, during the remainder of 2008, there will not be any material:

• acquisitions of products, companies, or technologies or other transactions;

• changes in Noven’s or Novogyne’s accounting or accounting principles or any of the estimates or judgments underlying our critical accounting policies;

• regulatory or technological developments;

49

• changes in the supply of, demand for, or distribution of our products (including any changes resulting from competitive products, unexpected product recalls/withdrawals, or new study results);

• negative actions with respect to our applications for methylphenidate quota or other disruptions in supplies of raw materials;

• adverse actions by the FDA in connection with the January 2008 warning letter or otherwise;

• changes in our business relationships/collaborations; or

• changes in the economy or the health care sector generally.

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

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

     Net Revenues. We expect total net revenues for full year 2008 to be in the $106 million to $109 million range, reflecting: (i) a full year of sales of Pexeva^® and Lithobid^®; (ii) recognition of nominal revenues associated with the commercial launch of Stavzor^®; (iii) Daytrana^® net sales to Shire in 2008 of approximately $10.0 million; (iv) higher license and contract revenues compared to 2007 due to the amortization of Daytrana^® sales milestone payments received in 2007 and 2008; (v) aggregate HT product sales by Noven for sale in the U.S. and international markets consistent with 2007 levels; and (vi) the expected recognition in the fourth quarter of 2008 of $7.2 million of previously-deferred license revenues in connection with the reacquisition of rights to our developmental amphetamine patch for ADHD upon termination of a prior collaborative development arrangement.

     Pexeva^® Recognition. Results for full year 2008 will include the recognition of $5.0 million in operating income (recorded in the third quarter of 2008) due to the reversal of a $5.0 million accrued liability for a future Pexeva^® contingent sales milestone.

     Gross Margin. We expect our overall gross margin, as a percentage of product sales, to be in the mid-to-upper 20% range for full year 2008. Among other factors influencing our gross margin, Noven is in the process of implementing new product release testing intended to predict which Daytrana^® lots are at risk of developing peel force issues during the product’s shelf life. Product that fails to meet this test will be destroyed, which will result in increased Daytrana^® manufacturing costs, including reimbursements to Shire for the AMI for destroyed product, and will contribute to significant negative gross margins for the product unless and until the peel force issue is resolved.

     Research and Development Expense. We expect our consolidated research and development expense for full year 2008 to be approximately $16.0 million.

     Selling, General and Administrative Expense. We expect our consolidated selling, general and administrative expense for full year 2008 to be approximately $60.0 million, including $4.8 million in expenses associated with Daytrana^® voluntary product recalls by Shire, as well as selling and promotional expenses in support of Noven Therapeutics’ products, including the commercial launch of Stavzor^® in the 2008 Quarter.

50

     Equity in Earnings of Novogyne. We expect our equity in earnings of Novogyne to increase by approximately 30% in 2008 compared to 2007.

     Interest Income. We expect our interest income to decrease in 2008 compared to 2007, primarily reflecting lower cash and investment balances, as well as sales of auction rate securities at par during 2008 and lower interest rates on our remaining investments.

51

Item 3. Quantitative and Qualitative Disclosure About Market Risk

     For a discussion of quantitative and qualitative impact of market risk see Part II — Item 7A “Quantitative and Qualitative Disclosure About Market Risk” of our Form 10-K, as supplemented by the discussion of the liquidity and other risks associated with auction rate securities above.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

     As of the end of the period covered by this report, our management evaluated, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our CEO and CFO concluded that, as of September 30, 2008, our disclosure controls and procedures were effective in ensuring that information relating to Noven, including its consolidated subsidiaries, required to be disclosed in reports that it files or submits under the Exchange Act was: (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. However, that conclusion should be considered in light of the various limitations described below on the effectiveness of those controls and procedures, some of which pertain to most if not all business enterprises, and some of which arise as a result of the nature of our business. Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of any system of controls also is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Furthermore, our level of historical and current equity participation in Novogyne may substantially impact the effectiveness of our disclosure controls and procedures. Because we do not control Novogyne, and Novogyne’s financial, accounting, inventory, sales and sales deductions functions are performed by Novartis, our disclosure controls and procedures with respect to our equity investment in Novogyne are necessarily more limited than those we maintain with respect to Noven.

Changes in Internal Control over Financial Reporting

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

Certifications

     Provided with this quarterly report on Form 10-Q are certifications of our CEO and CFO. We are required to provide those certifications by Section 302 of the Sarbanes-Oxley Act of 2002 and the SEC’s implementing regulations. This Item 4 of Part I of this quarterly report is the information concerning the evaluation referred to in those certifications, and you should read this information in conjunction with those certifications for a more complete understanding of the topics presented.

52

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Certain lawsuits and legal proceedings in which we are involved are described in Part I, Item 3 “Legal Proceedings” of our Form 10-K for the year ended December 31, 2007. Except as described below, there have been no material developments related to the legal proceedings described in our Form 10-K during the period covered by this Form 10-Q, and through the filing of this Form 10-Q. All proceedings described in our Form 10-K remain outstanding. In addition to the cases in which Noven is a named defendant, Novartis has advised Noven that it has been named as a defendant in a total of 30 cases that include approximately 31 plaintiffs that allege liability in connection with personal injury claims allegedly arising from the use of HT patches distributed and sold by Novartis and Novogyne, including Noven’s Vivelle-Dot^®, Vivelle^® and CombiPatch^® products.

     In addition to the proceedings described in our Form 10-K, in July 2008, one additional complaint was filed in the United States District Court, District of Minnesota against Wyeth Inc. and other named pharmaceutical companies, including Noven, Novogyne and Novartis. The complaint alleges liability in connection with personal injury claims allegedly arising from the use of HT products, including Vivelle-Dot^®. The plaintiffs claim compensatory and other damages in an unspecified amount.

     Each of the HT related federal court cases in which Noven is a named defendant, including the cases described above, has been, or is expected to be, transferred to the federal multi-district litigation proceedings that are pending in the United States District Court, Eastern District of Arkansas.

     With respect to the patent infringement case brought by Johnson-Matthey Inc. against Noven in the United States District Court, Eastern District of Texas, the parties have completed initial discovery and the case has been scheduled for trial in late 2009.

Item 1A. Risk Factors

     Except as described below, there have been no material changes or additions to the risk factors previously disclosed in our Form 10-K. Readers are urged to carefully review our risk factors because they may cause our results to differ from the “forward-looking statements” made in this report or otherwise made by us or on our behalf. The risk factors are not necessarily listed in order of priority or probability and are not the only ones we face. If any of these risks actually occurs, our business, financial condition and results of operations would suffer. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operation. 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.

The recent volatility in the financial markets could adversely affect us or our partners, customers or suppliers

     As widely reported, financial markets in the United States, Europe and Asia have been experiencing extreme disruption in recent months, including, among other things, extreme volatility in securities prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Among other risks we face, the current tightening of credit in financial markets may adversely affect our ability to access our credit facility or obtain financing in the future, including, if necessary, to fund a product or technology acquisition. In addition, current economic conditions could harm the liquidity or financial position of our partners, customers or suppliers, which could in turn cause such parties to fail to meet their contractual or other obligations to us. Novogyne has currently recorded a product liability insurance receivable in the amount of $6.9 million due from a subsidiary of American International Group (“AIG”). Although AIG has advised that its commercial insurance subsidiaries remain well-capitalized despite the parent company’s recent liquidity issues and diminished financial position, we cannot assure that the insurance carrier will pay the amounts that Novogyne believes are owed under the policy, either due to a change in the carrier’s financial condition, a coverage dispute or otherwise.

53

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

     The following table provides information with respect to our stock repurchases during the third quarter of 2008:

					Total Number of
					Shares		Approximate
					Purchased as		Dollar Value
					Part of		That May Yet
	Total Number of		Average Price		Publicly		be Purchased
	Shares		Paid		Announced		under the
	Purchased		Per Share		Program		Program(1)
July 1, 2008 to July 31, 2008		—		—		—	$	19,876,238
August 1, 2008 to August 31, 2008		—		—		—		19,876,238
September 1, 2008 to September 30, 2008		—		—		—		19,876,238
Totals		—		—		—	$	19,876,238

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

Item 5. Other Information

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

     On November 5, 2008, we entered into a letter agreement (the “Termination Agreement”) with Shire terminating our agreements with Shire for the development of an amphetamine patch. The Termination Agreement terminates the amphetamine letter agreements dated as of (i) June 15, 2004, (ii) May 4, 2007, and (iii) June 4, 2007. Under the Termination Agreement, rights to the developmental amphetamine patch were returned to us. We intend to pursue the further development and commercialization of the product. Shire will be entitled to a modest royalty if we elect to commercialize a product that incorporates intellectual property arising from the development project with Shire. As of September 30, 2008, our consolidated balance sheet reflected deferred license and contract revenues of $7.2 million related to this project. As a result of the termination of this project with Shire, we expect to recognize the $7.2 million as license and contract revenues in the fourth quarter of 2008.

54

Item 6.	Exhibits
	10.1	Development and License Agreement between Noven Pharmaceuticals, Inc. and Procter & Gamble Pharmaceuticals, Inc., dated June 30, 2008 (with certain provisions omitted pursuant to Rule 24b-2).
	10.2	Supply Agreement among Noven Pharmaceuticals, Inc., Procter & Gamble Pharmaceuticals, Inc. and P&G Pharmaceuticals, S.A.R.L., dated August 14, 2008 (with certain provisions omitted pursuant to Rule 24b-2).
	10.3	Credit Agreement between Noven Pharmaceuticals, Inc. and SunTrust Bank, dated July 31, 2008 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Noven Pharmaceuticals, Inc. filed on August 6, 2008).
	31.1	Certification of Peter Brandt, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Michael D. Price, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Peter Brandt, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
	32.2	Certification of Michael D. Price, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

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

55

Signatures

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

	NOVEN PHARMACEUTICALS, INC.
Date: November 10, 2008	By:	/s/ Michael D. Price
		Michael D. Price
		Vice President and Chief Financial Officer

56

EX-10.1

Exhibit 10.1

The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended. REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY ***.

EXECUTION COPY

DEVELOPMENT AND LICENSE AGREEMENT

Dated as of June 30, 2008

By and Between

NOVEN PHARMACEUTICALS, INC.,

and

PROCTER & GAMBLE PHARMACEUTICALS, INC.

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS		1
Section 1.01.	Definitions		1
Section 1.02.	Other Definitions		8
ARTICLE II	DEVELOPMENT		9
Section 2.01.	Development Agreement		9
Section 2.02.	Development Plan and Target Specifications		9
Section 2.03.	Consideration Related to Development of ***		9
Section 2.04.	Feasibility Study for ***		10
Section 2.05.	Clinical Supply of T-Patch		10
Section 2.06.	Quality and Clinical Development		10
Section 2.07.	Monthly Reports		10
Section 2.08.	Joint Developments		11
ARTICLE III	LICENSE		11
Section 3.01.	License Grant		11
Section 3.02.	Limitations on License Granted Under Section 3.01		11
Section 3.03.	Quality Control		12
Section 3.04.	Sublicense		12
Section 3.05.	Co-Promotion Partner		13
ARTICLE IV	INTELLECTUAL PROPERTY MATTERS		13
Section 4.01.	Infringement or Other Actions Regarding the Technology		13
Section 4.02.	Infringement of Third Party Rights		18
Section 4.03.	Maintenance of Noven Patents		20
Section 4.04.	Other Intellectual Property Rights		20
Section 4.05.	Ownership of Clinical Data		21
ARTICLE V	ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES		21
Section 5.01.	Additional Products		21
Section 5.02.	Regulatory Matters		23
Section 5.03.	Noncompetition		23
Section 5.04.	Manufacturing and Supply Agreement		24
ARTICLE VI	ROYALTIES AND MILESTONE PAYMENTS		25
Section 6.01.	Royalties Based Upon Quarterly Net Outside Sales		25
Section 6.02.	Additional Products		25
Section 6.03.	Expiration of Patents		25
Section 6.04.	Milestone Payments		25
Section 6.05.	Determination of Net Outside Sales		26
Section 6.06.	Generation of Net Outside Sales		28
ARTICLE VII	CONFIDENTIALITY		29
Section 7.01.	Confidentiality		29
Section 7.02.	Publications		31
Section 7.03.	Press Releases		31

		Page
ARTICLE VIII	REPRESENTATIONS AND WARRANTIES		32
Section 8.01.	Representations and Warranties of Noven		32
Section 8.02.	Representations and Warranties of P&GP		33
Section 8.03.	Knowledge		35
ARTICLE IX	INDEMNIFICATION		35
Section 9.01.	Indemnification		35
Section 9.02.	Certain Limitations		37
ARTICLE X	TERM AND TERMINATION		38
Section 10.01.	Term		38
Section 10.02.	Certain Termination Events		38
Section 10.03.	Effect of Termination		40
ARTICLE XI	MISCELLANEOUS		41
Section 11.01.	Notices		41
Section 11.02.	Disputes		42
Section 11.03.	Independent Contractors		43
Section 11.04.	Assignment		43
Section 11.05.	Binding Effect; Benefit		43
Section 11.06.	Amendments		43
Section 11.07.	No Waiver		43
Section 11.08.	Counterparts		44
Section 11.09.	Interpretation		44
Section 11.10.	Governing Law		44
Section 11.11.	Unenforceability		44
Section 11.12.	Entire Agreement		45
Section 11.13.	Expenses		46
Section 11.14.	Force Majeure		46

ii

LIST OF EXHIBITS

Exhibit A	Noven Patents
Exhibit B	Monthly Reports
Exhibit C	Specifications for T-Patch
Exhibit D	Pricing Structure for T-Patch

iii

DEVELOPMENT AND LICENSE AGREEMENT

     This DEVELOPMENT AND LICENSE AGREEMENT (together with any Exhibits and Schedules hereto, this “Agreement”) is entered into as of this 30^th day of June 2008 (the “Effective Date”), by and between NOVEN PHARMACEUTICALS, INC., a Delaware corporation (“Noven”), and PROCTER & GAMBLE PHARMACEUTICALS, INC., an Ohio corporation (“P&GP”).

W I T N E S S E T H:

     WHEREAS, Noven and P&GP are parties to a letter agreement dated April 28, 2003 (as amended from time to time, the “Development Agreement”), pursuant to which Noven and P&GP agreed to develop the T-Patch and the ***;

     WHEREAS, Noven and P&GP will enter into one or more Manufacturing and Supply Agreements (collectively, the “Manufacturing and Supply Agreement”) pursuant to which Noven will manufacture and supply to P&GP all of P&GP’s requirements of the Products for sale within the Territory; and

     WHEREAS, Noven desires to license to P&GP 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, 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:

     “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 or the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of such Person whether through the ownership of securities, contract or otherwise.

     “Annual Net Outside Sales” means, with respect to any calendar quarter and with respect to any Product, the aggregate amount of Net Outside Sales of such Product during the 12-month period ending on the last calendar day of such calendar quarter.

     “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 Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York, Miami, Florida or Cincinnati, Ohio 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 a product in the Field marketed by a Third Party. Notwithstanding the foregoing, *** is not a Competing Product.

     “Commercially Reasonable Efforts” means, with respect to the development and commercialization of any product, efforts and resources commonly used in the research-based pharmaceutical industry for a pharmaceutical compound or product at a similar stage of research, development or commercialization, and having similar market potential, as such product. Commercially Reasonable Efforts shall be determined by taking into account all relevant factors, including the characteristics of the compound or product, the technical risk and stage of research, development, or commercialization of the compound or product, the cost-effectiveness of efforts or resources applied towards such compound or product while optimizing corporate long term profitability, the existence of alternative compounds or products that may be developed by a party, the competitiveness of alternative Third Party compounds or products, the proprietary position of the compound or product, the regulatory and business environment, the likelihood of product reimbursement, and the potential for product liability exposure. Commercially Reasonable Efforts shall be determined on a compound, product, indication, and market basis, and it is anticipated that the level of efforts and resources will change over time reflecting changes in the status of the compound, product, indication, or the market involved.

     “Confidential Information” means all secret, confidential or proprietary data, know-how and related information, including (i) 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, (ii) all information disclosed or accessed by the parties pursuant to the provisions of the Confidentiality Agreement, this Agreement or the other Transaction Documents, (iii) information learned, observed or otherwise acquired through site visits and discussions between Noven and P&GP at each other’s facilities, including plant size, crew shifts, number of lines, product shipments, lab procedures, new product development testing and manufacturing processes and (iv) the terms and conditions of this Agreement and the other Transaction Documents.

-2-

     “Confidentiality Agreement” means the Confidentiality Agreement dated as of December 12, 2002, between Noven and P&GP.

     “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).

     “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. § 301 et seq., as amended, and the regulations promulgated thereunder, as amended from time to time.

     “Field” means (i) transdermal patches that contain testosterone (or androgen derivatives of testosterone or androgens that convert to testosterone in the body) as the single active ingredient, and (ii) transdermal patches that contain ***.

     “GAAP” means, as of any time of determination, accounting principles generally accepted in the United States, as in effect at such time.

     “GCP” means (i) the Good Clinical Practices as that term is defined in 21 C.F.R. Parts 50, 54, 56, and 312 as amended from time to time, and applicable guidance documents, and (ii) good clinical practices as required by applicable regulations of any Regulatory Authority.

     “GLP” means (i) the Good Laboratory Practices as that term is defined in 21 C.F.R. Part 58, as amended from time to time, and applicable guidance documents, and (ii) good laboratory practices as required by applicable regulations of any Regulatory Authority.

     “GMP” means (i) the current Good Manufacturing Practices as that term is defined in 21 C.F.R. Parts 210 and 211, as amended from time to time, and applicable guidance documents, 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), 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.

-3-

     “IND” means an Investigational New Drug Application, as defined in 21 C.F.R. § 312.3(b), filed by a Person with the FDA to obtain authorization to develop, test and perform clinical trials of a product, together with any amendments, correspondence or supplements thereto and incorporated therein.

     “Intellectual Property” means (i) all patents, copyrights, technology, know-how, trade secrets, inventions (including inventions conceived prior to the Effective Date but not documented as of the Effective Date), proprietary data, 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.

     ***.

     “Launch” means the initial commercial sale by P&GP or any Related Party of any of the Products.

     “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.

     “NDA” means a New Drug Application, as defined in 21 C.F.R. § 314, filed by a Person with the FDA to obtain FDA approval of a new drug or therapy, as the context indicates, together with any amendments, correspondence or supplements thereto and incorporated therein.

     “Net Outside Sales” means, for any period of determination and for any Product, the gross invoice price of such Product sold by P&GP (or any Related Parties, successors, assignees, delegatees or partners of P&GP) to the first Third Party after deducting, if not previously deducted, from the amount invoiced or received, the following, provided such deductions shall be incurred reasonably for the benefit of such Product:

          (a) trade and quantity discounts including early pay cash discounts, to the extent actually allowed;

          (b) amounts actually repaid or credited by reasons of defects, recalls, returns, rebates and allowances of goods or because of retroactive or temporary price reductions (that are not reflected in the invoice price) specifically identifiable to the Product;

          (c) rebates and administrative fees actually paid to medical healthcare organizations in line with approved contract terms;

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          (d) rebates actually paid resulting from government (or agency thereof) mandated rebate programs or chargeback programs;

          (e) rebates or service fees actually paid to wholesalers for inventory management programs or distribution management agreements;

          (f) discounts actually allowed pursuant to indigent patient programs and patient discount programs to include coupons and vouchers to the extent included in Net Outside Sales;

          (g) sales or excise taxes, custom duties, and other governmental charges, to the extent separately stated on the applicable invoice; and

          (h) amounts repaid or credited for uncollectible amounts on previously sold Product;

all as determined in accordance with P&GP’s usual and customary accounting methods, which shall be in accordance with GAAP, reasonably and consistently applied.

     “Noven Patents” means all patents and patent applications listed in Exhibit A, and any reissues, confirmations, renewals, extensions, counterparts, divisions, continuations, continuations-in-part or patents-of-addition of the patents or patent applications listed in Exhibit A, but only to the extent covering the Products in the Field in the Territory; provided, that the term “Noven Patents” shall not include any of Noven’s future patents (except to the extent such patents are issued in respect of a patent application described in Exhibit A) or patent applications unless (i) such patents cover the T-Patch and/or the ***, in which case Exhibit A will be updated to include such patents, or (ii) Noven and P&GP reach agreement pursuant to Section 5.01, in which case the provisions of Section 5.01 shall apply.

     *** means the transdermal patch drug delivery system to be developed by Noven ***. For purposes of clarification, the *** shall constitute an Additional Product under Section 5.01.

     “Paragraph IV Certification” means the filing of a certification by a Person under 21 U.S.C. § 355(b)(2)(A)(iv) or 21 U.S.C. § 355(j)(2)(A)(vii)(IV), as amended from time to time, but only to the extent such filing implicates the Noven Patents.

     “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 calendar days or amounts being contested in good faith by appropriate Proceedings; (ii) rights and licenses granted to others in any Intellectual Property as of the Effective Date; (iii) Liens that have not had, and could not reasonably be expected to have, a material adverse effect on Noven; and (iv) Liens disclosed in this Agreement or in the other Transaction Documents.

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     “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.

     “Products” means, collectively and subject to the provisions of Section 5.01, (i) the *** and (ii) the T-Patch. For the avoidance of doubt, “Products” does not include ***.

     “Quarterly Net Outside Sales” means, with respect to any calendar quarter, the aggregate amount of Net Outside Sales of Products during the three-month period ending on the last day of such calendar quarter. Calendar quarters are the three-month periods ending on March 31, June 30, September 30 and December 31.

     “Regulatory and Clinical Materials” means all documents, supporting materials and other materials relating to the Regulatory Applications, any Regulatory Approval or other matter required to be submitted to any Regulatory Authority in relation to the Products, including the INDs and the NDAs for the Products and documents, supporting materials and other materials relating to any drug master file, investigators’ brochures, clinical studies, pre-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 Applications” means the applications submitted by P&GP or its Related Parties to Regulatory Authorities seeking authorization or approval for the development, manufacture, testing, storage, transport, marketing, advertisement, promotion, sale, use, distribution or other disposal of the Products in all or any portion of the Territory, including the INDs and the NDAs for the Products.

     “Regulatory Approval” means, as to each Product, (i) with respect to the United States, the issuance of an approval letter (as defined in 21 C.F.R. § 314.3(b)) by the FDA pursuant to 21 U.S.C. § 355(c) and 21 C.F.R. § 314.105 approving the NDA for such Product and approving the Product for manufacturing, marketing, sale, distribution and use in the United States, irrespective of any postmarketing study commitments related to such Product, and (ii) with respect to any territory outside of the United States, the comparable issuance of approval by a Regulatory Authority for the manufacturing, marketing, sale, distribution and use of such Product in such territory.

     “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 any of the Products in all or any portion of the Territory, including the FDA and any counterparts to the FDA in territories outside of the United States.

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     “Related Parties” means P&GP’s Affiliates and Permitted Sublicensees. For purposes of clarification, it is acknowledged and agreed that the term “Related Parties” does not include distributors.

     “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.

     “Technology” means any and all data, information, technology, know-how, processes, methods, skills, trade secrets, developments, discoveries and inventions (which are not the subject of patents or patent applications), in each case owned or controlled by Noven, to the extent but only to the extent covering the Products. Notwithstanding the foregoing, Technology shall not include data, information, technology, know-how, processes, methods, skills, trade secrets, developments, discoveries or inventions, in each case covering the manufacture of the Products or specifications, processes or procedures for the manufacture of the Product, except to the extent required to obtain Regulatory Approval for the Products.

     “Territory” means worldwide.

     “T-Patch” means the transdermal patch drug delivery system developed by Noven ***, and shall include any minor improvements or modifications to such product that do not require additional development work (provided that clinical trials of the T-Patch and clinical work related to the T-Patch performed by P&GP shall not be considered additional development work for purposes of the foregoing phrase). For purposes of clarification, the term “T-Patch” shall not include any product that may constitute an Additional Product under Section 5.01.

     *** means the transdermal patch drug delivery system to be developed by Noven ***. For purposes of clarification, the term *** shall not include any product that may constitute an Additional Product under Section 5.01.

     “Third Party” means any Person other than the parties hereto and their respective Affiliates and, in the case of P&GP, any Related Party.

     “Transaction Documents” means this Agreement, the Manufacturing and Supply Agreement, any agreements or documents prepared or executed pursuant to the transactions contemplated by such agreements, any exhibits or attachments to any of the foregoing and any other written agreement signed by Noven and P&GP 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” means the United States of America and its territories and possessions.

     *** means *** and its parent corporation, ***, together with their respective Affiliates.

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

Term	Section
Acquired Business	5.03(c)
Additional Product	5.01(b)
Agreement	Preamble
Award	4.01(f)
Competing Business	5.03(a)
Contribution Margin	4.01(f)(iv)
Development Agreement	Recitals
Disclosing Party	7.01
Dollar Purchase Rate	6.05(c)
Effective Date	Preamble
Feasibility Study	2.04
First Sales Threshold	6.01(a)
Indemnified Party	9.01(c)
Indemnifying Party	9.01(c)
Joint Development	2.08
Manufacturing and Supply Agreement	Recitals
Milestone Payments	6.04
Milestones	6.04
Noven	Preamble
Noven Additional Product	5.01(a)
Noven Compensatory Damages	4.01(f)(iii)
Noven Indemnitees	9.01(a)
Other Damages	4.01(f)(v)
P&GP	Preamble
P&GP Additional Product	5.01(b)
P&GP Compensatory Damages	4.01(f)(iv)
P&GP Indemnitees	9.01(b)
Patent Expiration	6.03
Permitted Sublicensee	3.04(a)
Project	2.01
Receiving Party	7.01
Royalties	6.01
Royalty Rate	6.01
Second Sales Threshold	6.01(b)
Settlement	4.01(b)
Third Party Infringement Suit	4.02
Third Sales Threshold	6.01(c)
***	8.02(i)
***	8.02(i)
***	8.02(i)

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ARTICLE II
DEVELOPMENT

     Section 2.01. Development Agreement. Noven and P&GP are parties to the Development Agreement, pursuant to which Noven and P&GP agreed to develop the T-Patch and the ***. It is acknowledged and agreed that as of the Effective Date, the development of the T-Patch pursuant to the Development Agreement has been completed in full, and all obligations of the parties under the Development Agreement with respect to development of the T-Patch have been fulfilled. The Development Agreement is hereby superseded and replaced in its entirety by this Agreement, and from and after the Effective Date the terms pursuant to which Noven and P&GP shall develop the *** (the “Project”) shall be as set forth in this Agreement.

     Section 2.02. Development Plan for ***. The parties shall use good faith efforts to agree to a development plan for the development of the *** upon delivery by P&GP of written notice to Noven of P&GP’s desire to commence development of the ***. The parties shall negotiate in good faith to develop target specifications for the development of the *** in connection with the development of the development plan for the ***. Each of Noven and P&GP shall perform the development activities contemplated herein in accordance with the applicable development plan and target specifications.

     Section 2.03. Consideration Related to Development of ***. In consideration of the work performed by Noven in connection with the Project from and after the Effective Date, P&GP shall pay and deliver to Noven the following one-time payments in immediately available funds within 45 calendar days after the achievement of the specified development milestones with respect to the ***:

     (a) *** upon Noven’s manufacture, testing, release and shipment of pilot plant batches (not to exceed a total of 20 kg) of clinical supplies of the *** for bioavailability and for stability studies that meet target quantities and mutually agreed-upon release specifications;

     (b) *** upon Noven’s manufacture, testing, release and shipment of three *** batches (in addition to the batches contemplated in clause (i)) of the *** that meet target quantities and mutually agreed-upon release specifications for International Conference on Harmonization stability studies, a ***, human cumulative irritation and sensitization studies and ***/wear studies involving the ***; and

     (c) *** upon the earlier of (A) successful completion by P&GP of a *** trial involving the ***, which shall be defined as showing *** and the ***, based on pre-agreed measures, or (B) the filing of an NDA for the ***.

It is acknowledged and agreed that the payments contemplated in Sections 2.03(a) and 2.03(b) are not contingent upon the success of the events described in Section 2.03(c) or the success of the Project in any respect.

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     Section 2.04. Feasibility Study for ***. Noven shall use Commercially Reasonable Efforts to conduct, within six months of the execution of the Manufacturing and Supply Agreement, an in vitro skin flux study to demonstrate the feasibility of the *** (the “Feasibility Study”). Upon completion of the Feasibility Study, if the parties determine that it is feasible to proceed with the development of the ***, the parties shall cooperate in good faith to agree upon the target product profile of the ***, including dosage strength and patch size, taking into account the results of such Feasibility Study. A payment of *** from P&GP to Noven in consideration for Noven’s performance of such Feasibility Study shall be due by P&GP on the Effective Date and shall be payable by P&GP in immediately available funds within three Business Days of the Effective Date. Such *** payment to be made by P&GP is not contingent upon the success of the Feasibility Study in any respect, and no portion of such payment shall be reimbursable to P&GP in any manner or credited against any other payments contemplated by this Agreement, whether or not the Feasibility Study is successful.

     Section 2.05. Clinical Supply of T-Patch. Noven shall provide clinical supplies of the T-Patch for use by P&GP in any clinical studies with respect to the T-Patch that P&GP wishes to conduct. Such clinical supplies shall be supplied pursuant to, and in accordance with the terms and conditions of, the Manufacturing and Supply Agreement; provided that the price for such clinical supplies shall be *** of the T-Patch if stability testing is required, and if stability testing is not required, the parties will discuss a lower price for such clinical supplies to reflect a reduction of the cost of stability testing.

     Section 2.06. Quality and Clinical Development. Each of Noven and P&GP shall conduct all tests, studies and other development and manufacturing activities in connection with the Project in a good scientific manner and in compliance in all material respects with all requirements of Applicable Laws, codes, rules, regulations and permits, including GMP, GLP and GCP. Each of Noven and P&GP shall comply in all material respects (including obtaining all necessary licenses, consents and permits) with the requirements of all Applicable Laws of any Governmental Authority in procurement, handling and disposal of the compounds and products to be studied in connection with the Project.

     Section 2.07. Monthly Reports. Noven shall provide written monthly reports to P&GP summarizing the results of Noven’s work completed to date in connection with the Project, together with interim and final reports as outlined in Exhibit B. Each such report shall provide information concerning studies performed by Noven, the methodologies employed and the results obtained, raw material specifications and product specifications. All reports that Noven provides in hard copy will also be provided in electronic format. Noven shall disclose to P&GP, upon request by P&GP, information with respect to materials, components, composition or construction of the transdermal system developed and investigated or tested by Noven, for the sole purpose of P&GP’s performance of toxicology assessments or product development assessments or for purposes of regulatory review. All data and information supplied by Noven to P&GP in connection with any development plan or the Project shall constitute Confidential Information of Noven for purposes of Section 7.01.

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     Section 2.08. Joint Developments. If Noven and P&GP shall, either directly or indirectly through their respective Affiliates, successors, assigns, sublicensees, delegatees, partners, employees, agents or consultants, jointly make or conceive any inventions or discoveries in the course of any development work performed pursuant to this Agreement to which, under United States patent law, both parties would be deemed inventors (a “Joint Development”), each of Noven and P&GP shall have joint ownership of any Intellectual Property associated with each such Joint Development and any patent applications, patents or similar registrations obtained thereon. Without limiting the generality of the foregoing, it is acknowledged and agreed that in no event shall the T-Patch or any Noven Patent be considered for any purpose a Joint Development hereunder. Subject to the terms of this Agreement, each of Noven and P&GP shall have full rights of ownership and use of each such Joint Development.

ARTICLE III
LICENSE

     Section 3.01. License Grant. Except as otherwise provided herein and subject to the terms and conditions of this Agreement, with effect from the Effective Date, Noven hereby grants to P&GP an exclusive license in the Territory, and, subject to the restrictions and limitations of Section 3.04, the right to grant sublicenses, to rights under:

          (a) the Noven Patents and Technology; and

          (b) Noven’s rights in any Joint Developments in the Field;

in each case to develop, use, make, have made, sell or otherwise dispose of the Products in the Field; provided, however, that notwithstanding the foregoing, P&GP shall not have the right (x) to make or have made the Products other than as expressly contemplated by or provided in the Manufacturing and Supply Agreement, or (y) to modify in any way the structure or composition of the Products, without the prior written consent of Noven, such consent not to be unreasonably withheld.

     Section 3.02. Limitations on License Granted Under Section 3.01.

          (a) Noven’s Rights. Noven shall retain all rights not expressly granted to P&GP under this Agreement, including all rights outside of the Field with respect in each case to the Noven Patents, the Technology and Noven’s rights in any Joint Developments. In addition to the foregoing, and notwithstanding Section 3.01, nothing in this Agreement shall limit in any way Noven’s rights:

          (i) to make or have made the Products under the terms and conditions of the Manufacturing and Supply Agreement;

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     (ii) to develop, use, make or have made the Products, or to authorize another Person to develop, use, make or have made the Products, for the purpose of conducting research of improved transdermal drug delivery products in the Field;

     (iii) to develop, use, make, have made, promote, sell or otherwise dispose of transdermal drug delivery products that either (A) ***; or (B) ***;

     (iv) to develop, use, make, have made, promote, sell or otherwise dispose of transdermal drug delivery products indicated only for use by men (provided that Noven will not run studies of such products in women, and will not in any way market such products for use by women or encourage the use of such products by women) that either (A) ***, or (B) ***; or

     (v) subject to Section 5.01 and Section 5.03, to develop, use, make, have made, promote, sell or otherwise dispose of any product other than the Products or ***, whether on its own, together with another Person or through a license or other grant of rights to another Person.

          (b) Applicable Law. P&GP shall not be entitled to exercise the rights granted to it under Section 3.01 unless such rights are exercised in accordance with all Applicable Laws.

     Section 3.03. Quality Control. P&GP and its Related Parties shall only develop, use, make, have made, market, promote, sell, distribute or otherwise dispose of the Products and all materials used in connection with the Products, including any labeling, packaging and advertising, in accordance with all Applicable Laws. Noven shall be similarly obligated to act in accordance with all Applicable Laws in the performance of its obligations under this Agreement and its use of Product as permitted in Section 3.02.

     Section 3.04. Sublicense.

          (a) P&GP shall have the right to sublicense the rights granted by Noven under Section 3.01 in any territory throughout the world if, and only if, P&GP obtains Noven’s prior written consent, which consent shall not be unreasonably withheld or delayed (any such sublicensee approved by Noven, a “Permitted Sublicensee”).

          (b) In the event Noven shall consent to any sublicense by P&GP pursuant to Section 3.04(a), (i) the applicable Permitted Sublicensee shall be obligated in writing to the covenants and agreements (to the extent applicable to such Permitted Sublicensee) of, and the restrictions and limitations imposed upon, P&GP hereunder, including the representations and warranties set forth in Sections 8.02(a), (b), (c), (d), (f), (g), (h) and (j) of this Agreement, (ii) no such sublicense shall relieve P&GP of any of its obligations or liabilities under this Agreement, and (iii) P&GP shall be responsible for, and liable to Noven in respect of, any action or inaction taken by any such Permitted Sublicensee to the same extent that P&GP would have been responsible or liable to Noven had P&GP taken or failed to take such action, and P&GP shall be responsible for the payment of Royalties based upon any and all sales of Products by such

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sublicensee in accordance with Article VI. Noven shall be an express third party beneficiary to any agreement between P&GP and each Permitted Sublicensee that sublicenses any of the rights or licenses granted to P&GP hereunder. No Permitted Sublicensee shall have any right to further sublicense, assign or otherwise transfer any rights granted to such Permitted Sublicensee hereunder, and upon the termination of this Agreement for any reason, all sublicenses granted hereunder shall terminate and all rights granted under this Agreement to any Permitted Sublicensee shall revert immediately to Noven.

     Section 3.05. Co-Promotion Partner. Subject to and without limiting the provisions of Section 3.04, P&GP shall have the right to enroll one or more co-promotion partners in the Territory upon written notice to Noven. P&GP shall (i) ensure that its co-promotion partner(s) comply with the covenants and agreements of P&GP hereunder, and (ii) promptly upon entering into a co-promotion arrangement with a co-promotion partner for the marketing or sale of any of the Products, notify Noven in writing that it has entered into a co-promotion arrangement and identify the co-promotion partner, the term of the arrangement and the Products and territories covered by such arrangement. No enrollment of a co-promotion partner shall relieve P&GP of any of its obligations or liabilities under this Agreement, and P&GP shall be responsible for, and liable to Noven in respect of, any action or inaction taken by any of its co-promotion partners to the same extent that P&GP would have been responsible or liable to Noven had P&GP taken or failed to take such action. To the extent any sales of Products shall be attributed or allocated to any such co-promotion partner, P&GP shall be responsible for the payment of Royalties based upon such sales in accordance with Article VI, and will ensure that Noven has the audit rights set forth in Section 6.05(e) with respect to its co-promotion partners. Except as otherwise provided in the Manufacturing and Supply Agreement, Noven shall have no obligation to supply the Products to any co-promotion partner of P&GP pursuant to this Section 3.05. Notwithstanding the provisions of this Section 3.05, no such co-promotion partner shall have any rights to or under any of the licenses granted to P&GP pursuant to this Article III, whether as a sublicensee or otherwise, unless such co-promotion partner shall also have been approved as a Permitted Sublicensee in accordance with Section 3.04(a). Should P&GP consider a co-promotion partner, P&G shall reasonably consider enrolling Noven as a co-promotion partner. In connection with such consideration, if requested by P&GP, Noven shall provide a reasonable demonstration of its capabilities as a co-promotion partner.

ARTICLE IV
INTELLECTUAL PROPERTY MATTERS

     Section 4.01. 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 Technology, or any unfair competition by any Third Party, in connection with a Competing Product, then the party having such knowledge shall give prompt notice thereof to the other party, which notice shall include the identity of the Third Party and any evidence that the notifying party has relating to such matters.

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          (b) Following any notification under Section 4.01(a), Noven shall have the right but not the obligation (and P&GP shall not have the right) to take such action as Noven deems necessary or appropriate to protect and enforce the Noven Patents in the Territory against the Competing Products, including initiating an appropriate Proceeding or threatening to initiate an appropriate Proceeding to prevent or eliminate the infringement of the Noven Patents with regard to the Competing Products and defending any counterclaims arising out of such Proceeding, and P&GP agrees to provide Noven with all reasonable assistance and information required by Noven in connection with such Proceeding or threatened Proceeding, all at Noven’s cost and expense. In connection with the foregoing, P&GP may retain its own independent counsel to participate with Noven in any such Proceeding or threatened Proceeding; provided, that the costs and expenses of such counsel shall be paid by P&GP. No settlement, agreement, consent judgment or other voluntary final disposition (“Settlement”) of a Proceeding or threatened Proceeding under this Section 4.01(b) may be entered into, in whole or in part, by Noven without the consent of P&GP, which consent shall not be unreasonably withheld or delayed.

          (c) In the event that Noven shall not take any action under Section 4.01(b) within 60 calendar days after the notice contemplated by Section 4.01(a) is given, or if Noven shall provide written notice to P&GP prior to the expiration of such 60-calendar day period that it will not take any action under Section 4.01(b), then P&GP shall have the right but not the obligation (and Noven shall not have the right) to take such action as P&GP deems necessary or appropriate to protect and enforce the Noven Patents in the Territory against the Competing Products, including initiating an appropriate Proceeding or threatening to initiate an appropriate Proceeding to prevent or eliminate the infringement of the Noven Patents with regard to the Competing Products and defending any counterclaim arising out of such Proceeding, and Noven agrees to provide P&GP with all reasonable assistance and information required by P&GP in connection with such Proceeding or threatened Proceeding, all at P&GP’s cost and expense. In connection with the foregoing, Noven may retain its own independent counsel to participate with P&GP in any such Proceeding or threatened Proceeding; provided, that the costs and expenses of such counsel shall be paid by Noven. In connection with any action taken by P&GP under this Section 4.01(c), P&GP shall give due consideration to Noven’s views with respect to the necessity or desirability of taking such action. In deciding whether to initiate any Proceeding to prevent or eliminate infringement of the Noven Patents, P&GP shall give careful consideration to how the Proceeding may impact any related Proceedings involving the Noven Patents or affect the full scope, including the unlicensed scope, of the Noven Patents, to what extent the allegedly infringing article reads on the claims of any Noven Patent, the identity of the alleged infringers and the extent of the alleged infringement. No Settlement of a Proceeding or threatened Proceeding under this Section 4.01(c) may be entered into, in whole or in part, by P&GP without the consent of Noven. In the event that Noven elects not to consent to any such Settlement, Noven shall assume the prosecution of the claims and the defense of the Noven Patents from P&GP and, to the extent it is determined that Noven’s withholding of its consent to the Settlement was unreasonable, Noven shall indemnify P&GP for any further liability, claims or Proceedings related thereto or arising therefrom to the extent any damages, liabilities, costs and expenses of P&GP are in excess of any amounts P&GP otherwise would have been responsible for under the terms and conditions of the proposed Settlement.

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          (d) In the event that Noven declines to take action under Section 4.01(b) and P&GP fails to take action under 4.01(c) within 30 calendar days after the earlier of (i) P&GP’s receipt of written notice from Noven that Noven will not take any action under Section 4.01(b) or (ii) the expiration of the 60-calendar day period contemplated in Section 4.01(c), or if P&GP shall provide written notice to Noven prior to the expiration of such 30-calendar day period that it will not take any action under Section 4.01(c), then Noven shall once again have the right (and P&GP shall not have the right) to take action and seek cooperation from P&GP under the terms and conditions set forth in Section 4.01(b) notwithstanding its prior election not to take any such action.

          (e) Without limiting the provisions of Sections 4.01(b), 4.01(c) and 4.01(d), in the event that Noven or P&GP becomes aware of a Paragraph IV Certification, it shall promptly notify the other party. Following any notification of a Paragraph IV Certification under this Section 4.01(e), Noven shall have the right to take any action it deems necessary or appropriate to protect and enforce the Noven Patents or any rights of Noven therein; provided, that in the event Noven fails to notify P&GP in writing of its intention to commence a Proceeding against the Person filing the Paragraph IV Certification within five Business Days of the notice of such Paragraph IV Certification delivered under this Section 4.01(e), P&GP may request that Noven take such steps as may be necessary and reasonable to protect and enforce the rights granted to P&GP under this Agreement. Notwithstanding the provisions of Sections 4.01(b) and 4.01(c), in the event Noven takes action upon P&GP’s request, P&GP shall pay for or reimburse Noven for any costs and expenses incurred or borne by Noven in connection therewith.

          (f) All amounts awarded as damages, profits or otherwise (an “Award”) in connection with any action specified in Section 4.01(b) or 4.01(d) taken by Noven shall be paid to and be allocated between Noven and P&GP in accordance with this Section 4.01(f).

     (i) First, all reasonable, actual out-of-pocket costs and expenses incurred by Noven shall be deducted from the aggregate amount of the Award (without regard to whether such Award shall be payable to Noven, P&GP or both) and retained by Noven or paid to Noven by P&GP, as the case may be, prior to any other payment or allocation of such Award in accordance with this Section 4.01(f).

     (ii) Next, after satisfaction of Noven’s costs and expenses in accordance with Section 4.01(f)(i), all reasonable, actual out-of-pocket costs and expenses incurred by P&GP in connection with retaining its own independent counsel to participate with Noven in any action specified in Section 4.01(b) or 4.01(d) taken by Noven shall be retained by P&GP or paid to P&GP by Noven, as the case may be.

     (iii) Next, after satisfaction of Noven’s costs and expenses in accordance with Section 4.01(f)(i) and P&GP’s costs and expenses in accordance with Section 4.01(f)(ii), to the extent any portion of the Award is compensatory in nature to Noven (“Noven Compensatory Damages”), such portion shall be retained by Noven or paid to Noven by P&GP, as the case may be, and shall become the sole property of Noven.

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     (iv) Next, after the allocations contemplated by Sections 4.01(f)(i), 4.01(f)(ii) and 4.01(f)(iii), to the extent any portion of the Award is compensatory in nature to P&GP (“P&GP Compensatory Damages”), such portion shall be retained by P&GP or paid to P&GP by Noven, as the case may be, and shall become the sole property of P&GP; provided, that in the event Noven has not already been compensated for lost royalties and lost profit margin on the sale of Product through the payment of Noven Compensatory Damages, Noven shall be entitled to deduct and retain from such P&GP Compensatory Damages, or P&GP shall pay to Noven, as the case may be, an amount equal to 6% multiplied by the Net Outside Sales associated with such P&GP Compensatory Damages, which Net Outside Sales shall be determined as follows: (A) if the amount of lost revenues upon which the P&GP Compensatory Damages are based shall be determined or agreed, whether by judgment, settlement or other resolution of the applicable action, then such lost revenues amount shall constitute Net Outside Sales for purposes of this Section 4.01(f)(iv); and (B) if the amount of lost revenues upon which the P&GP Compensatory Damages are based shall not be determined or agreed in connection with the action, then an amount determined by dividing (1) the amount of the P&GP Compensatory Damages by (2) P&GP’s Contribution Margin on the sale of Products for the 12-month period ending as of the end of the calendar quarter preceding the commencement of the action giving rise to the Award, shall constitute Net Outside Sales for purposes of this Section 4.01(f)(iv). For purposes of this Article IV, the term “Contribution Margin” shall mean, for any 12-month period, a percentage computed as (x) (I) the Net Outside Sales of the Products by P&GP (and any Related Parties, successors, assignees, delegatees or partners of P&GP) during such period, minus (II) cost of goods sold, fully allocated overhead and direct marketing and selling expenses incurred by P&GP in connection the Products during such period, divided by (y) the Net Outside Sales of the Products by P&GP (and any Related Parties, successors, assignees, delegatees or partners of P&GP) during such period.

     (v) Next, after the allocations contemplated by Sections 4.01(f)(i), 4.01(f)(ii), 4.01(f)(iii) and 4.01(f)(iv), to the extent any portion of the Award constitutes damages other than Noven Compensatory Damages and P&GP Compensatory Damages, including punitive and exemplary damages (“Other Damages”), such Other Damages shall be shared equally between Noven and P&GP.

          (g) All Awards in connection with any actions specified in Section 4.01(c) taken by P&GP but assumed by Noven in accordance with the last sentence of Section 4.01(c) shall be paid to and be allocated between Noven and P&GP in accordance with the provisions of Section 4.01(f), except that (i) all reasonable, actual out-of-pocket expenses incurred by P&GP in connection with such action prior to the assumption thereof by Noven shall also be deducted from the aggregate amount of the Award and retained by P&GP or paid to P&GP by Noven, as the case may be, together with the payment of Noven’s costs and expenses in accordance with Section 4.01(f)(i), and (ii) no such allocation shall relieve Noven of any obligation under Section 4.01(c) to indemnify P&GP for any further liability, claims or Proceedings related to an action assumed by Noven in accordance with and subject to the terms of Section 4.01(c).

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          (h) Subject to Section 4.01(g), all Awards in connection with any action specified in Section 4.01(c) taken by P&GP shall be paid to and be allocated between Noven and P&GP in accordance with this Section 4.01(h).

     (i) First, all reasonable, actual out-of-pocket costs and expenses incurred by P&GP shall be deducted from the aggregate amount of the Award (without regard to whether such Award shall be payable to P&GP, Noven or both) and retained by P&GP or paid to P&GP by Noven, as the case may be, prior to any other payment or allocation of such Award in accordance with this Section 4.01(h).

     (ii) Next, after satisfaction of P&GP’s costs and expenses in accordance with Section 4.01(h)(i), all reasonable, actual out-of-pocket costs and expenses incurred by Noven in connection with retaining its own independent counsel to participate with P&GP in any action specified in Section 4.01(c) taken by P&GP shall be retained by Noven or paid to Noven by P&GP, as the case may be.

     (iii) Next, after satisfaction of P&GP’s costs and expenses in accordance with Section 4.01(h)(i) and Noven’s costs and expenses in accordance with Section 4.01(h)(ii), to the extent any portion of the Award constitutes P&GP Compensatory Damages, such portion shall be retained by P&GP or paid to P&GP by Noven, as the case may be, and shall become the sole property of P&GP; provided, that Noven shall be entitled to deduct and retain from such P&GP Compensatory Damages, or P&GP shall pay to Noven, as the case may be, ***.

     (iv) Next, after the allocations contemplated by Sections 4.01(h)(i), 4.01(h)(ii) and 4.01(h)(iii), to the extent any portion of the Award constitutes Noven Compensatory Damages, such portion shall be retained by Noven or paid to Noven by P&GP, as the case may be, and shall become the sole property of Noven.

     (v) Next, after the allocations contemplated by Sections 4.01(h)(i), 4.01(h)(ii), 4.01(h)(iii) and 4.01(h)(iv), to the extent any portion of the Award constitutes Other Damages, such Other Damages shall be shared equally between Noven and P&GP.

          (i) Notwithstanding the provisions of this Section 4.01, Noven shall have the right, and P&GP shall not have the right, to take such actions as it deems appropriate to protect, enforce and defend the Technology in any circumstance not specifically contemplated by the provisions of Section 4.01(b), 4.01(c), 4.01(d), 4.01(e) or 4.02. In addition to and without limiting the provisions of Section 4.01(a), the parties agree to notify each other promptly upon becoming aware of (i) any infringement or threatened infringement of the Technology or any unfair competition by any third party in connection with any product other than a Competing Product, and (ii) any Proceeding or threat of any Proceeding by a third party alleging that any of the Technology (including any claims asserted in the Noven Patents) are invalid or unenforceable

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or otherwise seeking to limit the scope, construction or interpretation of any of the Technology. P&GP agrees to cooperate with Noven in any reasonable manner in any action taken by Noven to protect, enforce or defend the Technology under this Section 4.01(i) at the expense of Noven, if and to the extent reasonably requested by Noven. All amounts awarded as damages, profits or otherwise in connection with any action contemplated in this Section 4.01(i) taken by Noven shall be paid to and become the sole property of Noven; provided, that, subject to the prior payment of Noven’s reasonable, actual out-of-pocket expenses incurred in connection with such action, in the event any amounts awarded as damages, profits or otherwise in connection with any action contemplated in this Section 4.01(i) constitutes P&GP Compensatory Damages, such P&GP Compensatory Damages shall be paid to P&GP, and, in the event Noven has not already been compensated for lost royalties and lost profit margin on the sale of Product through the payment of Noven Compensatory Damages, P&GP shall pay an amount based upon the amount of such P&GP Compensatory Damages, calculated in accordance with the provisions of Section 4.01(f)(iv).

     Section 4.02. Infringement of Third Party Rights.

          (a) If the manufacture, use, sale or offer for sale of any Product results in any Proceeding by a Third Party alleging patent infringement against P&GP or Noven (a “Third Party Infringement Suit”), P&GP or Noven, as the case may be, shall promptly notify the other party in writing of such Proceeding. P&GP shall have the first right, but not the obligation, to defend any such Third Party Infringement Suit, at its own expense, using counsel reasonably acceptable to Noven. P&GP may settle any such Proceeding under such terms as P&GP deems advisable; provided, however, that no Settlement of any such Proceeding may be entered into, in whole or in part, by P&GP without the prior written consent of Noven; and provided further, that if such Proceeding does not implicate any of the Technology (including the Noven Patents), Noven’s consent shall not be unreasonably withheld or delayed. In the event that Noven elects not to consent to any such Settlement, Noven shall assume the defense of the claims and the Noven Patents from P&GP and, to the extent it is determined that Noven’s withholding of its consent to the Settlement was unreasonable, Noven shall indemnify P&GP for any further liability, claims or Proceedings related thereto or arising therefrom to the extent any damages, liabilities, costs and expenses of P&GP are in excess of any amounts P&GP otherwise would have been responsible for under the terms and conditions of the proposed Settlement. P&GP shall keep Noven reasonably informed of all significant developments in connection with any such Third Party Infringement Suit and Noven shall cooperate fully at P&GP’s expense in the defense of the Proceeding. If P&GP chooses not to defend a Third Party Infringement Suit that implicates the Technology, Noven shall have the right, but not the obligation, to defend the Third Party Infringement Suit, at its own expense, using counsel reasonably acceptable to P&GP. Noven may settle any such Proceeding under such terms that Noven deems advisable; provided, however, that no Settlement of any such Proceeding may be entered into, in whole or in part, by Noven without the consent of P&GP, which consent shall not be unreasonably withheld or delayed. Noven shall keep P&GP reasonably informed of all significant developments in connection with any such Third Party Infringement Suit and P&GP shall cooperate fully at its own expense in the defense of the Third Party Infringement Suit.

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          (b) If either P&GP or Noven believes that a license to a Third Party patent is necessary to develop or commercialize the Technology in any country or jurisdiction in the Territory, regardless of whether a Proceeding has been commenced by the Third Party against P&GP or Noven, then the party having such belief shall advise the other party in writing. Thereafter, P&GP and Noven shall attempt to agree to a mutually acceptable arrangement under which a license to the third party patent may be obtained. If the parties cannot reach agreement on the issue of what constitutes a mutually acceptable arrangement because either P&GP or Noven does not concur in the belief that the license of the third party patent is necessary, the parties shall submit the issue to a mutually acceptable, independent patent counsel who is familiar with and experienced in the pharmaceutical industry in such country or jurisdiction, who will determine whether such third party patent license is necessary for the development or commercialization of the Technology in such country or jurisdiction. In the event the parties are unable to agree on a mutually acceptable, independent patent counsel to resolve the dispute, the dispute shall be resolved in accordance with the dispute resolution provisions of Section 11.02.

          (c) If the independent patent counsel selected in accordance with Section 4.02(b) or the arbitrator selected in accordance with Section 11.02 determines that the third party patent license is necessary and that the reason the license is necessary is because the third party patent is directed to a transdermal patch with claims that overlap rights that Noven claims in and to the Technology, then (i) Noven shall pay the costs and expenses of the independent patent counsel or the arbitrator, as the case may be, and (ii) P&GP and Noven shall negotiate in good faith a mutually acceptable arrangement under which the third party patent license will be obtained. Thereafter, in the event such a third party patent license is obtained, the royalties payable thereunder shall be borne by P&GP and *** of such royalties shall be deducted from the amount of Royalties that otherwise would have been payable to Noven for the quarter in which the royalties payable to such third party are incurred; provided, however, that (x) the payment of such royalties to the third party shall not affect the methodology of how the Royalties payable to Noven are calculated, (y) any costs, expenses or royalties associated with obtaining any or all rights under the third party patent shall be excluded from the calculation of Net Outside Sales of the Products, and (z) under no circumstances shall the deduction of *** of such royalties cause a reduction of more *** in the total amount of Royalties due to Noven for the relevant quarter. Notwithstanding the foregoing, in the event the third party patent at issue was owned by or licensed to or for the benefit of *** as of the date of this Agreement, (I) Noven shall have no obligation to pay the costs and expenses of the independent patent counsel or the arbitrator, as the case may be, (II) the payment of any royalties to *** or any successor or assignee of *** in respect of the patent shall not affect the methodology of how the Royalties payable to Noven are calculated, (III) any costs, expenses or royalties associated with obtaining any or all rights under the patent shall be excluded from the calculation of Net Outside Sales of the Products, and (IV) there shall be no reduction in the amount of Royalties payable to Noven hereunder as a result of any costs, expenses or royalties associated with obtaining any or all rights under the patent.

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          (d) If the independent patent counsel selected in accordance with Section 4.02(b) or the arbitrator selected in accordance with Section 11.02 determines that the third party patent license is not necessary or that the license is necessary but the reason the license is necessary is not attributable to any overlap of the rights Noven claims in and to the Technology and claims under the third party patent, then (i) P&GP shall pay the costs and expenses of the independent patent counsel or the arbitrator, as the case may be, (ii) any costs, expenses or royalties associated with obtaining any or all rights under the third party patent shall be borne by P&GP, (iii) any costs, expenses or royalties associated with obtaining any or all rights under the third party patent shall be excluded from the calculation of Net Outside Sales of the Products, and (iv) there shall not be any reduction in the amount of any Royalties or other amounts payable to Noven hereunder.

     Section 4.03. 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 of P&GP, use reasonable commercial efforts to file additional applications and to take such other reasonable actions necessary to obtain protection of the Noven Patents. Noven shall pay all necessary maintenance and related expenses to maintain the Noven Patents in additional jurisdictions within the Territory in which Noven is receiving revenues under this Agreement and/or the Manufacturing and Supply Agreement, and P&GP shall pay all necessary maintenance and related expenses to maintain the Noven Patents in any other additional jurisdictions in which P&GP has requested that the Noven Patents be maintained. In the event Noven shall fail to pay any necessary maintenance or related expense to maintain the Noven Patents, or to file additional applications or take such other reasonable actions necessary to obtain protection of the Noven Patents in accordance with this Section 4.03, P&GP shall have the right to pay any such expenses, file any such applications and/or take any such actions on Noven’s behalf in order to secure maintenance and protection of the Noven Patents. Should P&GP take any such actions to maintain and protect the Noven Patents in a jurisdiction within the Territory with respect to which Noven is required to pay the necessary maintenance and related expenses under this Section 4.03, Noven shall promptly reimburse P&GP its reasonable costs related to any such action upon written request of P&GP; it being understood that if Noven shall fail promptly to reimburse such reasonable costs upon written request from P&GP, P&GP shall have the right to reduce Royalty payments under Section 6.01 hereof by such amount.

     Section 4.04. Other Intellectual Property Rights. Each party hereby acknowledges and agrees that except as otherwise specifically contemplated in this Agreement or the Manufacturing and Supply Agreement, (i) P&GP is not obtaining any rights in or to use any Intellectual Property owned, licensed or otherwise used by Noven, and Noven is not obtaining any rights in or to use any Intellectual Property owned, licensed or otherwise used by P&GP, and (ii) P&GP is not obtaining any rights in or licenses with respect to the name “Noven” or any derivative thereof and Noven is not obtaining any rights in or licenses with respect to the name “Procter & Gamble” or any derivative thereof. P&GP further acknowledges and agrees that P&GP shall not use any trademark, logo or trade name of Noven 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 and Noven further acknowledges and agrees that Noven shall not use any trademark, logo or trade name of P&GP 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, except in connection with Noven’s manufacture and supply of Products to P&GP in accordance with the Manufacturing and Supply Agreement.

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     Section 4.05. Ownership of Clinical Data. P&GP will own all clinical data developed in connection with this Agreement.

ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

     Section 5.01. Additional Products.

          (a) From and after the Effective Date, if at any time Noven designs or develops any transdermal patch that (i) is within the Field and (ii) is not the ***, the T-Patch or *** (a “Noven Additional Product”), then P&GP shall have the exclusive right to commercialize such Noven Additional Product. Noven and P&GP shall agree to appropriate compensation to be paid to Noven for the development of such Noven Additional Product, which compensation shall include the payment of appropriate milestone payments (to be determined by the parties acting in good faith and based on the additional commercial value of the Noven Additional Product (e.g., where the Noven Additional Product imparts additional market exclusivity in the United States beyond the *** and/or the T-Patch, reduces manufacturing costs or increases the sales potential of the Products)) and Noven and P&GP shall execute an appropriate development and commercialization agreement on terms and conditions reasonably similar to those of this Agreement, taking into consideration the contributions from the two parties, which development agreement shall include, among other things, provisions for the payment of royalties at the same rates and on the same basis as provided in this Agreement.

          (b) From and after the Effective Date, if at any time P&GP or a Related Party desires to design or develop (or have designed or developed) a transdermal patch that (i) is within the Field and (ii) is not the ***, the T-Patch or ***, (a “P&GP Additional Product” and, collectively with a Noven Additional Product, an “Additional Product”), then P&GP shall notify Noven and Noven shall have the first right to design and develop such P&GP Additional Product. Noven and P&GP shall negotiate appropriate compensation to be paid to Noven for the design and development of such P&GP Additional Product, which compensation shall include the payment of appropriate milestone payments (to be determined by the parties acting in good faith and based on the additional commercial value of the P&GP Additional Product (e.g., where the P&GP Additional Product imparts additional market exclusivity in the United States beyond the *** and/or the T-Patch, reduces manufacturing costs or increases the sales potential of the Products)) and Noven and P&GP shall execute an appropriate development and commercialization agreement on terms and conditions reasonably similar to those of this Agreement, taking into consideration the contributions from the two parties, which development agreement shall include, among other things, provisions for the payment of royalties at the same rates and on the same basis as provided in this Agreement. In the event Noven refuses such development project, or cannot meet a technical challenge required in respect of such development project, then P&GP may, subject to the provisions of Section 5.03, enter into a development arrangement for such product with a Third Party. Further, at P&GP’s request, the parties shall enter into good faith negotiations to amend the terms and conditions of this Agreement in the event P&GP wishes to commercialize any P&GP Additional Product developed with a third party pursuant to the foregoing sentence without being subject to Section 5.03.

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          (c) It is acknowledged and agreed that the *** shall constitute an Additional Product for purposes of this Agreement. Upon completion of the Feasibility Study, Noven and P&GP shall agree to appropriate compensation to be paid to Noven for the development of the ***, which compensation shall include the payment of appropriate milestone payments (to be determined by the parties acting in good faith and based on the additional commercial value of the ***) and Noven and P&GP shall execute an appropriate development and commercialization agreement on terms and conditions reasonably similar to those of this Agreement, taking into consideration the contributions from the two parties, which development agreement shall include, among other things, provisions for the payment of royalties at the same rates and on the same basis as provided in this Agreement.

          (d) Any development and commercialization agreement entered into by Noven and P&GP pursuant to Section 5.01(a), 5.01(b) and/or 5.01(c) shall, other than the milestone payments, have the same terms and conditions as this Agreement, and this Agreement shall be automatically amended to update the definition of “Products” as set forth in Section 1.01 to include any Additional Products developed by Noven under Section 5.01(a), 5.01(b) and/or 5.01(c). Noven shall manufacture for P&GP, and P&GP shall purchase from Noven, P&GP’s requirements of any such Additional Products on terms and conditions reasonably similar to the terms and conditions of the Manufacturing and Supply Agreement to the extent appropriate and for a price to be agreed upon between the parties, if and only if, with respect to any P&GP Additional Product, P&GP does not enter into a development arrangement with a Third Party (subject to the provisions of Sections 5.01(b) and 5.03).

          (e) In the event P&GP or a Related Party shall, subject to the provisions of Sections 5.01(b) and 5.03, design, develop or commercialize any P&GP Additional Products independently or in collaboration with a Person other than Noven, then unless otherwise agreed by the parties in writing, neither P&GP nor any of its Related Parties shall have any right to sublicense or otherwise use in any manner the Noven Patents, the Technology or any of the rights licensed hereunder in connection with the design, development or commercialization of any such P&GP Additional Products.

          (f) Without limiting the provisions of this Section 5.01, it is acknowledged and agreed that Noven shall not have the right to design, develop or commercialize any Additional Products other than as contemplated in or permitted by Section 3.02(a), this Section 5.01 or Section 5.03. Without limiting the provisions of this Section 5.01, it is acknowledged and agreed that P&GP and its Related Parties shall not have the right to design, develop or commercialize any Additional Product other than as contemplated in or permitted by this Section 5.01 or Section 5.03.

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     Section 5.02. Regulatory Matters. P&GP and its Related Parties shall be solely responsible for filing and maintaining the Regulatory Applications and obtaining all Regulatory Approvals regarding the Products, as well as all ongoing regulatory compliance relating to the Products. P&GP shall use commercially reasonable efforts, and Noven shall cooperate in good faith with P&GP, to obtain Regulatory Approval of the Products, including Regulatory Approval for natural menopausal indications, in the United States and in each country of the Territory in which *** has been launched for commercial sale, or shall be launched for commercial sale. Upon reasonable request of P&GP, Noven shall cooperate in good faith with P&GP, at the expense of P&GP, to obtain Regulatory Approval for the Products in territories outside of the United States. Notwithstanding anything to the contrary herein, to the extent any regulatory filing or other action taken by P&GP, including any amendment, supplement or other modification of any of the INDs or NDAs for the Products, shall increase or modify in any manner any of Noven’s obligations under the Manufacturing and Supply Agreement or, to the extent any such filing or action shall constitute a change of specifications or other manufacturing change with respect to the Products, Noven’s obligations with respect thereto shall be subject to the terms and conditions of the Manufacturing and Supply Agreement.

     Section 5.03. Noncompetition.

          (a) Subject to the provisions of Sections 5.03(b), 5.03(c), 5.03(d), 5.03(e) and 10.03 hereof, for a period commencing on the Effective Date, and continuing thereafter during the term of this Agreement and pursuant to Section 10.03, if longer, neither Noven, P&GP nor any Related Party, nor any of their respective Affiliates, shall, directly or indirectly, (i) promote or commercialize any product in the Field, or (ii) engage in, or have any majority equity ownership in, or participate in the financing, operation or management of, any firm, corporation or business that engages in, the direct or indirect promotion or commercialization of any product in the Field (the activities described in clauses (i) and (ii) collectively, the “Competing Business”).

          (b) The provisions of Section 5.03(a) shall not limit (i) the right of the parties to develop, promote and commercialize the T-Patch and the *** in accordance with the provisions of this Agreement, or (ii) the right of either party to develop, promote and commercialize any Additional Product that either (x) Noven designs or develops for commercialization by P&GP as contemplated in Section 5.01(a) of this Agreement, or (y) Noven designs or develops for P&GP or a Related Party, or P&GP and Noven design or develop together, as contemplated in Section 5.01(b) of this Agreement.

          (c) The provisions of Section 5.03(a) shall not prohibit the acquisition by Noven, P&GP or a Related Party, or any of their respective Affiliates, of all or any part of a business or Person (whether through the acquisition of assets, securities or other ownership interests, the effecting of a merger, consolidation, share exchange, business combination, reorganization or recapitalization or other similar transaction) (an “Acquired Business”) that is engaged in a Competing Business; provided, however, the acquisition by either Noven, P&GP or a Related Party, or any of their respective Affiliates, of an Acquired Business shall not relieve Noven, P&GP or its Related Parties, or any of their respective Affiliates (including the Acquired Business), of the obligations, restrictions and limitations under Section 5.03(a).

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          (d) The prohibitions of Section 5.03(a) shall not apply to:

     (i) the promotion and commercialization of *** by P&GP or any Related Party subject to and in accordance with the terms and conditions of this Agreement;

     (ii) Affiliates of P&GP, Noven or a Related Party at such time as they are no longer Affiliates of P&GP, Noven or such Related Party, as applicable; or

     (iii) the acquisition by either Noven, P&GP or a Related Party, or any of their respective Affiliates, of any interest in any Person, or entering into any collaboration or affiliation with any Person, where the joint venture, association, partnership, collaboration, affiliation or other arrangement arising therefrom does not involve the promotion or commercialization of a product in the Field.

          (e) The prohibitions of Section 5.03(a) shall apply to and bind any Person who shall acquire (whether through the acquisition of assets, securities or other ownership interests, the effecting of a merger, consolidation, share exchange, business combination, reorganization or recapitalization or other similar transaction) a majority of the ownership interests or control of the management of Noven, P&GP or a Related Party, or any of their respective Affiliates; provided, however, that if any such acquiring Person participates in a Competing Business prior to the time of such transaction with Noven, P&GP or a Related Party, or the applicable Affiliate, as the case may be, Section 5.01(a) shall not restrict the continuation by such Person of such Competing Business.

     Section 5.04. Manufacturing and Supply Agreement. The parties shall endeavor in good faith to enter into the Manufacturing and Supply Agreement as soon as practicable after the Effective Date and in any event prior to 45 days following the Effective Date. The Manufacturing and Supply Agreement shall incorporate the target specifications for the T-Patch attached hereto as Exhibit C. In addition, the pricing structure for the supply price of the T-Patch under the Manufacturing and Supply Agreement shall be based upon the provisions of Exhibit D attached hereto. The pricing structure for the *** and any Additional Products hereunder, including the ***, shall be determined by mutual agreement of the parties.

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ARTICLE VI
ROYALTIES AND MILESTONE PAYMENTS

     Section 6.01. Royalties Based Upon Quarterly Net Outside Sales. In consideration for the licenses granted to P&GP by Noven hereunder, P&GP shall pay royalty payments (collectively, the “Royalties”) to Noven within 45 calendar days after the end of each calendar quarter, which Royalties shall be determined as a percentage (the “Royalty Rate”) of Quarterly Net Outside Sales of the Products by P&GP (and any Related Parties, successors, assignees, delegatees or partners of P&GP) in the Territory during such calendar quarter. Subject to Section 6.03, the Royalty Rate applicable to the Products for each calendar quarter during the term of this Agreement shall be *** of Net Outside Sales of the Products in the United States; provided that in the event of any termination of the Manufacturing and Supply Agreement prior to termination of this Agreement, other than a termination by P&GP due to Noven bankruptcy or Noven’s uncured material breach of the Manufacturing and Supply Agreement (subject to the termination provisions of the Manufacturing and Supply Agreement), the Royalty Rate applicable to the Products for each calendar quarter during the term of this Agreement shall be *** of Net Outside Sales of the Products in the Territory as a whole.

     Section 6.02. Additional Products. In the event that the parties shall agree to the development of Additional Products pursuant to Section 5.01(a) or 5.01(b), the Royalty Rates set forth in Section 6.01 shall apply to the sale of such Additional Products, and the Net Outside Sales allocable to such Additional Products shall be taken into account together with the sales of all other Products for purposes of determining the Net Outside Sales and the Royalties and Milestone Payments payable hereunder.

     Section 6.03. Expiration of Patents. Upon the date on which the last of the Noven Patents in force in the Territory shall (i) expire by its terms, or (ii) be adjudicated invalid or unenforceable in the Territory by the final judgment of a court of competent jurisdiction, which judgment shall not be subject to appeal (“Patent Expiration”), each Royalty Rate then in effect hereunder shall be reduced by *** before such time as a patch product which is a generic substitute for a Product reaches the market in the United States, and each Royalty Rate then in effect hereunder shall be reduced by *** as of the time a patch product which is a generic substitute for a Product reaches the market in the United States. For purposes of clarity, the reduction in the Royalty Rate is not additive; either a *** or *** reduction will apply.

     Section 6.04. Milestone Payments. P&GP shall pay and deliver to Noven payments (collectively, the “Milestone Payments”), upon the achievement of certain milestones (the “Milestones”) as follows:

          (a) P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after the last day of the first calendar quarter during which the Annual Net Outside Sales of the Products in the Territory exceeds ***;

          (b) P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after the last day of the first calendar quarter during which the Annual Net Outside Sales of the Products in the Territory exceeds ***; and

          (c) P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after the last day of the first calendar quarter during which the Annual Net Outside Sales of the Products in the Territory exceeds ***;

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          (d) if, during the fourth year following Launch of a Product in the United States, Net Outside Sales of the Products in the Territory total at least *** for that year and Net Outside Sales of the Products in the Territory are not less than *** of Net Outside Sales of the Products in the Territory in the third year following Launch of a Product in the United States, then P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after the last day of the month in which Net Outside Sales of the Products in the Territory reach ***;

          (e) if, during the sixth year following Launch of a Product in the United States, Net Outside Sales of the Products in the Territory total at least *** for that year, P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after the last day of the month in which Net Outside Sales of the Products in the Territory reach ***; and

          (f) P&GP shall pay and deliver to Noven *** in immediately available funds within 45 calendar days after receipt of the first Regulatory Approval of the *** in the United States;

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 Noven within the appropriate period contemplated in this Section 6.04.

     Section 6.05. Determination of Net Outside Sales.

          (a) Monthly Reports. P&GP shall provide financial reports to Noven on a monthly basis within 20 Business Days after the last day of each calendar month setting forth the Net Outside Sales of the Products in the United States for the monthly period ending as of the end of each such calendar month. Noven and P&GP hereby acknowledge and agree that such reports shall constitute Confidential Information for purposes of this Agreement and shall be held as confidential by Noven in accordance with Section 7.01 hereof.

          (b) Quarterly Reports. P&GP shall provide financial reports to Noven on a quarterly basis within 15 Business Days after the last day of each calendar quarter, setting forth (i) the amount of Quarterly Net Outside Sales of the Products for the quarterly period ending as of the end of each such calendar quarter, (ii) a detailed reconciliation of gross sales for such calendar quarter to Quarterly Net Outside Sales for such calendar quarter, (iii) the Annual Net Outside Sales of the Products during the 12-month period ending on the last day of such calendar quarter, and (iv) the conversion rate (determined in accordance with Section 6.05(c)) for the calendar quarter used to convert any currency other than U.S. dollars into U.S. dollars. Noven and P&GP hereby acknowledge and agree that such reports shall constitute Confidential Information for purposes of this Agreement and shall be held as confidential by Noven in accordance with Section 7.01 hereof.

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          (c) Currency Conversion. All payments made under this agreement shall be in U.S. dollars and all references herein to “$” shall mean U.S. dollars. Where customers are billed in a currency other than U.S. dollars, for purposes of computing royalty payments on Net Outside Sales for any calendar quarter, the aggregate of Net Outside Sales billed in such currency for such quarter shall be converted into U.S. dollars at the commercial rate at which U.S. dollars could be purchased with such foreign currency (the “Dollar Purchase Rate”) on the last Business Day of such quarter, based on the Dollar Purchase Rate on such date as quoted by Citibank, N.A. in New York or other such valid source as agreed by the parties if Citibank, N.A. in New York no longer exists.

          (d) Tax Withholding. If any withholding taxes are imposed by a governmental authority upon Royalties paid under this Agreement, and if such taxes are owed by Noven and required by law or regulation to be withheld by P&GP, P&GP shall withhold such taxes and pay the withheld taxes on behalf of Noven, and deduct the amount of such withheld taxes from the Royalty payments made to Noven hereunder; provided that P&GP shall provide to Noven prompt written evidence of payment of all such withholding tax to the appropriate governmental authority, and with respect to any Royalties payable in respect of sales outside of the United States, P&GP shall provide prior notice of any such withholding requirements and shall cooperate with Noven in order to enable Noven to claim exemptions or reductions from any such withholding tax under any double taxation or similar agreements in force.

          (e) Maintenance of Records; Audits. P&GP shall keep, and shall cause its Related Parties, successors, assigns, delegatees and/or partners to keep, complete and accurate records pertaining to the sale of the Products in sufficient detail to permit Noven to confirm the accuracy of calculations of the Royalties, the Milestone Payments and any other payments due hereunder. Such records shall be maintained in accordance with Applicable Law and in any event for at least a three-year period following the end of the calendar quarter for which they pertain. Not more than once in any fiscal year and upon reasonable advance notice to P&GP, and at its own expense (subject to Section 6.05(g)), Noven shall be entitled to nominate an internationally recognized independent certified public accounting firm reasonably acceptable to P&GP to have access at reasonable times during normal business hours (subject to signing a confidentiality agreement, if applicable) to examine P&GP’s (or its Related Party’s, successor’s, assign’s, delegatee’s or partner’s, as the case may be) records as they relate to relevant Products for the purpose of verifying the correctness of the Royalties, the Milestone Payments and any other amounts paid to Noven under the terms of this Agreement; provided, however, that if such audit reveals that P&GP underreported Quarterly Net Outside Sales or Annual Net Outside Sales by five percent or more, or if any such understatement resulted in P&GP not paying Noven a Milestone Payment to which Noven was entitled, then such audit shall not count against the one audit to which Noven is entitled per fiscal year. Moreover, if an accounting firm is used in such audit, the accounting firm shall not disclose to Noven or to any third party any financial or other information relating to the business of P&GP except that which is necessary to inform Noven of the accuracy or inaccuracy of P&GP’s calculation. Noven shall not audit the same records twice. Noven shall only be entitled to audit books and records of P&GP from the three calendar years prior to the calendar year prior to which the audit request is made.

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          (f) Disputes. In the event Noven shall dispute the correctness of P&GP’s calculation of (i) Quarterly Net Outside Sales for any calendar quarter, (ii) Annual Net Outside Sales of the Products for any 12-month period, (iii) the computation of any Royalty or Milestone Payment payable hereunder, or (iv) any other amount payable to Noven hereunder, Noven shall, within 45 calendar days of receipt of any such calculation or payment, provide written notice to P&GP of such objection, setting forth in writing and in reasonable detail the reasons therefor; provided that the failure to give notice of an objection within such 45-calendar day period shall not result in the waiver or loss of Noven’s right to dispute the correctness of P&GP’s calculation unless, and only to the extent that, P&GP is actually prejudiced by such failure. Noven and P&GP shall endeavor in good faith to resolve any disputed matters within 45 calendar days after P&GP’s receipt of Noven’s notice of objections. If Noven and P&GP are unable to resolve the disputed matters within such 45-calendar day period, Noven and P&GP shall select a nationally known independent accounting firm (which firm shall not be the then regular auditors of either party) 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 Noven and P&GP. The independent accounting firm selected to resolve such disputes shall have access to the relevant records of the parties with respect to the matter in dispute. In connection with the resolution of any dispute under this Section 6.05(f), Noven shall bear the costs and expenses of the independent accounting firm selected to resolve such disputes, subject to Section 6.05(g).

          (g) Expenses. If P&GP is determined to have underreported the amount of Quarterly Net Outside Sales or Annual Net Outside Sales for a period subject to dispute hereunder by five percent or more, or if any such understatement shall have resulted in P&GP not paying Noven a Milestone Payment to which Noven was entitled, then P&GP shall reimburse Noven for any and all reasonable, actual out-of-pocket expenses incurred by Noven in connection with the dispute, including any costs and expenses payable to the independent accounting firm or firms engaged pursuant to Section 6.05(e) and/or Section 6.05(f), and any other costs and expenses incurred by Noven in connection with the audit of P&GP’s books and records and any such dispute resolution process.

     Section 6.06. Generation of Net Outside Sales. P&GP and its Related Parties shall exercise Commercially Reasonable Efforts to maximize the Net Outside Sales of the Products during the term of this Agreement, and shall at all times market the Products in a manner comparable to other products of P&GP (or its Related Parties, successors, assignees, delegatees or partners), with market potential comparable to that of the Products. Without limiting the generality of the foregoing, (i) with respect to any country in the Territory (including the United States) in which neither *** nor any Product has been launched for commercial sale as of the Effective Date, P&GP and its Related Parties shall exercise Commercially Reasonable Efforts to Launch one or more of the Products in each such country, and (ii) with respect to any country in the Territory in which *** has been launched for commercial sale as of the Effective Date, or shall be launched for commercial sale after the Effective Date but prior to the Launch of any of the Products, P&GP and its Related Parties shall exercise Commercially Reasonable Efforts to convert their promotion and commercialization efforts from *** to the Products, and exercise Commercially Reasonable Efforts to transition sales from *** to the Products, as soon as

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practicable after receipt of Regulatory Approval of the first Product in such country; provided that with respect to this clause (ii), P&GP shall not be required to transition sales from *** to any Product in any country until such Product shall have received Regulatory Approval for natural menopausal indications in such country. Notwithstanding the foregoing, in the event Noven shall have notified P&GP, at any time prior to the Launch of a Product in any country, that Noven in good faith believes that such Launch in such country poses a risk of infringement of any Intellectual Property rights of ***, P&GP may Launch such Product in such country notwithstanding Noven’s notice of potential infringement risk; provided that in such case P&GP shall indemnify Noven and the Noven Indemnitees from any and all Damages arising out of any infringement, alleged infringement or other violation of any Intellectual Property rights of *** related to such Launch, or any or claim, demand, suit, action or proceeding related thereto.

ARTICLE VII
CONFIDENTIALITY

     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 party and/or its Affiliates, Related Parties, successors, assigns, delegates, partners, 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 at least 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 Products 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 Products, 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.

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          (c) Notwithstanding the provisions of this Section 7.01:

     (i) P&GP shall be permitted to disclose to its distributors, wholesalers, customers and other third parties having a reasonable need to know such information such Confidential Information relating to the Products as P&GP shall reasonably determine to be necessary or useful in order to effectively develop, market and distribute the Products;

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

     (iii) each of Noven and P&GP shall be permitted to disclose to a Regulatory Authority such Confidential Information relating to the Products 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

     (iv) nothing in this Section 7.01 shall be interpreted to limit the ability of either Noven or P&GP 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) Each of Noven and P&GP 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, (i) P&GP 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, provided that P&GP is informed of the information to be disclosed and given an adequate time to comment, and (ii) Noven acknowledges and agrees that P&GP may disclose the terms and conditions of this Agreement to third party sublicensees and co-promotion partners to permit P&GP to exercise its rights to fulfill its obligations under Sections 3.04 and 3.05 of this Agreement; provided, however, that (x) such disclosure shall be pursuant to, and subject to the terms and conditions of, non-disclosure or similar protective agreements in form and substance reasonably acceptable to Noven, which agreements shall contain covenants, agreements, restrictions and limitations at least as restrictive as those set forth in this Agreement, (y) such disclosure may be made only to sublicensees and co-partners permitted under Sections 3.04 and 3.05, as the case may be, and (z) P&GP shall provide written notice of any such disclosure to Noven.

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          (e) Each party specifically recognizes that any breach by it or its Affiliates, Related Parties, successors, assigns, delegates, partners or representatives of this Section 7.01 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 11.02 or Article IX 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.

          (f) The obligations of confidentiality and nonuse set forth in this Section 7.01 shall survive the termination of this Agreement for a period of five years.

     Section 7.02. Publications. It is understood that the parties may wish to publish or otherwise disclose information generated in connection with the Project to a third party for publication in a reputable scientific forum (for example, as an abstract, poster presentation, lecture, article, book, or any other means of dissemination to the public). No such disclosure shall be made by either Noven or P&GP to a third party (a) without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, and (b) unless and until a patent application has been filed adequately describing and claiming any invention believed to be patentable embodied in such disclosure. In the event that either Noven or P&GP shall desire to make any such disclosure to a third party, such party shall submit a complete written draft of the disclosure to the other at least 45 calendar days prior to submission for publication of such draft, or an abstract of a proposed oral disclosure at least 45 calendar days prior to submission of such abstract or the oral disclosure, whichever is earlier. In the event that patent filings are necessary, public disclosure shall be delayed until said patent filings have been made. The other party shall have the right (i) to propose modifications to the publication for patent reasons, (ii) to request a delay in publication or presentation in order to protect patentable information, or (iii) to request that the information be maintained as a trade secret and, in such case the other party shall not make such publication.

     Section 7.03. Press Releases. In addition, 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, the other Transaction Documents or to the existence of an arrangement between the parties, without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. 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 party for its 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 a copy to the other party at least five Business Days prior to disclosure.

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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES

     Section 8.01. Representations and Warranties of Noven. Noven represents and warrants to P&GP as of the Effective Date that:

          (a) Organization. Noven is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Noven is qualified to do business in each jurisdiction where the character of its business (after giving effect to the Contemplated Transactions) makes such qualifications necessary to carry on its business.

          (b) Power, Authority and Enforceability. Noven has full corporate power and authority to enter into and perform this Agreement and to consummate the Contemplated Transactions. This Agreement has been or shall be duly executed and delivered by duly authorized signatories of Noven. This Agreement constitutes a valid and binding obligation of Noven, enforceable against Noven 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 Noven of the transactions contemplated hereby, will (i) conflict with or result in a breach of any of the terms, conditions or provisions of Noven’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 Noven 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 Noven.

          (d) No Default. Noven 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 Noven according to the terms of this Agreement will be a default, or whereby timely performance by Noven according to the terms of this Agreement may be prohibited, prevented or delayed.

          (e) Litigation. There is no Proceeding pending or, to the knowledge of Noven, threatened against, Noven or any of its Affiliates before any court, arbitrator, administrative agency or other tribunal that could reasonably be expected to prevent Noven from executing this Agreement or consummating the transactions contemplated hereby.

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          (f) Intellectual Property. To the extent set forth in this Agreement, (i) Noven has the right to grant to P&GP the rights granted herein unencumbered by any Liens (other than Permitted Liens), (ii) to the knowledge of Noven, Noven has not received any written notice alleging any infringement by Noven of any intellectual property rights of another Person in respect of the Products or the Noven Patents, (iii) to the knowledge of Noven, the Noven Patents are valid and enforceable and Noven has no knowledge of any infringement by a third party of any of the claims in the Noven Patents, and (iv) the rights granted to P&GP under this Agreement do not conflict with rights granted by Noven to any other Person.

          (g) Estimates. Noven acknowledges that P&GP makes no representation or warranty as to the prospects, financial or otherwise, of the sale of the Products, and that any projections, estimates or forecasts of future results or events provided by or on behalf of P&GP are subject to uncertainty and to the assumptions used in their preparation.

          (h) Generic Drug Enforcement Act. Neither Noven, its 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. Neither Noven, its Affiliates nor any of their respective officers, directors, employees, agents or consultants has been debarred under Section 306(a) or Section 306(b) of the FDC Act, nor convicted of any offense required to be listed under Section 306(k)(2) of the FDC Act.

          (i) Third Party Agreements. Neither the execution and the delivery of this Agreement nor the consummation by Noven of the Contemplated Transactions will conflict with or result in a breach of any third party agreements to which Noven is a party or may otherwise be bound.

     Section 8.02. Representations and Warranties of P&GP. P&GP represents and warrants to Noven as of the Effective Date that:

          (a) Organization. P&GP is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. P&GP is qualified to do business in each jurisdiction where the character of its business (after giving effect to the Contemplated Transactions) makes such qualifications necessary to carry on its business.

          (b) Power, Authority and Enforceability. P&GP has full corporate power and authority to enter into and perform this Agreement and to consummate the Contemplated Transactions. This Agreement has been or shall be executed and delivered by authorized signatories of P&GP. This Agreement constitutes a valid and binding obligation of P&GP, enforceable against P&GP 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.

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          (c) No Violation. Neither the execution and delivery of this Agreement nor the consummation by P&GP of the transactions contemplated hereby, will (i) conflict with or result in a breach of any of the terms, conditions or provisions of P&GP’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 P&GP 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 P&GP.

          (d) No Default. P&GP 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 P&GP according to the terms of this Agreement will be a default, or whereby timely performance by P&GP according to the terms of this Agreement may be prohibited, prevented or delayed.

          (e) Estimates. P&GP acknowledges that Noven makes no representation or warranty as to the prospects, financial or otherwise, of the sale of the Products, and that any projections, estimates or forecasts of future results or events provided by or on behalf of Noven are subject to uncertainty and to the assumptions used in their preparation.

          (f) Generic Drug Enforcement Act. Neither P&GP, its 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. Neither P&GP, its Affiliates nor any of their respective officers, directors, employees, agents or consultants has been debarred under Section 306(a) or Section 306(b) of the FDC Act, nor convicted of any offense required to be listed under Section 306(k)(2) of the FDC Act.

          (g) Litigation. There is no Proceeding pending or, to knowledge of P&GP, threatened against P&GP or any of its Affiliates before any court, arbitrator, administrative agency or other tribunal which (i) could reasonably be expected to prevent P&GP from executing this Agreement or consummating the transactions contemplated herein, or (ii) could reasonably be expected to prevent or interfere with P&GP’s ability to obtain Regulatory Approval of the Products.

          (h) Licenses and Permits. Subject to receipt of Regulatory Approval of the Products, P&GP has all licenses, franchises, permits and other similar authorizations affecting, or relating in any way to, the Products required by Applicable Law to be obtained by P&GP to permit P&GP to market, promote, distribute, use, sell, or otherwise dispose of the Products after the Effective Date.

          (i) ***. P&GP has entered into an amended and restated development and license agreement with *** (the ***) in respect of the Intellectual Property owned or otherwise controlled by ***, and (i) the terms and conditions of this Agreement and the Manufacturing and Supply Agreement do not conflict with, and will not result in a breach of, any of the terms and conditions of the ***, (ii) the transactions contemplated by this Agreement and the Manufacturing and Supply Agreement will not infringe, violate or result in a breach by P&GP or

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Noven of the rights of *** under the ***, (iii) as a result of the ***, P&GP no longer has any continuing obligation to work with *** or any of its Affiliates to develop products in the Field and is not currently working with *** on any such development of products in the Field (other than with respect to the efforts of P&GP to obtain Regulatory Approval of ***), and (iv) as a result of the ***, following the commercial launch of the first Product, P&GP shall have no further obligation to *** or any of its Affiliates to market or sell *** or any other product developed, in whole or in part, by *** or any of its Affiliates. To the knowledge of P&GP, neither *** nor any of its Affiliates, representatives or related parties has received any written notice alleging any infringement of any intellectual property rights of another Person in respect of*** or any of the ***. Attached hereto as Schedule 8.02(i) is a true and correct list of the patents and patent applications covering the *** (together with any reissues, confirmations, renewals, extensions, counterparts, divisions, continuations, continuations-in-part or patents-of-addition of such patents or patent applications, the ***). P&GP may, from time to time upon written notice to Noven, update Schedule 8.02(i) hereto to include additional patents and patent applications covering the *** as appropriate to reflect such patents and patent applications.

          (j) Third Party Agreements. Neither the execution and the delivery of this Agreement nor the consummation by P&GP of the Contemplated Transactions will conflict with or result in a breach of any third party agreements to which P&GP is a party or may otherwise be bound.

     Section 8.03. Knowledge. Where a representation or warranty contained in this Article VIII 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 to include 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.

ARTICLE IX
INDEMNIFICATION

     Section 9.01. Indemnification. In order to allocate 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 9.01.

          (a) Indemnification Obligations of P&GP. From and after the Effective Date, P&GP shall defend, indemnify and hold Noven, its Affiliates, and each of their respective officers, directors, agents, employees, shareholders, successors and assigns (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 P&GP or any of its Related Parties of this Agreement including (A) any material inaccuracy in or any material breach of any representation or warranty made by P&GP or a Related Party in, or pursuant to, this Agreement, and (B) any material breach by P&GP or a Related Party of, or material failure by P&GP or a Related Party to comply with, any of its covenants or obligations pursuant to this Agreement;

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     (ii) any infringement or alleged infringement of the *** arising out of any Noven Indemnitee’s exercise of its rights or performance of its obligations under this Agreement or any of the other Transaction Documents;

     (iii) the Products, including any actions or inactions by P&GP or any of its Related Parties, successors, assignees, delegatees or partners with respect to the Products, and any bodily injury, illness or death of any person caused or alleged to be caused by the use, distribution or sale of the Products;

     (iv) the enforcement by Noven Indemnitees of their rights under this Section 9.01(a);

     (v) any negligence or willful misconduct by P&GP or its Related Parties, successors, assignees, delegatees or partners under this Agreement or by P&GP or its Related Parties, successors, assignees, delegatees or partners in connection with the Products or the Technology;

     (vi) P&GP’s or a Related Party’s material violation of any Applicable Law, including any failure by P&GP or a Related Party to develop, use, make, have made, market, promote, sell, distribute or otherwise dispose of the Products and all materials used in connection with the Products, including any labeling, packaging and advertising, in accordance with all Applicable Laws; and

     (vii) the indemnification matters contemplated in Section 6.06;

provided, however, that, in each such case, P&GP shall not be liable hereunder to the extent such Damages arise from the negligence or willful misconduct of, or a violation of any Applicable Law by, any Noven Indemnitees, or from the breach by Noven of the provisions of this Agreement or the Manufacturing and Supply Agreement.

          (b) Indemnification Obligations of Noven. From and after the Effective Date, Noven shall defend, indemnify and hold P&GP, its Affiliates, and each of their respective officers, directors, agents, employees, shareholders, successors and assigns (collectively, “P&GP Indemnitees”) harmless from and against any and all Damages which P&GP 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 (A) any material inaccuracy in or any material breach of any representation or warranty made by Noven in this Agreement, and (B) any material breach by Noven of, or material failure by Noven to comply with, any of its covenants or obligations pursuant to this Agreement;

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     (ii) the enforcement by P&GP Indemnitees of their rights under this Section 9.01(b);

     (iii) any negligence or willful misconduct by Noven under this Agreement or by Noven or its Affiliates in connection with the Products or the Technology; and

     (iv) 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 the negligence or willful misconduct of, or a violation of any Applicable Law by, any P&GP Indemnitees, or from the breach by P&GP or a Related Party of any of the provisions of this Agreement or the Manufacturing and Supply Agreement.

     (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 calendar days notify the party obligated under this Article IX to indemnify the Indemnified Party (the “Indemnifying Party”), thereof in writing and allow the Indemnifying Party and its insurers the opportunity to assume liability for any Damages arising out of such Proceeding and the 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, that the failure to give notice of a claim for indemnification within such 20-calendar day period shall not result in the waiver or loss of any right to bring a claim for indemnification hereunder unless, and only to the extent that, the Indemnifying Party is actually prejudiced by such failure. Notwithstanding the foregoing, 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 insurers 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 such Proceeding within 30 calendar 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(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 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 P&GP or Noven,

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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 are 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 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. Unless terminated earlier as provided herein, this Agreement shall have a term with respect to each country in the Territory ending at the later of (i) five years from the date of the first commercial sale of a Product in such country, (ii) expiration of all data protection or market exclusivity rights relating to the Products granted by or available under authority of a Regulatory Authority in such country, (iii) expiration of the last to expire of the Noven Patents that cover or are implicated by the manufacture or sale of the Products in such country, and (iv) the last commercial sale of a Product, Noven Additional Product or P&GP Additional Product developed with Noven under this Agreement in such country.

     Section 10.02. Certain Termination Events.

          (a) Noven shall have the right to terminate this Agreement in its entirety upon the effectiveness of a termination of the Manufacturing and Supply Agreement by Noven for an uncured material breach by P&GP or a Related Party of the Manufacturing and Supply Agreement, in accordance with the termination provisions of the Manufacturing and Supply Agreement.

          (b) P&GP shall have the right to terminate this Agreement on a country by country and Product by Product basis at any time upon 60 calendar days prior written notice to Noven.

          (c) Either Noven or P&GP shall have the right to terminate this Agreement immediately in whole or in part at any time in the event the other party (or, with respect to P&GP, a Related Party) shall assign or otherwise delegate this Agreement in a manner not in compliance with Section 11.04.

          (d) Noven shall have the right to terminate this Agreement immediately in whole or in part as to any sublicensee in the event P&GP or a Related Party shall sublicense any of its rights under this Agreement in a manner not in compliance with this Agreement, including Section 3.04 hereof.

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          (e) If at any time during the term of this Agreement, P&GP or a Related Party, directly or indirectly, takes any action or assists or supports any third party in taking any action challenging any of Noven’s rights in the Noven Patents, including any action in connection with an opposition, reexamination, revocation or invalidation proceeding, or requests a declaration of an interference against or otherwise attacks the validity or enforceability of any Noven Patent, or contests or disputes Noven’s entitlement to or ownership of the Noven Patents, Noven shall have the right to terminate this Agreement immediately in its entirety.

          (f) If at any time during the term of this Agreement, Noven, directly or indirectly, takes any action or assists or supports any third party in taking any action challenging any of P&GP’s rights in patents relating to *** or any aspects of the Products, including any action in connection with an opposition, reexamination, revocation or invalidation proceeding, or requests a declaration of an interference against or otherwise attacks the validity or enforceability of any such patent or disputes P&GP’s entitlement to or ownership of such patents, P&GP shall have the right to terminate this Agreement in its entirety.

          (g) Either Noven or P&GP shall have the right to terminate this Agreement in its entirety if the other (or, with respect to P&GP, a Related Party) commits any 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 calendar days after receipt of written notice giving full particulars of the breach and requiring it to be so remedied.

          (h) Either Noven or P&GP may terminate this Agreement on a country by country basis with immediate effect with respect to any Product that is permanently and completely withdrawn from the market in such country for serious adverse health or safety reasons.

          (i) Either Noven or P&GP shall have the right to terminate this Agreement in its entirety upon 60 calendar days written notice to the other party at any time after the other party (or, with respect to P&GP, a Related Party) is (a) dissolved (other than pursuant to a consolidation, amalgamation or merger); (b) becomes insolvent or is generally unable to pay its debts as they become due or admits in writing its inability generally to pay its debts as they become due; (c) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (d) institutes or has instituted against it by a third party a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditor’s rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (ii) is not dismissed, discharged, stayed or restrained in each case within 30 calendar days of the institution or presentation thereon; (e) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (f) seeks or

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becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (g) has a secured party take possession of all or substantially all of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 calendar days thereafter; or (h) causes or is subject to any event with respect to it which, under the applicable law of any jurisdiction, has an analogous effect to any of the events specified in clauses (a) to (g) (inclusive). In the event Noven seeks or is involuntarily placed under the protection of bankruptcy laws, Title XI, United States Code, and the trustee in bankruptcy rejects this Agreement, P&GP hereby elects, pursuant to Section 365(n) of such bankruptcy laws, solely to the extent permitted thereunder and unless such election is subsequently revoked in writing by P&GP, to retain all of its rights and obligations under this Agreement to all licenses granted hereunder, in lieu of termination by P&GP under this Section 10.02(i). In the event that P&GP timely revokes such election to maintain its rights to all licenses hereunder, P&GP may elect to treat this Agreement as terminated in accordance with Section 365(n) of the bankruptcy laws.

          (j) Noven shall have the right to terminate this Agreement in its entirety if, by December 31, 2013, P&GP has not Launched any Product and is not actively pursuing the Launch of any Product as of such date.

          (k) Either party shall have the right to terminate this Agreement in its entirety upon written notice to the other if the parties have not entered into the Manufacturing and Supply Agreement within 45 days following the Effective Date; provided that in order for a party to have the right to terminate this Agreement pursuant to this Section 10.02(k), such party shall have endeavored in good faith to enter into the Manufacturing and Supply Agreement in accordance with Section 5.04; and provided further that upon any termination of this Agreement by either party in accordance with this Section 10.02(k), Noven shall pay and deliver to P&GP a penalty in the amount of ***.

     Section 10.03. Effect of Termination. Upon termination of this Agreement with respect to any country and/or with respect to any Product, this Agreement and all rights and licenses and sublicenses granted hereunder shall each forthwith become void and of no further force or effect with respect to such country and/or Product, as the case may be (and in the event of any termination of this Agreement in its entirety, this Agreement and all rights and licenses and sublicenses granted hereunder shall each forthwith become void and of no further force or effect in their entirety); provided that (a) the following provisions shall remain in full force and effect following any such termination indefinitely: (i) Section 7.01 (Confidentiality), (ii) Section 7.02 (Publications), (iii) Section 7.03 (Press Releases), (iv) Article IX (Indemnification), (v) this Section 10.03, (v) Section 11.10 (Governing Law), (vi) Section 11.12 (Entire Agreement) and (vii) Section 11.13 (Expenses), and (b) in the event of a termination of this Agreement by P&GP pursuant to Section 10.02(b) or by Noven pursuant to any of Sections 10.02(a), 10.02(c), 10.02(d), 10.02(e) or 10.02(g) prior to the expiration of the last to expire of the Noven Patents, that the provisions of Section 5.03 (Noncompetition) shall remain in full force and effect, on a country by country and Product by Product basis, with respect to P&GP and its Related Parties only, for a period of two years from the effective date of such termination. Subject to Section 9.02(a), 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 Agreement shall not affect any cause of action or claim hereunder that arises prior to such termination, which claims and causes of action shall survive any such termination.

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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 Noven:

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

     with copies (which shall not constitute notice) to:

Hogan & Hartson LLP
555 Thirteenth Street, NW
Washington, D.C. 20004
Attention: Elizabeth M. Donley
Telecopy: 202-637-5910

     if to P&GP:

Procter & Gamble Pharmaceuticals, Inc.
8700 Mason-Montgomery Road
Mason, Ohio 45040-8006
Attention: President, Procter & Gamble Pharmaceuticals
Telecopy: 513-622-4401

     with copies to:

Procter & Gamble Pharmaceuticals, Inc.
8700 Mason-Montgomery Road
Mason, Ohio 45040-8006
Attention: Associate General Counsel
Telecopy: 513-622-5327

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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 calendar 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. Either party may initiate such informal dispute resolution by sending written notice of the dispute to the other party, and within 10 calendar 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 P&GP, or their respective designees, for discussion and resolution. If such personnel are unable to resolve such dispute within 30 calendar 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 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 either party to seek injunctive or other equitable relief in a court or other judicial body.

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     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 Noven shall be solely employees of Noven and shall not represent themselves as employees of P&GP. All personnel of P&GP shall be solely employees of P&GP and shall not represent themselves as employees of Noven.

     Section 11.04. Assignment. Except as otherwise expressly contemplated in Section 3.04, neither party shall have the right to assign this Agreement or delegate any of its rights, interests, duties or obligations hereunder without the express prior written consent of the other party, which consent may be granted or withheld in the other party’s sole discretion. In the event the other party shall consent to any such assignment or delegation, (i) the assignee or delegatee shall confirm in writing to and for the benefit of the other party that it will comply with the covenants and agreements of the assigning party hereunder, and (ii) no such assignment or delegation pursuant to this Section 11.04 shall relieve the assigning party of any of its obligations or liabilities prior to such assignment. Notwithstanding the foregoing, (a) 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 party; provided, that no such assignment of this Agreement shall relieve the assignor of any of its obligations or liabilities under this Agreement, (b) either party may assign this Agreement without the other party’s 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 party, and (c) P&GP may assign this Agreement without Noven’s prior written consent in connection with a transaction in which P&GP is spun off as an independent publicly traded company, provided that such assignment shall be to such company. 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.

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     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 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 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 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 New York, 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.

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     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 including the Development Agreement and the Confidentiality Agreement. 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 EITHER 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 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. P&GP 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 TECHNOLOGY. EACH OF P&GP AND NOVEN ACKNOWLEDGES THAT THE OTHER PARTY HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATION OR WARRANTY ON ITS BEHALF IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS TO WHICH P&GP OR NOVEN IS A PARTY.

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     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 either 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, acts of terror, labor disturbances, or any governmental action, the party so affected, upon notice to the other party, 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.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of date first above written.

NOVEN PHARMACEUTICALS, INC.
By:	/s/ Peter C. Brandt
	Name:	Peter C. Brandt
	Title:	President, Chief Executive Officer

PROCTER & GAMBLE PHARMACEUTICALS, INC.
By:	/s/ Thomas M. Finn
	Name:	Thomas M. Finn
	Title:	President, Global Health Care

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EX-10.2

Exhibit 10.2

The confidential portions of this exhibit have been filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended. REDACTED PORTIONS OF THIS EXHIBIT ARE MARKED BY ***.

EXECUTION COPY

SUPPLY AGREEMENT

between

Noven Pharmaceuticals, Inc.

and

P&G Pharmaceuticals, Inc.

and

P&G Pharmaceuticals, S.A.R.L.

Article 1.	Definitions	1
Article 2.	Supply of Product	10
2.01	Obligation	10
2.02	Exclusivity of Supply	11
2.03	Shelf Life	11
2.04	Regulatory Compliance	12
2.05	Child Labor and Forced Labor	12
2.06	Shipment	13
2.07	Environmental Standards	15
2.08	Documentation	15
2.09	Supply Of Materials	15
2.10	Supply Assurance/Business Continuity Planning	17
2.11	Funding for Purchase of Equipment	17
2.12	Notification of Supply Issues	19
2.13	Reporting Requirements	19
2.14	Labeling and Packaging of Supplied Products	19
Article 3.	Quality Control and Testing	19
3.01	Quality Assurance Agreement	19
3.02	Testing and Certificate of Analysis	20
3.03	Preservation Samples/Retained Samples	20
3.04	Quality Disputes; Acceptance and Return	20
3.05	Stability Testing	23
3.06	Customer Complaints	23
3.07	Inquiries and Requests for Inspection	24
3.08	Inspections	24
3.09	Validations	24
3.10	Cross Contamination Risk	24
3.11	Quality Assurance Key Elements	24
Article 4.	Forecasts and Ordering	25
4.01	Forecasting	25
4.02	Launch Order	27
4.03	Firm Orders	27
4.04	Batch Size	27
4.05	Annual Installed Capacity	29
4.06	Customer Service	29
4.07	Shortfalls	31
4.08	Failure to Deliver	32
4.09	Notice of Delay	32
4.10	Technical Assistance	32
4.11	Site Level Execution Agreement	32

ii

Article 5.	Prices and Payment Terms	33
5.01	Price	33
5.02	Invoicing	33
5.03	Payment Terms	33
5.04	Adjustment Pursuant to Producer Price Index	33
5.05	Adjustment for Low Volume	34
5.06	Unprofitable Supply Terms	35
5.07	Adjustment for Modification of Specifications	36
5.08	Transfer Taxes	39
5.09	Continuous Improvement	40
5.10	Right to Audit	40
Article 6.	Change Management	42
Article 7.	Authorizations	43
Article 8.	Liabilities	43
8.01	Warranties; Disclaimer	43
8.02	NOVEN Indemnity	44
8.03	P&GP Indemnity	44
8.04	Certain Limitations	45
8.05	Disclaimer of Incidental Damages	46
8.06	Product Recalls	46
8.07	Notice and Opportunity to Defend	46
Article 9.	Term and Termination	47
9.01	Term	47
9.02	Certain Termination Events	47
9.03	Consequences of Termination	50
9.04	Survival	51
Article 10.	Confidentiality, Public, Announcements, Intellectual Property	51
10.01	Confidentiality	51
10.02	Public Announcements	54
10.03	License to Products	54
Article 11.	Alternative Suppliers	55
11.01	Qualification of Alternative Suppliers	55
11.02	Reasonable Assistance; Limited License	56
11.03	Royalties	58
Article 12.	Steering Committee	58
Article 13.	General Provisions	59
13.01	Force Majeure	59
13.02	Notices	60
13.03	Governing Law	60
13.04	Non-Waiver of Rights	60
13.05	Entire Agreement — Modifications	61
13.06	Agreement Precedence	61
13.07	Assignment	61
13.08	Partial Invalidity	62
13.09	Contractor Status	62
13.10	Disputes	63
13.11	Audits	64
13.12	Time Periods	64
13.13.	Expenses	64
13.14	Binding Effect; No Third Party Beneficiaries	65
13.15	Interpretation	65
13.16	Counterparts	65

iii

SUPPLY AGREEMENT

This Supply Agreement (together with the Schedules hereto, this “Agreement”) is entered into as of this 14^th day of August 2008 (the “Effective Date”), by and between:

SELLER: Noven Pharmaceuticals, Inc., a company organized and existing under the laws of Delaware, with a place of business at 11960 SW 144^th Street, Miami, FL 33186 (hereinafter “NOVEN”); and

BUYER: Procter & Gamble Pharmaceuticals, Inc., a company organized and existing under the laws of Ohio, with a place of business at One Procter and Gamble Plaza, Cincinnati, OH 45202 (hereinafter, “P&GP Inc.”), and Procter & Gamble Pharmaceuticals, S.A.R.L., a company organized and existing under the laws of Switzerland, with a place of business at 47, Route de Saint-Gorges 1213 Petit-Lancy 1, Switzerland (hereinafter “P&GP SARL” and, together with P&GP Inc., “P&GP”), on behalf of themselves and their Affiliates.

Background

0.01	P&GP intends to market and sell the Products (as defined herein) for use in human prescription pharmaceuticals.
0.02	Subject to the terms and conditions hereof, the parties have agreed that NOVEN will manufacture and supply such Products to P&GP for use and sale. The NOVEN manufacturing site as of the date of this Agreement designated for manufacture of Products is the NOVEN address above (11960 SW 144th Street, Miami, FL 33186).
0.03	NOVEN and P&GP are parties to the Development and License Agreement, dated as of June 30, 2008 (the “License Agreement”).

Article 1. Definitions

1.01	*** Batch” has the meaning set forth in Section 4.04(d).
1.02	“Action Plan” has the meaning set forth in Section 4.06(b).
1.03	“Additional Charges” has the meaning set forth in Section 4.04(c).

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1.04	“Additional Products” has the meaning set forth in the License Agreement.
1.05	“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 or the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of such Person whether through the ownership of securities, contract or otherwise.
1.06	“Agreement” has the meaning set forth in the Preamble.
1.07	“Alternate Supplier” has the meaning set forth in Section 11.01.
1.08	“Annual Installed Capacity” has the meaning set forth in Section 4.05.
1.09	“Annual MA” has the meaning set forth in the Quality Assurance Agreement.
1.10	“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).
1.11	“Audited Party” and “Auditing Party” have the meanings set forth in Section 5.10(a).
1.12	“Batch” means, as to each Product, the actual number of complete and usable units of such Product yielded from a standard size kettle *** of raw materials as determined by applicable Regulatory Authority validation requirements and blended for production of such Product, it being understood and agreed that the actual yield obtained by NOVEN from any such Batch will vary from time to time. The estimated number of units of the T-Patch expected to be yielded from each Batch produced thereof, as of the Effective Date, shall be as described in Schedule 2 hereto, as such schedule may be amended, modified or otherwise supplemented from time to time in accordance with the terms of this Agreement.

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1.13	“Business Continuity Plan” has the meaning set forth in Section 2.10.
1.14	“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York; Miami, Florida or Cincinnati, Ohio are authorized or required by law to close.
1.15	“cGMP” means (i) the current Good Manufacturing Practices as that term is defined in 21 C.F.R. Parts 210 and 211, as amended from time to time, and applicable guidance documents, and (ii) good manufacturing practices as required by applicable regulations of any Regulatory Authority.
1.16	“Complaint Notice” has the meaning set forth in Section 3.04(a).
1.17	“Confidential Information” means all secret, confidential or proprietary data, know-how and related information, including (i) 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, (ii) all information disclosed or accessed by the parties pursuant to the provisions of this Agreement or the other Transaction Documents, (iii) information learned, observed or otherwise acquired through site visits and discussions between NOVEN and P&GP at each other’s facilities, including plant size, crew shifts, number of lines, product shipments, lab procedures, new product development testing and manufacturing processes and (iv) the terms and conditions of this Agreement and the other Transaction Documents.
1.18	“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).

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1.19	“Development Agreement” has the meaning set forth in the License Agreement.
1.20	“Disclosing Party” has the meaning set forth in Section 10.01(a).
1.21	“Discretionary Change” has the meaning set forth in Section 5.07(a).
1.22	“Effective Date” has the meaning set forth in the Preamble.
1.23	“FDA” means the United States Food and Drug Administration and any successor agency thereto.
1.24	“Fixed Order Date” has the meaning set forth in Section 4.01(a).
1.25	“Fixed Zone” has the meaning set forth in Section 4.01(c).
1.26	“GAAP” means, as of any time of determination, accounting principles generally accepted in the United States, as in effect at such time.
1.27	“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), 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.
1.28	“Grace Period” has the meaning set forth in Section 5.05.
1.29	“Gross Margin” means, with respect to any Product and with respect to any period of determination, (i) the aggregate Purchase Price actually received by NOVEN for such Product during such period, less (ii) NOVEN’s aggregate, fully allocated cost of Raw Materials, labor and manufacture of such Product during such period, as determined in accordance with GAAP.

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1.30	“IND” means an Investigational New Drug Application, as defined in 21 C.F.R. § 312.3(b), filed by a Person with the FDA to obtain authorization to develop, test and perform clinical trials of a product, together with any amendments, correspondence or supplements thereto and incorporated therein.
1.31	“Indemnified Party” has the meaning set forth in Section 8.07.
1.32	“Indemnifying Party” has the meaning set forth in Section 8.07.
1.33	*** has the meaning set forth in the License Agreement.
1.34	“Label Changes” has the meaning set forth in Section 5.07(d).
1.35	“License Agreement” has the meaning set forth in the Recitals.
1.36	“Manufacturing Audit” has the meaning set forth the Quality Assurance Agreement.
1.37	“Milestone Payments” has the meaning set forth in the License Agreement.
1.38	“Monthly Targets” has the meaning set forth in Section 4.06(b).
1.39	“NDA” means a New Drug Application, as defined in 21 C.F.R. § 314, filed by a Person with the FDA to obtain FDA approval of a new drug or therapy, as the context indicates, together with any amendments, correspondence or supplements thereto and incorporated therein.
1.40	“Net Outside Sales” has the meaning set forth in the License Agreement.
1.41	“NOVEN” has the meaning set forth in the Preamble.
1.42	“NOVEN Indemnitees” has the meaning set forth in Section 8.03.
1.43	“NOVEN Patents” has the meaning set forth in the License Agreement.
1.44	“NOVEN Transfer Taxes” has the meaning set forth in Section 5.08.

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1.45	“Other Required Change” has the meaning set forth in Section 5.07(c).
1.46	“P&GP” has the meaning set forth in the Preamble.
1.47	“P&GP Inc.” has the meaning set forth in the Preamble.
1.48	“P&GP SARL” has the meaning set forth in the Preamble.
1.49	“P&GP Transfer Taxes” has the meaning set forth in Section 5.08.
1.50	“Partial Batch Charges” has the meaning set forth in Section 4.04(c).
1.51	“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.
1.52	“Planning Horizon” has the meaning set forth in Section 4.01(d).
1.53	“PPI” has the meaning set forth in Section 5.04.
1.54	“Printed Matter” means all printed materials, including labeling and package inserts, affixed to and/or packaged with any Products delivered to P&GP, including any labeling or other printed matter required to be affixed to and/or packaged with any of the Products by any Applicable Law or Regulatory Authority, as well as any discretionary labeling or other printed matter designated by P&GP to be affixed to and/or packaged with any of the Products.
1.55	“Proceedings” means governmental, judicial, administrative or adversarial proceedings (public or private), litigation, suits, arbitration, disputes, claims, causes of action or investigations.
1.56	“Product” or “Products” means, collectively, (i) the ***, (ii) the T-Patch, (iii) any Additional Products that become “Products” for purposes of the License Agreement, and (iv) samples and placebos of the foregoing. For purposes of clarity, it is agreed that “Products” shall not include any clinical products delivered by NOVEN to P&GP pursuant to the Development Agreement or the License Agreement.

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1.57	“Purchase Order” has the meaning set forth in Section 4.03.
1.58	“Purchase Price” has the meaning set forth in Section 5.01.
1.59	“Quality Assurance Agreement” has the meaning set forth in Section 3.01.
1.60	“Quality Assurance Key Elements” or “QAKE” has the meaning set forth in Section 3.11.
1.61	“Raw Materials” means, with respect to any Product, all active ingredients, starting materials, excipients and other ingredients used in the manufacture of such Product, as well as all packaging, labeling and other printed matter included in such Product.
1.62	“Receiving Party” has the meaning set forth in Section 10.01(a).
1.63	“Required Change” has the meaning set forth in Section 5.07(b).
1.64	“Regulatory and Clinical Materials” means all documents, supporting materials and other materials relating to the Regulatory Applications, any Regulatory Approval or other matter required to be submitted to any Regulatory Authority in relation to the Products, including the INDs and NDAs for the Products and documents, supporting materials and other materials relating to any drug master file, investigators’ brochures, clinical studies, pre-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.

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1.65	“Regulatory Applications” means the applications submitted by P&GP or its Related Parties to Regulatory Authorities seeking authorization or approval for the development, manufacture, testing, storage, transport, marketing, advertisement, promotion, sale, use, distribution or other disposal of the Products in all or any portion of the Territory, including the INDs and the NDAs for the Products.
1.66	“Regulatory Approval” means, as to each Product, (i) with respect to the United States, the issuance of an approval letter (as defined in 21 C.F.R. § 314.3(b)) by the FDA pursuant to 21 U.S.C. §355(c) and 21 C.F.R. § 314.105 approving the NDA for such Product and approving the Product for manufacturing, marketing, sale, distribution and use in the United States, irrespective of any post-marketing study commitments related to such Product, and (ii) with respect to any territory outside of the United States, the comparable issuance of approval by a Regulatory Authority for the manufacturing, marketing, sale, distribution and use of such Product in such territory.
1.67	“Regulatory Authority” means a Governmental Authority that has the authority over the manufacture, use, storage, import, export, testing, transport, marketing, sale or distribution of any of the Products in all or any portion of the Territory, including the FDA and any counterparts to the FDA in territories outside of the United States.
1.68	“Related Parties” means P&GP’s Affiliates and permitted sublicensees. For purposes of clarification, it is acknowledged and agreed that the term “Related Parties” does not include distributors.
1.69	“Rolling Forecast” has the meaning set forth in Section 4.01(a).
1.70	“Royalties” has the meaning set forth in the License Agreement.
1.71	“Services” means, with respect to any Product, formulation, stability testing, manufacture, packaging, printing and application of labeling, testing prior to shipment (including but not limited to Raw Materials, intermediate/work in process and finished goods testing) and storage prior to loading of such Product onto the carrier approved by P&GP for shipment.

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1.72	“Site Level Execution Agreement” or “SLEA” has the meaning set forth in Section 4.11.
1.73	“SKU” has the meaning set forth in Section 4.03.
1.74	“Specifications” means, with respect to any Product, the written methods, procedures, specifications, tests and standards pertaining to the manufacture, storage, labeling, packaging and/or testing of such Product, as such Specifications may be subsequently amended pursuant to Article 6. Schedule 1 provides the Specifications for T-Patch as of the Effective Date. Specifications for each other Product, including without limitation for ***, will be agreed upon by the parties and attached as a Schedule hereto prior to launch of such Product.
1.75	“Split Lot Charges” has the meaning set forth in Section 4.04(b).
1.76	“Steering Committee” has the meaning set forth in Article 12.
1.77	“Target Inventory Levels” has the meaning set forth in Section 2.09(b).
1.78	“T-Patch” means the transdermal patch drug delivery system developed by NOVEN ***, and shall include any minor improvements or modifications to such product that do not require additional development work (provided that clinical trials of the T-Patch and clinical work related to the T-Patch performed by P&GP shall not be considered additional development work for purposes of the foregoing phrase). For purposes of clarification, the term “T-Patch” shall not include any product that may constitute an Additional Product under the License Agreement.
1.79	*** means the transdermal patch drug delivery system to be developed by NOVEN ***. For purpose of clarification, the term *** shall not include any product that may constitute an Additional Product under the License Agreement.

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1.80	“Technology” has the meaning set forth in the License Agreement.
1.81	“Term” has the meaning set forth in Section 9.01.
1.82	“Territory” has the meaning set forth in the License Agreement.
1.83	“Third Party” means any Person other than the parties hereto and their respective Affiliates and, in the case of P&GP, any Related Party.
1.84	“Three-Year Forecast” has the meaning set forth in Section 4.01(e).
1.85	“Transaction Documents” means this Agreement, the License Agreement, any agreements or documents prepared or executed pursuant to the transactions contemplated by such agreements, any exhibits or attachments to any of the foregoing and any other written agreement signed by NOVEN and P&GP that is expressly identified as a Transaction Document, as any of the foregoing may be amended, supplemented or otherwise modified from time to time.
1.86	“Transfer Taxes” means, collectively, all taxes payable with respect to the manufacture, sale and transportation of the Products hereunder that are imposed by a Governmental Authority, including, without limitation, any sales, use, excise, value-added, services, consumption and other taxes and duties incurred by reason of the manufacture, sale and/or transportation of the Products under this Agreement.
1.87	“United States” means the United States of America and its territories and possessions.

Article 2. Supply of Product

2.01 Obligation. Subject to the terms and conditions hereof, NOVEN shall sell and supply the Products to P&GP, and P&GP shall purchase and receive exclusively from NOVEN all of its requirements of each Product. Subject to the terms and conditions hereof, NOVEN is responsible for providing the Services with respect to each Product sold and purchased hereunder.

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2.02	Exclusivity of Supply.
(a)	Subject to the terms and conditions of this Agreement, NOVEN will not manufacture, sell or otherwise provide any Product in any country with respect to which P&GP holds an exclusive license under the License Agreement for any party other than P&GP, or any successor, assignee, delegatee or partner of P&GP approved by NOVEN in accordance with this Agreement or the License Agreement, during the Term.
(b)	Subject to the terms and conditions hereof, NOVEN will be the exclusive supplier of the Products.
2.03	Shelf Life.
(a)	All Product sold hereunder is intended to bear at least *** months of its approved shelf life at the time of loading of such Product onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility. NOVEN and P&GP will seek to collaborate during supply chain planning discussions on the timing of manufacturing schedules and placement of Purchase Orders to meet the shelf life requirements. Both P&GP and NOVEN recognize that, from time to time, the *** months shelf life requirement may not be achievable due to manufacturing or quality variances.
(b)	P&GP shall have the right to refuse any shipment of Product that does not bear at least *** months of its approved shelf life at the time of loading of such Product onto the carrier approved by P&GP for shipment, provided that the diminished shelf life is not due to any delay by P&GP. This Section 2.03(b) sets forth NOVEN’s sole and exclusive liability, and P&GP’s sole and exclusive remedy, with respect to any failure to meet the shelf life requirements set forth in this Section 2.03 (provided that any Product refused by P&GP pursuant to this Section 2.03(b) will be considered Product not delivered to P&GP for purposes of Sections 4.07 and Section 9.02(c), and will be taken into account in determining whether any shortage or failure of supply has occurred, in accordance with the terms of those provisions).

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(c)	The shelf life requirements set forth in this Section 2.03 are based upon an approved shelf life of the Product of *** months. If the approved shelf life for any Product is extended beyond *** months, the parties will discuss in good faith a revision of the shelf life requirements under this Section 2.03 with respect to such Product. If, at initial launch for any Product, the approved shelf life of such Product is less than *** months, the parties will discuss in good faith a revision of the shelf life requirements set forth in this Section 2.03, and NOVEN will use commercially reasonable efforts to assist P&GP in obtaining approval for a minimum *** month shelf life.
2.04	Regulatory Compliance. NOVEN shall ensure that all services, facilities and equipment used in the manufacture, packaging, labeling, storage and testing of Product prior to loading the Product onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility comply with all Applicable Laws and regulations including but not limited to cGMPs.
2.05	Child Labor and Forced Labor. NOVEN represents, warrants and covenants that:
(a)	NOVEN does not and will not employ children, prison labor, indentured labor or bonded labor or use corporal punishment or other forms of mental and physical coercion as a form of discipline; and
(b)	to NOVEN’S knowledge, no suppliers or subcontractors engaged by NOVEN in connection with the performance of Services hereunder employ children, prison labor, indentured labor or bonded labor or use corporal punishment or other forms of mental and physical coercion as a form of discipline, and in the event NOVEN learns that any such supplier or subcontractor has engaged in any of the foregoing, it shall use commercially reasonable efforts to require such supplier or subcontractor to cease such activities.

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In the absence of any national or local law setting the minimum age, P&GP and NOVEN agree to define “child” as less than 15 years of age. If national or local law sets the minimum age below 15 years of age, but is in accordance with exceptions under International Labor Organization Convention 138, the lower age will apply.

2.06	Shipment.
(a)	Except as set forth in Section 2.06(c) below, all Product sold to P&GP hereunder shall be loaded by NOVEN onto P&GP’s designated carrier for shipment at NOVEN’s manufacturing facility. NOVEN shall arrange for P&GP’s designated carrier to receive each shipment of Product at NOVEN’s manufacturing facility for delivery to P&GP’s designees and/or distribution centers.
(b)	P&GP will provide to NOVEN all information necessary for export and customs clearance of Product to be shipped to foreign countries. NOVEN shall be responsible for completing any DEA forms and for physical preparation of Product for shipment to P&GP’s designees and designated distribution centers. With respect to any shipment of Product outside of the United States, NOVEN shall be the exporter of record and will prepare export paperwork for shipment to a customs broker within the United States designated by P&GP in writing to NOVEN.
(c)	Shipment of Product shall be F.C.A. (Incoterms 2000) NOVEN’s manufacturing facility for all export shipments and Ex-Works (Incoterms 2000) NOVEN’s manufacturing facility for all U.S. shipments. Notwithstanding any provision of this Agreement, risk of loss and damage to any and all Product manufactured hereunder shall pass to P&GP upon loading of such Product onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility. NOVEN

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shall have no liability under this Agreement for any failure of any carrier to deliver Product on or before the applicable Fixed Order Date so long as NOVEN has loaded the Product onto such carrier no later than five (5) Business Days prior to such Fixed Order Date, unless NOVEN is at fault for any delays in delivery by such carrier (for example due to improper packing), in which case the period of the delay caused by NOVEN shall be counted for purposes of determining whether NOVEN has satisfied the requirements set forth in Section 4.06(a)(i). P&GP shall ensure that the storage conditions of each Product during transportation are maintained in accordance with its Specifications. All transportation costs associated with shipping Product from NOVEN’s manufacturing facility shall be borne entirely by P&GP. NOVEN shall arrange for P&GP’s designated carrier to receive each shipment of Product at NOVEN’s manufacturing facility for delivery to P&GP’s distribution centers or other shipping locations and P&GP shall arrange, directly with the carrier, the timing and method of delivery to its distribution centers and other shipping locations. P&GP will provide to NOVEN a list of preferred carriers and NOVEN shall use said carriers unless P&GP’s designated carrier is not available, in which case NOVEN will select an alternate carrier. In such case, NOVEN must receive P&GP’s approval (not to be unreasonably withheld or delayed) prior to the use of any carrier other than those designated by P&GP as preferred carriers in accordance with this Section 2.06(c), and such approval by P&GP shall pertain only to the approved shipment unless otherwise indicated by P&GP. Additional shipping costs resulting from NOVEN’s expedited deliveries or use of alternate carriers in order to comply with NOVEN’s obligations to expedite delivery, that are due to the fault of NOVEN, will be at NOVEN’s expense. Any costs associated with any other expedited deliveries, or any other use of an alternate carrier requested or approved by P&GP, will be at P&GP’s expense.

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2.07	Environmental Standards. NOVEN agrees to comply with all environmental laws, ordinances, codes, rules, regulations and permits applicable to the performance of Services hereunder.
2.08	Documentation. NOVEN shall maintain and provide to P&GP copies of documentation relevant to the manufacture, packaging, labeling, storage and testing of Product subject to and in accordance with the terms and conditions of the Quality Assurance Agreement.
2.09	Supply Of Materials.
(a)	NOVEN will exercise commercially reasonable efforts to obtain all Raw Materials necessary to fulfill its obligations to supply Product to P&GP hereunder.
(b)	NOVEN shall exercise commercially reasonable efforts to develop, qualify (in accordance with the Quality Assurance Agreement) and audit adequate sources to maintain a target inventory safety stock of Raw Materials necessary to manufacture Product, the minimum and maximum levels of which shall be set forth in the SLEA (the “Target Inventory Levels”). P&GP shall be liable for any Raw Materials maintained pursuant to this Agreement within the Target Inventory Levels set forth in the SLEA, and, upon request of NOVEN, will reimburse NOVEN for NOVEN’s reasonable out-of-pocket costs of any such Raw Materials not incorporated into Product purchased by P&GP, subject to Section 5.07, Article 6 and Section 9.03(c), to the extent applicable.
(c)	NOVEN shall exercise commercially reasonable efforts to identify alternative vendors for Raw Materials; provided, that P&GP hereby acknowledges and agrees that certain suppliers of Raw Materials to NOVEN are or may be single-source vendors and that Raw Materials supplied to NOVEN may not be reasonably available for purchase by NOVEN from any other vendor on terms and conditions that meet NOVEN’s alternative raw materials acceptance

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	process. The parties shall cooperate through the Steering Committee to prepare a summary plan outlining alternative sources of Raw Materials, including contingency suppliers, and shall cooperate to update such summary plan annually or more frequently as necessary to reflect any material changes thereto. The parties shall work together through the Steering Committee to determine whether qualification of additional vendors of Raw Materials is appropriate, to estimate the amount of time required to qualify additional vendors of Raw Materials and to effect any such qualifications to the extent deemed appropriate by the Steering Committee; provided that all suppliers of Raw Materials shall meet NOVEN’s and P&GP’s alternative raw materials acceptance process. All costs of qualification of additional vendors of Raw Materials requested by either P&GP or NOVEN shall be paid by the party making the request; provided that to the extent such qualification is required as the result of a Force Majeure event, the costs of qualification shall be shared by both parties.
(d)	NOVEN is responsible to inspect, analyze or otherwise ensure that all Raw Materials meet NOVEN’s specifications and standards for such Raw Materials and meet Applicable Laws and regulations including but not limited to cGMPs, in accordance with the Quality Assurance Agreement; provided, however, that P&GP shall be solely responsible for the design and content (including without limitation artwork and text) of all Printed Matter used in the manufacture of the Product, as further described in the Quality Assurance Agreement.
(e)	In order to assist NOVEN in fulfilling its obligations under this Agreement, and at NOVEN’s request, P&GP may arrange for supply of one or more Raw Materials to NOVEN on terms reasonably acceptable to NOVEN. In such event, P&GP and NOVEN shall cooperate to agree on pricing and responsibilities for logistics procedures, losses and risks associated with such Raw Materials.

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2.10

Supply Assurance / Business Continuity Planning. NOVEN shall prepare, within ninety (90) calendar days after submission of the first Regulatory Application of a Product for marketing authorization in any country within the Territory, a business continuity plan (“Business Continuity Plan”), the purpose of which shall be to assess and reduce supply interruption risks associated with supply of Product sold hereunder. Such a plan will include an analysis of risks including but not limited to: failure or delay of land, water or air transportation; governmental action; strikes or other labor disputes; accident, fire, explosion, flood, storm or other acts of God; shortage of Raw Materials, labor, fuel, power, inventory or machinery; technical failures, delay or failure to perform by any supplier; or any other relevant factor as determined by NOVEN in its sole discretion. The Business Continuity Plan will include commercially reasonable action steps to reduce the likelihood or severity of risks considered unacceptable. P&GP shall have the right to provide input into the Business Continuity Plan. The Steering Committee will mutually agree on the approved Business Continuity Plan to protect supply of Product. NOVEN will be responsible for any costs and expenses associated with implementation of the Business Continuity Plan as proposed by NOVEN, and P&GP shall reimburse NOVEN for its costs and expenses associated with implementing any revisions to the Business Continuity Plan proposed by P&GP.

2.11

Funding for Purchase of Equipment. In order that NOVEN may perform its obligations herein, NOVEN may request that P&GP consider providing, and P&GP may agree to provide to NOVEN, funding for the purchase and installation of unique equipment/production parts and for specialized facility modifications necessary to carry out the Services for the Products. In the event that NOVEN requests and P&GP agrees to provide such funding, the following provisions shall apply:

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(a)	P&GP shall provide such funding to NOVEN as costs are incurred, approved by P&GP and invoiced by NOVEN with supporting documentation. Such funding provided by P&GP shall be in an amount sufficient to cover any sales or transaction tax applicable to the purchase of the applicable equipment. P&GP shall also pay, or reimburse to NOVEN, the cost of installation of any equipment funded by P&GP hereunder.
(b)	Any equipment purchased using funds provided to NOVEN by P&GP under this Section 2.11 will be for use by NOVEN exclusively in the performance of Services for P&GP; provided that if another opportunity arises to utilize such equipment for another customer, NOVEN may request P&GP’s approval to so use such equipment, which shall be at P&GP’s sole discretion.
(c)	All equipment purchased with such funds will be the property of NOVEN. NOVEN will acquire and retain title to such equipment and will be responsible for its maintenance and/or replacement in the event of loss or destruction. NOVEN will use commercially reasonable efforts to maintain adequate insurance to cover the replacement of equipment in the event of loss or destruction. In addition, P&GP will have the option, commencing upon the later of the expiration or termination of this Agreement or any extension(s) thereof, if any, and continuing for three (3) months thereafter, to purchase at fair market value any or all equipment purchased with funds provided to NOVEN by P&GP under this Section 2.11. Such fair market value will be determined at the time such option is exercised based on the cost of such equipment as invoiced from NOVEN to P&GP less the amount of funding provided by P&GP under this Section 2.11 with respect to such equipment. If P&GP exercises this option, the costs of removal, restoration, if any, and transportation of the equipment will be borne by P&GP. It is understood that NOVEN will not be required to refund installation costs should the asset be removed by P&GP or released by P&GP under this Section 2.11(c).

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(d)	NOVEN will keep any and all equipment purchased with such funds free and clear of all liens, claims, security interests, pledges, charges, mortgages, deeds of trust, options, or other encumbrances of any kind including but not limited to such liens arising out of or relating to provincial construction lien legislation in Canada, U.S. state mechanic’s liens statutes, or similar statutes.
2.12	Notification of Supply Issues. NOVEN will notify P&GP promptly of any capacity or schedule changes, conflicts or risks reasonably likely to affect its ability to supply Product forecasted and ordered by P&GP hereunder pursuant to a forecast and Purchase Order submitted in accordance with the provisions of Section 4.01 and Section 4.03. NOVEN shall use commercially reasonable efforts to resolve such issues promptly and to allocate limited materials and resources, including equipment and labor capacity, on a pro-rated basis among its various products and customers.
2.13	Reporting Requirements. NOVEN shall provide to P&GP such information and reports as may be reasonably requested by P&GP and agreed to by NOVEN, in a format and on a frequency to be agreed upon by the parties.
2.14	Labeling and Packaging of Supplied Products. P&GP shall, at its own cost and expense, supply NOVEN with the electronic and/or mechanical design of all text, artwork, specification number, and other information to be used for all Printed Matter. P&GP shall supply such materials, data and information to NOVEN on a timely basis so as not to cause any delay in NOVEN’s manufacturing process.

Article 3. Quality Control and Testing

3.01 Quality Assurance Agreement. Simultaneously with, or as soon as practicable after, the execution of this Agreement, the parties shall enter into a Quality Assurance Agreement (the “Quality Assurance Agreement”) covering the details of items such as, but not limited to, quality control procedures, testing, quality

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	assurance, product and material release, change control, notifications, deviations and similar activities. Such Quality Assurance Agreement may be amended from time to time as provided therein or as otherwise agreed to in writing by the parties without formal amendment to this Agreement.
3.02	Testing and Certificate of Analysis. Before releasing any Batch of Product hereunder, NOVEN shall test Product and check the compliance of such Batch with the Specifications. Such compliance check shall be performed by NOVEN’s Quality Assurance Control department and shall be certified by the head of such department (or his/her designee). Copies of the certificate of analysis and cGMP conformity certification, along with any other pertinent manufacturing or testing documentation, shall be sent to P&GP in accordance with the terms and conditions of the Quality Assurance Agreement.
3.03	Preservation Samples / Retained Samples. NOVEN shall retain samples of Raw Materials and Product supplied hereunder in accordance with the terms and conditions of the Quality Assurance Agreement.
3.04	Quality Disputes; Acceptance and Return.
(a)	Any claim by P&GP that any Product at the time it was loaded onto the carrier approved by P&GP for shipment did not meet the warranties and representations set forth in Section 8.01(a) must be made in writing to NOVEN within thirty (30) days of delivery (for Product released in the United States) or within sixty (60) days of delivery (for Product released outside the United States). Notwithstanding the foregoing, with respect to any latent defect (i.e., any failure of a Product to meet the applicable requirements set forth in the Specifications which is not determinable by testing upon physical arrival of the Product at P&GP’s distribution center in accordance with standard quality control procedures, and which is not otherwise apparent), P&GP must notify NOVEN of a claim that the Product does not meet the applicable requirements set forth in the Specifications within thirty (30) days from the date that the problem

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becomes discoverable. The notice provided by P&GP with respect to a claim under either of the first two (2) sentences of this Section 3.04(a) shall be referred to herein as a “Complaint Notice”. Failure to provide a Complaint Notice to NOVEN within the applicable period set forth in this Section 3.04(a) shall constitute acceptance of such Product by P&GP, and NOVEN shall have no liability for defects or deviations for which it has not received notice within such period. Any such Complaint Notice shall be issued in good faith and state in reasonable detail (sufficient to enable NOVEN 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 P&GP believes the Product may not be acceptable to P&GP. P&GP shall, as soon as reasonably practicable, and in any case within fifteen (15) days of the delivery by P&GP of any such possible Complaint Notice, provide samples of the Product being rejected, if available, and copies of written reports relating to tests, studies or investigations performed to that date by or on behalf of P&GP on the Batch of the Product being rejected. NOVEN shall use commercially reasonable efforts to notify P&GP of NOVEN’s agreement or disagreement with P&GP’s Complaint Notice as promptly as practicable, but in any event within ten (10) days after the later of (i) receipt by NOVEN of the Complaint Notice or (ii) receipt by NOVEN of samples of the rejected Product from P&GP. NOVEN shall test a sample from the same Batch as the contested Product, and shall provide to P&GP a copy of the results of such test. If P&GP does not agree with the outcome of such testing, representative samples of the Batch of the Product in question shall be submitted to an independent third party laboratory mutually agreed upon by the parties. The results of such third party testing shall be accepted by NOVEN and P&GP as final and binding. The cost of such third party testing shall be borne by the party whose position is not substantiated by the testing. P&GP will have final decision authority on determining whether any Product can be used for sale and distribution.

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(b) Any Product that is properly rejected in accordance with subsection (a) above for failure to meet the warranties and representations set forth in Section 8.01(a) shall be returned to NOVEN (or, at NOVEN’s election, destroyed by P&GP with evidence of such destruction provided by P&GP to NOVEN) at NOVEN’s expense, including costs of return shipment, shipment to destruction location, and/or destruction, as applicable. NOVEN shall credit P&GP the Purchase Price, plus any Additional Charges paid by P&GP for such Product or, if P&GP has not yet paid for such Product, P&GP will be relieved of any payment obligations with respect thereto. NOVEN shall also credit P&GP for the amount of reasonable shipping and reasonable out-of-pocket charges actually incurred by P&GP in association with the delivery and incoming quality inspection of such defective Product to P&GP. Consistent with NOVEN’s responsibility to remedy noncompliance as described in this subsection (b), in the event any Product is properly rejected pursuant to Section 3.04(a) above, P&GP may exercise one of the following remedies:

(i)	submit a new Purchase Order for Product with a mutually agreed to Fixed Order Date, and NOVEN shall use commercially reasonable efforts to expedite manufacture and delivery of the replacement Product ordered by P&GP;
(ii)	the parties will mutually work together to determine if the rejected Product can be remediated by modifying an existing Purchase Order, considering the availability of Product in the appropriate stage of the manufacturing process; or
(iii)	replace the rejected Product through a future delivery not in the Fixed Zone.
	P&GP will not incur any Additional Charges with respect to the replacement Product unless such Additional Charges were previously paid and refunded with respect to the rejected Product, or were invoiced but not yet paid at the time such Product was rejected and the Purchase Price therefor refunded. P&GP will, in good faith, work with NOVEN to minimize the additional costs NOVEN will incur to supply replacement Product while not jeopardizing P&GP’s trade commitments.

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(c)	Notwithstanding the foregoing provisions of this Section 3.04, NOVEN shall have no liability or obligation to P&GP under this Section 3.04 if it is determined that any defect in any Product is attributable to the failure by any Person (including P&GP) to properly store, transport or care for any unit of such Product after such Product left NOVEN’s possession or is otherwise due to the fault of P&GP.
(d)	If NOVEN supplies Product which fails to comply with the representations and warranties as set forth in Section 8.01(a), NOVEN shall perform, at its own cost and expense, an investigation into the reasons for such failure in accordance with the terms and conditions of the Quality Assurance Agreement.
(e)	P&GP’s rights and remedies set forth in this Section 3.04, together with NOVEN’s indemnification obligations under Section 8.02, shall constitute P&GP’s exclusive remedy with respect to any failure of Product supplied hereunder to comply with the representations and warranties set forth in Section 8.01(a) (unless such failure results in a supply failure under Section 9.02(c), in which case Section 9.02(c) shall apply).
3.05	Stability Testing. NOVEN shall conduct, at its own cost and expense, stability programs in accordance with the terms and conditions of the Quality Assurance Agreement. NOVEN and P&GP agree to cooperate in good faith to seek an extension of expiration dating for the Products as stability data are generated on commercial batches.
3.06	Customer Complaints. NOVEN and P&GP shall be responsible for reporting and investigating customer complaints related to the Products in accordance with the terms and conditions of the Quality Assurance Agreement.

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3.07	Inquiries and Requests for Inspection. NOVEN and P&GP shall be responsible for responding to inquiries and any requests for inspections by Regulatory Authorities and other Third Parties in accordance with the terms and conditions of the Quality Assurance Agreement.
3.08	Inspections. NOVEN shall develop and execute periodic self-inspection as set forth in the Quality Assurance Agreement.
3.09	Validations. NOVEN shall implement validation procedures in accordance with the terms and conditions of the Quality Assurance Agreement.
3.10	Cross Contamination Risk. NOVEN hereby declares that in its facilities where the Products are manufactured, tested or stored, NOVEN is not and has not manufactured, packaged, tested or stored biological preparations containing living organisms, cephalosporins, cytotoxics or highly active materials, penicillin or other products that could reasonably be expected to constitute hazardous contaminants. In the event that NOVEN intends, during the course of this Agreement, to begin such activity, NOVEN shall promptly notify P&GP in writing of its intention to do so in order to allow P&GP to consider any potential questions of cross-contamination or regulatory requirements. In the event P&GP, after reasonable consultation with NOVEN, identifies a potential problem of cross-contamination or regulatory requirements that would prohibit the activity, NOVEN agrees not to manufacture, formulate or package products in the facility that present cross-contamination problems for the Product(s).
3.11	Quality Assurance Key Elements. NOVEN represents and warrants that NOVEN’s quality control systems are designed to meet the quality standards described in Exhibit A hereto (referred to as “Quality Assurance Key Elements Assessment” or “QAKE”), to the extent such standards are applicable to the Services performed by NOVEN hereunder. In connection with its Annual MA conducted under the Quality Assurance Agreement, with respect to compliance with QAKE, P&GP may audit NOVEN’s manufacturing facility, in a manner

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not to unreasonably interfere with NOVEN’s operation at the manufacturing facility. P&GP will provide to NOVEN such results from the QAKE audit in the form of a score. If the score is less than ***, NOVEN shall develop and implement a detailed action plan to improve NOVEN’s quality standards. In the event NOVEN fails to implement such action plan or subsequent audit results have a score of less than ***, P&GP shall be entitled to a review of all batch documentation and/or on site monitoring of process conditions prior to the shipment of Product to P&GP, subject to the parties reaching mutual agreement with respect to the payment of costs and expenses associated with such monitoring. It is acknowledged that nothing in this Section 3.11 shall limit NOVEN’s representations and warranties set forth in Section 8.01(a), including NOVEN’s representations and warranties regarding compliance with cGMP.

Article 4. Forecasts and Ordering

4.01

Forecasting.

(a)

Rolling Forecasts. P&GP shall provide to NOVEN, within three (3) months after submission of the first Regulatory Application of a Product for marketing authorization in any country within the Territory, and shall provide to NOVEN on a monthly basis thereafter, on or before the tenth (10th) day of each calendar month, a written, rolling twelve (12)-month forecast (broken down by calendar month of delivery, with the requested date of delivery to P&GP’s distribution center (“Fixed Order Date”) for each such month, pouch language combinations and SKU) of P&GP’s estimated requirements of each Product (each, a “Rolling Forecast”). The aggregate quantity of Product forecasted with respect to any calendar month pursuant to this Section 4.01 shall not exceed one-twelfth (1/12) of NOVEN’s Annual Installed Capacity, with the exception of quantities forecasted with respect to the launch order under Section 4.02. NOVEN shall be entitled to reject any Rolling Forecast that is not submitted on or before the tenth (10th) day of any calendar month. NOVEN, upon receipt of P&GP’s monthly Rolling Forecast, shall, within fourteen (14) calendar days, notify P&GP if NOVEN expects to be unable to deliver P&GP’s forecasted Product requirements. P&GP shall use commercially reasonable efforts to ensure that its Rolling Forecasts are as accurate as possible.

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(b)	Fixed Orders. P&GP shall give NOVEN a Purchase Order for each SKU of Product at least *** days prior to the Fixed Order Date for such Product identified within the Rolling Forecast.
(c)	Fixed Zone. *** prior to each Fixed Order Date is the “Fixed Zone”. P&GP shall purchase one hundred percent (100%) of the Product forecasted with respect to each Fixed Zone period (adjusted for changes mutually agreed). *** of each Fixed Zone (counting backwards from the Fixed Order Date) are unchangeable. During *** of each Fixed Zone (counting backwards from the Fixed Order Date), changes to language groups, packaging configurations within language group, and changes to scheduled Batches are allowed, with mutual agreement by NOVEN and P&GP. ***.
(d)	Planning Horizon. *** prior to each Fixed Order Date shall be referred to herein as the “Planning Horizon”. Within the Planning Horizon, no limitations shall apply to additions, deletions or changes to the Rolling Forecast, except that the quantity of Product forecasted for *** prior to a Fixed Order Date cannot increase by more than twenty percent (20%) when rolled into the next Fixed Zone.
(e)	Three-Year Forecast. Within three (3) months after submission of the first Regulatory Application of a Product for marketing authorization in any country within the Territory, and on an annual basis thereafter, P&GP shall provide to NOVEN a written, three (3)-year long range forecast (broken down by month of delivery, pouch language combination and SKUs in Year 1 and annual number of patches for Years 2 and 3) of P&GP’s estimated requirements of each Product (each, a “Three-Year Forecast”). NOVEN and P&GP will utilize each Three- Year Forecast to discuss the potential for any Product shortfalls and mutually agree to any supply risk mitigation plans via the Steering Committee.

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4.02	Launch Order. The parties will consult with each other to seek to provide P&GP with sufficient quantities of each Product for the initial commercial launch of such Product.
4.03	Purchase Orders. Each purchase order for requirements of Product (“Purchase Order”) placed by P&GP shall be submitted in writing by P&GP and shall specify, at a minimum:
	- the P&GP legal entity placing the Purchase Order,
	- the unique material code for each carton of Product (“SKU”),
	- the quantity of SKU of Product ordered,
	- the Fixed Order Date, and
	- the applicable country to which the Product will ultimately be delivered.
	NOVEN shall have the right to invoice P&GP for Product forecasted for delivery within the Fixed Zone if NOVEN does not receive a Purchase Order for such Product by the Fixed Order Date.
4.04	Batch Size. P&GP shall have the right to order Product as follows:
(a)	P&GP shall have the right to order the full targeted yield of one or more whole Batches of a single Product, each unit of which shall be packaged in single specified pouch/language combinations and SKU. The targeted yield of a Batch of T-Patch is set forth on Schedule 2. The parties will discuss and determine implications of any adjustment of targeted yield (e.g. validation, change control) that may be necessary to reflect increases or decreases in anticipated yield.
(b)	P&GP shall have the right to order a single Batch of a Product split into multiple Purchase Orders having distinct pouches and/or cartons. In the event P&GP shall desire to so split a Batch, P&GP shall pay to NOVEN the applicable charges set forth under the heading “Split Lot Costs” on Schedule 2 attached hereto (the “Split Lot Charges”).

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(c)	P&GP shall have the right to submit a single or multiple Purchase Order(s) requesting less than the full yield of a Batch of a Product. In the event P&GP shall desire to order less than the full yield of a Batch of Product, P&GP shall pay to NOVEN the applicable charges set forth under the heading “Full Batch Order with Partial Batch Processing” on Schedule 2 attached hereto (the “Partial Batch Charges” and, together with the Split Lot Charges, the “Additional Charges”). It is acknowledged and agreed that a single Purchase Order may be subject to Split Lot Charges as well as Partial Lot Charges.
(d)	P&GP shall have the right to request NOVEN to validate a *** batch of Product (a “***”). In the event that P&GP desires that NOVEN establish the capability to produce a ***, P&GP shall submit to NOVEN a written request for validation of the mixing process for ***. Within thirty (30) days after receipt of such written notice from P&GP, NOVEN will provide P&GP with a written estimate of the cost to perform validation of the mixing process for ***. If P&GP provides NOVEN with written approval of the estimated validation cost, then NOVEN shall carry out such validation at P&GP’s sole cost and expense. After successful completion of such validation, NOVEN shall provide P&GP with written notice thereof, and P&GP shall thereafter have the right to submit Purchase Orders for ***. In the event P&GP exercises its right to request ***, P&GP shall pay NOVEN a per-patch purchase price to be agreed by the parties and to be set forth in Schedule 2 attached hereto. Schedule 2 sets forth a non-binding estimate of such per-patch purchase price.
(e)	All Additional Charges shall be invoiced to P&GP in arrears on a quarterly basis.

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4.05	Annual Installed Capacity. The parties acknowledge and agree that NOVEN’s ability to supply P&GP’s requirements of Product shall be limited by NOVEN’s maximum installed capacity for production of each Product per twelve (12) month period, as such capacity shall exist from time to time (the “Annual Installed Capacity”). NOVEN shall commit the Annual Installed Capacity to fulfillment of Purchase Orders placed by P&GP under this Agreement; provided that NOVEN’s obligations with respect to committed Annual Installed Capacity shall not commence until ninety (90) days after submission of the first Regulatory Application of a Product for marketing authorization in any country within the Territory. The initial Annual Installed Capacity for all Products in the aggregate shall be *** units of Product. Commencing ninety (90) days after submission of the first Regulatory Application of a Product for marketing authorization in any country within the Territory, in the event NOVEN shall at any time have an opportunity to utilize any portion of the Annual Installed Capacity for any purpose other than the manufacture of Product for supply to P&GP hereunder, NOVEN may request P&GP to release a portion of the Annual Installed Capacity and P&GP shall not unreasonably withhold or delay its approval of such request.
4.06	Customer Service
(a)	NOVEN shall exercise commercially reasonable efforts to develop and maintain systems, staffing, and procedures to meet the following standards of customer service:

(i)	*** of shipments of the Product in each calendar month will be loaded onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility on or before the date that is five (5) Business Days prior to the applicable Fixed Order Date, plus or minus five (5) days; and
(ii)	The Purchase Order quantity of Product loaded onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility during each calendar month shall equal between *** and *** of the number of units ordered in the applicable Purchase Order fulfilled during such month.

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(b) The parties shall cooperate to track NOVEN’s actual monthly performance versus the above targets (the “Monthly Targets”) and shall review these results during periodic meetings of the Steering Committee. Commencing *** days after Product launch, if NOVEN shall fail to meet either of the Monthly Targets for ***, and the cause of NOVEN’s below-target performance is within the control of NOVEN, then the parties will cooperate to develop a plan (an “Action Plan”) to enable NOVEN to meet or exceed the relevant performance target. The parties will consider whether NOVEN could benefit from technical assistance from P&GP. This Section 4.06(b) sets forth NOVEN’s sole and exclusive liability, and P&GP’s sole and exclusive remedy, with respect to (A) any late supply or delivery of Product (unless (x) the shelf life of such Product does not meet the requirements set forth in Section 2.03, in which case Section 2.03 shall apply or (y) quality Product is not received as set forth in Section 3.04, in which case Section 3.04 shall apply, or (z) such failure results in a supply failure under Section 9.02(c), in which case Section 9.02 (c) shall apply), and/or (B) any delivery of an excessive or insufficient quantity of Product (unless (x) the quantity delivered is less than *** of the quantity ordered, in which case Section 4.07 shall apply, or (y) quality Product is not received as set forth in Section 3.04, in which case Section 3.04 shall apply, or (z) such failure results in a supply failure under Section 9.02(c), in which case Section 9.02(c) shall apply).

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4.07	Shortfalls. In the event NOVEN shall supply less than *** of the units ordered by P&GP pursuant to any Purchase Order, NOVEN shall notify P&GP in writing of the amount of such shortfall as soon as reasonably practicable on discovery of such shortfall, and P&GP shall, within thirty (30) days after the earlier of (i) receipt of such notification or (ii) receipt of the applicable delivery of such Product, exercise one of the following remedies:
(a)	accept such delivery in full satisfaction of the Purchase Order (as to quantity only and not in waiver of P&GP’s opportunity to reject such Product pursuant to Section 3.04);
(b)	issue a new Purchase Order for Product with a mutually agreed to Fixed Order Date, and NOVEN shall use commercially reasonable efforts to expedite manufacture and delivery of the units of Product ordered pursuant to such order; provided, that in either case P&GP shall pay NOVEN the Purchase Price for the units of Product actually supplied and such Additional Charges that would have applied to the original Purchase Order had such Product actually shipped;
(c)	the parties will mutually work together to determine if the shortfall can be remediated by modifying an existing Purchase Order, considering the availability of Product in the appropriate stage of the manufacturing process; or
(d)	replace the shortfall with a projected future delivery not in the Fixed Zone.
	P&GP will not incur any Additional Charges with respect to any quantities of Product provided in remediation of a shortfall unless such Additional Charges were previously paid and refunded with respect to the rejected Product. P&GP will, in good faith, work with NOVEN to minimize the additional costs NOVEN will incur in addressing a shortfall while not jeopardizing P&GP’s trade commitments. P&GP’s failure to exercise one of the remedies under this Section 4.07 within such thirty (30)-day period shall be deemed an acceptance of such units in satisfaction of the applicable Purchase Order pursuant to subsection (a) above. This Section 4.07 sets forth NOVEN’s sole and exclusive liability, and P&GP’s sole and exclusive remedy, with respect to any delivery of an insufficient quantity of Product (unless (x) such failure constitutes a failure to meet the Monthly Targets pursuant to Section 4.06(a)(ii), in which case Section 4.06(b) shall apply, or (y) quality Product is not received as set forth in Section 3.04, in which case Section 3.04 shall apply, or (z) such failure results in a supply failure under Section 9.02(c), in which case Section 9.02(c) shall apply).

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4.08	Failure to Deliver. Subject to the limited remedies set forth in Section 4.06 and Section 4.07, in the event NOVEN fails to deliver Product ordered by P&GP due to actions or inaction on the part of NOVEN, NOVEN shall take all commercially reasonable steps, including but not limited to, working extra hours, shifts or days, to fulfill NOVEN’s obligation hereunder. All costs for such additional efforts will be NOVEN’s.
4.09	Notice of Delay. Whenever NOVEN becomes aware of any event or circumstance that impacts, or threatens to impact, the timely performance of NOVEN’s obligations under this Agreement or any Purchase Order(s), NOVEN shall promptly notify P&GP in writing of all relevant information with respect to such event or circumstance, and shall use commercially reasonable efforts to deliver such notice within five (5) days. No such notification from NOVEN to P&GP shall release NOVEN from any liability under this Agreement otherwise resulting from the delay.
4.10	Technical Assistance. If NOVEN delivers less than *** of quantity shipped versus quantity ordered due to technical manufacturing issues, the parties may agree to have P&GP provide technical expertise and assistance until the issue(s) are resolved.
4.11	Site Level Execution Agreement. As soon as practicable after execution of this Agreement and before the first country Regulatory Approval, the parties shall enter into a written Site Level Execution Agreement (“SLEA”) providing additional detail regarding items such as, but not limited to, production planning, supply chain measures, forecasting, ordering, customer service, inventory record accuracy, quality assurance, compliance measures, cGMP, Raw Material Target Inventory Levels and Product loss targets, shipping guidelines, problem solving procedures, and similar activities. SLEAs may be amended from time to time as agreed to in writing by the parties without formal amendment to this Agreement.

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Article 5. Prices and Payment Terms

5.01	Price. In consideration for the supply of Products by NOVEN hereunder, P&GP shall pay NOVEN the per-unit purchase price (the “Purchase Price”), for each unit of Product supplied hereunder. P&GP shall also pay NOVEN the applicable Additional Charges and any other charges set forth in Schedule 2. The Purchase Price for commercial supply of the T-Patch is set forth in Schedule 2 hereto. The Purchase Price shall be in addition to, and independent of, Royalties, Milestone Payments and other amounts payable by P&GP to NOVEN under this Agreement and/or the License Agreement.
5.02	Invoicing. On each Purchase Price invoice submitted hereunder, NOVEN will include the number of the applicable Purchase Order, the quantity shipped, the Purchase Price, payment remit to, and the legal entity indicated as the ordering entity on such Purchase Order. P&GP may withhold payment of NOVEN’s invoice until the provisions of this paragraph have been fulfilled. With respect to each invoice for Additional Charges or other amounts payable to NOVEN hereunder, NOVEN shall include sufficient information to enable P&GP to identify such Additional Charges and other amounts.
5.03	Payment Terms. P&GP shall pay each complete and correct invoice received from NOVEN within forty-five (45) days from the date of receipt by P&GP of such invoice. Payments shall be in U.S. Dollars and shall be paid to NOVEN’s account specified in writing to P&GP from time to time hereunder. Overdue invoices shall bear interest at the rate of 1.5% per month until the entire invoice amount is paid.
5.04	Adjustment Pursuant to Producer Price Index. On June 1 of each calendar year during the Term, the Purchase Price of each Product shall be decreased/increased by an amount equal to the decrease/increase in the PPI over the immediately-preceding twelve (12) month period. The decrease/increase shall be determined by multiplying the respective Purchase Price for each Product by a fraction, the numerator of which shall be the average value of the

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PPI for the twelve (12) month period ending in May of the then-current calendar year, and the denominator of which shall be the average value of the PPI for the twelve (12) month period ending in May of the immediately-preceding calendar year. As the PPI figures for February, March, April and May of the then-current calendar year are preliminary as of June 1 of each calendar year, the Purchase Price may be further adjusted pursuant to this Section 5.04 by either party when actual PPI figures are posted. For purposes of this Section 5.04, “PPI” shall mean the producer price index industry data figure (Pharmaceutical Preparations Manufacturing, PCU325412325412), as published by the United States Department of Labor, Bureau of Labor Statistics of the U.S. Department of Labor (web address: www.bls.gov). Schedule 2 attached hereto provides additional detail regarding calculation of the PPI adjustment.

5.05

Adjustment for Low Volume. In the event that, at any time after expiration of the Grace Period, (a) P&GP’s Net Outside Sales with respect to the Products fall below *** over a twelve (12)-month period and (b) the then-current Purchase Price with respect to the Products for *** units of Product does not result in a *** Gross Margin to NOVEN, then NOVEN shall have the right to identify and invoice to P&GP, and P&GP shall pay, a surcharge in such an amount as is necessary to bring NOVEN’s Gross Margin for the Products for such twelve (12)-month period to ***. As used herein, “Grace Period” shall mean the period beginning on the T-Patch launch and ending on the earlier of (i) two (2) years after the initial launch of the T-Patch in the first country in which the T-Patch is launched, or (ii) one (1) year from the initial launch of the T-Patch in the second country in which the T-Patch is launched. Within thirty (30) days after any surcharge is invoiced to P&GP pursuant to this Section 5.05, P&GP shall have the right to notify NOVEN of its intent to audit NOVEN to verify NOVEN’s cost and Gross Margin calculations, and the parties shall schedule such audit on a mutually agreeable date. Such audit shall be in addition to the periodic audits conducted pursuant to Section 5.10, but shall otherwise be subject to, and conducted in accordance with, the provisions of Section 5.10.

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5.06 Unprofitable Supply Terms. If, at any time after expiration of the Grace Period, NOVEN’s aggregate Gross Margin with respect to all Products over a twelve (12)-month period falls below ***, NOVEN will notify P&GP in writing. NOVEN and P&GP will then engage in a business discussion to understand the reasons for NOVEN’s Gross Margin for the aggregate of all Products falling below ***, including a review of NOVEN’s cost of goods for the aggregate of all Products, P&GP’s net prices of all Products and the profitability of all Products, in order to negotiate a mutually acceptable solution. In the event that the parties, after discussions and acting in good faith, cannot agree to an acceptable solution to bring NOVEN’s Gross Margin for the aggregate of all Products to ***, NOVEN will have the right to terminate this Agreement upon (i) twelve (12) months written notice to P&GP (if P&GP has qualified an Alternate Supplier) or (ii) thirty-six (36) months written notice to P&GP (if P&GP has not qualified an Alternate Supplier). During the notice period prior to the effectiveness of such termination, NOVEN shall have the right to assess against P&GP, and P&GP shall pay and deliver to NOVEN, a surcharge in such amount as is necessary to bring NOVEN’s Gross Margin for the aggregate of all Products to ***. Notwithstanding the foregoing, to the extent that NOVEN’s failure to achieve a *** Gross Margin is attributable to (x) NOVEN’s failure to manufacture the Products in accordance with the shelf life and quality requirements of Section 2.03 and Section 3.04, respectively, which failure in each case is due to the fault of NOVEN, including Noven’s suppliers, or (y) NOVEN’s manufacture of failed Batches, the surcharge to be assessed against P&GP during the notice period prior to the effectiveness of such termination to bring NOVEN’s Gross Margin to *** shall be reduced accordingly. Within thirty (30) days after any surcharge is invoiced to P&GP pursuant to this Section 5.06, P&GP shall have the right to notify NOVEN of its intent to audit NOVEN to verify NOVEN’s cost and Gross Margin calculations, and the parties shall schedule such audit on a mutually agreeable date. Such audit shall be in addition to the periodic audits conducted pursuant to Section 5.10, but shall otherwise be subject to, and conducted in accordance with, the provisions of Section 5.10.

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5.07

Adjustment for Modification of Specifications.

(a)

In the event any change in the Specifications or the manufacturing process of any Product that is not necessary to comply with the requirements of any Applicable Law or Regulatory Authority (a “Discretionary Change”) is implemented by either party in accordance with the Quality Assurance Agreement and Article 6 hereof, the parties shall, to the extent commercially reasonable under the circumstances, cooperate in making such changes. The party initiating such change(s) shall bear all reasonable costs of both parties associated with and resulting from any such change(s) in accordance with Article 6. In addition:

(i)	in the event any such Discretionary Change initiated by P&GP shall result in increased costs to NOVEN to perform the Services with respect to such Product, the Purchase Price for such Product shall be increased by an amount equal to ***;
(ii)	in the event any such Discretionary Change shall result in decreased costs to NOVEN to perform the Services with respect to such Product, and if (and only if) such Discretionary Change was initiated by P&GP, the Purchase Price for such Product shall be decreased by an amount equal to ***.
(iii)	in the event of a Discretionary Change initiated by P&GP, P&GP shall pay NOVEN for NOVEN inventory with respect to such Product, including (x) NOVEN’s reasonable out-of-pocket costs of Raw Materials (to the extent within Target Inventory Levels), (y) the Purchase Price of any finished goods rendered obsolete or rejected as a result of the change, and (z) NOVEN’s costs of any works in progress, at prices to be determined consistent with the principles reflected on Schedule 2; and

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(iv) in the event of a Discretionary Change initiated by NOVEN, NOVEN shall, unless otherwise agreed, bear the costs of making and/or implementing such Discretionary Change and the costs of works in progress, Raw Materials, and finished goods rendered obsolete or rejected as a result of such Discretionary Change, including reasonable costs of P&GP incurred as a result of such Discretionary Change initiated by NOVEN.

(b) In the event any change in the Specifications or the manufacturing process of any Product that is necessary to comply with the requirements of any Applicable Law or Regulatory Authority (“Required Change”) is implemented in accordance with the Quality Assurance Agreement and Article 6 hereof, then, subject to Section 5.07(d) (regarding Label Changes):

(i)	in the event such Required Change shall result in decreased or increased costs to NOVEN to perform the Services with respect to such Product, then the Purchase Price for such Product shall be decreased or increased, as the case may be, by an amount equal to ***;***; and
(ii)	***
(iii)	P&GP shall pay NOVEN for *** of any inventory of NOVEN with respect to such Product, including (x) NOVEN’s reasonable out-of-pocket costs of Raw Materials (to the extent within Target Inventory Levels), (y) the Purchase Price of any finished goods rendered obsolete or rejected as a result of the change, and (z) NOVEN’s costs of any works in progress, at prices to be determined consistent with the principles reflected on Schedule 2.

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(c)

For changes which (i) are not the result of a Discretionary Change, a Required Change, or a Label Change and (ii) are required to bring NOVEN’s facilities and/or processes into compliance with the requirements of any Applicable Law or Regulatory Authority (“Other Required Change”), the parties shall cooperate in making such changes promptly and NOVEN shall, unless otherwise agreed, bear the costs of making and/or implementing such changes and the costs of works in progress, Raw Materials, and finished goods rendered obsolete or rejected as a result of such Other Required Change.

(d)

With respect to any changes to any Printed Matter of any Product (“Label Changes”) initiated by either party, NOVEN and P&GP shall cooperate in making such Label Changes promptly and, unless otherwise agreed in writing by the parties:

(i) in the event any such Label Change is either (x) initiated by P&GP in its discretion, or (y) required by Applicable Law or Regulatory Authority, then:

(A)	if such Label Change shall result in increased costs to NOVEN to perform the Services with respect to such Product, then the Purchase Price for such Product shall be increased by an amount equal to ***;
(B)	P&GP shall be responsible for and shall reimburse NOVEN for the costs of implementing such Label Change, including costs in connection with labeling, packaging and preprinting of backing or pouch materials due to such Label Change; and
(C)	P&GP shall pay NOVEN for NOVEN inventory with respect to such Product, including (x) NOVEN’s reasonable out-of-pocket costs of Raw Materials (to the extent within Target Inventory Levels), (y) the Purchase Price of any finished goods rendered obsolete or rejected as a result of the change, and (z) NOVEN’s costs of any works in progress, at prices to be determined consistent with the principles reflected on Schedule 2; and

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(ii) in the event such Label Change is a discretionary change initiated by NOVEN, NOVEN shall, unless otherwise agreed, bear the costs of making and/or implementing such Label Change and the costs of works in progress, Raw Materials, and finished goods rendered obsolete or rejected as a result of such Label Change.

(e)

For purposes of clarification, NOVEN’s right to receive payments with a *** under the applicable provisions of this Section 5.07 is intended to protect NOVEN’s Gross Margin with respect to the additional costs incurred by NOVEN under the applicable provisions of this Section 5.07, but shall not be construed to entitle NOVEN to a surcharge to provide NOVEN with an overall *** with respect to the Products if such *** is not otherwise achieved.

5.08

Transfer Taxes. NOVEN shall be responsible for and pay all Transfer Taxes, in each case the taxable incident of which occurs prior to NOVEN’s loading of the Products onto the applicable carrier for shipment at NOVEN’s manufacturing facility (collectively, “NOVEN Transfer Taxes”). For the avoidance of doubt, NOVEN Transfer Taxes shall not include any import/export duties, levies or charges or customs-related expenses. NOVEN shall be responsible for and pay any personal property taxes on property it owns or leases, franchise and privilege taxes on its business, and taxes based on its net income or gross receipts. P&GP shall be responsible for and pay all Transfer Taxes, in each case the taxable incident of which occurs upon or after NOVEN’s loading of the Products onto the applicable carrier for shipment at NOVEN’s manufacturing facility, and P&GP shall be responsible for and pay all Transfer Taxes, including without limitation sales and value-added taxes and duties, that arise out of or are payable as a result of the sale of Products to P&GP under this Agreement (collectively, “P&GP Transfer Taxes”). NOVEN’s invoices shall separately state the amount of any P&GP Transfer Taxes that NOVEN is charging P&GP (in addition to the Purchase Price and any Additional Charges), to the extent applicable. NOVEN shall provide and make available to P&GP any resale certificates or other exemption certificates requested by P&GP in

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	connection with P&GP Transfer Taxes, to the extent such certificates are available to NOVEN. P&GP shall provide and make available to NOVEN any applicable resale or tax exemption certificates requested by NOVEN to substantiate non-taxability for sales tax purposes.
5.09	Continuous Improvement. NOVEN and P&GP agree to identify and implement a continuous improvement/cost reduction plan for package materials (pouch, cartons, etc.) within thirty (30) days of the end of each calendar year; provided that (a) the decision to pursue any cost reduction projects and any determination of cost reduction goals in relation to NOVEN’s business activities shall be within the sole discretion of NOVEN; and (b) NOVEN shall be under no obligation to provide access to P&GP to any of NOVEN’s records, data or systems in connection with this Section 5.09.
5.10	Right to Audit.
(a)	NOVEN shall keep complete and accurate records in sufficient detail to permit P&GP to confirm the accuracy of calculations of any adjustments to the Purchase Price hereunder. P&GP shall keep, and shall cause its Related Parties, successors, assigns, delegates and/or partners to keep, complete and accurate records in sufficient detail to permit NOVEN to confirm the costs and expenses incurred by P&GP in connection with a Product recall hereunder. Such records shall be maintained in accordance with Applicable Law and in any event for at least a three (3) year period following the end of the calendar quarter to which they pertain. Not more than once in any fiscal year and upon reasonable advance notice to the other party (the “Audited Party”), at its own expense (subject to Section 5.10(c)), each party (the “Auditing Party”) shall be entitled to nominate an internationally recognized independent certified public accounting firm reasonably acceptable to the Audited Party to have access at reasonable times during normal business hours (subject to signing a confidentiality agreement, if applicable) to examine the Audited Party’s (or its Related Party’s,

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Affiliate’s, successor’s, assign’s, delegate’s or partner’s, as the case may be) records as they relate to relevant Products for the purpose of verifying the correctness of any adjustments to the Purchase Price hereunder (where P&GP is the Auditing Party) or verifying the amount of the costs and expenses associated with a Product recall (where NOVEN is the Auditing Party); provided, however, that if such audit reveals that the Audited Party’s miscalculation or misstatement resulted in an overpayment by the Auditing Party of *** or more, then such audit shall not count against the one audit to which the Auditing Party is entitled per fiscal year. Moreover, if an accounting firm is used in such audit, the accounting firm shall not disclose to the Auditing Party or to any Third Party any financial or other information relating to the business of the Audited Party except that which is necessary to inform the Auditing Party of the accuracy or inaccuracy of the Audited Party’s calculation. The Auditing Party shall not audit the same records twice. The Auditing Party shall only be entitled to audit books and records of the Audited Party from the three (3) calendar years prior to the calendar year in which the audit request is made.

(b)

In the event the Auditing Party shall dispute the correctness of the Audited Party’s calculation or statement, the Auditing Party shall, within forty-five (45) calendar days of receipt of any such calculation or payment, provide written notice to the Audited Party of such objection, setting forth in writing and in reasonable detail the reasons therefor; provided that the failure to give notice of an objection within such forty-five (45) calendar day period shall not result in the waiver or loss of the Auditing Party’s right to dispute the correctness of the Audited Party’s calculation or statement unless, and only to the extent that, the Audited Party is actually prejudiced by such failure. NOVEN and P&GP shall endeavor in good faith to resolve any disputed matters within forty-five (45) calendar days after the Audited Party’s receipt of the Auditing Party’s notice of objections. If NOVEN and P&GP are unable to resolve the disputed matters within such forty-five (45) calendar day period, NOVEN and P&GP shall select

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a nationally known independent accounting firm (which firm shall not be the then regular auditors of either party) 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 NOVEN and P&GP. The independent accounting firm selected to resolve such disputes shall have access to the relevant records of the Parties with respect to the matter in dispute. In connection with the resolution of any dispute under this Section 5.10(b), the Auditing Party shall bear the costs and expenses of the independent accounting firm selected to resolve such disputes, subject to Section 5.10(c).

(c)

If it is determined that the Audited Party’s miscalculation or misstatement resulted in an overpayment by the Auditing Party of *** or more, then the Audited Party shall reimburse the Auditing Party for any and all reasonable, actual out-of-pocket expenses incurred by the Auditing Party in connection with the dispute, including any costs and expenses payable to the independent accounting firm or firms engaged pursuant to Section 5.10(a) and/or Section 5.10(b), and any other costs and expenses incurred by the Auditing Party in connection with the audit of the Audited Party’s books and records and any such dispute resolution process.

Article 6. Change Management. Changes to, the Specifications or the manufacturing process of the Products may be made only in accordance with the terms and conditions of the Quality Assurance Agreement. Subject to, and without limiting the provisions of Section 5.07, the party requesting any such change shall bear the costs thereof, including the costs of making or implementing such changes and the costs of the scrapping of materials (including but not limited to Raw Materials (to the extent within Target Inventory Levels), work in process, and finished product) necessitated by any such change, unless otherwise agreed by the parties in writing. The parties shall cooperate to implement in a prompt manner any such agreed upon changes to the Specifications or the manufacturing process of the Products.

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Article 7. Authorizations. During the Term, P&GP shall, at its sole expense, conduct clinical studies, file requisite paperwork for Regulatory Approvals and maintain Regulatory and Clinical Materials with respect to the Products both within and outside of the United States. Subject to the foregoing, during the Term, NOVEN shall obtain and maintain in force all licenses and authorizations necessary for NOVEN to manufacture and supply Product hereunder. NOVEN shall bear the full cost and expense of obtaining and maintaining such licenses and authorizations. P&GP shall provide NOVEN with assistance reasonably necessary for NOVEN to obtain and maintain such licenses and authorizations.

Article 8. Liabilities.

8.01

Warranties; Disclaimer.

(a)

NOVEN hereby represents and warrants to P&GP that Product supplied to P&GP hereunder shall, on the date of loading of such Product onto the carrier approved by P&GP for shipment at NOVEN’s manufacturing facility: (i) meet the applicable requirements set forth in the Specifications; (ii) not be adulterated or misbranded within the meaning of any applicable food or drug law or regulation or any applicable equivalent law, rule or regulation; and (iii) comply with approved Regulatory Approvals and all Applicable Laws (including, but not limited to, cGMP applicable to the Product and prevailing as of such date governing the manufacture, packaging (including without limitation labeling), storage (prior to shipment) and testing (prior to shipment) of Product); provided that NOVEN shall not be in breach or violation of its representations and warranties under this Section 8.01(a) to the extent that any failure to comply with the foregoing is due to any act or omission of P&GP (including without limitation any failure of any labeling provided by P&GP to comply with all Applicable Laws and cGMP). NO OTHER EXPRESS OR IMPLIED WARRANTY EXISTS, INCLUDING ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND NOVEN EXPRESSLY DISCLAIMS ANY SUCH WARRANTIES.

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(b)	P&GP represents and warrants to NOVEN that: (i) P&GP Inc. is a wholly-owned, direct subsidiary of The Procter & Gamble Company; (ii) P&GP SARL is a wholly owned, indirect subsidiary of The Procter & Gamble Company; and (iii) ***.
8.02	NOVEN Indemnity. NOVEN shall indemnify and hold P&GP and its Affiliates, and their respective directors, officers, employees and agents, successors and assigns (the “P&GP Indemnitees”) harmless from and against any and all Damages that P&GP Indemnitees may incur or suffer arising out of, resulting from or caused by (a) any failure of the Product manufactured hereunder to meet the requirements of Section 8.01(a) hereof, (b) any material breach by NOVEN of its obligations hereunder, or (c) any intentional or negligent act or omission of NOVEN or any of its directors, officers, employees, agents, successors, assigns, sublicensees, delegatees or partners; provided that NOVEN shall have no obligation under this Section 8.02 to the extent such Damages arise out of, result from or are caused by: (i) any material breach by P&GP of its obligations under this Agreement, (ii) an intentional or negligent act or omission of any P&GP Indemnitee, or (iii) any matter for which P&GP has an obligation to indemnify the NOVEN Indemnitees under this Agreement or the License Agreement.
	NOVEN agrees to maintain at least ten million dollars ($10,000,000.00) of commercial general liability insurance, as one or more insurance policies, in support of this indemnity with companies reasonably acceptable to P&GP, which insurance will carry an endorsement including P&GP and its Affiliates as additional insureds.
8.03	P&GP Indemnity. P&GP shall indemnify and hold NOVEN and its Affiliates, and their respective directors, officers, employees and agents, successors and assigns (the “NOVEN Indemnitees”) harmless from and against any and all Damages arising out of, resulting from or caused by, or claimed to arise out of,

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result from or be caused by: (a) the Products, and/or any bodily injury, illness or death of any person caused or alleged to be caused by the use, distribution or sale of the Products, including without limitation (i) liabilities for product liability and returned goods, (ii) liabilities in respect of product warranty obligations or services and any returned Product sold, and (iii) 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; (b) any material breach by P&GP of its obligations under this Agreement; or (c) any intentional or negligent act or omission of P&GP or any of its directors, officers, employees, agents, successors, assigns, sublicensees, delegatees or partners; provided, that P&GP shall have no obligation under this Section 8.03 to the extent such Damages arise out of, result from or are caused by: (i) any material breach by NOVEN of its obligations under this Agreement, (ii) an intentional or negligent act or omission of any NOVEN Indemnitee, or (iii) any matter for which NOVEN has an obligation to indemnify the P&GP Indemnitees under this Agreement or the License Agreement.

8.04

Certain Limitations. Except for conditions permitting termination of this Agreement provided in Section 9.02 or as otherwise provided in Section 10.01, 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 8.02 and 8.03 (other than (i) with respect to a breach of the terms of a covenant or agreement as to which P&GP 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 8.

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8.05	Disclaimer of Incidental Damages. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY PUNITIVE, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES OR LOST PROFITS, EXCEPT TO THE EXTENT ANY SUCH PUNITIVE, INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES OR LOST PROFITS ARE PAYABLE TO A THIRD PARTY.
8.06	Product Recalls. Product recalls shall be conducted by the parties in accordance with the terms and conditions of the Quality Assurance Agreement. All reasonable costs and expenses of any recall of any Product and corrective actions shall be the responsibility of P&GP; provided that NOVEN shall reimburse P&GP for its reasonable out-of-pocket costs and expenses of effecting such recall hereunder to the extent such recall was caused by a matter for which NOVEN is obligated to indemnify P&GP under Section 8.02. In the event that P&GP’s reasonable out-of-pocket costs and expenses are reimbursed by NOVEN, NOVEN shall be entitled to audit such costs and expenses in accordance with Section 5.10.
8.07	Notice and Opportunity to Defend. If any Proceeding arises as to which a right of indemnification provided in Section 8.02 or Section 8.03 applies, the party seeking indemnification hereunder (the “Indemnified Party”) shall, within twenty (20) calendar days, notify the other party (the “Indemnifying Party”) thereof in writing and allow the Indemnifying Party and its insurers the opportunity to assume liability for any Damages arising out of such Proceeding and the 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, that the failure to give notice of a claim for indemnification within such twenty (20)-calendar day period shall not result in the waiver or loss of any right to bring a claim for indemnification hereunder unless, and only to the extent that, the Indemnifying Party is actually prejudiced by such failure. Notwithstanding the foregoing, the Indemnifying Party may not

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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 insurers 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 the right of indemnity 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 thirty (30) calendar 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 right of indemnity applies, as incurred.

Article 9. Term and Termination.

9.01	Term. This Agreement shall terminate upon the earlier of (i) with respect to each Product and with respect to each country in the Territory, the termination of the License Agreement with respect to such Product and/or such country, or (ii) the termination of this Agreement in its entirety in accordance with Section 9.02 (the Effective Date until such termination or expiration, the “Term”).
9.02	Certain Termination Events.
(a)	Bankruptcy. Either NOVEN or P&GP shall have the right to terminate this Agreement in its entirety upon sixty (60) calendar days written notice to the other party at any time after the other party (or, with respect to P&GP, a Related Party) (a) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (b) becomes insolvent or is generally unable to pay its debts as they

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become due or admits in writing its inability generally to pay its debts as they become due; (c) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (d) institutes or has instituted against it by a Third Party a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditor’s rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (ii) is not dismissed, discharged, stayed or restrained in each case within thirty (30) calendar days of the institution or presentation thereon; (e) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (f) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (g) has a secured party take possession of all or substantially all of its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) calendar days thereafter; or (h) causes or is subject to any event with respect to it which, under the applicable law of any jurisdiction, has an analogous effect to any of the events specified in clauses (a) to (g) (inclusive).

(b)

Material Breach. In the event that either party commits a material breach of any of the provisions of this Agreement and such breach either is not curable or is not cured within sixty (60) days after notice of the breach by the non-breaching party (or, if the breach is not capable of cure within sixty (60) days, the breaching party has not commenced a cure within sixty (60) days after such

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notice and has not cured such breach as soon thereafter as possible, but in no case longer than ninety (90) days after such notice), then the non-breaching party may terminate this Agreement in its entirety with immediate effect upon written notice to the breaching party; provided that notwithstanding the foregoing, P&GP shall not have any right to terminate this Agreement pursuant to this Section 9.02(b) for any breach by NOVEN that is related to the quality of Products manufactured or supplied by NOVEN hereunder, the quantity of Product supplied, the timeliness of such Products being loaded onto the applicable carrier or delivered to P&GP, or similar matters. Without limiting the generality of the foregoing sentence, P&GP shall not be entitled to terminate this Agreement under this Section 9.02(b) for any breach by NOVEN of any of Sections 2.03, 3.04, 4.06, 4.07, 4.08, or 9.02(c).

(c)

Failure to Supply. In the event that at any time during the Term NOVEN shall, during any period of *** consecutive months with respect to which P&GP has submitted Purchase Orders, fail to supply at least *** of the aggregate number of units of Product ordered pursuant to Purchase Orders properly submitted by P&GP during such period pursuant to Section 4.03, or, during any period of *** consecutive months with respect to which P&GP has submitted Purchase Orders, supply *** of Product ordered pursuant to Purchase Orders properly submitted by P&GP during such period (in each case other than (x) by reason of a circumstance contemplated by Section 13.01, (y) by reason of the fault of P&GP, or (z) in connection with units of Product accepted by P&GP pursuant to Section 4.07), then P&GP shall have the right to: (i) subject to Sections 11.02 and 11.03, have an Alternate Supplier manufacture on its behalf that portion of its requirements of the Product that NOVEN is not able to supply; (ii) terminate this Agreement in its entirety (in which case P&GP may at its option elect remedies under Section 11.02); or (iii) withdraw any Purchase Orders submitted pursuant to Section 4.03.

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(d)	Unprofitable Supply Terms. NOVEN may terminate this Agreement pursuant to the provisions of Section 5.06.
(e)	Adverse Health or Safety. Either NOVEN or P&GP may terminate this Agreement with immediate effect with respect to any Product in a country if such Product is permanently and completely withdrawn from the market in such country for serious adverse health or safety reasons.
(f)	Force Majeure. Either party may terminate this Agreement in its entirety with immediate effect if an event of force majeure contemplated in Section 13.01 as to the other party shall exist and shall continue to prevent performance by the other party for a period of ninety (90) consecutive days.
9.03	Consequences of Termination.
(a)	Effect of Termination. Upon termination of this Agreement with respect to any country and/or with respect to any Product, this Agreement and all rights and obligations hereunder shall each forthwith become void and of no further force or effect with respect to such country and/or such Product, as the case may be (and in the event of any termination of this Agreement in its entirety, this Agreement and all rights and obligations of the parties hereunder shall each forthwith become void and of no further force or effect in their entirety), except in each case as otherwise provided in this Section 9.03.
(b)	Obligation to Pay. The termination or expiration of this Agreement shall not relieve either party of any liability for any monies due to the other at or following the time of such termination or expiration, nor shall it relieve either party of the post-termination obligations imposed by this Agreement.
(c)	P&GP’s Property. In the event that P&GP terminates this Agreement pursuant to any of Sections 9.02(a), 9.02(b), or 9.02(c), NOVEN will make available for P&GP’s removal any such Raw Materials (at NOVEN’s actual cost), Product (at the then prevailing Purchase Price for each such Product), equipment funded by

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P&GP and repurchased by P&GP pursuant to Section 2.11, and any of P&GP’s property then under NOVEN’s control in connection with the Services under the Agreement. NOVEN further agrees that it shall use commercially reasonable efforts, after receipt of notice of any termination by P&GP under any of Sections 9.02(a), 9.02(b), or 9.02(c), not to encumber such materials, Product or other property, such as through security liens or pledges, in any way.

9.04

Survival. Notwithstanding anything herein to the contrary, the provisions of Article 8, Section 9.03, Article 10, Section 13.03 and Section 13.10 hereof shall survive any expiration or termination of this Agreement.

Article 10. Confidentiality, Public Announcements, Intellectual Property.

10.01

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 party and/or its Affiliates, Related Parties, successors, assigns, delegates, partners, 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 at least 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

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	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 Products 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 Products, 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 10.01:

(i)	P&GP shall be permitted to disclose to its distributors, wholesalers, customers and other Third Parties having a reasonable need to know such information such Confidential Information relating to the Products as P&GP shall reasonably determine to be necessary or useful in order to effectively develop, market and distribute the Products;
(ii)	NOVEN shall be permitted to disclose such Confidential Information relating to the Products as NOVEN shall reasonably determine to be necessary or useful in order to effectively perform its obligations under this Agreement;
(iii)	each of NOVEN and P&GP shall be permitted to disclose to a Regulatory Authority such Confidential Information relating to the Products as it shall

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	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
(iv)	nothing in this Section 10.01 shall be interpreted to limit the ability of either NOVEN or P&GP 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) Each of NOVEN and P&GP 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, (i) P&GP 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 applicable securities laws, and hereby consents to such disclosure to the extent deemed advisable or appropriate by counsel to NOVEN; provided that P&GP is informed of the information to be disclosed and given an adequate time to comment; and (ii) NOVEN acknowledges and agrees that P&GP may disclose the terms and conditions of this Agreement to (A) third party sublicensees and co-promotion partners to permit P&GP to exercise its rights to fulfill its obligations under Sections 3.04 and 3.05 of the License Agreement and (B) Alternate Suppliers to permit P&GP to exercise its rights under Article 11; provided, however, that (x) such disclosure shall be pursuant to, and subject to the terms and conditions of, non-disclosure or similar protective agreements in form and substance reasonably acceptable to NOVEN, which agreements shall contain covenants, agreements, restrictions and

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	limitations at least as restrictive as those set forth in this Agreement, (y) such disclosure may be made only to sublicensees and co-partners permitted under Sections 3.04 and 3.05 of the License Agreement and Alternate Suppliers as permitted under Article 11, as the case may be, and (z) P&GP shall provide written notice of any such disclosure to NOVEN.
(e)	Each party specifically recognizes that any breach by it or its Affiliates, Related Parties, successors, assigns, delegates, partners or representatives of this Section 10.01 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, 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.
(f)	The obligations of confidentiality and nonuse set forth in this Section 10.01 shall survive the termination of this Agreement for a period of five (5) years.
10.02	Public Announcements. In addition, 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, the other Transaction Documents or to the existence of an arrangement between the parties, without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed.
10.03	License to Products. P&GP hereby grants to NOVEN a non-exclusive, non-sublicenseable, royalty free license, effective during the Term, under all patents, unpatented technology, and other intellectual property rights owned, controlled or licensed by P&GP relating to the Products to the extent (but only to the extent) necessary for NOVEN to realize its rights and fulfill its obligations under this Agreement.

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Article 11. Alternate Suppliers.

11.01 Qualification of Alternate Suppliers. P&GP may, during the Term, take steps to qualify one or more Third Party suppliers of Product (each, an “Alternate Supplier”), which Alternate Suppliers shall be subject to prior written approval of NOVEN (such approval not to be unreasonably withheld or delayed); provided that NOVEN and P&GP shall agree to a mutually acceptable plan for qualification of such Alternate Supplier, which shall include, but not be limited to, any reasonable costs to be incurred by NOVEN in connection with such qualification. All reasonable costs and expenses, including reasonable out-of-pocket expenses incurred by NOVEN, associated with qualifying an Alternate Supplier in accordance with the plan therefor agreed upon by the parties and approved by P&GP in writing shall be paid by P&GP or reimbursed to NOVEN, it being understood that NOVEN shall have no obligation to take any action with respect to the qualification of an Alternate Supplier unless and until NOVEN receives written approval from P&GP of any such out-of-pocket expenses. Upon the written request of P&GP, and at P&GP’s expense, NOVEN agrees to provide reasonable assistance *** to Alternate Suppliers sought to be qualified by P&GP pursuant to this Section 11.01 and access to such of NOVEN’s Confidential Information and Technology as may be reasonably necessary for the Alternate Supplier to manufacture Product for sale to P&GP; provided, that such Alternate Supplier shall be bound by obligations of confidentiality in favor of NOVEN consistent with those set forth in this Agreement and the License Agreement. Notwithstanding the foregoing, nothing in this Section 11.01 shall relieve P&GP of its obligation to purchase all of its requirements of Product from NOVEN and P&GP shall only have the right to acquire Product from an Alternate Supplier as provided in Section 11.02.

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11.02	Reasonable Assistance; Limited License. In the event of a termination of this Agreement by P&GP pursuant to any of Sections 9.02(a), 9.02(b), 9.02(c) or 9.02(f), or by NOVEN pursuant to Section 9.02(d):
(a)	if P&GP has not already qualified an Alternate Supplier under Section 11.01, then, upon request of P&GP and at P&GP’s expense, NOVEN shall provide reasonable assistance to an Alternate Supplier identified by P&GP and approved by NOVEN (such approval not to be unreasonably withheld or delayed) and access to such of NOVEN’s Confidential Information and Technology as may be reasonably necessary for such Alternate Supplier to manufacture Product for sale to P&GP; provided, that such Alternate Supplier shall be bound by obligations of confidentiality in favor of NOVEN consistent with those set forth in this Agreement and the License Agreement; and provided further, that all reasonable costs and expenses, including reasonable out-of-pocket expenses incurred by NOVEN, associated with qualifying such Alternate Supplier in accordance with the plan therefor agreed upon by the parties and approved in writing by P&GP shall be paid by P&GP or reimbursed to NOVEN to the extent applicable, it being understood that NOVEN shall have no obligation to take any action with respect to the qualification of an Alternate Supplier unless and until NOVEN receives written approval from P&GP of any such out-of-pocket expenses;
(b)	subject to Section 11.03, the license granted to P&GP in the License Agreement shall be deemed to include the right of P&GP to have Product made on its behalf by the Alternate Supplier approved by NOVEN under Section 11.01 or 11.02(a), as applicable, for the term of the License Agreement;
(c)	subject to Section 11.03, to the extent, but only to the extent, that such Alternate Supplier requires a license to any manufacturing know-how of NOVEN in order for such Alternate Supplier to manufacture the applicable Product(s) for P&GP, NOVEN agrees to grant such a license on a limited basis to the extent (but only

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	to the extent) reasonably necessary for such manufacture, which license shall be restricted solely to use in the manufacture of Product for P&GP as contemplated in this Agreement; and
(d)	NOVEN will use commercially reasonable efforts to continue to supply Product to P&GP pursuant to the terms and conditions of this Agreement, subject to any force majeure event or inability of NOVEN to supply Product to P&GP, until an Alternate Supplier is qualified but in no event more than *** after termination; provided that P&GP shall pay to NOVEN a surcharge in such amount, if any, as is necessary to bring NOVEN’s Gross Margin for the Product to at least *** during such period. Notwithstanding the foregoing, in the circumstance of a termination of this Agreement by NOVEN pursuant to Section 9.02(d) only, the provisions of Section 5.06 shall govern the terms of NOVEN’s continued supply of Product and P&GP’s payment of such surcharge.
(e)	Except as expressly provided in this Section 11.02, neither P&GP nor any Alternate Supplier shall have any license under the NOVEN Patents, NOVEN’s rights in any Joint Developments (as defined in the License Agreement) or the Technology to make or have the Product made by any manufacturer or supplier other than NOVEN.
(f)	The Alternate Supplier qualified by P&GP pursuant to Section 11.01 shall have the right to manufacture up to three (3) batches of Product as necessary to validate its manufacturing process, and up to three (3) batches of Product each year thereafter, as necessary to maintain validation of such Alternate Supplier’s manufacturing process. These batches will be considered saleable Product. To the extent any such batches produced by an Alternate Supplier are indicated on any Rolling Forecast or Three-Year Forecast submitted by P&GP hereunder, P&GP will designate such batches as batches to be produced by the Alternate Supplier on such Rolling Forecast or Three-Year Forecast, and such amounts will not be deemed as Product forecasted to be ordered from NOVEN hereunder.

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11.03 Royalties. Notwithstanding the provisions of Section 11.02, the effectiveness of the license granted to P&GP under the License Agreement and of any license granted by NOVEN to any Alternate Supplier in accordance with Section 11.02, shall be at all times conditioned upon P&GP’s payment of Royalties, Milestone Payments and other amounts payable to NOVEN with respect to the sales of any Product supplied to P&GP by any Alternate Supplier and sold by P&GP (or any Affiliate, successor, assignee, sublicensee, delegatee or partner of P&GP) in accordance with the terms and conditions of the License Agreement, as well as P&GP’s payment obligations under this Agreement, and all such licenses shall terminate in the event P&GP shall breach its obligations thereunder or hereunder (subject to any applicable cure periods).

Article 12. Steering Committee. To facilitate the manufacture of Product hereunder, NOVEN and P&GP shall each, within thirty (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 (a) 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, (b) consider strategic planning and facilitate manufacturing operations, (c) provide ongoing advisory services with respect to manufacturing services hereunder, and (d) attempt to resolve amicably any disputes arising between NOVEN and P&GP 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

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parties in writing. NOVEN and P&GP shall appoint as members of the Steering Committee a reasonable number of suitably qualified and experienced representatives of each of NOVEN and P&GP 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 NOVEN and P&GP shall appoint no more than four persons to the Steering Committee. The Steering Committee shall meet at regular intervals on such dates and at such locations as may be agreed upon by NOVEN and P&GP, in person or 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 unless otherwise agreed by NOVEN and P&GP. The Steering Committee may also meet upon fifteen (15) days’ written request by either NOVEN or P&GP, should circumstances necessitate such a meeting, and if requested by either party, an expanded Steering Committee will meet to discuss forecasting assumptions and other information regarding market conditions and expected demand for the Product.

Article 13. General Provisions.

13.01 Force Majeure. Neither NOVEN nor P&GP shall be deemed to be in breach hereof on account of any delay or failure in supply or other performance (except the payment of money) caused in whole or in part by, or otherwise materially related to, the occurrence of any contingency beyond the performing party’s control, including but not limited to: war or hostility; failure or delay of land, water or air transportation; governmental action; strikes or other labor disputes; accident, fire, explosion, flood, storm or other acts of God; unavailability or shortage of Raw Materials; or, in general, any other cause where NOVEN or P&GP has exercised reasonable care in the prevention thereof; provided that the party so affected shall give immediate notice thereof to the other party and shall render the delayed performance in the manner as practicable as possible after such event of force majeure has ceased or otherwise abated sufficiently in order to permit it to do so without incurring any material additional expense which it would not have had in the absence of such event of force majeure.

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13.02	Notices. All notices, requests, reports, demands and other communications made or given under the terms of this Agreement or in connection herewith shall be in writing and shall be delivered personally or sent by facsimile transmission, air courier or registered or certified mail, return receipt requested, and shall be addressed to the appropriate party at the addresses set forth in Schedule 3 hereto or to such other address or place as such party may from time to time designate in writing. Any notice, request, demand or other communication given or made pursuant to this Section 13.02 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 calendar 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.
13.03	Governing Law. This Agreement and any claims, disputes or causes of action relating to or arising out of this Agreement shall be governed by and interpreted for any and all purposes in accordance with the laws of New York, without giving effect to the conflicts of law principles thereof.
13.04	Non-Waiver of Rights. The failure by either party at any time to enforce any of the provisions of this Agreement shall not be construed as a waiver of such provisions or any other provisions hereof. The exercise by either party of any of its rights herein or at law or in equity shall not preclude or prejudice such party from exercising any other rights provided herein or at law or in equity. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

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13.05	Entire Agreement — Modifications. This Agreement, together with the License Agreement, supersedes all prior agreements, oral or written, between the parties hereto and contains the entire and only agreement between the parties and their respective Affiliates regarding the subject matter hereof (except as otherwise expressly provided herein), and any representation, terms or conditions relating thereto or in connection therewith, oral or in writing, not incorporated herein will not be binding upon either party. No modification of this Agreement or any of the provisions hereof will be binding unless made in writing with express reference to this Agreement, signed by both parties. All of the Schedules, and any amendments thereto made pursuant to this Section 13.05, are a part of this Agreement and are hereby incorporated herein.
13.06	Agreement Precedence. In the event of any conflict between this Agreement and any Schedule, Purchase Order, SLEA or Quality Assurance Agreement, this Agreement will take precedence, unless such other document specifically refers to this Agreement and indicates that such other document will take precedence over this Agreement.
13.07	Assignment. Except with respect to any sublicensee approved by NOVEN under the License Agreement (and in such instance, only to the extent of such sublicensee’s approved sublicense), P&GP 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 NOVEN, which consent may be granted or withheld in NOVEN’s sole discretion. In the event NOVEN shall consent to any such assignment or delegation, (a) 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 P&GP hereunder, and (b) no such assignment or delegation pursuant to this Section 13.07 shall relieve P&GP of any of its obligations or liabilities under this Agreement. NOVEN shall not have the right to assign or delegate to any third party its obligations under this Agreement without the express prior written consent of P&GP. Notwithstanding the foregoing, (i) either party may assign this Agreement to any of its Affiliates without the prior written consent of the other party; provided, that no such assignment of this

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	Agreement shall relieve the assignor of any of its obligations or liabilities under this Agreement, (ii) either party may assign this Agreement without the other party’s 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 party, and (iii) P&GP may assign this Agreement without Noven’s prior written consent in connection with a transaction in which P&GP is spun off as an independent publicly traded company, provided that such assignment shall be to such company. Any attempted assignment in violation of this Section 13.07 shall be void.
13.08	Partial Invalidity. Should any one or more provisions of this Agreement be invalid or unenforceable in any jurisdiction, such provision(s) shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, and the parties shall substitute for the invalid provision(s) a valid provision(s) which achieves as much as possible the purport, sense and economic purpose of the invalid provision(s), without rendering invalid or unenforceable any such provision(s) in any other jurisdiction, and without affecting the validity or enforceability of the remaining provisions of this Agreement.
13.09	Contractor Status. NOVEN is an independent contractor and nothing herein contained and no course of dealing between the parties will create or be deemed to create an agency, partnership, joint venture or any other relationship, fiduciary or otherwise between the parties hereto. Neither party is granted any right or authority to assume or to create an obligation or responsibility, express or implied, on behalf of or in the name of the other party or bind the other party in any manner whatsoever, and neither party shall hold itself out as having such authority. All personnel of NOVEN shall be solely employees of NOVEN and shall not represent themselves as employees of P&GP. All personnel of P&GP shall be solely employees of P&GP and shall not represent themselves as employees of NOVEN.

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13.10 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 among themselves. Either party may initiate such informal dispute resolution by sending written notice of the dispute to the other party, and within ten (10) calendar 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 P&GP, or their respective designees, for discussion and resolution. If such personnel are unable to resolve such dispute within thirty (30) calendar 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,

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	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 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 13.10, 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.
13.11	Audits.
(b)	It is agreed that P&GP may arrange, through NOVEN’s management, routine observational visits by technical or corporate quality assurance personnel to NOVEN’s manufacturing facility. In connection with such visits, P&GP’s and/or its Affiliate’s representatives will be escorted at all times by NOVEN personnel.
(c)	Manufacturing Audits will be conducted in accordance with the Quality Assurance Agreement.
13.12	Time Periods. Any notice or other time period hereunder that ends on a day other than a Business Day, counting forward or backward, as the case may be, shall automatically be extended to the next Business Day. Unless indicated as Business Days, references in this Agreement to days shall mean calendar days.
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 performance of its obligations hereunder, including attorneys’, accountants’ and other professional fees and expenses.

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13.14	Binding Effect; No Third Party Beneficiaries. 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 indemnitees, successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
13.15	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. 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.
13.16	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.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

NOVEN PHARMACEUTICALS, INC.
(NOVEN)
By:	/s/ Richard P. Gilbert
Title:	Vice President — Operations
Date:	August 14, 2008
P&G PHARMACEUTICALS, INC.
(P&GP INC.)
By:	/s/ Woody Keown	Form
Title:	Director, Purchasing	Finance
Date:	August 14, 2008	Execution
P&G PHARMACEUTICALS, S.A.R.L
(P&GP SARL)
By:	/s/ P. Slater	Form
Title:	Purchasing Director	Finance
Date:	August 13, 2008	Execution

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EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

I, Peter Brandt, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Noven Pharmaceuticals, Inc.

2) Based on my knowledge, this 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 report;

3) Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Peter Brandt                         
Name: Peter Brandt
Title: President and Chief Executive Officer
Date: November 10, 2008

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

I, Michael D. Price, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Noven Pharmaceuticals, Inc.

2) Based on my knowledge, this 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 report;

3) Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Michael D. Price                         
Name: Michael D. Price
Title: Vice President and Chief Financial Officer
Date: November 10, 2008

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Form 10-Q of Noven Pharmaceuticals, Inc. (“Noven”) for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Brandt, President and Chief Executive Officer of Noven, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Noven.

/s/ Peter Brandt                         
Name: Peter Brandt
Title: President and Chief Executive Officer
Date: November 10, 2008

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Form 10-Q of Noven Pharmaceuticals, Inc. (“Noven”) for the quarter ended September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Price, Vice President and Chief Financial Officer of Noven, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Noven.

/s/ Michael D. Price                         
Name: Michael D. Price
Title: Vice President and Chief Financial Officer
Date: November 10, 2008