MYLAN LABORATORIES INC - 10-Q Quarterly Report

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________

Commission file number 1-9114

MYLAN LABORATORIES INC.
(Exact name of registrant as specified in its charter)


Pennsylvania		25-1211621
(State of incorporation)		(I.R.S. Employer Identification No.)

1500 Corporate Drive
Canonsburg, Pennsylvania 15317
(Address of principal executive offices)
(Zip Code)

(724) 514-1800
(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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO

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


		Outstanding at
Class of Common Stock		November 5, 2003
$0.50 par value		268,847,819

TABLE OF CONTENTS


		Condensed Consolidated Statements of Earnings
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Second Amended and Restated Bylaws, as amended
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certification of CEO and CFO

MYLAN LABORATORIES INC. AND SUBSIDIARIES

FORM 10-Q
For the Quarterly Period Ended
September 30, 2003

INDEX


			Page
			Number
PART I. FINANCIAL INFORMATION

	Item 1: Financial Statements

		Condensed Consolidated Statements of Earnings – Three and Six Months Ended September 30, 2003 and 2002		2

		Condensed Consolidated Balance Sheets – September 30, 2003, and March 31, 2003		3

		Condensed Consolidated Statements of Cash Flows – Six Months Ended September 30, 2003 and 2002		4

		Notes to Condensed Consolidated Financial Statements		5

	Item 2: Management’s Discussion and Analysis of Results of Operations and Financial Condition			12

	Item 3: Quantitative and Qualitative Disclosures About Market Risk			26

	Item 4: Controls and Procedures			27

PART II. OTHER INFORMATION

	Item 1: Legal Proceedings			27

	Item 4: Submission of Matters to a Vote of Security Holders			28

	Item 6: Exhibits and Reports on Form 8-K			29

SIGNATURES				30

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(unaudited; in thousands, except per share amounts)


			Three Months				Six Months

Period Ended September 30,			2003		2002		2003			2002

Net revenues			$	360,060	$	319,539	$	691,468		$	595,012
Cost of sales				152,352		152,807		306,331			280,678

Gross profit				207,708		166,732		385,137			314,334

Operating expenses:
	Research & development			23,946		20,169		48,685			37,012
	Selling & marketing			17,274		16,538		35,110			33,425
	General & administrative			32,312		25,030		61,920			44,251
	Litigation settlements			—		—		(21,669	)		—

		Total operating expenses		73,532		61,737		124,046			114,688

Earnings from operations				134,176		104,995		261,091			199,646
Other income, net				7,428		1,613		10,533			3,601

Earnings before income taxes				141,604		106,608		271,624			203,247
Provision for income taxes				50,326		38,379		96,483			73,169

Net earnings			$	91,278	$	68,229	$	175,141		$	130,078

Earnings per common share:
	Basic		$	0.34	$	0.24	$	0.65		$	0.46

	Diluted		$	0.33	$	0.24	$	0.63		$	0.46

Weighted average common shares:
	Basic			268,644		282,064		269,432			282,727

	Diluted			276,424		285,248		276,276			285,448

Cash dividend declared per common share			$	0.02	$	0.02	$	0.04		$	0.04

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited; in thousands)


					September 30,		March 31,
					2003		2003

Assets Current assets:
		Cash and cash equivalents			$	194,145	$	258,902
		Marketable securities				444,207		427,904
		Accounts receivable, net				232,479		187,587
		Inventories				290,742		237,777
		Deferred income tax benefit				90,731		104,173
		Other current assets				23,039		11,868

			Total current assets			1,275,343		1,228,211

	Property, plant and equipment, net					214,396		178,330
	Intangible assets, net					142,667		150,256
	Goodwill					102,649		102,581
	Other assets					65,317		85,845

Total assets					$	1,800,372	$	1,745,223

Liabilities and shareholders’ equity Liabilities Current liabilities:
			Trade accounts payable		$	54,493	$	66,017
			Income taxes payable			64,106		50,600
			Other current liabilities			109,037		149,154

				Total current liabilities		227,636		265,771

		Long-term obligations				20,080		19,943
		Deferred income tax liability				19,331		13,177

	Total liabilities					267,047		298,891


	Shareholders’ equity
		Common stock				151,412		150,452
		Additional paid-in capital				317,416		304,350
		Retained earnings				1,494,125		1,330,933
		Accumulated other comprehensive earnings				6,056		3,718

						1,969,009		1,789,453

		Less:
			Treasury stock at cost			435,684		343,121

	Total shareholders’ equity					1,533,325		1,446,332

Total liabilities and shareholders’ equity					$	1,800,372	$	1,745,223

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)


Six Months Ended September 30,					2003			2002

Cash flows from operating activities:
	Net earnings				$	175,141		$	130,078
			Adjustments to reconcile net earnings to net cash provided from operating activities:
				Depreciation and amortization		21,049			19,648
				Deferred income tax expense (benefit)		16,230			(19,050	)
				Net earnings from equity method investees		3,427			6,492
				Cash received from Somerset		10,000			—
				Changes in estimated sales allowances		17,377			50,110
				Gain on sale of building		(5,000	)		—
				Other non-cash items		(2,492	)		(7,250	)
				Gain from litigation settlements		(21,669	)		—
				Receipts from litigation settlements		12,500			—
				Payments of litigation settlements		(32,630	)		—
			Changes in operating assets and liabilities:
				Accounts receivable		(58,906	)		(79,849	)
				Inventories		(52,965	)		1,363
				Trade accounts payable		(11,524	)		(1,075	)
				Income taxes		15,614			16,215
				Other operating assets and liabilities, net		(12,469	)		8,025

Net cash provided from operating activities						73,683			124,707

Cash flows from investing activities:
			Capital expenditures			(47,107	)		(13,109	)
			Purchase of marketable securities			(353,937	)		(385,883	)
			Proceeds from sale of marketable securities			341,594			384,019
			Proceeds from sale of building			12,000			—

Net cash used in investing activities						(47,450	)		(14,973	)

Cash flows from financing activities:
		Cash dividends paid				(12,006	)		(10,066	)
		Purchase of common stock				(98,647	)		(56,042	)
		Proceeds from exercise of stock options				19,663			10,878

Net cash used in financing activities						(90,990	)		(55,230	)

Net (decrease) increase in cash and cash equivalents						(64,757	)		54,504
Cash and cash equivalents — beginning of period						258,902			160,790

Cash and cash equivalents — end of period					$	194,145		$	215,294

Additional disclosures:
	Cash paid for income taxes				$	64,639		$	52,893

Non-cash financing activities:
	Issuance of restricted stock				$	11,740		$	—

See Notes to Condensed Consolidated Financial Statements

MYLAN LABORATORIES INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited; in thousands, except share and per share amounts)

1. General

In the opinion of management, the accompanying unaudited condensed consolidated financial statements (interim financial statements) of Mylan Laboratories Inc. and Subsidiaries (“Mylan” or “the Company”) were prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q; therefore, as permitted under these rules, certain footnotes or other financial information included in audited financial statements were condensed or omitted. The accompanying interim financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

        These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

        Certain prior year amounts were reclassified to conform to the current year presentation. Such reclassifications had no impact on reported net earnings, earnings per share or shareholders’ equity.

        The interim results of operations for the three and six months ended September 30, 2003, and the interim cash flows for the six months ended September 30, 2003, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.

        On January 27, 2003, the Company effected a three-for-two split of its common stock. On October 8, 2003, the Company effected another three-for-two split of its common stock. All share and per share amounts have been adjusted for all periods to reflect the stock splits.

2. Revenue Recognition and Accounts Receivable

Revenue is recognized for product sales upon shipment when title and risk of loss transfer to the Company’s customers and when provisions for estimates, including discounts, rebates, price adjustments, returns, chargebacks and other promotional programs are reasonably determinable. Accounts receivable are presented net of allowances relating to these provisions. Such allowances were $297,435 and $283,013 as of September 30, 2003, and March 31, 2003. Other current liabilities include $36,051 and $33,096 at September 30, 2003, and March 31, 2003, for certain rebates and other adjustments that are payable to indirect customers.

3. Balance Sheet Components

Selected balance sheet components consist of the following:


		September 30,		March 31,
		2003		2003

Inventories:
	Raw materials	$	115,440	$	107,731
	Work in process		46,607		33,990
	Finished goods		128,695		96,056

		$	290,742	$	237,777

Property, plant and equipment:
	Land and improvements	$	9,089	$	9,089
	Buildings and improvements		116,425		108,156
	Machinery and equipment		209,679		195,300
	Construction in progress		43,891		20,346

			379,084		332,891
Less — accumulated depreciation			164,688		154,561

		$	214,396	$	178,330

Other current liabilities:
	Accrued rebates	$	36,051	$	33,096
	Payroll and employee benefit plan accruals		30,869		18,371
	Royalties and product license fees		18,195		34,465
	Cash dividends payable		5,974		6,031
	Current portion of long-term obligations		1,586		1,586
	Litigation settlements		—		32,630
	Other		16,362		22,975

		$	109,037	$	149,154

4. Earnings per Common Share

Basic earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period adjusted for the dilutive effect of stock options and restricted stock outstanding. The effect of dilutive stock options on the weighted average number of common shares outstanding was 7,780,000 and 3,184,000 for the three months ended September 30, 2003 and 2002 and 6,844,000 and 2,721,000 for the six months ended September 30, 2003 and 2002.

Options to purchase 7,500 shares of common stock were outstanding as of September 30, 2003 but were not included in the computation of diluted earnings per share for the three months then ended because to do so would have been antidilutive. 472,500 shares of restricted stock which were antidilutive were also excluded from the computation of diluted earnings per share for the three and six months ended September 30, 2003.

5. Intangible Assets

Intangible assets consist of the following components:


			Weighted
			Average Life		Original		Accumulated		Net Book
September 30, 2003			(years)		Cost		Amortization		Value

Amortized intangible assets:
		Patents and technologies		19	$	117,435	$	39,213	$	78,222
		Product rights and licenses		12		106,844		52,012		54,832
		Other		19		14,267		5,437		8,830

					$	238,546	$	96,662		141,884

Intangible assets no longer subject to amortization:
	Trademarks									783

									$	142,667

March 31, 2003

Amortized intangible assets:
		Patents and technologies		19	$	117,435	$	36,126	$	81,309
		Product rights and licenses		12		107,273		48,301		58,972
		Other		19		14,267		5,075		9,192

					$	238,975	$	89,502		149,473

Intangible assets no longer subject to amortization:
		Trademarks								783

									$	150,256

During the first quarter of fiscal 2004, the Company removed from the balance sheet certain intangible assets with an original cost of $2,430. Such assets were fully amortized at September 30, 2003 and have no ongoing benefit to current operations.

Amortization expense for the six months ended September 30, 2003 and 2002 was $9,590 and $9,431 and is expected to be $16,904, $13,355, $13,143, $13,066 and $13,006 for fiscal years 2005 through 2009, respectively.

6. Comprehensive Earnings

Comprehensive earnings consist of the following:


		Three Months					Six Months

Period Ended September 30,		2003		2002			2003			2002

Net earnings		$	91,278	$	68,229		$	175,141		$	130,078
Other comprehensive earnings net of tax:
	Net unrealized gain (loss) on marketable securities		1,619		(393	)		2,613			1,733
	Reclassification for losses (gains) included in net earnings		68		(3,198	)		(275	)		(3,167	)

			1,687		(3,591	)		2,338			(1,434	)

Comprehensive earnings		$	92,965	$	64,638		$	177,479		$	128,644

Accumulated other comprehensive earnings, as reflected on the balance sheet, is comprised solely of the net unrealized gain on marketable securities, net of deferred income taxes.

7. Common Stock

On July 25, 2003, the Company’s shareholders approved an increase in the number of authorized shares of the Company’s common stock from 300,000,000 to 600,000,000. As of September 30, 2003 and March 31, 2003, there were 600,000,000 and 300,000,000 shares of common stock authorized with 302,824,113 and 300,904,262 (200,602,841 on a pre-split basis) shares issued. Treasury shares held as of September 30, 2003 and March 31, 2003 were 33,689,492 and 29,143,443.

In May 2002, the Board of Directors approved a Stock Repurchase Program to purchase up to 22,500,000 shares of the Company’s outstanding common stock. During the six months ended September 30, 2003, the Company purchased 5,018,550 shares for approximately $98,647. At September 30, 2003, 1,440,150 shares were available for purchase under this program. Subsequent to September 30, 2003, and through November 3, 2003, 637,000 additional shares were purchased for approximately $16,000.

8. Stock Option Plans

Under the Mylan Laboratories Inc. 1997 Incentive Stock Option Plan (“the 1997 Plan”), as amended, up to 33,750,000 shares of the Company’s common stock were authorized for grant to officers, employees, non-employee directors and non-employee consultants and agents as either incentive stock options or nonqualified stock options.

On July 25, 2003, Mylan shareholders approved the Mylan Laboratories Inc. 2003 Long-Term Incentive Plan (“the 2003 Plan”). Under the 2003 Plan, 22,500,000 shares of common stock are reserved for issuance to key employees, consultants, independent contractors and non-employee directors of Mylan through a variety of incentive awards including: stock options, stock appreciation rights, restricted shares and units, performance awards, other stock based awards and short-term cash awards. Upon approval of the 2003 Plan, the 1997 Plan was frozen and no further grants of stock options will be made under that plan. At this time, the remaining 5,350,000 shares that had been reserved for the issuance of options under the 1997 Plan were removed from reserve.

In August 2003, the Company awarded 472,500 shares of restricted common stock to certain executives as permitted under the 2003 Plan. All restricted stock awards entitle the participant to dividend and voting rights. The shares cliff vest at the end of a three-year period. Upon issuance of the restricted shares, unearned compensation of $11,740 was charged to shareholders’ equity for the fair value of the restricted stock issued and is being recognized as compensation expense ratably over the three-year period. Compensation expense, net of tax, for the three and six months ended September 30, 2003 was $270.

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123, the Company accounts for stock option plans under the intrinsic-value-based method as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:


			Three Months						Six Months

Period ended September 30,			2003			2002			2003			2002

Net income, as reported			$	91,278		$	68,229		$	175,141		$	130,078
Add:		Stock-based compensation expense included in reported net income, net of related tax effects		270			—			270			—
Deduct:		Total compensation expense determined under the fair value based method for all stock awards, net of related tax effects		(5,985	)		(6,185	)		(12,419	)		(11,081	)

Pro forma net income			$	85,563		$	62,044		$	162,992		$	118,997

Earnings per share:
	Basic — as reported		$	0.34		$	0.24		$	0.65		$	0.46

	Basic — pro forma		$	0.32		$	0.22		$	0.60		$	0.42

	Diluted — as reported		$	0.33		$	0.24		$	0.63		$	0.46

	Diluted — pro forma		$	0.31		$	0.22		$	0.59		$	0.42

9. Segment Reporting

Segment net revenues represent revenues from unrelated third parties. For the Generic and Brand Segments, segment profit represents segment gross profit less direct research and development, selling and marketing and general and administrative expenses. Corporate/Other includes certain general and administrative expenses, such as legal expenditures, litigation settlements and non-operating income and expense.

The following table presents the results of operations for each of the Company’s operating segments:


		Three Months						Six Months

Period Ended September 30,		2003			2002			2003			2002

Consolidated:
	Net revenues	$	360,060		$	319,539		$	691,468		$	595,012
	Pretax earnings		141,604			106,608			271,624			203,247

Generic:
	Net revenues	$	299,483		$	274,281		$	554,711		$	509,926
	Segment profit		147,133			120,747			264,654			227,070

Brand:
	Net revenues	$	60,577		$	45,258		$	136,757		$	85,086
	Segment profit		11,723			1,127			21,462			713

Corporate/Other:
	Loss	$	(17,252	)	$	(15,266	)	$	(14,492	)	$	(24,536	)

10. Contingencies

Legal Proceedings

(Dollar amounts in this Note 10 are as stated)

While it is not possible to determine with any degree of certainty the ultimate outcome of the following legal proceedings, the Company believes that it has meritorious defenses with respect to the claims asserted against it and intends to vigorously defend its position. An adverse outcome in any of these proceedings could have a material adverse effect on the Company’s financial position and results of operations.

Omeprazole

In fiscal 2001, Mylan Pharmaceuticals Inc. (“MPI”) filed an Abbreviated New Drug Application (“ANDA”) seeking approval from the Food and Drug Administration (“FDA”) to manufacture, market and sell omeprazole delayed-release capsules, and made “Paragraph IV” certifications to several patents owned by AstraZeneca PLC (“AstraZeneca”) that were listed in the FDA’s “Orange Book”. AstraZeneca filed suit against MPI and Mylan Laboratories Inc. (“Mylan Labs”) in the United States (“U.S.”) District Court for the Southern District of New York alleging infringement of several of AstraZeneca’s patents. MPI has filed a motion for summary judgment as to all claims of infringement, and the summary judgment motion remains pending. On May 29, 2003, the FDA approved MPI’s ANDA for the 10 mg and 20 mg strengths of omeprazole delayed-release capsules and, on August 4, 2003, Mylan Labs announced that MPI had commenced the sale of omeprazole 10 mg and 20 mg delayed-release capsules. AstraZeneca then amended the pending lawsuit to assert claims against Mylan Labs and MPI, and filed a separate lawsuit against MPI’s supplier, Esteve Quimica S.A. (“Esteve”), for unspecified money damages and a finding of willful infringement which could result in treble damages, injunctive relief, attorneys’ fees, costs of litigation and such further relief as the court deems just and proper.

In November 2002, MPI filed suit in the U.S. District Court for the District of Delaware against Kremers Urban Development Company (“KUDCo”) and several other companies affiliated with Schwarz Pharma AG (the “Schwarz Pharma Group”) alleging KUDCo and the Schwarz Pharma Group are infringing U.S. patent 5,626,875 (the “’875 Patent”) in connection with KUDCo’s manufacture and sale of omeprazole capsules in the U.S. The ’875 Patent was issued to Esteve and licensed to MPI. Esteve joined the suit as a co-plaintiff with MPI in December 2002. KUDCo and the Schwarz Pharma Group asserted defenses and counterclaims in that action alleging the inventors listed on the ’875 patent are not the actual inventors of the invention described therein, and further seeking money damages alleging the infringement action was not proper. On August 7, 2003, KUDCo and an individual filed a lawsuit against MPI and Esteve in the U.S. District Court for the District of Columbia asserting claims that have not been asserted in the Delaware action. KUDCo and the individual allege that the individual is the sole inventor of the ’875 Patent, that the individual owns the ’875 Patent and has assigned his ownership interest in the ’875 Patent to KUDCo, and that MPI and Esteve are infringing the ’875 Patent. The new lawsuit seeks an order directing that the individual be listed as the sole inventor or a co-inventor of the ’875 Patent and enjoining MPI from infringing the ’875 Patent, together with costs and attorneys’ fees.

Paclitaxel

In June 2001, NAPRO Biotherapeutics Inc. (“NAPRO”) and Abbott Laboratories Inc. (“Abbott”) filed suit against Mylan Labs, MPI and UDL Laboratories Inc. (“UDL”) in the U.S. District Court for the Western District of Pennsylvania. Plaintiffs allege that the manufacture, use and sale of MPI’s paclitaxel product, which MPI began selling in July 2001, infringes certain patents owned by NAPRO and allegedly licensed to Abbott. Plaintiffs seek unspecified damages plus interest, a finding of willful infringement which could result in treble damages, injunctive relief, attorneys’

fees, costs of litigation and such equitable and other relief as the court deems just and proper. By order dated October 8, 2003, the court granted partial summary judgment in favor of NAPRO and Abbott finding that Mylan Labs, MPI and UDL infringe most of the asserted claims, and dismissing one of the defendants’ asserted invalidity defenses. The Company’s remaining invalidity and unenforceability claims remain pending before the court.

Pricing and Medicaid Litigation

MPI, along with a number of other pharmaceutical manufacturers, has been named as a defendant in four lawsuits filed in the state courts of California in which the plaintiffs allege the defendants unlawfully, unfairly and fraudulently manipulated the reported average wholesale price of various products, allegedly to increase third-party reimbursements to others for their products. One of these lawsuits was voluntarily dismissed by the plaintiff. None of the three remaining cases has been certified as a class action, although all three cases seek class action and representative status. The three remaining cases have been transferred to the “Average Wholesale Price” multi-district litigation proceedings in the U.S. District Court for the District of Massachusetts. MPI has filed a motion to dismiss all claims against it. Plaintiffs seek equitable relief in the form of disgorgement and restitution, attorneys’ fees and costs of litigation.

On September 26, 2003, the Commonwealth of Massachusetts sued Mylan Labs and 12 other generic drug companies alleging unlawful manipulation of reimbursements under the Massachusetts Medicaid program. The lawsuit identifies three drug products sold by MPI and seeks equitable relief, attorneys’ fees, cost of litigation and monetary damages in unspecified sums.

Other Litigation

The Company is involved in various other legal proceedings that are considered normal to its business. While it is not feasible to predict the ultimate outcome of such other proceedings at this time, the Company believes that the ultimate outcome of such other proceedings will not have a material adverse effect on its financial position or results of operations.

Previously Reported Matters That Have Been Resolved

Nifedipine

In February 2001, Biovail Laboratories Inc. (“Biovail”) filed suit against Mylan Labs, MPI and Pfizer Inc. (“Pfizer”) alleging antitrust violations with respect to agreements entered into between the Company and Pfizer regarding nifedipine. The parties have agreed to a settlement pursuant to which Biovail has dismissed the lawsuit with prejudice and granted the Company a release of all claims relating to nifedipine. The Company has also been named as a defendant in five other putative class action suits alleging antitrust claims based on the same alleged conduct. Two of the class actions have been dismissed in their entirety, and the remaining actions have been dismissed in part and consolidated into a single proceeding. The plaintiffs in the remaining actions are seeking unspecified compensatory and treble damages, attorneys’ fees, costs of litigation, restitution, disgorgement, and declaratory and injunctive relief.

Lorazepam and Clorazepate

On March 31, 2003, the Company announced a tentative settlement of a direct purchaser class action related to the sale of lorazepam and clorazepate for a total amount of $35.0 million. The Company’s co-defendants agreed to an initial contribution of approximately $7.0 million toward the $35.0 million settlement. The Company’s obligation was accrued at March 31, 2003. During the first quarter of fiscal 2004, this settlement received final court approval. Upon receiving such approval, the Company recorded a gain of approximately $10.0 million related to additional contributions which the co-defendants agreed in April 2004 to make to the Company. This additional $10.0 million reduces the Company’s share of the total settlement to approximately $18.0 million. The Company is to receive the $10.0 million in five annual payments of $2.0 million each. This settlement does not include several related cases, and the Company does not believe that an adverse result in any of the remaining lorazepam and clorazepate cases, collectively or individually, would have a material adverse effect on the Company’s financial position or results of operations.

Zagam®

Mylan Labs, Mylan Caribe Inc. and Bertek Pharmaceuticals, Inc. filed suit against Aventis Pharmaceuticals, Inc., successor in interest to Rhone-Poulenc Rorer Pharmaceuticals, Inc.; Rhone-Poulenc Rorer Pharmaceuticals, LTD; Rorer Pharmaceutical Products, Inc.; Rhone-Poulenc Rorer, S.A., and their affiliates in the U.S. District Court for the Western District of Pennsylvania in May 2001, and the defendants counterclaimed. The Company previously identified this matter as a case in which an adverse outcome could have had a material adverse effect on the Company’s financial position and results of operations. In April 2003, the Company entered into a settlement of the matter pursuant to which the Company received a payment of $12.5 million, the dismissal of the defendants’ counterclaims and termination of the agreements in question.

Other Inquiries

On June 26, 2003, UDL and MPI received requests from the U.S. House of Representatives Energy and Commerce Committee requesting information about certain drug products sold by UDL and MPI, in connection with the Committee’s investigation into pharmaceutical reimbursement and rebates under Medicaid.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion addresses material changes in the results of operations and financial condition of Mylan Laboratories Inc. and Subsidiaries (“the Company”, “Mylan” or “we”) for the periods presented. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003, and the unaudited interim Condensed Consolidated Financial Statements and related Notes included in Item 1 of this Report on Form 10-Q.

On January 27, 2003, the Company effected a three-for-two split of its common stock. On October 8, 2003, the Company effected another three-for-two split of its common stock. All share and per share amounts have been adjusted for all periods to reflect the stock splits.

This Report on Form 10-Q may contain “forward-looking statements”. Such forward-looking statements may include, without limitation, statements about the Company’s market opportunities, strategies, competition and expected activities and expenditures, and at times may be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “project”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “forecast”, “potential”, “intend”, “continue” and variations of these words or comparable words. Forward-looking statements inherently involve risks and uncertainties. Accordingly, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risks described below under “Risk Factors” in this Item 2. The Company undertakes no obligation to update any forward-looking statements.

Results of Operations

Mylan’s second quarter was highlighted by record net revenues, net earnings and earnings per diluted share. Net revenues increased 13% or $40.5 million to $360.1 million compared to $319.5 million in the second quarter of fiscal 2003. Net earnings for the quarter increased 34% or $23.0 million to $91.3 million and diluted earnings per share increased $0.09 per share to $0.33. Mylan’s Generic Segment reported record net revenues of $299.5 million, while sales by the Brand Segment increased 34% from the same prior year period.

The following table illustrates the financial results for the consolidated company and by operating segment:


		Three Months						Six Months

Period Ended September 30,		2003			2002			2003			2002

Consolidated:
	Net revenues	$	360,060		$	319,539		$	691,468		$	595,012
	Gross profit		207,708			166,732			385,137			314,334
	Research & development		23,946			20,169			48,685			37,012
	Selling & marketing		17,274			16,538			35,110			33,425
	General & administrative		32,312			25,030			61,920			44,251
	Litigation settlements		—			—			(21,669	)		—
	Other income, net		7,428			1,613			10,533			3,601

	Pretax earnings	$	141,604		$	106,608		$	271,624		$	203,247

Generic Segment:
	Net revenues	$	299,483		$	274,281		$	554,711		$	509,926
	Gross profit		169,212			139,872			307,667			264,355
	Research & development		14,154			10,873			27,641			20,887
	Selling & marketing		2,761			2,551			5,517			5,299
	General & administrative		5,164			5,701			9,855			11,099

	Segment profit	$	147,133		$	120,747		$	264,654		$	227,070

Brand Segment:
	Net revenues	$	60,577		$	45,258		$	136,757		$	85,086
	Gross profit		38,496			26,860			77,470			49,979
	Research & development		9,792			9,296			21,044			16,125
	Selling & marketing		14,513			13,987			29,593			28,126
	General & administrative		2,468			2,450			5,371			5,015

	Segment profit	$	11,723		$	1,127		$	21,462		$	713

Corporate/Other:
	Loss	$	(17,252	)	$	(15,266	)	$	(14,492	)	$	(24,536	)

Quarter Ended September 30, 2003, Compared to Quarter Ended September 30, 2002

Net Revenues and Gross Profit

Net revenues for the current quarter increased 13% or $40.5 million to $360.1 million, compared to $319.5 million in the second quarter of fiscal 2003. Both the Generic Segment and the Brand Segment contributed to the increase in net revenues. For the Generic Segment, net revenues increased 9% or $25.2 million to $299.5 million in the second quarter of fiscal 2004 compared to $274.3 million in the prior year second quarter. Brand Segment net revenues increased 34% or $15.3 million to $60.6 million from $45.3 million.

The increase in Generic net revenues was driven by new products launched subsequent to September 30, 2002 which contributed net revenues of $68.6 million, largely due to omeprazole. The success of the Generic Segment is predicated on the ability to successfully identify and bring to market quality, affordable products to meet customer and patient needs. In August 2003, Mylan Pharmaceuticals Inc. (“MPI”) commenced the sale of 10 mg and 20 mg omeprazole delayed-release capsules for which it had received FDA approval on May 29, 2003. See Note 10 to the Condensed Consolidated Financial Statements for additional discussion.

Excluding new products, net revenues decreased primarily as a result of lower overall volume. In total, Generic volume shipped was approximately 2.7 billion doses in the current quarter, compared to 3.0 billion doses in the same prior year period. Both volume and pricing are impacted by numerous factors, one of which is competition. The entrance into the market of other generic competition in the future could negatively impact the volume and pricing of certain of the Company’s key products.

For the Brand Segment, slightly more than half of the increase in net revenues was attributed to Amnesteem^TM which was launched late in fiscal 2003. Despite the entrance into the market of additional competition since its launch, Amnesteem maintained a market share of approximately 40% throughout the current quarter. The competition, however, has resulted in pricing pressure on Amnesteem and could continue to have a negative impact on Amnesteem revenues during the remainder of the fiscal year.

The remaining increase in Brand Segment revenues was the result of overall increased volume and favorable pricing on the remaining branded products. Four products in particular, clozapine, phenytoin, Phenytek® and Mentax®, were primarily responsible for this increase.

The Company’s gross profit for the second quarter of fiscal 2004 increased 25% or $41.0 million to $207.7 million from $166.7 million in the same prior year period, while increasing as a percentage of net revenues from approximately 52% in the prior year to 58% in fiscal 2004. Generic gross profit increased 21% or $29.3 million to $169.2 million from $139.9 million, while Generic gross margin increased to 57% from 51%. The increase in Generic Segment gross margin is primarily the result of products launched subsequent to September 30, 2002.

Brand gross profit increased 43% or $11.6 million to $38.5 million from $26.9 million, and gross margin increased to 64% from 59% in the prior year. A favorable product mix during the quarter, which resulted in a greater proportion of sales of higher margin products in the Company’s existing branded portfolio, compensated for lower margins on Amnesteem and resulted in the overall increase in margin. Amnesteem sales contribute lower gross margins as a result of royalties paid under a supply and distribution agreement for that product.

Operating Expenses

Research and development (“R&D”) expenses for the current quarter increased 19% or $3.8 million to $23.9 million from $20.2 million. The Generic Segment accounted for the majority of this increase as R&D expenses increased by $3.3 million or 30% as a result of increased studies, increases in the amount and timing of Abbreviated New Drug Application (“ANDA”) submissions, including planned submissions, and the expansion of the R&D infrastructure.

Selling and marketing expenses for the current quarter increased 4% or $0.7 million to $17.3 million from $16.5 million.

General and administrative expenses for the quarter increased 29% or $7.3 million to $32.3 million from $25.0 million. The majority of this increase was the result of higher corporate expenses, driven by increased legal expenses, as well as personnel related costs.

Other Income, net

Other income, net of non-operating expenses, was $7.4 million in the second quarter of fiscal 2004 compared to $1.6 million in the second quarter of fiscal 2003. The increase was primarily the result of a gain of $5.0 million realized on the sale of an office building.

Six Months Ended September 30, 2003, Compared to Six Months Ended September 30, 2002

Net Revenues and Gross Profit

Net revenues for the six months ended September 30, 2003 increased 16% or $96.5 million to $691.5 million, compared to $595.0 million in the same prior year period. Both the Generic Segment and the Brand Segment contributed to the increase in net revenues. For the Generic Segment, net revenues increased 9% or $44.8 million to $554.7 million in the first six months of fiscal 2004 compared to $509.9 million in the first six months of fiscal 2003. Brand Segment net revenues increased 61% or $51.7 million to $136.8 million from $85.1 million.

Products launched subsequent to September 30, 2002, were primarily responsible for the increase in Generic net revenues. These products contributed $74.4 million to sales, largely due to omeprazole. Excluding new products, net revenues decreased primarily as a result of lower volume on certain existing products. In total, Generic volume shipped was approximately 5.4 billion doses in the current six months, compared to 5.9 billion doses in the same prior year period.

The majority of the increase in Brand Segment net revenues was driven by Amnesteem which accounted for approximately 70% of the overall increase. Additionally, the continued growth of other core products in the existing product portfolio, primarily clozapine, Phenytek, Mentax and Digitek®, contributed to the increase in net revenues.

The Company’s gross profit for the first six months of fiscal 2004 increased 23% or $70.8 million to $385.1 million from $314.3 million in the same prior year period while increasing as a percentage of net revenues from approximately 53% to 56%. Generic gross profit increased 16% or $43.3 million to $307.7 million from $264.4 million, while Generic gross margin increased to 56% from 52% on the strength of new product sales. Brand gross profit increased 55% or $27.5 million to $77.5 million from $50.0 million while Brand gross margin declined from 59% to 57%. The decrease in gross margin was the result of sales of Amnesteem which contribute a lower gross margin than the majority of the Brand Segment’s other core products due to royalties paid under a supply and distribution agreement.

Operating Expenses

R&D expenses for the current six months increased 32% or $11.7 million to $48.7 million from $37.0 million, driven by increases in both the Generic and Brand Segments. Generic Segment R&D expenses increased by $6.8 million or 32% as a result of increased studies, increases in the amount and timing of ANDA submissions, including planned submissions, and the expansion of the R&D infrastructure. Brand Segment R&D expenses increased $4.9 million or 31% primarily due to ongoing clinical studies on nebivolol.

Selling and marketing expenses for the current six months increased 5% or $1.7 million to $35.1 million from $33.4 million. This increase was driven primarily by the Brand Segment and is primarily the result of pre-marketing activities related to apomorphine.

General and administrative expenses for the six months increased 40% or $17.7 million to $61.9 million from $44.3 million. The majority of this increase was the result of higher Corporate expenses, driven by increased legal expenses, as well as payroll and payroll related costs.

Litigation Settlements

Included in the results for the first six months of fiscal 2004 were gains of $21.7 million related to the favorable resolution of certain legal matters which were recorded in the first quarter. Of this amount, $12.5 million relates to a settlement reached during the first six months with respect to the marketing and manufacturing of Zagam®. The remainder of the gain relates to future payments to be made to Mylan totaling $10.0 million from Mylan’s co-defendants in the lorazepam and clorazepate litigation. This $10.0 million represents a partial reimbursement of the settlement funds paid by Mylan toward the settlement announced in fiscal 2003. These additional payments were agreed to by the co-defendants and the settlement received final approval from the judge overseeing the litigation in the first six months of fiscal 2004.

Other Income, net

Other income, net of non-operating expenses, was $10.5 million for the first half of fiscal 2004 compared to $3.6 million in the first six months of the prior year, an increase of $6.9 million. This increase was primarily the result of a $5.0 million gain on the sale of an office building that was recorded in the second quarter of fiscal 2004.

Liquidity and Capital Resources

The Company’s primary source of liquidity continues to be cash flows from operating activities, which was $73.7 million for the six months ended September 30, 2003. Working capital as of September 30, 2003, was $1.05 billion, an increase of $85.3 million from the balance at March 31, 2003.

During the first quarter of fiscal 2004, Mylan paid $32.6 million related to the settlement of certain legal matters that were resolved and accrued for in fiscal 2003. Additionally, in the first quarter, Mylan received $12.5 million with respect to a settlement related to contracts for the marketing and manufacture of Zagam.

During the second quarter of fiscal 2004, the Company sold the United States (“U.S.”) and Canadian rights for Sertaconazole Nitrate 2% Cream. In accordance with the terms of the agreement, Mylan received $2.0 million in the second quarter and will receive an additional $12.0 million upon approval of the product by the Food and Drug Administration (“FDA”).

Cash used in investing activities for the six months ended September 30, 2003, was $47.5 million. Of the Company’s $1.8 billion of total assets at September 30, 2003, 35% or $638.4 million was held in cash, cash equivalents and marketable securities. Investments in marketable securities consist primarily of high-quality government and commercial paper. These investments are highly liquid and are available for operating needs. As these instruments mature, the funds are generally reinvested in instruments with similar characteristics.

Capital expenditures during the six months ended September 30, 2003, were $47.1 million. These expenditures included the purchase of machinery and equipment used in the Company’s operations. As our planned expansions continue, capital expenditures are expected to increase to approximately $120.0 million for the fiscal year.

In the second quarter of fiscal 2004, Mylan sold an office building to a lessee for a purchase price of $12.0 million. The cash was received and a gain of $5.0 million was recognized in the second quarter.

In the first quarter of fiscal 2004, the Company sold its ownership interest in a foreign entity back to that entity for approximately $15.0 million. According to the agreement, Mylan will receive $5.0 million in fiscal 2004 and the remainder in fiscal 2005.

Cash used in financing activities was $91.0 million for the six months ended September 30, 2003. $98.6 million was used to purchase 5.0 million shares of the Company’s stock. In May 2002, the Board of Directors (the “Board”) approved a stock repurchase program that authorized the purchase of up to 22.5 million shares of the Company’s outstanding common stock. Through the second quarter of fiscal 2004, 21.1 million shares had been purchased under this program. Subsequent to September 30, 2003, and through November 3, 2003, 0.6 million additional shares were purchased for approximately $16.0 million. The Company expects to purchase the remaining shares during the remainder of fiscal 2004.

Mylan continues to pay quarterly cash dividends. In fiscal 2003, the Board voted to increase the quarterly dividend from 1.78 cents per share to 2.22 cents per share. Dividend payments totaled $12.0 million during the first half of fiscal 2004.

The Company is involved in various legal proceedings that are considered normal to its business (see Note 10 to Condensed Consolidated Financial Statements). While it is not feasible to predict the outcome of such proceedings, an adverse outcome in any of these proceedings could materially affect the Company’s financial position and results of operations.

The Company is actively pursuing, and is currently involved in, joint projects related to the development, distribution and marketing of both generic and brand products. Many of these arrangements provide for payments by the Company upon the attainment of specified milestones. While these arrangements help to reduce the financial risk for unsuccessful projects, fulfillment of specified milestones or the occurrence of other obligations may result in fluctuations in cash flows from operating activities.

In order to provide additional operating leverage, if necessary, the Company maintains a revolving line of credit with a commercial bank providing for borrowings of up to $50.0 million. As of September 30, 2003, no funds have been advanced under this line of credit. Additionally, the Company is continuously evaluating the potential acquisition of products, as well as companies, as a strategic part of its future growth. Consequently, the Company may utilize current cash reserves or incur additional indebtedness to finance any such acquisitions, which could impact future liquidity.

Risk Factors

The following risk factors could have a material adverse effect on our business, financial position or results of operations. These risk factors may not include all of the important factors that could affect our business or our industry or that could cause our future financial results to differ materially from historic or expected results or cause the market price of our common stock to fluctuate or decline. Please refer to our other periodic reports filed with the Securities and Exchange Commission (“SEC”) including our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

OUR FUTURE REVENUE GROWTH AND PROFITABILITY ARE DEPENDENT UPON OUR ABILITY TO DEVELOP AND LICENSE, OR OTHERWISE ACQUIRE, AND INTRODUCE NEW PRODUCTS ON A TIMELY BASIS IN RELATION TO OUR COMPETITORS’ PRODUCT INTRODUCTIONS. OUR FAILURE TO DO SO SUCCESSFULLY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Our future revenues and profitability will depend, to a significant extent, upon our ability to successfully develop and license, or otherwise acquire, and commercialize new generic and patent or statutorily protected (usually brand) pharmaceutical products in a timely manner. Product development is inherently risky, especially for new drugs for which safety and efficacy have not been established, and the market is not yet proven. The development and commercialization process, particularly with regard to new drugs, also requires substantial time, effort and financial resources. We may not be successful in commercializing any of the products that we are developing on a timely basis, if at all, which could adversely affect our product introduction plans, financial position and results of operations and could cause the market value of our common stock to decline.

U.S. FDA approval is required before any prescription drug product, including generic drug products, can be marketed. The process of obtaining FDA approval to manufacture and market new and generic pharmaceutical products is rigorous, time-consuming, costly and largely unpredictable. We may be unable to obtain requisite FDA approvals on a timely basis for new generic or brand products that we may develop, license or otherwise acquire. The timing and cost of obtaining FDA approvals could adversely affect our product introduction plans, financial position and results of operations and could cause the market value of our common stock to decline.

The ANDA process often results in the FDA granting final approval to a number of ANDAs for a given product at the time a patent claim for a corresponding brand product or other market exclusivity expires. This often forces us to face immediate competition when we introduce a generic product into the market. Additionally, ANDA approvals often continue to be granted for a given product subsequent to the initial launch of the generic product. These circumstances generally result in significantly lower prices, as well as reduced margins, for generic products compared to brand products. New generic market entrants generally cause continued price and margin erosion over the generic product life cycle.

The Waxman-Hatch Act provides for a period of 180 days of generic marketing exclusivity for each ANDA applicant that is first to file an ANDA containing a certification of invalidity, non-infringement or unenforceability related to a patent listed with respect to a reference drug product, commonly referred to as a Paragraph IV certification. During this exclusivity period, the FDA cannot grant final approval to any other generic equivalent. If an ANDA containing a Paragraph IV certification is successful, it generally results in higher market share, net revenues and gross margin for that applicant. Even if we obtain FDA approval for our generic drug products, if we are not the first ANDA applicant to challenge a listed patent for such a product, we may lose significant advantages to a competitor who filed its ANDA containing such a challenge. Such a situation could have a material adverse effect on our ability to market that product profitably, our financial

position and results of operations, and the market value of our common stock could decline.

OUR APPROVED PRODUCTS MAY NOT ACHIEVE EXPECTED LEVELS OF MARKET ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR PROFITABILITY, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Even if we are able to obtain regulatory approvals for our new pharmaceutical products, generic or brand, the success of those products is dependent upon market acceptance. Levels of market acceptance for our new products could be impacted by several factors, including:

• the availability of alternative products from our competitors;

• the price of our products relative to that of our competitors;

• the timing of our market entry;

• the ability of our customers to market our products effectively to the retail level; and

• the acceptance of our products by government and private formularies.

Some of these factors are not within our control. Our new products may not achieve expected levels of market acceptance. Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of product marketing. These situations, should they occur, could have a material adverse effect on our profitability, financial position and results of operations, and the market value of our common stock could decline.

A RELATIVELY SMALL GROUP OF PRODUCTS MAY REPRESENT A SIGNIFICANT PORTION OF OUR NET REVENUES OR NET EARNINGS FROM TIME TO TIME. IF THE VOLUME OR PRICING OF ANY OF THESE PRODUCTS DECLINES, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Sales of a limited number of our products often represent a significant portion of our net revenues and net earnings. If the volume or pricing of our largest selling products declines in the future, our business, financial position and results of operations could be materially adversely affected, and the market value of our common stock could decline.

WE FACE VIGOROUS COMPETITION FROM OTHER PHARMACEUTICAL MANUFACTURERS THAT THREATENS THE COMMERCIAL ACCEPTANCE AND PRICING OF OUR PRODUCTS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Our competitors may be able to develop products and processes competitive with or superior to our own for many reasons, including that they may have:

• proprietary processes or delivery systems;

• larger research and development and marketing staffs;

• larger production capabilities in a particular therapeutic area;

• more experience in preclinical testing and human clinical trials;

• more products; or

• more experience in developing new drugs and financial resources, particularly with regard to brand manufacturers.

Any of these factors and others could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

BECAUSE THE PHARMACEUTICAL INDUSTRY IS HEAVILY REGULATED, WE FACE SIGNIFICANT COSTS AND UNCERTAINTIES ASSOCIATED WITH OUR EFFORTS TO COMPLY WITH APPLICABLE REGULATIONS. SHOULD WE FAIL TO COMPLY WE COULD EXPERIENCE MATERIAL ADVERSE EFFECTS ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

The pharmaceutical industry is subject to regulation by various federal and state governmental authorities. For instance, we must comply with FDA requirements with respect to the manufacture, labeling, sale, distribution, marketing, advertising, promotion and development of pharmaceutical products. Failure to comply with FDA and other governmental regulations can result in fines, disgorgement, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of New Drug Applications (“NDAs”) or ANDAs, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have internal regulatory compliance programs and policies and have had a favorable compliance history, there is no guarantee that these programs, as currently designed, will meet regulatory agency standards in the future. Additionally, despite our efforts at compliance, there is no guarantee that we may not be deemed to be deficient in some manner in the future. If we were deemed to be deficient in any significant way, our business, financial position and results of operations could be materially affected and the market value of our common stock could decline.

In addition to the new drug approval process, the FDA also regulates the facilities and operational procedures that we use to manufacture our products. We must register our facilities with the FDA. All products manufactured in those facilities must be made in a manner consistent with current Good Manufacturing Practices (“cGMP”). Compliance with cGMP regulations requires substantial expenditures of time, money and effort in such areas as production and quality control to ensure full technical compliance. The FDA periodically inspects our manufacturing facilities for compliance. FDA approval to manufacture a drug is site-specific. Failure to comply with cGMP regulations at one of our manufacturing facilities could result in an enforcement action brought by the FDA which could include withholding the approval of NDAs, ANDAs or other product applications of that facility. If the FDA were to require one of our manufacturing facilities to cease or limit production, our business could be adversely affected. Delay and cost in obtaining FDA approval to manufacture at a different facility also could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

We are subject, as are generally all manufacturers, to various federal, state and local laws regulating working conditions, as well as environmental protection laws and regulations, including those governing the discharge of materials into the environment. Although we have not incurred significant costs associated with complying with environmental provisions in the past, if changes to such environmental laws and regulations are made in the future that require significant changes in our operations or if we engage in the development and manufacturing of new products requiring new or different environmental controls, we may be required to expend significant funds. Such changes could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE EXPEND A SIGNIFICANT AMOUNT OF RESOURCES ON RESEARCH AND DEVELOPMENT EFFORTS THAT MAY NOT LEAD TO SUCCESSFUL PRODUCT INTRODUCTIONS. FAILURE TO SUCCESSFULLY INTRODUCE PRODUCTS INTO THE MARKET COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

Much of our development effort is focused on technically difficult-to-formulate products and/or products that require advanced manufacturing technology. We conduct research and development primarily to enable us to manufacture and market FDA-approved pharmaceuticals in accordance with FDA regulations. Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. As we continue to develop new products, our research expenses will likely increase. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of FDA approved new pharmaceutical products. Also, after we submit an NDA or ANDA, the FDA may request that we conduct additional studies and as a result, we may be unable to reasonably determine the total research and development costs to develop a particular product. Finally, we cannot be certain that any investment made in developing products will be recovered, even if we are successful in commercialization. To the extent that we expend significant resources on research and development efforts and are not able, ultimately, to introduce successful new products as a result of those efforts, our business, financial position and results of operations may be materially adversely affected, and the market value of our common stock could decline.

A SIGNIFICANT PORTION OF OUR NET REVENUES ARE DERIVED FROM SALES TO A LIMITED NUMBER OF CUSTOMERS. ANY SIGNIFICANT REDUCTION OF BUSINESS WITH ANY OF THESE CUSTOMERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

A significant portion of our net revenues are derived from sales to a limited number of customers. As such, a reduction in or loss of business with one customer, or if one customer were to experience difficulty in paying us on a timely basis, our business, financial position and results of operations could be materially adversely affected, and the market value of our common stock could decline.

THE USE OF LEGAL, REGULATORY AND LEGISLATIVE STRATEGIES BY COMPETITORS, BOTH BRAND AND GENERIC, MAY INCREASE OUR COSTS ASSOCIATED WITH THE INTRODUCTION OR MARKETING OF OUR GENERIC PRODUCTS OR COULD DELAY OR PREVENT SUCH INTRODUCTION. THESE FACTORS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Our competitors, both brand and generic, often pursue strategies to prevent or delay competition from generic alternatives to brand products. These strategies include, but are not limited to:

• seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence;

• initiating legislative efforts in various states to limit the substitution of generic versions of brand pharmaceuticals;

• filing suits for patent infringement that automatically delay FDA approval of many generic products;

• introducing “second-generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product for which we seek FDA approval;

• obtaining extensions of market exclusivity by conducting trials of brand drugs in pediatric populations as discussed below;

• entering into agreements whereby other generic companies will begin to market a generic equivalent of a branded product at the same time generic competition initially enters the market;

• persuading the FDA to withdraw the approval of brand name drugs for which the patents are about to expire, thus allowing the brand name company to obtain new patented products serving as substitutes for the products withdrawn;

• seeking to obtain new patents on drugs for which patent protection is about to expire; and

• filing a citizen’s petition with the FDA, which often results in delays of our approvals.

The Food and Drug Modernization Act of 1997 includes a pediatric exclusivity provision that may provide an additional six months of market exclusivity for indications of new or currently marketed drugs if certain agreed-upon pediatric studies are completed by the applicant. Brand companies are utilizing this provision to extend periods of market exclusivity.

Some companies have lobbied Congress for amendments to the Waxman-Hatch legislation that would give them additional advantages over generic competitors. For example, although the term of a company’s drug patent can be extended to reflect a portion of the time an NDA is under regulatory review, some companies have proposed extending the patent term by a full year for each year spent in clinical trials, rather than the one-half year that is currently permitted. If proposals like these were to become effective, our entry into the market and our ability to generate revenues associated with new products may be delayed, which could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE DEPEND ON THIRD-PARTY SUPPLIERS AND DISTRIBUTORS FOR THE RAW MATERIALS, PARTICULARLY THE CHEMICAL COMPOUND(S) COMPRISING THE ACTIVE PHARMACEUTICAL INGREDIENT, THAT WE USE TO MANUFACTURE OUR PRODUCTS, AS WELL AS CERTAIN FINISHED GOODS. A PROLONGED INTERRUPTION IN THE SUPPLY OF SUCH PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS, AND THE MARKET VALUE OF OUR COMMON STOCK COULD DECLINE.

We typically purchase the active ingredient (i.e. the chemical compounds that produce the desired therapeutic effect in our products), and other materials and supplies that we use in our manufacturing operations, as well as certain finished products, from many different foreign and domestic suppliers. Additionally, we maintain safety stocks in our raw materials inventory, and in certain cases where we have listed only one supplier in our applications with the FDA, have received FDA approval to use alternative suppliers should the need arise. However, there is no guarantee that we will always have timely and sufficient access to a critical raw material or finished product. A prolonged interruption in the supply of a single-sourced active ingredient or finished product could cause our financial position and results of operations to be materially adversely affected, and the market value of our common stock could decline. In addition, our manufacturing capabilities could be impacted by quality deficiencies in the products which our suppliers provide, which could have a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline.

WE USE SEVERAL MANUFACTURING FACILITIES TO MANUFACTURE OUR PRODUCTS. HOWEVER, A SIGNIFICANT NUMBER OF OUR GENERIC PRODUCTS ARE PRODUCED AT ONE LOCATION. PRODUCTION AT THIS FACILITY COULD BE INTERRUPTED, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Although we have other facilities, we produce a significant number of our generic products at our largest manufacturing facility. A significant disruption at that facility, even on a short-term basis, could impair our ability to produce and ship products to the market on a timely basis, which could have a material adverse

effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY EXPERIENCE DECLINES IN THE SALES VOLUME AND PRICES OF OUR PRODUCTS AS THE RESULT OF THE CONTINUING TREND TOWARD CONSOLIDATION OF CERTAIN CUSTOMER GROUPS, SUCH AS THE WHOLESALE DRUG DISTRIBUTION AND RETAIL PHARMACY INDUSTRIES, AS WELL AS THE EMERGENCE OF LARGE BUYING GROUPS. THE RESULT OF SUCH DEVELOPMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

We make a significant amount of our sales to a relatively small number of drug wholesalers and retail drug chains. These customers represent an essential part of the distribution chain of generic pharmaceutical products. Drug wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to attempt to extract price discounts on our products. The result of these developments may have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL AND OTHER PROPRIETARY PROPERTY IN AN EFFECTIVE MANNER, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Our patents on our brand products may not prevent other companies from developing functionally equivalent products or from challenging the validity or enforceability of our patents. If our patents are found to be non-infringed, invalid or not enforceable, we could experience an adverse effect on our ability to commercially promote patented products. We could be required to enforce our patent or other intellectual property rights through litigation, which can be protracted and involve significant expense and an inherently uncertain outcome. Any negative outcome could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

OUR COMPETITORS MAY ALLEGE THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, FORCING US TO EXPEND SUBSTANTIAL RESOURCES IN RESULTING LITIGATION, THE OUTCOME OF WHICH IS UNCERTAIN. ANY UNFAVORABLE OUTCOME OF SUCH LITIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Companies that produce brand pharmaceutical products routinely bring litigation against ANDA applicants who seek FDA approval to manufacture and market generic forms of their branded products. These companies allege patent infringement or other violations of intellectual property rights as the basis for filing suit against an ANDA applicant. Litigation often involves significant expense or can delay or prevent introduction of our generic products.

There may also be situations where the Company uses its business judgment and decides to market and sell products, notwithstanding the fact that allegations of patent infringement(s) by our competitors have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for infringement include, among other things, damages measured by the profits lost by the patent owner and not by the profits earned by the infringer. In the case of a willful infringement, the definition of which is unclear, such damages may be trebled. Moreover, because of the discount pricing typically involved with bioequivalent products, patented brand products generally realize a substantially higher profit margin than bioequivalent products. An adverse decision in a case such as this or in other similar litigation could have

a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY EXPERIENCE REDUCTIONS IN THE LEVELS OF REIMBURSEMENT FOR PHARMACEUTICAL PRODUCTS BY GOVERNMENTAL AUTHORITIES, HMOS OR OTHER THIRD-PARTY PAYERS. ANY SUCH REDUCTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Various governmental authorities and private health insurers and other organizations, such as HMOs, provide reimbursement to consumers for the cost of certain pharmaceutical products. Demand for our products depends in part on the extent to which such reimbursement is available. Third-party payers increasingly challenge the pricing of pharmaceutical products. This trend and other trends toward the growth of HMOs, managed healthcare and legislative healthcare reform create significant uncertainties regarding the future levels of reimbursement for pharmaceutical products. Further, any reimbursement may be reduced in the future, perhaps to the point that market demand for our products declines. Such a decline could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

LEGISLATIVE OR REGULATORY PROGRAMS THAT MAY INFLUENCE PRICES OF PRESCRIPTION DRUGS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Current or future federal or state laws and regulations may influence the prices of drugs and, therefore, could adversely affect the prices that we receive for our products. Programs in existence in certain states seek to set prices of all drugs sold within those states through the regulation and administration of the sale of prescription drugs to Medicaid and other recipients. Expansion of these programs could adversely affect the price we receive for our products and could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE ARE INVOLVED IN VARIOUS LEGAL PROCEEDINGS AND MAY EXPERIENCE UNFAVORABLE OUTCOMES OF SUCH PROCEEDINGS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

We are involved in various legal proceedings including, but not limited to, product liability, breach of contract and claims involving Medicaid and Medicare reimbursements, some of which are described in our periodic reports and involve claims for substantial amounts of money or for other relief. If any of these legal proceedings were to result in an adverse outcome, the impact could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

With respect to product liability, the Company maintains commercial insurance to protect against and manage the risks involved in conducting its business. Although we carry insurance, we believe that no reasonable amount of insurance can fully protect against all such risks because of the potential liability inherent in the business of producing pharmaceuticals for human consumption. To the extent that a loss occurs, depending on the nature of the loss and the level of insurance coverage maintained, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE ENTER INTO VARIOUS AGREEMENTS IN THE NORMAL COURSE OF BUSINESS WHICH PERIODICALLY INCORPORATE PROVISIONS WHEREBY WE INDEMNIFY THE OTHER PARTY TO THE AGREEMENT. IN THE EVENT THAT WE WOULD HAVE TO PERFORM UNDER THESE INDEMNIFICATION PROVISIONS, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

In the normal course of business, we periodically enter into employment, legal settlement, and other agreements which incorporate indemnification provisions. We maintain insurance coverage which we believe will effectively mitigate our obligations under these indemnification provisions. However, should our obligation under an indemnification provision exceed our coverage or should coverage be denied, our business, financial position and results of operations could be materially affected and the market value of our common stock could decline.

OUR ACQUISITION STRATEGIES INVOLVE A NUMBER OF INHERENT RISKS. THESE RISKS COULD CAUSE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE A DECLINE IN THE MARKET VALUE OF OUR COMMON STOCK.

We continually seek to expand our product line through complementary or strategic acquisitions of other companies, products and assets, and through joint ventures, licensing agreements or other arrangements. Acquisitions, joint ventures and other business combinations involve various inherent risks, such as assessing accurately the values, strengths, weaknesses, contingent and other liabilities, regulatory compliance and potential profitability of acquisition or other transaction candidates. Other inherent risks include the potential loss of key personnel of an acquired business, our inability to achieve identified financial and operating synergies anticipated to result from an acquisition or other transaction and unanticipated changes in business and economic conditions affecting an acquisition or other transaction. International acquisitions, and other transactions, could also be affected by export controls, exchange rate fluctuations, domestic and foreign political conditions and the deterioration in domestic and foreign economic conditions.

We may be unable to realize synergies or other benefits expected to result from acquisitions, joint ventures and other transactions or investments we may undertake, or be unable to generate additional revenue to offset any unanticipated inability to realize these expected synergies or benefits. Realization of the anticipated benefits of acquisitions or other transactions could take longer than expected, and implementation difficulties, market factors and the deterioration in domestic and global economic conditions could alter the anticipated benefits of any such transactions. These factors could cause a material adverse effect on our business, financial position and results of operations and could cause a decline in the market value of our common stock.

OUR FUTURE SUCCESS IS HIGHLY DEPENDENT ON OUR CONTINUED ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. ANY FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

Because our success is largely dependent on the scientific nature of our business, it is imperative that we attract and retain qualified personnel in order to develop new products and compete effectively. If we fail to attract and retain key scientific, technical or management personnel, our business could be affected adversely. Additionally, while we have employment agreements with certain key employees in place, their employment for the duration of the agreement is not guaranteed. If we are unsuccessful in retaining all of our key employees, it could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

WE MAY MAINTAIN INVESTMENTS IN MARKETABLE DEBT AND/OR EQUITY SECURITIES, OTHER INVESTMENTS, BOTH PUBLICLY AND PRIVATELY HELD, AND MAY MAINTAIN DEPOSIT BALANCES AT FINANCIAL INSTITUTIONS IN EXCESS OF FEDERALLY INSURED AMOUNTS. WE MAY EXPERIENCE DECLINES IN THE MARKET VALUE OF THESE SECURITIES AND/OR LOSSES OF PRINCIPAL INVESTED OR AN UNINSURED LOSS OF DEPOSITED FUNDS. SIGNIFICANT DECLINES OR LOSSES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

To the extent that we maintain investments in marketable debt securities, marketable equity securities, and/or investments in other securities, both publicly and privately held, we are subject to many risks. Such risks include market risk associated with declines in the market values of such securities, interest rate risk and the risk of default. As a result of such risks, we could experience a substantial loss, or may even lose all, of the basis or principal we have invested in such securities. Any such declines or losses could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

THERE ARE INHERENT UNCERTAINTIES INVOLVED IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED IN THE PREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH GAAP. ANY CHANGES IN ESTIMATES, JUDGMENTS AND ASSUMPTIONS USED COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND RESULTS OF OPERATIONS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.

The consolidated and condensed consolidated financial statements included in the periodic reports we file with the SEC are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk primarily from changes in the market values of investments in marketable debt and equity securities. Additionally, investments are made in overnight deposits, money market funds and marketable securities with maturities of less than three months. These instruments are classified as cash equivalents for financial reporting purposes and have minimal or no interest rate risk due to their short-term nature. The majority of our investments are managed by professional portfolio managers. We also invest in nonpublic securities that are classified as other assets on our balance sheet and do not consider these investments to be market risk sensitive.

The following table summarizes the investments in marketable debt and equity securities which subject the Company to market risk at September 30, 2003 and March 31, 2003:


	September 30,		March 31,
(in thousands)	2003		2003


Debt securities	$	433,992	$	419,135
Equity securities		10,215		8,769

	$	444,207	$	427,904

Marketable Debt Securities

The primary objectives for the marketable debt securities investment portfolio are liquidity and safety of principal. Investments are made to achieve the highest rate of return while retaining principal. Our investment policy limits investments to

certain types of instruments issued by institutions and government agencies with investment-grade credit ratings. At September 30, 2003, the Company had invested $434.0 million in marketable debt securities, of which $75.2 million will mature within one year and $358.8 million will mature after one year. The short duration to maturity creates minimal exposure to fluctuations in market values for investments that will mature within one year. However, a significant change in current interest rates could affect the market value of the remaining $358.8 million of marketable debt securities that mature after one year. A 5% change in the market value of the marketable debt securities that mature after one year would result in a $17.9 million change in marketable debt securities.

Marketable Equity Securities

Marketable equity securities are primarily managed by professional portfolio managers whose investment objective is to increase fund value through purchasing undervalued common stocks and holding these securities for a period of time. These portfolio managers are continually evaluating the portfolio to ensure that it meets our investment objectives. As of September 30, 2003, a 10% change in the market value of these investments would result in a $1.0 million change in marketable equity securities.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2003. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. In addition, during the period covered by this report, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, and no corrective actions taken with regard to significant deficiencies or material weaknesses in such controls.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

For a description of the material pending legal proceedings to which the Company is a party, please see our Annual Report on Form 10-K for the year ended March 31, 2003, as supplemented by the disclosure in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. During the quarter ended September 30, 2003, there were no new legal proceedings or material developments with respect to pending proceedings other than as described below.

Omeprazole

In fiscal 2001, AstraZeneca PLC (“AstraZeneca”) filed suit against MPI and Mylan Laboratories Inc. (“Mylan Labs”) in the U.S. District Court for the Southern District of New York alleging infringement of several of AstraZeneca’s patents with respect to omeprazole. MPI has filed a motion for summary judgment as to all claims of infringement, and the summary judgment motion remains pending. AstraZeneca has amended the pending lawsuit to assert claims against Mylan Labs and MPI, and has filed a separate lawsuit against MPI’s supplier, Esteve Quimica S.A. (“Esteve”), for unspecified money damages and a finding of willful infringement which could result in

treble damages, injunctive relief, attorneys’ fees, costs of litigation and such further relief as the court deems just and proper.

Paclitaxel

In June 2001, NAPRO Biotherapeutics Inc. (“NAPRO”) and Abbott Laboratories Inc. (“Abbott”) filed suit against Mylan Labs, MPI and UDL Laboratories Inc. (“UDL”) in the U.S. District Court for the Western District of Pennsylvania. The plaintiffs allege that the manufacture, use and sale of MPI’s paclitaxel product infringes certain patents owned by NAPRO and allegedly licensed to Abbott. By order dated October 8, 2003, the court granted partial summary judgment in favor of NAPRO and Abbott finding that Mylan Labs, MPI and UDL infringe most of the asserted claims, and dismissing one of the defendants’ asserted invalidity defenses. The Company’s remaining invalidity and unenforceability claims remain pending before the court.

Commonwealth of Massachusetts Medicaid Litigation

On September 26, 2003, the Commonwealth of Massachusetts sued Mylan Labs and 12 other generic drug companies alleging unlawful manipulation of reimbursements under the Massachusetts Medicaid program. The lawsuit identifies three drug products sold by MPI and seeks equitable relief, attorneys’ fees, cost of litigation and monetary damages in unspecified sums.

Other Litigation

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

The following provides a summary of votes cast for the proposals on which our shareholders voted at our Annual Meeting of Shareholders held on July 25, 2003.

Proposal No. 1 — Election of 11 Directors.


Nominee	For		Withheld

Milan Puskar		231,387,246		12,807,071
Robert J. Coury		231,216,824		12,977,493
Wendy Cameron		222,228,539		21,965,778
Laurence S. DeLynn		222,021,393		22,172,924
John C. Gaisford, M.D.		222,810,936		22,383,381
Douglas J. Leech		164,223,600		79,970,717
Joseph C. Maroon, M.D.		232,621,626		11,572,691
Patricia A. Sunseri		231,363,096		12,831,221
C.B. Todd		231,278,430		12,915,887
Randall L. Vanderveen, Ph.D., R.Ph.		222,298,289		21,896,028
Stuart A. Williams, Esq.		231,304,653		12,885,164

Proposal No. 2 — Approval of proposed increase in the number of authorized shares of the Company’s common stock.


For	Against	Abstain
220,359,360	22,693,271	1,141,656

Proposal No. 3 — Approval of proposed Mylan Laboratories Inc. 2003 Long-Term Incentive Plan.


For	Against		Abstain		Broker Nonvotes
136,734,575		46,475,277		1,893,534		59,090,931

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits


3.1		Amended and Restated Articles of Incorporation of the registrant, as amended to date, filed as Exhibit 3.1 to the Form 10-Q for the quarterly period ended June 30, 2003, and incorporated herein by reference.

3.2		Second Amended and Restated Bylaws of the registrant, as amended to date.

31.1		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b. Reports on Form 8-K

On July 24, 2003, the Company filed a Report on Form 8-K announcing earnings for the three months ended June 30, 2003.

On September 16, 2003, the Company filed a Report on Form 8-K announcing a three-for-two stock split.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q for the quarterly period ended September 30, 2003, to be signed on its behalf by the undersigned thereunto duly authorized.


		Mylan Laboratories Inc. (Registrant)

November 12, 2003		By: /s/ Robert J. Coury Robert J. Coury Vice Chairman and Chief Executive Officer


November 12, 2003		/s/ Edward J. Borkowski Edward J. Borkowski Chief Financial Officer (Principal financial officer)


November 12, 2003		/s/ Gary E. Sphar Gary E. Sphar Vice President, Corporate Controller (Principal accounting officer)

EXHIBIT INDEX


Exhibit No.		Description

3.2		Bylaws of the registrant, as amended to date.

31.1		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of CEO and CFO pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

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	These interim financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

	Certain prior year amounts were reclassified to conform to the current year presentation. Such reclassifications had no impact on reported net earnings, earnings per share or shareholders’ equity.

	The interim results of operations for the three and six months ended September 30, 2003, and the interim cash flows for the six months ended September 30, 2003, are not necessarily indicative of the results to be expected for the full fiscal year or any other future period.

	On January 27, 2003, the Company effected a three-for-two split of its common stock. On October 8, 2003, the Company effected another three-for-two split of its common stock. All share and per share amounts have been adjusted for all periods to reflect the stock splits.


	fees, costs of litigation and such equitable and other relief as the court deems just and proper. By order dated October 8, 2003, the court granted partial summary judgment in favor of NAPRO and Abbott finding that Mylan Labs, MPI and UDL infringe most of the asserted claims, and dismissing one of the defendants’ asserted invalidity defenses. The Company’s remaining invalidity and unenforceability claims remain pending before the court.

	Pricing and Medicaid Litigation

	MPI, along with a number of other pharmaceutical manufacturers, has been named as a defendant in four lawsuits filed in the state courts of California in which the plaintiffs allege the defendants unlawfully, unfairly and fraudulently manipulated the reported average wholesale price of various products, allegedly to increase third-party reimbursements to others for their products. One of these lawsuits was voluntarily dismissed by the plaintiff. None of the three remaining cases has been certified as a class action, although all three cases seek class action and representative status. The three remaining cases have been transferred to the “Average Wholesale Price” multi-district litigation proceedings in the U.S. District Court for the District of Massachusetts. MPI has filed a motion to dismiss all claims against it. Plaintiffs seek equitable relief in the form of disgorgement and restitution, attorneys’ fees and costs of litigation.

	On September 26, 2003, the Commonwealth of Massachusetts sued Mylan Labs and 12 other generic drug companies alleging unlawful manipulation of reimbursements under the Massachusetts Medicaid program. The lawsuit identifies three drug products sold by MPI and seeks equitable relief, attorneys’ fees, cost of litigation and monetary damages in unspecified sums.

	Other Litigation

	•		the availability of alternative products from our competitors;
	•		the price of our products relative to that of our competitors;
	•		the timing of our market entry;
	•		the ability of our customers to market our products effectively to the retail level; and
	•		the acceptance of our products by government and private formularies.

	•		proprietary processes or delivery systems;
	•		larger research and development and marketing staffs;
	•		larger production capabilities in a particular therapeutic area;
	•		more experience in preclinical testing and human clinical trials;
	•		more products; or
	•		more experience in developing new drugs and financial resources, particularly with regard to brand manufacturers.

	•		seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence;
	•		initiating legislative efforts in various states to limit the substitution of generic versions of brand pharmaceuticals;
	•		filing suits for patent infringement that automatically delay FDA approval of many generic products;
	•		introducing “second-generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product for which we seek FDA approval;
	•		obtaining extensions of market exclusivity by conducting trials of brand drugs in pediatric populations as discussed below;

	•		entering into agreements whereby other generic companies will begin to market a generic equivalent of a branded product at the same time generic competition initially enters the market;
	•		persuading the FDA to withdraw the approval of brand name drugs for which the patents are about to expire, thus allowing the brand name company to obtain new patented products serving as substitutes for the products withdrawn;
	•		seeking to obtain new patents on drugs for which patent protection is about to expire; and
	•		filing a citizen’s petition with the FDA, which often results in delays of our approvals.


	On July 24, 2003, the Company filed a Report on Form 8-K announcing earnings for the three months ended June 30, 2003.

	On September 16, 2003, the Company filed a Report on Form 8-K announcing a three-for-two stock split.