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

FORM 10-Q

For the transition period from                             to                              

Commission File No. 000-30123

FIRST HORIZON PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)

(770) 442-9707
(Registrant's telephone number, including area code):

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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange Act). Yes ý        No o

        As of April 30, 2005, there were 35,004,860 shares of the Registrant's Common Stock outstanding.

FIRST HORIZON PHARMACEUTICAL CORPORATION
FORM 10-Q
INDEX

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.     Basis of Presentation

        The accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) which management considers necessary for fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. Certain footnote disclosures normally included in financial statements prepared according to accounting principles generally accepted in the United States of America have been condensed or omitted from these interim financial statements as permitted by the rules and regulations of the Securities and Exchange Commission. Interim results are not necessarily indicative of results for the full year. The interim results should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 000-30123).

2.     New Accounting Pronouncements

        In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement 153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.29." The standard is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and eliminates the exception under ABP Opinion No. 29 for an exchange of similar productive assets and replaces it with an exception for exchanges of nonmonetary assets that do not have commercial substance. The standard is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS no. 153 is not expected to have a material impact on the Company's financial position or results of operations.

        In December 2004, the FASB issued Statement 123 (revised 2004), "Share-Based Payment." The standard eliminates the disclosure-only election under SFAS 123 and requires the recognition of compensation expense for stock options and other forms of equity compensation based on the fair value of the instruments on the date of grant. The standard is effective for fiscal years beginning after June 15, 2005. See Note 3 for the disclosures of the pro forma dilutive impact on net income and earnings per share of expensing stock options based on the Black-Scholes model.

        In November 2004, the FASB issued Statement 151, "Inventory Costs." The standard clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS no. 151 is not expected to have a material impact on the Company's financial position or results of operations.

3.     Stock Options

        The Company applies Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for all stock options issued to employees. Accordingly, the Company records compensation expense for any stock option grants with exercise prices lower than fair value, recognized ratably over the vesting period.

        Had compensation costs for the Company's options been determined using the Black-Scholes option valuation model prescribed by SFAS No. 123, "Accounting for Stock Based Compensation," the

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Company's pro forma net income per common share would have been reported as follows (in thousands, except per share amounts):

        The weighted average fair value per share of options granted during the three months ended March 31, 2005 and 2004 is estimated at $15.17 and $12.78, respectively. The value of options is estimated on the date of the grant using the following weighted average assumptions:

        The Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of traded options, which have no vesting restrictions, and are fully transferable, which differ significantly from the Company's stock option awards. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected survival rates of the options.

4.     Marketable Securities

        The Company classifies its existing marketable securities as available-for-sale. All available-for-sale securities are classified as current as the Company has the ability to use them for current operating and investing purposes. There were $0.3 million in realized losses in the three months ended March 31, 2005. At March 31, 2005, the Company had total net unrealized losses from marketable securities of $2.5 million.

        The carrying amount of available-for-sale securities and their approximate fair values at March 31, 2005 were as follows (in thousands):

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        The following table presents the age of gross unrealized losses and fair value by investment category for all securities in a loss position as of March 31, 2005 (in thousands):

        The Company has determined that its unrealized losses are temporary based on the minor amount of the losses compared to amortized cost and the short duration of the losses, as well as the credit worthiness of the investees. The Company expects that all losses will be recovered, and intends to hold securities to recovery. If market, industry and/or investee conditions deteriorate, we may incur future impairments.

        The amortized cost and estimated fair value of marketable securities at March 31, 2005 by contractual maturity are shown below (in thousands):

        The carrying amount of available-for-sale securities and their approximate fair values at December 31, 2004 were as follows (in thousands):

5.     Inventories

        Inventories consist of purchased pharmaceutical products and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method, and market is considered to be net realizable value. Inventories consist of finished product and bulk product awaiting processing and packaging into finished product. Inventories, net of reserves of $0.9 million at March 31, 2005 and December 31, 2004, consisted of (in thousands):

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6.     Intangible Assets

        On March 28, 2005, the Company acquired the worldwide rights to Fortamet and Altoprev from Andrx Corporation. The Company paid Andrx $50 million, and may pay up to an additional $35 million when Andrx achieves certain defined manufacturing levels and delivers certain quantity of Altoprev. Andrx is also entitled to royalties on net sales, as defined.

        With the assistance of valuation experts, the Company will allocate the purchase price to the fair value of the various intangible assets which are not deemed to have an indefinite life. Intangible assets are amortized on a straight line basis over their respective useful lives. The intangible assets recorded in connection with the acquisition of Fortamet and Altoprev are anticipated to be amortized over a period of fifteen years.

        The following table reflects the components of intangible assets as of March 31, 2005 (in thousands):

        The following table reflects the components of intangible assets as of December 31, 2004 (in thousands):

        For the three months ended March 31, 2005, amortization expense related to the intangible assets was $4.0 million. Amortization is calculated on a straight-line basis over the estimated useful life of the intangible asset. Estimated annual amortization expense for each of the five succeeding fiscal years is as follows (in thousands):

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7.     Other Assets

        Other assets at March 31, 2005 and December 31, 2004 consisted of the following (in thousands):

        During the second quarter of 2004, the Company announced an agreement with SkyePharma PLC, granting it the exclusive license to market and distribute a cardiovascular product in the United States. The agreement requires the Company to pay $5.0 million to SkyePharma upon signing the agreement and up to an additional $15.0 million is payable thereafter—all of which are contingent upon milestones related to the U.S. Food and Drug Administration ("FDA") approval. The product has been submitted to the FDA for approval. The Company intends to begin marketing and distribution shortly after receipt of the FDA approval.

8.     Accrued Expenses

        Accrued expenses at March 31, 2005 and December 31, 2004 consisted of the following (in thousands):

9.     Long-term Debt

        In March 2004, the Company issued a total of $150.0 million of its 1.75% senior subordinated contingent convertible notes due in 2024 in transactions that were exempt from registration in reliance upon Rule 144A and other available exemptions under the Securities Act. The notes are due March 8, 2024 and accrued interest is payable semi-annually in arrears on March 8 and September 8 of each year, which commenced on September 8, 2004. In addition to the interest on the notes, after March 8, 2007, the Company will also pay contingent interest during specified six-month periods if the average trading price of the notes per $1,000 principal amount for the five day trading period ending on the third trading day immediately preceding the first day of the applicable six-month period equals $1,200 or more. During any period when contingent interest is payable, it will be payable at a rate equal to 0.5% per annum. As this contingent interest feature is based on the underlying trading price of the notes, the contingent interest qualifies as an embedded derivative. As of March 31, 2005, management determined that the fair value of this contingent interest embedded derivative was not material. The net proceeds from this issuance, after deducting offering expenses, were approximately $145.4 million. Financing costs of $4.6 million were incurred with the issuance which are being amortized on a straight line basis over the life of the notes and are included in other assets in the consolidated balance sheet.

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        Holders of the notes may initially convert the notes into shares of the Company's common stock at a conversion rate of 45.1467 shares per $1,000 principal amount of the notes, which is equivalent to a conversion price of $22.15 per share, subject to anti-dilution adjustments, before the close of business on March 8, 2024. Holders may convert the notes only under the following circumstances: (1) during any calendar quarter commencing after June 30, 2004, if the closing sales price of the Company's common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) if the notes have been called for redemption; (3) during the five trading day period immediately following any nine consecutive trading day period in which the trading price of the notes per $1,000 principal amount for each day of that period was less than 95% of the product of the closing price of the Company's common stock and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or (4) the occurrence of specified corporate transactions.

        The Company has the option to redeem the notes beginning March 13, 2007 at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

        The holders of the notes have the option to require the Company to repurchase the notes on March 8 of 2009, 2014 and 2019, and upon a change in control, at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

        In connection with the issuance of the notes, on March 30, 2004 the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to register for resale of 6.8 million shares of the Company's common stock issuable, subject to anti-dilution adjustments, upon conversion of the notes. The registration statement became effective during the second quarter of 2004.

        The Company had no debt other than the aforementioned notes outstanding at March 31, 2005 or December 31, 2004.

10.   Credit Agreement

        On February 11, 2003, the Company entered into a $20.0 million senior secured revolving credit facility with various lenders and LaSalle Bank National Association, as administrative agent. Borrowings may be used for working capital requirements and general corporate purposes. Borrowings are secured by substantially all of the Company's assets. Borrowings bear interest at the Company's option at the base rate in effect from time to time plus an applicable margin or the Eurodollar rate, plus an applicable margin. The applicable margin will vary dependent upon the Company's leverage ratio in effect from time to time. The revolving facility matures on February 11, 2006. The revolving loan contains various covenants, including covenants relative to maintaining financial ratios and earnings levels, limitations on acquisitions, dispositions, mergers and capital expenditures, limitations on incurring additional indebtedness and a prohibition on payment of dividends and certain issuances of capital stock. As of March 31, 2005, there was no outstanding balance on the Credit Agreement. For the quarter ended March 31, 2005, there were no borrowings or repayments under the Credit Agreement. In April 2005, the Company borrowed $20.0 million on the facility.

11.   Share Buyback Program

        In July 2002, the Company announced a share repurchase program. This program authorized the repurchase of up to $8 million in common stock until July 2003. Through July 2003, the Company repurchased 823,400 shares of its common stock at an aggregate cost of approximately $2.1 million. In August 2003, the Company's Board of Directors authorized the repurchase of up to an additional $7.9 million of common stock and extended the repurchase program to August 2004. In September 2003, the Company repurchased 162,225 shares of common stock at an aggregate cost of approximately $1.0 million. Through December 2003, the Company had repurchased a total of 985,625

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shares of common stock at an aggregate cost of approximately $3.1 million. During the six months ended June 2004, the Company repurchased a total of 260,000 shares of common stock at an aggregate cost of approximately $4.6 million. All of these shares were retired.

        In July 2004, the Company's Board of Directors authorized a $20.0 million share repurchase program. The new program, which authorizes the repurchase of up to $5 million of common stock per quarter, became effective in August 2004, terminating and replacing the $10.0 million share repurchase program authorized by the Company's Board of Directors in fiscal 2002. The share repurchase program will expire in August 2005.

        In the third quarter of 2004, as part of the new share repurchase program, the Company's Board of Directors increased the per quarter repurchase cap and authorized the Company to repurchase a total of 731,580 shares of common stock, inclusive of the 500,000 shares of common stock repurchased from one of Dr. Kapoor's family partnerships, at an aggregate cost of approximately $13.4 million. These shares have been retired. In the fourth quarter of 2004, as part of the plan that became effective in August 2004, the Company repurchased 65,427 shares of common stock. These shares have been retired.

        In December 2004, the Company, with Board of Directors approval, purchased 1 million shares of common stock at an aggregate cost of approximately $23.2 million which was at a fair market value equal to the December 10, 2004 closing price of the Company's common stock as reported by Nasdaq from certain executives and board members and a significant shareholder of the Company. The Company acquired those shares in part, to establish a pool of authorized shares that will be available for contribution to the Company's Employee Stock Ownership Plan over time as the Company in its discretion deems appropriate.

        In the first quarter of 2005, the company repurchased 127,169 shares of common stock at an average cost of $16.44 per share, or $2.1 million. These shares have been retired.

12.   Earnings Per Share

        Below is the calculation of basic and diluted net income per share (in thousands except per share data):

        For the three months ended March 31, 2005, there were 754,907 potential common shares outstanding that were excluded from the diluted net income per share calculation because their effect would have been anti-dilutive.

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13.   Segment Reporting

        The Company is engaged solely in the business of marketing and selling prescription pharmaceutical products. Accordingly, the Company's business is classified in a single reportable segment, the sale and marketing of prescription products. Prescription products include a variety of branded pharmaceuticals for the treatment of cardiovascular, obstetrical and gynecological, pediatric and gastroenterological conditions and disorders.

        The following presents revenues for prescription products by area of treatment:

14.   Commitments and Contingencies

        First Horizon, certain former and current officers and directors are defendants in a consolidated securities lawsuit initiated on August 22, 2002 in the United States District Court for the Northern District of Georgia. Plaintiffs in the class action alleged in general terms that the Company violated Sections 11 and 12(a)(a) of the Securities Act of 1933 and that the Company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In an amended complaint, Plaintiffs claim that the Company issued a series of materially false and misleading statements to the market in connection with our public offering on April 24, 2002 and thereafter relating to alleged "channel stuffing" activities. The amended complaint also alleged controlling person liability on behalf of certain of our officers under Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934. Plaintiffs sought an unspecified amount of compensatory damages to be proven at trial.

        On September 29, 2004, the U.S. District Court for the Northern District of Georgia dismissed, without prejudice, the class action lawsuit. Although the class action lawsuit was dismissed, the court granted the plaintiffs the right to refile their class action lawsuit provided that the plaintiffs pay all of the defendant's fees and costs associated with filing the motions to dismiss the class action lawsuit. Plaintiffs failed to refile by the deadline, but have asked the Court to reconsider its dismissal. Should the Court reverse the dismissal, the Company will vigorously defend against any claims made.

        On April 15, 2004, the Company filed a patent infringement action against Breckenridge Pharmaceutical, Inc. in the U.S. District Court for the Northern District of Illinois, on the grounds that their product, Duotan PD, infringes the patents for our products, Tanafed DP and Tanafed DMX. In response, on April 21, 2004, Breckenridge filed for declaratory judgment in the U.S. District Court for the Southern District of Florida seeking to invalidate the Tanafed patents. On July 20, 2004, this action was transferred to the U.S. District Court for the Southern District of Florida.

        The Company intends to vigorously litigate its infringement action and defend Breckenridge's motion for declaratory judgment unless resolved otherwise. While the Company believes that Breckenridge's product, Duotan, infringes the patent for Tanafed, the Company cannot be assured that it will prevail. If the Company loses its infringement action and Breckenridge is successful in invalidating the Tanafed patent the Company could lose market share for Tanafed or the Company may have to decrease the price of Tanafed to keep its sales competitive, resulting in a loss of earnings and profits from Tanafed sales.

        The Company is also involved with other various routine legal proceedings incident to the ordinary course of business. None of these proceedings are expected to have a material adverse effect on the consolidated financial statements.

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

        The following should be read with the consolidated financial statements and related footnotes 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 year ended December 31, 2004 (File No. 000-30123). The results discussed below are not necessarily indicative of the results to be expected in any future periods. The following discussion contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ from the statements made.

Overview

        We are a specialty pharmaceutical company that markets and sells brand name prescription products. Our current operating plan focuses on maximizing the sales of our existing product portfolio, accelerating growth by launching line extensions to our current products and acquiring or licensing approved products or late stage development products. We plan to focus on products that fit within the Cardiology and Women's Health categories that will allow us to leverage our existing sales force infrastructure. During the quarter ended March 31, 2005, we promoted the following products:

        We sell our products to pharmaceutical wholesalers (who in turn distribute to pharmacies), chain drug stores, other retail merchandisers and, on a limited basis, directly to pharmacies. We recognize revenue when our products are delivered to the customer, the customer takes ownership and assumes the risk of loss. Our sales force targets high-prescribing primary care physicians and select specialty physicians. These physicians write prescriptions for our products in order to treat their patients. Our sales force seeks to develop relationships with these physicians and respond to the pharmaceutical needs of their patients. We evaluate the effectiveness of our sales and marketing efforts by monitoring prescription trends of our promoted products.

Results of Operations

        Net Revenue.    Net revenue for the quarter ended March 31, 2005 increased $9.0 million or 27.8% to $41.0 million, as compared to $32.0 million for the quarter ended March 31, 2004. Net revenue increased for the quarter as a result of growth in our promoted products as a result of increased detailing resulting in increased revenue of $12.6 million, as well as continued success in the execution of our marketing strategy. The increase in revenue of our promoted products was partially offset by a reduction in revenues of $4.8 million from our Tanafed and Robinul Lines as we ceased promotion of these products as a result of generic entries into the market.

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Product Overview

(a)

Source: IMS Health's National Prescription Audit Plus™ data.

(b)

We believe that IMS data does not capture prescriptions of Nitrolingual from some of the non-retail channels and prescription trends in the non-retail channel which may have a significant impact on the reported change.

(c)

Prenate Elite was launched in April 2004, as a result comparative data is not available for the first quarter of 2004.

(d)

OptiNate was launched in March 2005, as a result comparative data is not available for the first quarter of 2004.

        Net revenues of the Cardiology products (namely Sular and Nitrolingual) were $19.5 million for the quarter ended March 31, 2005, compared to $14.5 million for the quarter ended March 31, 2004, respectively. The increase was primarily a result of total prescription growth of Sular and Nitrolingual. Sales of our new products, Altoprev and Fortamet, did not commence until April 2005.

        Net revenues of the promoted Women's Health products (namely Prenate Elite, OptiNate and Ponstel), were $12.6 million for the quarter ended March 31, 2005 compared to $3.3 million for the quarter ended March 31, 2004. The increase was due primarily to the successful launch of Prenate Elite in April 2004. Sales of Prenate Elite's predecessor, Prenate GT, were lower in the quarter ended March 31, 2004 as we prepared for the launch of Prenate Elite.

        In March 2004, we announced that we were launching Prenate Elite, the next generation of the Prenate line of prenatal vitamins. We began promoting and selling Prenate Elite in April 2004. Prenate Elite has captured a market share of 13.4% of new prescriptions and 13.2% of total prescriptions as of March 2005 (Source: IMS Health's National Prescription Audit Plus™ data.)

        Cost of Revenues.    Cost of revenues for the quarter ended March 31, 2005 were $7.2 million compared to $5.6 million for the quarter ended March 31, 2004. The increase in cost of revenues is directly related to the increase in net revenues for the quarter ended March 31, 2005 as compared to the quarter ended March 31, 2004.

        Gross Margin.    Gross margin for the quarter ended March 31, 2005 was 82.5% compared to 82.6% for the quarter ended March 31, 2004.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $3.8 million, or 27.7%, to $17.7 million for the quarter ended March 31, 2005, compared to $13.9 million for the quarter ended March 31, 2005. This increase is primarily related to the increase in sales force, as well as increased royalties and commissions related to the increased sales.

        Depreciation and Amortization Expense.    Depreciation and amortization expense increased $0.3 million to $4.4 million for the quarter ended March 31, 2005, compared to $4.1 million for the

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quarter ended March 31, 2004. This increase is primarily related to the acquisition of our new sales force automation system in the third quarter of 2004.

        Research and Development Expense.    Research and development expense increased $0.1 million to $0.3 million for the quarter ended March 31, 2005, compared to $0.2 million for the quarter ended March 31, 2004.

        Interest Expense.    Interest expense was $1.0 million for the quarter ended March 31, 2005, compared to $0.2 million for the quarter ended March 31, 2004. The increase is due to our issuance of a total of $150.0 million of our 1.75% senior subordinated contingent convertible notes in March 2004. The notes are due March 8, 2024 and accrued interest is payable semi-annually in arrears on March 8 and September 8 of each year, which commenced on September 8, 2004. In addition to the interest on the notes, after March 8, 2007, we will also pay contingent interest during specified six-month periods if the average trading price of the notes per $1,000 principal amount for the five day trading period ending on the third trading day immediately preceding the first day of the applicable six-month period equals $1,200 or more. During any period when contingent interest is payable, it will be payable at a rate equal to 0.5% per annum. The net proceeds from this issuance, after deducting offering expenses, were approximately $145.4 million.

        The holders of the convertible notes may convert the notes into shares of our common stock at a conversion rate of 45.1467 shares per $1,000 principal amount of the notes, which is equivalent to a conversion price of $22.15 per share, subject to anti-dilution adjustments, before the close of business on March 8, 2024. Holders may convert their convertible notes only under the following circumstances: (1) during any calendar quarter commencing after June 30, 2004, if the closing sales price of our common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter; (2) if the notes have been called for redemption; (3) during the five trading day period immediately following any nine consecutive trading day period in which the trading price of the notes per $1,000 principal amount for each day of that period was less than 95% of the product of the closing price of our common stock and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or (4) the occurrence of specified corporate transactions.

        We have the option to redeem the notes beginning March 13, 2007 at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

        The holders of the notes have the option to require us to repurchase the notes on March 8 of 2009, 2014 and 2019, and upon a change in control, at a price equal to 100% of their aggregate principal amount, plus accrued and unpaid interest, including contingent interest, if any.

        Interest Income.    Interest income was $1.0 million for the quarter ended March 31, 2005, compared to $0.3 million for the quarter ended March 31, 2004. The increase in interest income for the quarter ended March 31, 2005 is primarily due to a higher average cash and marketable securities balance as a result of the proceeds from the issuance of the contingent convertible senior subordinated notes in March 2004.

        Provision for Income Taxes.    Income taxes were provided for at a rate of 34.0% for the quarter ended March 31, 2005, compared to 39.7% for the quarter ended March 31, 2004. This decrease in the effective rate is due to the change in the mix of tax jurisdictions, both domestic and international, as a result of our implementation of international operations where our income was earned, as well as a change in the ratio of non-deductible expenses to pre-tax income.

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Liquidity and Capital Resources

        Our liquidity requirements arise primarily from debt service, working capital requirements, product development activities and funding of acquisitions. We have met these cash requirements through cash from operations, borrowings for product acquisitions and the issuance of common stock.

        Our cash and cash equivalents were $20.9 million on March 31, 2005. Net cash used by operating activities for the three months ended March 31, 2005 was $4.3 million. This use of cash was primarily the result of (a) an increase of inventory on hand of $14.7 million; (b) a decrease in accrued expenses and other of $7.7 million; (c) an increase in other current assets and other assets of $2.2 million; (d) an increase in accounts receivable of $0.4 million. Partially offsetting the use of cash from operations was cash generated from net income of $7.6 million, an increase in accounts payable of $4.7 million, a decrease in the income tax receivable of $3.0 million, non-cash expenses including depreciation and amortization expenses of $4.4 million and interest of $0.1 million, as well as $1.0 million in non-cash tax transactions.

        Our cash and cash equivalents were $157.5 million at March 31, 2004. Net cash provided by operating activities for the three months ended March 31, 2004 was $13.0 million. This increase in cash was primarily the result of net income of $5.0 million, as well as the decrease in accounts receivable of $4.4 million, non-cash depreciation and amortization expense of $4.1 million, a decrease in inventories of $2.2 million, a decrease in income tax receivable of $2.1 million, and non-cash tax transactions of $1.0 million, partially offset by the $2.6 million increase in other current assets and other assets, the $2.1 million decrease in accrued expenses and other and the $1.1 million decrease in accounts payable.

        We maintain supply agreements with third party suppliers for most of our products. Some of these supply agreements contain minimum purchase requirements. For most of these supply agreements, we believe that our inventory requirements and related purchases of inventory will exceed the minimum purchase requirement in 2005. In those cases in which we do not believe our purchases will exceed the minimum purchase requirements, we are seeking to negotiate waivers or modifications of the minimum purchase requirements.

        Net cash used in investing activities for the three months ended March 31, 2005 was $8.9 million. The primary uses of this cash was for the purchases of product licenses of $55.6 million, marketable securities of $3.9 million and the purchases of property and equipment of $0.6 million. Partially offsetting these uses of cash were the sales of marketable securities of $51.1 million. This liquidation of marketable securities was directly related to the $50.6 million acquisition of product licenses for Fortamet and Altoprev and the $5.0 million additional purchase price milestone payment for Sular.

        Net cash used in investing activities for the three months ended March 31, 2004 was $37.8 million. The use of this cash was for purchase of marketable securities of $37.5 million and the purchase of equipment of $0.3 million.

        Net cash used in financing activities was $1.8 million for the quarter ended March 31, 2005 primarily resulting from our repurchase of our common stock for $2.1 million. Partially offsetting this net cash used was $0.3 million for the issuances of common stock related to option exercises.

        Net cash provided by financing activities was $148.5 million for the quarter ended March 31, 2004 primarily resulting from our issuance of $150 million in senior subordinated contingent convertible debt in March 2004, offset by approximately $4.6 million in offering related expenses. We also generated $3.1 million in cash from the sale of stock related to stock option exercises.

        As of March 31, 2005, there were no borrowings or repayments under our $20 million senior credit facility.

        We believe that our current balance of cash and cash equivalents and cash which we expect to generate from operations, as well as the availability of our credit facility, will be adequate to fund our

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current working capital requirements for at least the next 12 months. However, in the event that we make significant acquisitions in the future, we may be required to raise additional funds through additional borrowings or the issuance of debt or equity securities.

        In March 2004, we issued a total of $150.0 million of our 1.75% contingent convertible senior subordinated notes.

        On February 11, 2003, we entered into a $20 million senior secured revolving credit facility with various lenders and LaSalle Bank National Association, as administrative agent. Subject to the satisfaction of certain borrowing base requirements, we may from time-to-time borrow monies under the revolving facility for working capital requirements and general corporate purposes. Borrowings are secured by substantially all of our assets. Borrowings bear interest at our option at the base rate in effect from time to time plus an applicable margin or the Eurodollar rate, plus an applicable margin. The applicable margin will vary dependent upon our leverage ratio in effect from time-to-time. As of March 31, 2005, we had no borrowings outstanding under this facility. In April 2005, the Company borrowed $20.0 million on the facility. The revolving facility, as amended, matures on August 11, 2006. Fees payable under the revolving facility include a one-time commitment fee of 0.685% of the stated amount of the facility, an unused commitment fee based on funds committed but not borrowed under the revolving facility at rates which vary dependent upon our leverage ratio in effect from time-to-time and letter of credit fees equal to 0.25% per annum of the face amount of letters of credit issued and outstanding under the revolving facility. The revolving facility may be prepaid from time-to-time or terminated at our discretion without penalty.

        The credit facility contains various restrictive covenants, including covenants relative to maintaining financial ratios and earnings levels, limitations on acquisitions, dispositions, mergers and capital expenditures, limitations on incurring additional indebtedness and a prohibition on payment of dividends and certain issuances of our capital stock.

Critical Accounting Policies

        We view our critical accounting policies to be those policies which are very important to the portrayal of our financial condition and results of operations, and require management's most difficult, complex or subjective judgments. The circumstances that make these judgments difficult or complex relate to the need for management to make estimates about the effect of matters that are inherently uncertain. We believe our critical accounting policies are as follows:

•

Allowance for doubtful accounts.    We are required to estimate the level of accounts receivable recorded on our balance sheet which will ultimately not be paid. Among other things, this assessment requires analysis of the financial strength of our customers, which can be highly subjective, particularly in the recent difficult general economic environment. Our policy is to estimate bad debt expense based on prior experience supplemented by a periodic customer specific review when needed. If we over or under estimate the level of accounts receivable that will not be paid, there may be a material impact to our financial statements.



•

Sales deductions.    We provide volume rebates, contractual price reductions with drug wholesalers and insurance companies, and certain other sales related deductions on a regular basis. The exact level of these deductions is not always immediately known and thus we must record an estimate at the time of sale. Our estimates are based on historical experience with similar programs, and since we have a relatively small customer base, customer specific historical experience is often useful in determining the estimated level of deductions expected to be refunded to our customers when sales incentives are offered. If we over or under estimate the level of sales deductions, there may be a material impact to our financial statements.

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•

Product returns.    In the pharmaceutical industry, customers are normally granted the right to return a product for a refund if the product has not been used six-months prior to its expiration date, which is typically two to three years from the date of manufacture, and for a set period subsequent to the expiration date. Our return policy allows product returns for products within an eighteen-month window from six months prior to the expiration date and up to twelve months after the expiration date. Our return policy conforms to industry standard practices. We believe that we have sufficient data to estimate future returns over the revised time period at the time of sale. Management is required to estimate the level of sales which will ultimately be returned pursuant to our return policy, and record a related reserve at the time of sale. These amounts are deducted from our gross sales to determine our net revenues. Our estimates take into consideration historical returns of a given product, product specific information provided by our customers and information obtained regarding the levels of inventory being held by our customers, as well as overall purchasing patterns by our customers. Management periodically reviews the reserves established for returns and adjusts them based on actual experience. If we over or under estimate the level of sales which will ultimately be returned, there may be a material impact to our financial statements.



•

Liabilities assumed with the acquisition of product rights.    In connection with the acquisition of product rights, we assume certain liabilities for returns of product shipped by the seller prior to the acquisition date. At the acquisition date, we estimate the amount of the assumed liabilities based on actual sales return data from the seller and include that amount in the allocation of the total purchase price. We review the estimated liability on an annual basis. If we over or under estimate liabilities assumed, there may be a material impact to our financial statements.



•

Intangible assets.    When we acquire the rights to manufacture and sell a product, we record the aggregate purchase price, along with the value of the product related liabilities that we assume, as intangible assets. We use the assistance of valuation experts to help us allocate the purchase price to the fair value of the various intangible assets that we have acquired. Then, we must estimate the economic useful life of each of these intangible assets in order to amortize their cost as an expense in our statement of operations over the estimated economic useful life of the related asset. The factors that drive the actual economic useful life of a pharmaceutical product are inherently uncertain, and include patent protection, physician loyalty and prescribing patterns, competition by products prescribed for similar indications, future introductions of competing products not yet FDA approved, the impact of promotional efforts and many other issues. We use all of these factors in initially estimating the economic useful lives of our products, and we also continuously monitor these factors for indications of appropriate revisions. In assessing the recoverability of its intangible assets, we must make assumptions regarding estimated future cash flows and other factors. If the estimated undiscounted future cash flows do not exceed the carrying value of the intangible assets, we must determine the fair value of the intangible assets. If the fair value of the intangible assets is less than its carrying value, an impairment loss will be recognized in an amount equal to the difference. We review intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or circumstances may include but are not limited to, lack of promotional sensitivity, the introduction of competitive products and changes in government regulations. If we determine that an intangible asset is impaired, a non-cash impairment charge would be recognized. If we should incur an impairment loss, there may be a material impact to our financial statements.

On March 6, 2002, we acquired certain U.S. rights relating to Sular for an aggregate purchase price of $184.3 million. With the assistance of valuation experts, we allocated the purchase price to the fair value of the various intangible assets which we acquired as part of the transaction. In addition, we assigned useful lives to acquired intangible assets which are not deemed to have an

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indefinite life. Intangible assets are amortized on a straight line basis over their respective useful lives. The intangible assets recorded in connection with the acquisition of Sular are being amortized over periods ranging from five to twenty years with a weighted average amortization period of nineteen years. In light of our experience in 2002 in promoting Sular, we carefully evaluated the useful lives assigned to the intangible assets acquired in the Sular acquisition and whether or not any impairment of any such assets was indicated. Our best estimate is that the useful lives assigned to the Sular intangible assets remain appropriate. Our estimate of such useful lives is subject to significant risks and uncertainties. Among these risks and uncertainties is our ability to develop one or more new versions of the product, obtain approval from the FDA to market and sell such newly developed product and procure patent protection for that product before the expiration of the last to expire of the existing patents related to Sular in 2008. SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" states that an impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. As of March 31, 2005, the undiscounted future cash flows of Sular as estimated by us over the remaining useful life of the product exceed the carrying amount of the Sular asset and therefore the carrying amount is estimated to be recoverable. However, the amount recorded as intangible assets on First Horizon's balance sheet for the Sular assets may be more or less than the fair value of such assets. Determining the fair value of the Sular intangible asset is inherently uncertain, and may be dependent in significant part on the success of our revised plans to promote Sular.

On March 28, 2005, we acquired the worldwide rights of Fortamet and Altoprev. With the assistance of valuation experts, we will allocate the purchase price to the fair value of the various intangible assets which we acquired as part of the transaction. In addition, we will assign useful lives to acquired intangible assets which are not deemed to have an indefinite life. Intangible assets are amortized on a straight line basis over their respective useful lives. The intangible assets recorded in connection with the acquisition of Fortamet and Altoprev are anticipated to be amortized over a period of fifteen years.

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Income Taxes.    Income taxes are provided for under the liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the consolidated financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or if future deductibility is uncertain.

Developing the provision for income taxes requires significant judgment and expertise in international, federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our income tax liabilities in our consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition and results of operations.

•

Inventory obsolescence.    Our products have shelf lives ranging from 24 to 36 months. We must estimate the amount of inventory recorded on our balance sheet that will not be sold prior to expiration. This estimate requires analysis of forecasted demand for our products, our promotional focus, amounts of our products currently held by our customers and the impact on our products of competing products. If we over or under estimate the amount of inventory that will not be sold prior to expiration, there may be a material impact to our financial statements.

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Forward Looking Statements

        Management's Discussion and Analysis of Financial Condition and Results of Operations as well as information contained elsewhere in this report contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to materially differ from those described. These forward looking statements are identified by their use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "plan", "predict", "will" and other similar terms and phrases, including references to assumptions. Although we believe that the expectations expressed in these forward-looking statements are reasonable, we cannot promise that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. With respect to such forward-looking statements, we seek the protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include, without limitation:

•

We may not attain expected revenues and earnings;



•

Our operating results are substantially dependent upon the success of Fortamet and Altoprev and any factor adversely affecting Fortamet and Altoprev could have a material adverse effect on our sales and profits;



•

Altoprev is currently experiencing manufacturing issues. If the issues cannot be resolved, this would impact our ability to acquire the product for sale and sampling;



•

We may incur unexpected costs in integrating Fortamet and Altoprev into our operations;



•

Our acquisition of Fortamet and Altoprev requires adjustments to our sales force which we may not be able to complete successfully or timely in order to achieve targeted sales of Fortamet and Altoprev;



•

If we are unsuccessful in obtaining third party payor contracts for Altoprev and Fortamet, we may experience reductions in sales levels;



•

The potential growth rate for Fortamet and Altoprev may be limited by slower growth for the class of drugs to which Fortamet and Altoprev belong and unfavorable clinical studies about such class of drugs;



•

Strong competition exists in the sale of drugs that treat diabetes and cholesterol that could adversely affect expected growth of Fortamet and Altoprev sales or increase our costs to sell Fortamet and Altoprev;



•

The potential growth rate for Sular may be limited by slower growth for the class of drugs to which Sular belongs and the ability of our sales representatives to influence prescribing habits of physicians;



•

Sales of our Prenate Elite and OptiNate products may not be at the levels that we anticipate;



•

We may be unable to protect our competitive position for Prenate Elite from patent infringers;



•

Sales of our Tanafed products have been adversely affected by the introduction of competitive products, and an issued FDA notice may cause us to incur increased expenses and adversely affect our ability to continue to market and sell our Tanafed products;



•

We may be unable to develop or market line extensions for our products, or, even if developed, obtain patent protection for our line extensions. Further, introductions of line extensions may require us to make unexpected changes in our estimates for future product returns and reserves for obsolete inventory. If these risks occur, our operating results would be adversely affected;



•

Our supplier can terminate our rights to commercialize Nitrolingual and the smaller size of this product has not met our expectations;

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•

A small number of customers account for a large portion of our sales and the loss of one of them, or changes in their purchasing patterns, could result in reduced sales;



•

If third-party payors do not adequately reimburse patients for our products, doctors may not prescribe them;



•

We rely on operational data obtained from IMS, an industry accepted data source. IMS data may not accurately reflect actual prescriptions (for instance, we believe IMS data does not capture all product prescriptions from some non-retail channels) or trade levels of inventory;



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An adverse judgment in the securities class action litigation in which we and certain directors and executive officers are defendants could have a material adverse effect on our results of operations and liquidity;



•

An adverse judgment in our infringement action with Breckenridge Pharmaceutical, Inc. with respect to our Tanafed products could result in the invalidation of our Tanafed patents, cause us to lose market share for Tanafed products and result in a loss of earnings and profits from Tanafed sales;



•

If we fail to obtain, or encounter difficulties in obtaining, regulatory approval for new products or new uses of existing products, or if our development agreements are terminated, we will have expended significant resources for no return;



•

If the FDA does not approve certain labeling for the cardiovascular product we have licensed from SkyePharma, then our sales of that product may be restricted;



•

Our business and products are highly regulated. The regulatory status of some of our products makes these products subject to increased competition and other risks, and we run the risk that we, or third parties on whom we rely, could violate the governing regulations;



•

If generic competitors that compete with any of our products are introduced our revenues may be adversely affected; and



•

Some unforeseen difficulties may occur.

        This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements and risk factors included in our other filings with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company is exposed to certain market risks that arise in the ordinary course of business. A discussion of the Company's primary market risk exposure is presented below.

Foreign Currency Exchange Risk

        Our purchases of Nitrolingual under our agreement with Pohl-Boskamp and our purchases of Sular product inventory from Bayer are made in Euros. Although we did not enter into any forward contracts in the first quarter of 2005, we may eliminate risks from foreign currency fluctuations after the time of shipment of product by entering into forward contracts for these purchases of inventory at the time of product shipments. While the effect of foreign currency translations has not been material to our results of operations to date, currency translations on export sales or import purchases could be adversely affected in the future by the relationship of the U.S. dollar with foreign currencies.

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Market Risk on Investments

        The fair value of our investment portfolio would be negatively affected by an increase in interest rates. Since the majority of the Company's investments are fixed rate interest-bearing securities and therefore subject to the market risk of loss in market value from an increase in rates or a change in the underlying risk of the issuers of the notes, the Company's future earnings and cash flows could be affected adversely if the Company were to sell the securities prior to their maturity date. There were realized losses from the sale of investments for the quarter ended March 31, 2005 of $0.3 million. At March 31, 2005, the Company had total net unrealized losses from marketable securities of $2.5 million.

Market Risk on Variable Rate Debt

        In connection with borrowings incurred under the senior secured revolving credit facility arranged by LaSalle Bank, N.A., we could experience market risk with respect to changes in the general level of the interest rates and its effect upon our interest expense. Borrowings under this facility bear interest at variable rates. Because such rates are variable, an increase in interest rates will result in additional interest expense and a reduction in interest rates will result in reduced interest expense. Accordingly, our present exposure to interest rate fluctuations is primarily dependent on rate changes that may occur while borrowings under the senior secured credit facility are outstanding. On March 31, 2005 there was no debt outstanding under this facility. In April 2005, the Company borrowed $20.0 million on the facility.

Market Risk on Fixed Rate Debt

        The Company's long-term fixed interest rate senior subordinated contingent convertible notes are also subject to market risk. Fixed rate debt outstanding at March 31, 2005 was $150 million with an interest rate of 1.75%. All other things being equal, the fair market value of the Company's fixed rate debt will increase as rates decline and will decrease as rates rise. The fixed rate notes outstanding totaling $150.0 million at March 31, 2005 had a fair value of $145.9 million based on quoted market rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We carried out an evaluation under the supervision and with the participation of management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of First Horizon's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Our President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures provide reasonable assurance as of the end of the period for which the report is being filed that (i) information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

        There has been no change in First Horizon's primary internal controls over financial reporting during the first fiscal quarter of 2005, that has materially affected, or is reasonably likely to materially affect First Horizon's internal controls over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

        First Horizon, certain former and current officers and directors are defendants in a consolidated securities lawsuit initiated on August 22, 2002 in the United States District Court for the Northern District of Georgia. Plaintiffs in the class action alleged in general terms that we violated Sections 11 and 12(a)(a) of the Securities Act of 1933 and that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In an amended complaint, Plaintiffs claim that we issued a series of materially false and misleading statements to the market in connection with our public offering on April 24, 2002 and thereafter relating to alleged "channel stuffing" activities. The amended compliant also alleged controlling person liability on behalf of certain of our officers under Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934. Plaintiffs seek an unspecified amount of compensatory damages to be proven at trial.

        On September 29, 2004, the U.S. District Court for the Northern District of Georgia dismissed, without prejudice, the class action lawsuit. Although the class action lawsuit was dismissed, the court granted the plaintiffs the right to refile their class action lawsuit provided that the plaintiffs pay all of the defendant's fees and costs associated with filing the motions to dismiss the class action lawsuit. Plaintiffs failed to refile by the deadline, but have asked the Court to reconsider its dismissal. Should the Court reverse the dismissal, we will vigorously defend against any claims made.

        On April 15, 2004, we filed a patent infringement action against Breckenridge Pharmaceutical, Inc. in the U.S. District Court for the Northern District of Illinois, on the grounds that their product, Duotan PD, infringes the patents for our products, Tanafed DP and Tanafed DMX. In response, on April 21, 2004, Breckenridge filed for declaratory judgment in the U.S. District Court for the Southern District of Florida seeking to invalidate the Tanafed patents. On July 20, 2004, our action was transferred to the U.S. District Court for the Southern District of Florida.

        We intend to vigorously litigate our infringement action and defend Breckenridge's motion for declaratory judgment unless resolved otherwise. While we believe that Breckenridge's product, Duotan, infringes the patent for Tanafed, we cannot assure you that we will prevail. If we lose our infringement action and Breckenridge is successful in invalidating the Tanafed patent we could lose market share for Tanafed or we may have to decrease the price of Tanafed to keep its sales competitive, resulting in a loss of earnings and profits from Tanafed sales.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        The following table presents the total number of shares repurchased during the first quarter of fiscal 2005 and the average price paid per share:

(1)

In July 2004, the Company's Board of Directors authorized a $20.0 million share repurchase program. The new program, which authorizes the repurchase of up to $5 million of common stock per quarter, became effective on August 3, 2004 and terminated and replaced the $10.0 million share buyback program then in effect. The share repurchase program will expire in August 2005.

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ITEM 5: OTHER INFORMATION

        None.

ITEM 6: EXHIBITS

+

Subject to Request for Confidential Treatment

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SIGNATURES

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

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QuickLinks

ITEM 1. FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

ITEM 1: LEGAL PROCEEDINGS
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS