UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2003.

OR

o		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 0-18549

SICOR Inc.

(Exact name of registrant as specified in its charter)

Delaware		33-0176647
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

19 Hughes Irvine, California 92618
(Address of principal executive offices and zip code)

(949) 455-4700
(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 12b-2 of the Securities Exchange Act of 1934). Yes ý No o

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

Common stock $0.01 par value		119,030,313
Class		Outstanding at September 30, 2003

SICOR Inc.

INDEX

PART I:			FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

	Consolidated Balance Sheets at September 30 2003 and December 31, 2002

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002

	Notes to Consolidated Financial Statements

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

	Forward-Looking Statements

	Overview

	Results of Operations

	Summary of Critical Accounting Policies and Estimates

	Liquidity and Capital Resources

	Factors that May Affect Future Financial Condition and Liquidity

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4: CONTROLS AND PROCEDURES

RISK FACTORS

PART II:		OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SICOR, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except par value data)

	September 30, 2003			December 31, 2002
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	163,805		$	169,914
Short-term investments	113,231			29,909
Accounts receivable, net	81,051			84,707
Inventories, net	96,865			75,870
Deferred income tax assets	20,234			20,161
Other current assets	19,950			19,659
Total current assets	495,136			400,220

Long-term investments	96,126			130,416
Property and equipment, net	205,575			186,616
Goodwill	69,640			69,640
Intangibles, net	41,548			41,382
Other noncurrent assets	20,849			35,104
	$	928,874		$	863,378

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,789		$	41,272
Accrued payroll and related expenses	11,802			10,546
Other accrued liabilities	35,952			44,851
Short-term borrowings	29,309			29,356
Current portion of long-term debt	4,246			7,096
Total current liabilities	114,098			133,121

Other long-term liabilities	6,024			6,254
Long-term debt, less current portion	7,575			24,018
Deferred income tax liabilities	13,837			14,535
Total liabilities	141,534			177,928

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.01 par value, 250,000 shares authorized, 119,030 and 117,470 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively	1,190			1,175
Additional paid-in capital	800,346			788,224
Deferred compensation	(396		)	(855		)
Accumulated deficit	(21,839		)	(105,173		)
Accumulated other comprehensive income	8,039			2,079
Total stockholders’ equity	787,340			685,450
	$	928,874		$	863,378

See accompanying notes.

SICOR Inc.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002

Net product sales	$	142,998		$	115,869		$	404,997		$	337,343

Costs and expenses:
Cost of sales	64,544			56,196			183,896			154,221
Research and development	8,804			5,819			24,509			16,325
Selling, general and administrative	21,960			13,875			58,516			45,948
Amortization of acquired intangibles	1,143			943			3,168			2,827
Write-down of long-lived assets	—			—			—			1,229
Interest and other, net	(142		)	(662		)	335			(779		)
Total costs and expenses	96,309			76,171			270,424			219,771

Income before income taxes	46,689			39,698			134,573			117,572
Provision for income taxes	(17,710		)	(15,477		)	(51,239		)	(43,815		)
Net income	28,979			24,221			83,334			73,757
Dividends on preferred stock	—			—			—			(580		)
Net income applicable to common shares	$	28,979		$	24,221		$	83,334		$	73,177

Net income per share:
- Basic	$	0.24		$	0.21		$	0.70		$	0.63
- Diluted	$	0.24		$	0.20		$	0.69		$	0.61

Shares used in calculating per share amounts:
- Basic	119,002			116,990			118,351			116,179
- Diluted	121,850			120,478			121,231			120,149

See accompanying notes.

SICOR Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	Nine months ended September 30,
	2003			2002

Cash flows from operating activities:
Net income	$	83,334		$	73,757
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	17,805			14,786
Amortization	3,168			2,827
Amortization of premium on investments	1,972			702
Deferred income taxes	(1,445		)	(3,496		)
Stock-based compensation	459			555
Write-down of long-lived assets	—			1,229
Change in operating assets and liabilities:
Accounts receivable	5,628			(2,925		)
Inventories	(18,312		)	(14,076		)
Other current and noncurrent assets	2,459			10,223
Accounts payable and other	(18,088		)	20,842
Net cash provided by operating activities	76,980			104,424

Cash flows from investing activities:
Proceeds from sales and maturities of investments	42,490			84,363
Purchases of investments	(93,495		)	(148,063		)
Purchases of property and equipment	(30,495		)	(27,441		)
Decrease in compensating balance and other	9,368			1,532
Net cash used in investing activities	(72,132		)	(89,609		)

Cash flows from financing activities:
Redemption of preferred stock	—			(63,832		)
Cash dividends on preferred stock	—			(580		)
Issuance of common stock and warrants, net	11,123			8,012
Change in short-term borrowings	(2,853		)	5,577
Issuance of long-term debt and capital lease obligations, net	1,110			1,067
Principal payments on long-term debt and capital lease obligations	(21,723		)	(5,585		)
Net cash used in financing activities	(12,343		)	(55,341		)

Effect of exchange rate changes on cash	1,386			1,214
Decrease in cash and cash equivalents	(6,109		)	(39,312		)
Cash and cash equivalents at beginning of period	169,914			226,568
Cash and cash equivalents at end of period	$	163,805		$	187,256

See accompanying notes.

SICOR Inc.

Notes to Consolidated Financial Statements

1. Basis of Presentation

Organization

SICOR Inc. (“SICOR” or the “Company”) is a specialty pharmaceutical company with operations located in the United States, Italy, Switzerland, Mexico, and Lithuania. SICOR was incorporated on November 17, 1986 in the state of Delaware and is headquartered in Irvine, California.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Affiliated companies in which the Company does not have a controlling interest are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary to present fairly the results of operations, financial position and cash flows, have been made. The results of operations and cash flows for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in SICOR’s Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

Use of estimates

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

2. Stock-Based Compensation

At June 30, 2003, the Company has three stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. For options granted under those plans that had an exercise price equal to the market value of the underlying commons stock on the date of the grant, no stock-based employee compensation cost is reflected in net income. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 “Accounting for Stock-Based Compensation” (in thousands, except per share data):

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002

Net income, as reported	$	28,979		$	24,221		$	83,334		$	73,177

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	153			156			459			555

Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects	(2,569		)	(1,781		)	(6,630		)	(5,084		)

Pro forma net income	$	26,563		$	22,596		$	77,163		$	68,648

Basic net income per share:
As reported	$	0.24		$	0.21		$	0.70		$	0.63
Pro forma	$	0.22		$	0.19		$	0.65		$	0.59
Diluted net income per share:
As reported	$	0.24		$	0.20		$	0.69		$	0.61
Pro forma	$	0.22		$	0.19		$	0.64		$	0.57

3. Inventories

Inventories consist of the following (in thousands):

	September 30, 2003			December 31, 2002

Raw materials	$	32,946		$	29,745
Work-in-process	20,725			18,434
Finished goods	48,384			31,381
	102,055			79,560
Less reserve for excess and obsolescence	(5,190		)	(3,690		)
	$	96,865		$	75,870

4. Intangible Assets

Intangible assets consist of the following:

	September 30, 2003					December 31, 2002
	Gross Amount		Amortization			Gross Amount		Amortization

Acquired technology	$	53,894	$	(19,452	)	$	53,894	$	(16,800	)
Trademarks	4,625		(1,012		)	4,625		(901		)
Acquired rights	3,000		(250		)	—		—
Licensed technology rights and other	1,997		(1,254		)	1,567		(1,003		)
Total	$	63,516	$	(21,968	)	$	60,086	$	(18,704	)

The estimated amortization expense for 2003 is approximately $4.2 million and for each of the five succeeding years ending December 31 is as follows (in thousands): 2004 – $4,525, 2005 – $4,628, 2006 – $4,561, 2007 – $4,568, and 2008 – $4,146.

5. Earnings Per Share

Basic earnings per share (“EPS”) includes no dilution and is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the effect of additional common shares issuable (completed using the treasury method), upon exercise of stock options outstanding, warrants, and other dilutive securities. The calculations of basic and diluted weighted average shares outstanding are as follows (in thousands, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2003		2002		2003		2002
Numerator:
Net income applicable to common shares	$	28,979	$	24,221	$	83,334	$	73,177

Denominator:
Weighted average common shares - basic	119,002		116,990		118,351		116,179
Dilutive securities:
Stock options	2,548		2,399		2,325		2,538
Warrants	179		826		404		1,128
Conversion options	121		263		151		304
Weighted average common shares - diluted	121,850		120,478		121,231		120,149

Earnings per share - basic	$	0.24	$	0.21	$	0.70	$	0.63
Earnings per share - diluted	$	0.24	$	0.20	$	0.69	$	0.61

6. Comprehensive Income

Comprehensive income consists of the following (in thousands):

	Three months ended September 30,					Nine months ended September 30,
	2003		2002			2003		2002

Net income applicable to common shares	$	28,979	$	24,221		$	83,334	$	73,177

Comprehensive adjustments:
Unrealized loss on available-for-sale investments	—		—			—		(234		)
Foreign currency translation gain (loss)	1,146		(447		)	5,960		5,865
Comprehensive income	$	30,125	$	23,774		$	89,294	$	78,808

7. Write-Down of Long-Lived Assets

In the first quarter of 2002, the Company recorded an impairment charge of $1.2 million to write-down the carrying value of the long-lived assets of Diaspa S.p.A. (“Diaspa”), a business unit within the Company’s Italian operations. On April 4, 2002, Diaspa was sold to an outside party.

Diaspa’s net sales included in the Company’s consolidated results of operations were $3.5 million for the nine months ended September 30, 2002. There are no sales attributable to Diaspa in 2003.

8. Segment and Geographic Information

FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes reporting standards for a company’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates predominantly in one industry segment, the development, manufacture and marketing of generic injectable pharmaceuticals and the production of specialty active pharmaceutical ingredients and generic biopharmaceuticals. The Company evaluates its performance based on operating earnings of the respective business units primarily by geographic area. The five main business units that correspond to each geographic area are as follows: (i) United States: SICOR, SICOR Pharmaceuticals, Inc. (formerly known as Gensia Sicor Pharmaceuticals, Inc.), and Genchem Pharma Ltd.; (ii) Italy: SICOR-Società Italiana Corticosteroidi S.p.A. and Diaspa (through April 4, 2002); (iii) Switzerland: SICOR Europe SA; (iv) Mexico: Lemery, S.A. de C.V., Sicor de México, S.A. de C.V, and Sicor de Latinoamérica, S.A. de C.V.; and (v) Lithuania: SICOR Biotech UAB and Gatio Investments B.V. Intergeographic sales are accounted for at prices that approximate arm’s length transactions.

Additional information regarding business geographic areas is as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2003			2002			2003			2002

Net product sales from unaffiliated customers:
United States	$	100,434		$	82,321		$	281,961		$	233,640
Italy	20,373			16,379			61,761			53,029
Mexico	21,531			16,248			57,814			48,178
Lithuania	660			921			3,461			2,496
	$	142,998		$	115,869		$	404,997		$	337,343

Net product sales data:
Propofol	$	31,982		$	37,755		$	104,635		$	104,954
Other finished dosage	83,218			53,783			215,193			159,919
Total finished dosage	115,200			91,538			319,828			264,873
Active pharmaceutical ingredients	26,949			23,410			81,464			69,974
Generic biopharmaceuticals	849			921			3,705			2,496
	$	142,998		$	115,869		$	404,997		$	337,343

Intergeographic sales:
United States	$	113		$	78		$	500		$	804
Italy	7,817			7,227			20,795			18,000
Switzerland	759			—			2,509			—
Mexico	302			382			678			785
Lithuania	2			27			126			27
	$	8,993		$	7,714		$	24,608		$	19,616

Income (loss) before income taxes:
United States	$	42,113		$	35,514		$	122,091		$	101,190
Italy	6,394			5,063			16,590			12,680
Switzerland	(279		)	—			(60		)	—
Mexico	2,916			756			4,857			3,444
Lithuania	(1,677		)	(1,233		)	(4,146		)	(2,430		)
Other	(17		)	3			(188		)	(48		)
Eliminations and adjustments	(2,761		)	(405		)	(4,571		)	2,736
	$	46,689		$	39,698		$	134,573		$	117,572

	September 30, 2003			December 31, 2002
Total assets:
United States	$	802,123		$	728,900
Italy	139,983			120,101
Switzerland	3,598			—
Mexico	108,969			101,393
Lithuania	40,736			33,346
Other	5			178
Eliminations and adjustments	(166,540		)	(120,540		)
	$	928,874		$	863,378

	September 30, 2003			December 31, 2002
Long-lived assets (property and equipment, net):
United States	$	77,264		$	70,547
Italy	66,448			57,076
Switzerland	1,936			—
Mexico	34,705			35,917
Lithuania	25,232			23,076
Eliminations and adjustments	(10		)	—
	$	205,575		$	186,616

Baxter Healthcare Corporation (“Baxter”), a marketer and distributor for propofol as well as several other products sold in the United States, accounted for 25% and 39% of net product sales for the three months ended September 30, 2003 and 2002, respectively, and 28% and 37% of net product sales for the nine months ended September 30, 2003 and 2002, respectively. Net sales of propofol, of which the majority is marketed and distributed by Baxter in the United States, accounted for 22% and 33% of net product sales for the three months ended September 30, 2003 and 2002, respectively, and 26% and 31% of net product sales for the nine months ended September 30, 2003 and 2002, respectively.

9. Contingencies

Certain federal and state governmental agencies, including the U.S. Department of Justice and the U.S. Department of Health and Human Services, have been investigating issues surrounding pricing information reported by drug manufacturers, including the Company, and used in the calculation of reimbursements under the Medicaid program administered jointly by the federal government and the states and under the Medicare program. The Company has supplied documents in connection with these investigations and has had discussions with representatives of the federal and state governments. In addition, the Company is named as a defendant in eight purported class action or representative lawsuits brought by private plaintiffs who allege claims arising from the reporting of pricing information by drug manufacturers for the calculation of patient co-payments and certain other payments under the Medicare program or other insurance plans and programs, and in two actions brought by the attorneys general of Nevada and Montana to recover on similar theories for payments made by those states and persons or entities within those states, pursuant to Medicaid programs or otherwise. These actions are among a number of similar actions which have been filed against many pharmaceutical companies raising similar allegations, and nine of the actions in which the Company is named as a defendant have been consolidated in the U.S. District Court for the District of Massachusetts. The Company has established a total reserve of $4.0 million, which represents management’s estimate of costs that will be incurred in connection with the

defense of these matters. Actual costs to be incurred may vary from the amount estimated. There can be no assurance that these investigations and lawsuits will not result in changes to the Company’s pricing policies or other actions that might have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

The Company is also a defendant in various actions, claims, and legal proceedings arising from its normal business operations. Management believes the Company has meritorious defenses and intends to vigorously defend against all allegations and claims. As the ultimate outcome of these matters is uncertain, no contingent liabilities or provisions have been recorded in the accompanying financial statements for such matters. However, in management’s opinion, liabilities arising from such matters, if any, will not have a material adverse effect on consolidated financial position, results of operations or cash flows.

10. Subsequent Event

On October 31, 2003, the Company entered into an Agreement and Plan of Merger with Teva Pharmaceutical Industries Limited, an Israeli corporation (“Teva”), and Silicon Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Teva. Under the terms of the agreement, if all applicable conditions are met, the Silicon Acquisition Sub, Inc. will merge with and into the Company and the Company will become a wholly owned subsidiary of Teva. If the merger is completed, each share of the Company’s common stock shall be converted into the right to receive (i) 0.1906 (as may be adjusted pursuant to the agreement) ordinary shares, par value NIS 0.10 each, of Teva which will trade in the United States in the form of American Depositary Shares, evidenced by American Depositary Receipts (and cash in lieu of fractional shares) and (ii) $16.50 in cash, without interest. The agreement has been approved by the board of directors of both the Company and Teva. The transaction is subject to approval by the Company’s stockholders, as well as regulatory approvals and satisfaction of other customary closing conditions. The transaction is expected to be completed in the first quarter of 2004. The agreement provides for the payment of a termination fee of up to $120 million, under certain termination circumstances. As a result of the transaction, the Company’s stockholders will own approximately 7% of Teva on a fully diluted basis. The cash portion of the consideration is expected to be funded by Teva’s cash on hand and committed credit facilities.

In July 2003, a tentative settlement agreement was reached between Terry Klein, a shareholder who brought an action under Section 16(b) of the Securities Exchange Act of 1934 alleging that she is acting to recover money on behalf of our company, and Carlo Salvi, Rakepoll Finance N.V., Karbona Industries Ltd., Bio-Rakepoll N.V. and us. The proposed settlement was approved by the Court on November 12, 2003. Pursuant to the terms of the settlement, SICOR will receive the full amount of the settlement proceeds, $10.75 million, within five (5) business days of the Court’s order approving the settlement. Since the Court reserved decision on the amount of attorneys fees and costs to be paid to plaintiff’s counsel and since those fees and costs are payable from the settlement proceeds, SICOR does not yet know how much of those proceeds it will have to pay to plaintiff’s counsel and how much it will retain. The Company will record its portion of the cash settlement, net of related taxes and legal fees, as a reduction to goodwill in SICOR Biotech U.A.B.

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

Forward-Looking Statements

Some of the information in this Form 10-Q contains forward-looking statements that involve risks and uncertainties within the meaning of Section 27A of the Securities Act of 1933. These statements are only predictions and you should not unduly rely on them. Our actual results could differ materially from those anticipated in these forward-looking statements made or incorporated by reference in this Form 10-Q as a result of a number of factors, including the risks faced by us described below and elsewhere in this Form 10-Q, including risks and uncertainties in:

• obtaining and maintaining regulatory approval;

• market acceptance of and continuing demand for our products;

• the attainment of patent protection for any of these products;

• the impact of competitive products, pricing and reimbursement policies;

• our ability to obtain additional financing to support our operations;

• the continuation of our corporate collaborations; and

• changing market conditions and other risks detailed below.

We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors listed above, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form 10-Q could have a material adverse effect on our business, operating results and financial condition.

You should read and interpret any forward-looking statements together with the following documents:

• our most recent Annual Report on Form 10-K

• our other filings with the SEC.

Any forward-looking statement speaks only as of the date on which that statement is made. The operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year. Unless required by U.S. federal securities laws, we will not update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.

Overview

We are a vertically integrated, multinational specialty pharmaceutical company that focuses on finished dosage injectable pharmaceuticals, active pharmaceutical ingredients, or APIs, and generic biopharmaceuticals. We operate and manage our business on a geographic basis, which means that we

consider our operating units to be the United States, Italy, Switzerland, Mexico, and Lithuania.

As competition increases from other generic pharmaceutical companies, our selling prices and related profit margins tend to decrease as these manufacturers gain regulatory approvals to market similar generic products and compete with lower prices. Thus, our future operating results are dependent on, among other factors, our ability to introduce new generic products before our competitors.

Recently Issued Accounting Standards. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Statement No. 148 provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation under Statement No. 123 “Accounting for Stock-Based Compensation.” Statement No. 148 also requires prominent disclosure of the effects of stock-based employee compensation on reported net income and earnings per share in our annual and interim financial statements beginning after December 31, 2002. The adoption of the disclosure provisions of this Statement did not have an effect on our earnings or financial position. Management has not yet determined whether the Company will adopt one of the transition methods, but if we do adopt one of the transition methods, the impact on our results of operations will be significant.

In November 2002, the Emerging Issues Task Force issued EITF 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables,” addressing the accounting for arrangements that may involve the delivery or performance of multiple products, services, and rights to use assets. This consensus applies to agreements entered into in fiscal periods beginning after June 15, 2003. Adoption of this consensus did not have a material effect on our earnings or financial position.

Tax Loss Carryforwards and Tax Credits. As of December 31, 2002, we had approximately $65.2 million of deferred tax assets, related principally to domestic federal and California net operating loss carryforwards, research and development tax credit carryforwards, and other temporary differences relating primarily to accounting reserves established for items that are not currently tax deductible. Prior to the fourth quarter of 2001, due to our past history of operating losses, the future benefit of these deferred tax assets was fully reserved with a valuation allowance. Following the completion of three consecutive years of positive earnings results, in the fourth quarter of 2001, we were required under accounting principles generally accepted in the United States to reevaluate the likelihood of the realization of these deferred tax assets in future periods. Based on our projections of future earnings, we concluded that it was appropriate to reduce our valuation allowance and recognized a tax benefit in the fourth quarter of 2001 in the amount of $25.9 million. A similar reevaluation of the realizability of remaining deferred tax assets was performed at the end of 2002, which resulted in an additional tax benefit of $29.0 million being recorded in the fourth quarter of 2002. At December 31, 2002, we had federal and California net operating loss carryforwards of approximately $44.5 and $6.5 million, respectively. These net operating loss carryforwards will begin to expire in 2012 and 2006, respectively, unless previously utilized.

The acquisition of Rakepoll Holding B.V. caused a cumulative change in ownership of more than 50% within the three-year period ending on February 28, 1997. Pursuant to the Internal Revenue Code, annual use of our net operating losses and tax credit carryforwards is limited, and this limitation has been considered in our assessment of the future tax benefit attributable to such carryforwards.

Results of Operations

Comparison of Operating Results for the Three Months Ended September 30, 2003 and 2002

Earnings Summary. Our net income applicable to common shares was $29.0 million, or $0.24 per share on a diluted basis, in the third quarter ended September 30, 2003 compared to net income applicable to common shares of $24.2 million, or $0.20 per share on a diluted basis, in the third quarter of 2002.

Net Product Sales. Our net sales for the third quarter of 2003 increased 23% to $143.0 million from $115.9 million in the same quarter in 2002, as follows:

	Three months ended September 30,
	2003		2002		Change			% Change

United States	$	100,434	$	82,321	$	18,113		22	%
Italy	20,373		16,379		3,994			24	%
Mexico	21,531		16,248		5,283			33	%
Lithuania	660		921		(261		)	(28	)%
Overall net sales	$	142,998	$	115,869	$	27,129		23	%

The 22% increase in U.S. net sales was mainly attributable to new product introductions during the current year. The most significant of our new product introductions were vinorelbine and fludarabine, which collectively accounted for 87% of the increase in our overall net sales. Vinorelbine and fludarabine were introduced during the first and third quarter of 2003, respectively. Partially offsetting our increase in U.S. net sales was propofol, which accounted for approximately 22% of overall net sales in the third quarter of 2003 as compared to 33% of overall net sales in the third quarter of 2002. The decrease in net sales of propofol in the current quarter compared to the same quarter in the prior year reflects lower units purchased by Baxter, our largest customer. While the price of propofol did not change materially in the current quarter, we do anticipate a slight reduction in the fourth quarter corresponding to the renewal of key supply contracts held by Baxter. According to IMS Healthcare, a pharmaceutical market research company, Baxter’s unit market share for propofol in the United States was approximately 54% in the third quarter of 2003, and 49% in the third quarter of 2002. The increase in net sales from our foreign operations reflected mainly higher sales volume of existing products, including a favorable currency effect of $1.0 million.

Costs and Expenses. Cost of sales for the three months ended September 30, 2003 was $64.5 million, which yielded a product gross margin of 55%, compared to cost of sales of $56.2 million for the same period in the prior year, which yielded a product gross margin of 52%. The higher gross margin percentage was mainly due to new product introductions which have higher average margins.

Research and development expenses for the three months ended September 30, 2003 were $8.8 million compared to $5.8 million for the same period in 2002, or 6% and 5% of net sales, respectively. The

increase reflected primarily higher proprietary product development expenses at our U.S. finished dosage operations.

Selling, general and administrative expenses for the three months ended September 30, 2003 and 2002 were $22.0 million and $13.9 million, respectively, or 15% and 12% of net sales, respectively. The increase primarily reflected approximately $4.0 million of increased expenses associated with higher sales (including the expansion of SICOR’s sales organizations), and professional service expenses of $1.1 million primarily related to our proposed merger with Teva.

Net interest and other was approximately $0.1 million of income for the three months ended September 30, 2003 as compared to $0.6 million of income for the same period in the prior year. The decrease was due to higher foreign exchange losses of $1.1 million and increased interest expense of $1.0 million, due to the write-off of loan fees related to the repayment of debt. Other income increased by $1.5 million, which included recognition as income of a $1.0 million deposit for which we do not expect to provide any goods or services.

Comparison of Operating Results for the Nine Months Ended September 30, 2003 and 2002

Earnings Summary. Our net income applicable to common shares was $83.3 million, or $0.69 per share on a diluted basis, for the nine months ended September 30, 2003 compared to net income applicable to common shares of $73.2 million, or $0.61 per share on a diluted basis, for the same period in the prior year.

Net Product Sales. Our net sales for the nine months ended September 30, 2003 increased 20% to $405.0 million from $337.3 million in the same quarter in 2002, as follows:

	Nine months ended September 30,
	2003		2002		Change		% Change

United States	$	281,961	$	233,640	$	48,321	21	%
Italy	61,761		53,029		8,732		16	%
Mexico	57,814		48,178		9,636		20	%
Lithuania	3,461		2,496		965		39	%
Overall net sales	$	404,997	$	337,343	$	67,654	20	%

The 21% increase in U.S. net sales was mainly attributable to new product introductions during the current year, of which the most significant were vinorelbine and fludarabine (74% of the increase in our overall net sales). Sales from propofol accounted for approximately 26% of overall net product sales in the first nine months of 2003 as compared to 31% of overall product sales in the first nine months of 2002. The increase in net sales from our foreign operations reflected mainly higher sales volume of existing products, including a favorable currency effect of $3.9 million.

Costs and Expenses. Cost of sales for the nine months ended September 30, 2003 was $183.9 million, which yielded a product gross margin of 55%, compared to cost of sales of $154.2 million for the same period in the prior year, which yielded a product gross margin of 54%. The slightly higher gross margin percentage was principally due to new product introductions in the current year.

Research and development expenses for the nine months ended September 30, 2003 were $24.5 million compared to $16.3 million for the same period in 2002, or 6% and 5% of net sales, respectively. The increase reflected primarily higher product development expenses at our U.S. finished dosage and Lithuanian biopharmaceutical operations in 2003, which accounted for approximately $3.5 million and $2.9 million of the increase, respectively.

Selling, general and administrative expenses for the nine months ended September 30, 2003 and 2002 were $58.5 million and $45.9 million, respectively, or 14% and 14% of net sales, respectively. The increase reflected increased expenses associated with higher sales (including the expansion of SICOR’s sales organizations).

Net interest and other was approximately $0.3 million of expenses for the nine months ended September 30, 2003 as compared to $0.8 million of income for the same period in 2002, due mainly to higher foreign exchange losses in the current year.

Income Tax Expense. Our provision for income taxes increased to $51.2 million for the nine months ended September 30, 2003 from $43.8 million for the nine months ended September 30, 2002, due mainly to higher earnings and a shift in income to higher taxed jurisdictions.

Dividends on Preferred Stock. We had no dividend expense during the nine months ended September 30, 2003, as compared to $0.6 million during the same period in 2002, as we redeemed all 1,600,000 shares of our preferred stock in January and February 2002 in exchange for $64.4 million in cash, including dividends, and 1,100,000 shares of our common stock.

Summary of Critical Accounting Policies and Estimates

Certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical experience, terms of existing contracts, observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. We have discussed the development, selection and disclosure of important accounting policies and estimates with our Audit Committee.

• Revenue recognition. Our judgment is required in estimating amounts of excess channel inventory. Excess channel inventory exists when our wholesaler customers’ inventory of our product exceeds its estimate of demand for our products at the end user level, after considering factors such as product shelf life and market for the product. We monitor the quantity of our products in the distribution channel by reconciling quantities we sell through the distribution channel with quantities actually purchased by end users, considering market demand for our products and shelf life, and obtaining information from our wholesaler customers to evaluate the levels of channel inventory at customer locations. We will defer recognition of revenue if we determine that there is material excess channel inventory for our products. We did not record deferred revenue during 2003 or 2002 because the level of channel inventory for our products was estimated to be reasonable.

We routinely evaluate our reserves against net product sales for estimated product returns and other contractual liabilities. We estimate product returns at the time of sale based on historical trends and at any time that such returns become evident. Our historical returns have been relatively low. Other reserves are generally governed by contractual agreements, including wholesaler chargebacks, Medicaid and other rebates, administrative fees, and early payment discounts. We reduced net product sales for these reserves by $36.4 million and $20.2 million for the three months ended September 30, 2003 and 2002, respectively, and $96.6 million and $51.6 million for the nine months ended September 30, 2003 and 2002, respectively.

• Inventories. Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out method. We estimate reserves for excess and obsolete inventories based on

inventory levels on-hand, future purchase commitments, and current product demand. If an estimate of future product demand suggests that inventory levels are excessive, then increases to the reserves would be required. Our inventory reserves have increased to $5.2 million at September 30, 2003 from $3.7 million at December 31, 2002. This increase is consistent with the growth of our overall inventory levels, and there have not been any unusual adjustments made to our inventory reserves in recent periods.

• Deferred Tax Assets. Our judgment is required in determining whether it is appropriate to reduce the valuation allowance associated with the deferred tax assets. Our analysis is based upon estimates of future taxable income, projections utilized in our internal forecasts, our recent earnings history, and the implementation of our tax planning strategies. As of December 31, 2002, we had approximately $65.2 million of deferred tax assets, related principally to domestic federal and California net operating loss carryforwards, research and development tax credit carryforwards and other temporary differences relating primarily to accounting reserves established for items that are not currently tax deductible. As of December 31, 2002, we had a valuation allowance of approximately $19.4 million for certain of the tax loss carryforwards and credits.

• Impairment. We analyze our goodwill for impairment using a fair value approach each October 1, or whenever events or circumstances indicate there could be impairment. Significant estimates within the valuation include a forecast of expected cash flows and terminal value, a risk-adjusted discount rate, and evaluation of an appropriate product forecasting life cycle. These factors, assumptions, and changes in them could result in an impairment of goodwill in the future. Our goodwill at September 30, 2003, was $69.6 million, of which $57.7 million relates to the overall enterprise and $11.9 million relates to our investment in SICOR Biotech UAB. The future benefit of our goodwill largely depends on the continued success of our core products and on attainment of future cash flows from products still under development.

Liquidity and Capital Resources

As of September 30, 2003, we had cash and cash equivalents of $163.8 million and working capital of $381.0 million compared to $169.9 million and $267.1 million, respectively, as of December 31, 2002.

The overall decrease in cash and equivalents during the nine months ended September 30, 2003 resulted from our generation of $77.0 million of cash from operations, offset by the use of $72.1 million of cash for investing activities and $12.3 million for financing activities. A significant use of cash during the nine months ended September 30, 2003, as compared to the prior year, was the payment of estimated U.S. federal and state income taxes. We expect to pay substantially higher estimated taxes in 2003 as compared to 2002 as certain tax benefits related to the realization of our loss carryforwards are subject to limitation; however, we believe the majority of our carryforwards will be realized. Additionally, we used $18.3 million of net operating cash for inventory during the first three quarters of 2003, of which the majority was attributable to net purchases in the U.S. The number of days in our inventory at September 30, 2003 was 142 as compared to 132 at December 31, 2002. The increase mainly reflected anticipated sales growth of existing products as well as a foreign exchange effect of $2.7 million.

We invested $30.5 million in property and equipment during the nine months ended September 30, 2003, as compared to $27.4 million during the same period in the prior year. These expenditures related primarily to our operations in the U.S. and Italy, which accounted for 78% of the total expenditures. Additionally, we purchased $51.0 million, net after proceeds, of short and long-term securities during the nine months ended September 30, 2003.

We used $12.3 million of cash for financing activities during the nine months ended September 30, 2003, of which $23.5 million was used for the repayment of borrowings, and $11.1 million was provided by the proceeds received from the issuance of common stock and warrants. The repayment of borrowings was

mainly related to the pay-down of short and long-term debt at our Lithuanian operations by $25.0 million. In conjunction with this transaction, we were released from a compensating balance requirement of $14.3 million related to this debt.

Factors that May Affect Future Financial Condition and Liquidity

Subject to changes following the completion of our proposed merger with Teva, we expect to incur additional costs, including development, manufacturing and marketing costs, to support sales of existing products and anticipated launches of new products during the year. Planned spending on worldwide product development and marketing activities for 2003 is estimated to be approximately $60.0 to $65.0 million. We also plan to invest approximately $30.0 to $35.0 million during 2003 in plant and equipment to increase and improve existing manufacturing capacity worldwide. We expect to fund capital spending through cash flow from operations and new operating lease arrangements. Included in our planned spending are cash requirements for SICOR Biotech UAB, which are forecasted to be $7.0 to $10.0 million during the next twelve months.

We expect that our operating cash flows, our current cash and cash equivalents and short-term investments of $277.0 million as of September 30, 2003, and commitments from third parties will enable us to maintain our current and planned operations. Subject to the completion of our proposed merger with Teva, our management and board of directors will continue to evaluate the need to raise additional capital and, if appropriate, pursue equity, debt or lease financing, or a combination of these, for our capital and investment needs. However, there is no assurance that financing will be available on acceptable terms, or at all.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations, or cash flows. In the normal course of business, we are exposed to the risks associated with changes in interest rates and foreign currency exchange rates.

Interest Rate Risk. At September 30, 2003, we had cash and cash equivalents, and investments of approximately $373.2 million, which included long-term investments of $96.1 million. Cash equivalents and short-term investments consist primarily of cash and highly liquid debt securities, which may be subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical increase or decrease in market interest rates by 1.0% from the market interest rates at September 30, 2003 would cause the fair market value of our cash, cash equivalents, and short-term investments to change by an immaterial amount. Declines in interest rates over time would, however, reduce our interest income. Our long-term investments, and most of our long-term borrowings, are based on fixed interest rates and therefore are not subject to material risk from changes in interest rates. Short-term borrowings, however, are based on prime or other indicative base rates plus a premium. If these indicative base rates were to increase, we would incur higher relative interest expense and similarly, a decrease in the rates would reduce relative interest expense. A 1.0% change in the prime rate or other indicative base rates would not materially change interest expense assuming outstanding debt remains at historical levels.

Foreign Currency Exchange Rate Risk. We are exposed to exchange rate risk when our subsidiaries enter into transactions denominated in currencies other than their functional currency. Our Italian operations hedge against transactional risks by borrowing against receivables and against economic risk by buying U.S. dollar put/euro call options on a monthly basis at a strike rate equal to or above our budgeted exchange rate. The cost of each call option is expensed as it becomes exercisable during the year, and any resulting gain is recognized as a foreign exchange gain. During the nine months ended September 30, 2003, SICOR S.p.A.’s exercise of call options resulted in a net foreign exchange gain of approximately $210.7 thousand, after contract costs of $264.1thousand. Also, in April 2003, SICOR S.p.A. entered into a U.S. dollar put/euro call option at a face value of $4.0 million and a strike of 1.074 euro per U.S. $1.00,

exercised in July 2003, which resulted in a cumulative mark-to-market foreign exchange gain of $131.4 thousand, after contract costs of $88.8 thousand, through September 30, 2003.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

Changes in internal control over financial reporting. There were no significant changes in our internal control over financial reporting or, to our knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

RISK FACTORS

You should carefully consider the following risks, together with all of the other information included or incorporated by reference in this Form 10-Q. If any of the following risks occurs, our business, financial condition, operating results and prospects could be materially adversely affected. In such case, the trading price of our common stock could decline.

Risks Related to Our Company

There are Risks Related to the Proposed Merger with by Teva

Our expectations with respect to our merger with Teva are subject to a number of risks and uncertainties. The merger is subject to approval of our stockholders and various other conditions, including regulatory approvals. We may be unable to obtain stockholder or regulatory approvals, or satisfy the conditions, required for the consummation of the merger. In addition, upon consummation of the merger, problems may arise in successfully integrating our business with that of Teva. The merger may involve unexpected costs and we may be unable to realize the benefits of expected synergies. Our business and that of Teva may suffer as a result of uncertainty surrounding the merger. Failure to complete the merger with Teva could negatively impact our stock price and future business and operations. For example:

• if the merger agreement is terminated, we may be required in specific circumstances, to pay a termination fee of up to $120.0 million to Teva,

• the price of our common stock may decline to the extent that the current market price reflects an assumption that the merger will be completed, and

• we must pay our expenses related to the merger, including substantial legal and accounting fees, even if the merger is not completed. This could affect our results of operations for the period during which the fees are incurred.

Current and prospective employees may experience uncertainty about their future role with us until we announce and execute a more detailed post-merger strategy. This may adversely affect our ability to attract and retain key management, research and development, manufacturing, sales and marketing and other personnel.

Since our stockholders will receive shares of Teva ADRs in the merger, we believe that the price of our common stock may be affected by changes in the price of Teva ADRs. The price of Teva’s ADRs may be affected by factors different from those affecting the price of our common stock.

We currently derive a large percentage of our revenue from one product, propofol. If sales of propofol decrease, our results of operations may be adversely affected.

In 1999, we began to market the first generic formulation of propofol in the United States, which formulation remains the only generic propofol on the U.S. market. We market propofol under our exclusive marketing alliance with Baxter. Revenues attributable to the Baxter alliance accounted for 25% and 39% of net product sales for the three months ended September 30, 2003 and 2002, respectively, and 28% and 37% of net product sales for the nine months ended September 30, 2003 and 2002, respectively, and 37%, and 34% of our consolidated net sales for the years ended 2002 and 2001, respectively. Included in SICOR’s revenue from Baxter were sales of propofol, which accounted for 22% and 33% of our consolidated net sales for the three months ended September 30, 2003 and 2002, and 31%, and 29% of our consolidated net sales for the years ended 2002 and 2001, respectively. We believe that sales of this product will continue to constitute a significant portion of our total net sales for the foreseeable future. Accordingly, any factor adversely affecting sales of propofol, such as the introduction by other companies of additional generic equivalents of propofol or alternative non-propofol injectable general anesthetics, may have a material adverse effect on net sales. In addition, the total market for propofol in the United States has fluctuated in recent years, and there can be no assurance that this market will not decline in the future.

If our relationship with Baxter fails to continue to benefit us, our business will be harmed.

In March 1999, we amended our sales and distribution agreement with Baxter to grant Baxter the exclusive right to market propofol in the United States. We are responsible for supplying Baxter with substantially all of its requirements for the products it markets under our agreement, including propofol, in the United States, including the Commonwealth of Puerto Rico. Under our agreement with Baxter, we share with Baxter the gross profit from its sale of our products. We are significantly dependent on Baxter to achieve market penetration for propofol and certain other products covered by the Baxter agreement, and entered into our agreement with Baxter based on expectations of product sales, including sales of propofol, that Baxter will achieve. However, Baxter is not required to achieve any specified level of sales. In addition, pursuant to a November 2002 amendment, the agreement with Baxter terminates on January 1, 2009. If we fail to maintain our relationship with Baxter, or if our relationship with Baxter fails to generate the level of sales we expect, our net sales will not meet our expectations and our business will be negatively impacted.

In order to remain profitable and continue to grow and develop our business, we are dependent on successful development and commercialization of newly developed products. If we are unable to successfully develop or commercialize new products, our operating results will suffer.

Our future results of operations depend, to a significant extent, on our ability to successfully develop and commercialize new generic versions of branded and off-patent pharmaceutical products in a timely manner. These new products must be continually developed, tested and manufactured and must meet regulatory standards and receive requisite regulatory approvals. Products currently in development by us may or may not receive the regulatory approvals necessary for marketing. Our future growth in the biopharmaceuticals sector is dependent on, among other things, accessible and cost effective pathways to regulatory approval of generic biologics which currently do not exist in the United States and the majority of the European countries. If any of our products, if and when acquired or developed and approved, cannot be successfully commercialized in a timely manner, our operating results could be adversely affected. Delays or unanticipated costs in any part of the process or our failure to obtain regulatory approval for our products, including failure to maintain our manufacturing facilities in compliance with all applicable regulatory requirements, could adversely affect us.

Our overall profitability also depends on our ability to introduce, on a timely basis, new generic products for which we are either the first to market, or among the first to market, or can otherwise gain significant market share. The first generic equivalent on the market is generally able to capture a significant share of the market for that product. Our ability to achieve substantial market share is dependent upon, among other things, the timing of regulatory approval of these products and the number and timing of regulatory approvals of competing products. In as much as this timing is not within our control, we may not be able to introduce new generics on a timely basis, if at all, and we may not be able to achieve substantial market share from the sale of new products.

Future inability to obtain raw materials from suppliers could seriously affect our operations.

While we attempt to use our own APIs when possible, we depend on third party manufacturers for bulk raw materials for many of our products. These raw materials are generally available from a limited number of sources, and many of our raw materials are available only from foreign sources. In addition, our operations use sole sources of supply for a number of raw materials used in manufacturing our products and packaging components. Any curtailment in the availability of these raw materials could result in production or other delays, and, in the case of products for which only one raw material supplier exists, could result in a material loss of sales, with consequent adverse effects on us. In addition, because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales and customers. Furthermore, our arrangements with foreign raw materials suppliers are subject to, among other things, customs and other government clearances, duties and regulation by the countries of origin, in addition to the regulatory approval of the agencies responsible for certifying the API manufacturing facilities and regulating the sale of finished dosage pharmaceutical products, such as the FDA, the European Agency for the Evaluation of Medicinal Products (“EMEA”), and the United Kingdom Medicines Control Agency (“MCA”). Any significant interruption of our supply could have a material adverse effect on us.

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling our products.

There has been substantial litigation in the pharmaceutical industry with respect to the manufacture, use and sale of new generic products. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. We have been required in the past, and expect to be required in the future, to defend against charges relating to the alleged infringement of patent or other proprietary rights of third parties. Litigation may:

• require us to incur substantial expense, even if we are insured or are successful in the litigation;

• require us to divert significant time and effort of our technical and management personnel;

• result in the loss of our rights to develop or make certain products; or

• require us to pay substantial monetary damages or royalties in order to license proprietary rights from third parties.

Although patent and intellectual property disputes within the pharmaceutical industry have often been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include the long-term payment of royalties. These arrangements may be investigated by U.S. regulatory agencies and, if improper, may be invalidated. Furthermore, we cannot be certain that the required licenses would be made available to us on acceptable terms. Accordingly, an adverse finding in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing and selling some of our products or increase our marketing costs.

In addition, when seeking regulatory approval for our products, we may be required to certify to the FDA that these products do not infringe upon third party patent rights, or that such patent rights are invalid. Filing such a certification against a patent, commonly known as a Paragraph IV certification, gives the patent holder the right to bring a patent infringement lawsuit against us. Brand name pharmaceutical companies regularly institute these suits, and we expect them to continue these tactics since it is a cost-effective way to delay generic competition. A lawsuit may delay regulatory approval by the FDA until the earlier of the resolution of the claim or 30 months from the patent holder’s receipt of notice of certification. A claim of infringement and the resulting delay could result in additional expenses and even prevent us from manufacturing and selling some of our products.

We depend on our ability to protect our intellectual property and proprietary rights, and we cannot be certain of their confidentiality and protection.

Our ability to successfully market certain proprietary formulations of generic products, such as propofol, may depend, in part, on our ability to protect and defend our intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market products similar to ours. A patent covering our formulation of propofol has been issued to us, and we have filed, or expect to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. Some patent applications in the United States are maintained in secrecy until the patent is issued. Since the publication of discoveries tends to follow their actual discovery by several months, we cannot be certain that we were the first to invent or file patent applications on any of our discoveries. We cannot be certain that patents will be issued to us with respect to any of our patent applications or that any existing or future patents that will be issued or licensed by us will provide competitive advantages for our products or will not be challenged, invalidated or circumvented by our competitors. Furthermore, our patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products.

We also rely on trade secrets, unpatented know-how and continuing technological innovation that we seek to protect, in part, by entering into confidentiality agreements with our corporate collaborators, employees, consultants and certain contractors. We cannot assure you that these agreements will not be breached. We also cannot be certain that there will be adequate remedies available to us in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. We cannot be assured that our trade secrets and proprietary technology will not otherwise become known or be independently discovered by our competitors or, if patents are not issued with

respect to products arising from research, that we will be able to maintain the confidentiality of information relating to these products.

Failure to comply with governmental regulation could harm our business.

We are subject to extensive, complex, costly and evolving regulation by the governments of the countries in which we operate. In the United States, that regulation is carried out by the federal government, principally the FDA, and to a lesser extent by state governmental agencies. The Federal Food, Drug and Cosmetic Act and other federal statutes and regulations govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our products in the United States, and comparable regulations govern our operations in other countries in which we do business.

Our facilities, manufacturing procedures and operations and the procedures we use in testing our products are also subject to regulation by the FDA and other authorities, who conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with current Good Manufacturing Processes (“cGMP”) and other FDA regulations. Following these inspections, the FDA may issue notices on Form 483, listing conditions that the FDA inspectors believe may violate cGMP or other FDA regulations, and warning letters that could cause us to modify certain activities identified during the inspection.

Failure to comply with FDA or other U.S. governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production or distribution, suspension of the FDA’s review of our Abbreviated New Drug Applications (“ANDAs”), or other product applications, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although we have instituted internal compliance programs, if these programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could have a material adverse effect on us. Some of our vendors are subject to similar regulations and periodic inspections.

In connection with our activities outside the United States, we are also subject to regulatory requirements governing the testing, approval, manufacturing, labeling, marketing and sale of pharmaceutical products, which requirements vary from country to country. Whether or not FDA approval has been obtained for a product, approval by comparable regulatory authorities of foreign countries must be obtained prior to marketing the product in those countries. For example, some of our foreign operations are subject to regulation by the EMEA and MCA. The approval process may be more or less rigorous from country to country, and the time required for approval may be longer or shorter than that required in the United States. No assurance can be given that clinical studies conducted outside of any country will be accepted by that particular country, and the approval of a pharmaceutical product in one country does not assure that the product will be approved in another country. In addition, regulatory agency approval of pricing is required in many countries and may be required in order to market any drug we develop in those countries.

Under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch/Waxman Act, we are required to file ANDAs for our generic products with the FDA. An ANDA does not require the extensive animal and human studies of safety and effectiveness before we can manufacture and market such products that are normally required to be included in a new drug application, or an NDA. However, there can be no assurance that any of our ANDAs will be approved, and delays in the review process or failure to obtain approval of our ANDAs could have a material adverse effect on us.

The process for obtaining governmental approval to manufacture and market pharmaceutical products is rigorous, time-consuming and costly, and we cannot predict the extent to which we may be

affected by legislative and regulatory developments. Moreover, if we obtain regulatory agency approval for a drug, it may be limited regarding the indicated uses for which the drug may be marketed which could limit our potential market for the drug. The discovery of previously unknown problems with any of our drugs could result in restrictions on the use of a drug including possible withdrawal of the drug from the market.

It is impossible for us to predict the extent to which our operations will be affected under the regulations discussed above or any new regulations which may be adopted by regulatory agencies.

We are increasing our efforts to develop new proprietary pharmaceutical products, but we can give no assurance that any of these efforts will be commercially successful.

Our principal business has traditionally focused on developing, manufacturing and marketing of generic equivalents of injectable pharmaceutical products first introduced by third parties. However, we have recently commenced efforts to develop new proprietary products. Expanding our focus beyond generic products and broadening our portfolio of product offerings to include proprietary product candidates may require additional internal expertise or external collaboration in areas in which we currently do not have substantial expertise, resources and personnel. We may have to enter into collaborative arrangements with other parties that may require us to relinquish rights to some of our technologies or product candidates that we would otherwise pursue independently. We cannot assure you that we will be able to acquire the necessary expertise or enter into collaborative arrangements on acceptable terms, if at all, to develop and market proprietary product candidates.

In addition, only a small minority of all new proprietary research and development programs ultimately results in commercially successful products. It is not possible to predict whether any of our programs will succeed until it actually produces a drug that is commercially marketed for a significant period of time. As a result, we could spend a significant amount of funds and effort without material benefits.

In order to obtain regulatory approvals for the commercial sale of proprietary product candidates, we may be required to complete extensive clinical trials in humans to demonstrate the safety and efficacy of our products. We have limited experience in conducting clinical trials in new product areas. In addition, a clinical trial may fail for a number of reasons, including:

• failure to enroll a sufficient number of patients meeting eligibility criteria;

• failure of the product candidate to demonstrate safety and efficacy;

• the development of serious and possibly life threatening adverse effects including, for example, side effects caused by or connected with exposure to the product candidate; and

• the failure of clinical investigators, trial monitors and other consultants or trial subjects to comply with the trial plan or protocol.

The current investigation by U.S. authorities into the pricing practices of companies in the pharmaceutical industry may have an adverse impact on us.

claims arising from the reporting of pricing information by drug manufacturers for the calculation of patient co-payments and certain other payments under the Medicare program or other insurance plans and programs, and in two actions brought by the attorneys general of Nevada and Montana to recover on similar theories for payments made by those states and persons or entities within those states, pursuant to Medicaid programs or otherwise. These actions are among a number of similar actions which have been filed against many pharmaceutical companies raising similar allegations, and nine of the actions in which we are named as a defendant have been consolidated in the U.S. District Court for the District of Massachusetts. We have established a total reserve of $4.0 million, which represents management’s estimate of costs that will be incurred in connection with the defense of these matters. Actual costs to be incurred may vary from the amount estimated. There can be no assurance that these investigations and lawsuits will not result in changes to our pricing policies or fines, penalties or other actions that might have a material adverse effect on us.

Political and economic instability may adversely affect the revenue our foreign operations generate.

For the nine months ended September 30, 2003, 30% of our total net sales were derived from our operations outside the United States, and 27% of our total assets were located outside of the United States. Our international operations are subject in varying degrees to greater business risks such as war, civil disturbances, adverse governmental actions, which may disrupt or impede operations and markets, restrict the movement of funds, impose limitations on foreign exchange transactions or result in the expropriation of assets, and economic and governmental instability. We may experience material adverse financial results within these markets if any of these events were to occur.

For the nine months ended September 30, 2003, 14% of our total net sales were derived from our Mexican operations, and 10% of our total assets were located in Mexico. The Mexican government has exercised and continues to exercise significant influence over many aspects of the Mexican economy. Accordingly, Mexican government actions could have a significant effect on our operations in Mexico. A significant portion of our sales in Mexico are to the Mexican government, which sales may not continue in the future. There can be no assurance that changes in the bidding, pricing or payment practices of the government will not change and affect the ability of our Mexican operations to win government contracts, maintain operating margins or collect on past sales to the government. In addition, our Mexican operations are subject to changes in the Mexican economy. For example, Mexico last experienced high double-digit inflation in 1995, and it may experience similar high inflation in the future. Future actions by the Mexican government, or developments in the Mexican economy and changes in Mexico’s political, social or economic situation may adversely affect our operations in Mexico.

For the nine months ended September 30, 2003, sales to the government of Mexico accounted for 8% of our total net sales. Any substantial decline in our sales to the government of Mexico, for any reason, would have an adverse effect on us.

Sales to the government of Mexico accounted for 8% and 7% of our total net sales during each of the nine months ended September 30, 2003 and September 30, 2002, and 7%, and 9% of our total net sales for the years ended 2002 and 2001, respectively. We have no long-term agreement with the government of Mexico and have no assurance that it will continue to purchase from us at any time in the future. The Mexican government has significantly reduced its hospital budget over the last several years and opened product bidding to more suppliers in order to reduce prices. As a result, we won fewer contracts and at lower prices than in prior years.

We may pursue transactions that may cause us to experience significant charges to earnings that may adversely affect our stock price and financial condition.

We regularly review potential transactions related to technologies, products or product rights and

businesses complementary to our business. These transactions could include mergers, acquisitions, strategic alliances, licensing agreements or co-promotion agreements. On October 31, 2003, we entered into an Agreement and Plan of Merger with Teva. In the event that we do not consummate our merger with Teva, we may choose to enter into other similar transactions. As a result of entering into such significant transactions, we have previously experienced, and will likely continue to experience, significant charges to earnings for merger and related expenses that may include transaction costs, closure costs or costs related to the write-off of acquired in-process research and development. These costs may also include substantial fees for investment bankers, attorneys, accountants and financial printing costs and severance and other closure costs associated with the elimination of duplicate or discontinued products, employees, operations and facilities. These charges could have a material adverse effect on our results of operations for particular quarterly or annual periods and could possibly have an adverse impact upon the market price of our common stock.

We may make acquisitions of businesses. Inherent in this practice is a risk that we may experience difficulty integrating the businesses or companies that we have acquired into our operations, which would be disruptive to our management and operations.

The merger of two companies involves the integration of two businesses that have previously operated independently. Difficulties encountered in integrating two businesses could have a material adverse effect on the operating results or financial condition of the combined company’s business. As a result of uncertainty following a merger and during the integration process, we could experience disruption in our business or employee base. There is also a risk that key employees of a merged company may seek employment elsewhere, including with competitors, or that valued employees may be lost upon the elimination of duplicate functions. If we and our merger partner are not able to successfully blend our products and technologies to create the advantages the merger is intended to create, it may affect our results of operations, our ability to develop and introduce new products and the market price of our common stock. Furthermore, there may be overlap between our products or customers, and a merged company may create conflicts in relationships or other commitments detrimental to the integrated businesses.

We face risks related to foreign currency exchange rates, which could adversely affect our operations and reported results.

We have significant operations in several countries, including the United States, Italy, Mexico and Lithuania. In addition, we make purchases and sales in a large number of other countries. As a result, our business is subject to the risks and uncertainties of foreign currency fluctuations. To the extent that we incur expenses in one currency but earn revenue in another, any change in the values of those foreign currencies relative to the U.S. dollar could cause our profits to decrease or our products to be less competitive against those of our competitors. To the extent that cash and receivables denominated in foreign currency are greater or less than our liquid liabilities denominated in foreign currency, we have foreign exchange exposure. In response to this exposure, we have entered into hedging transactions designed to reduce our exposure to the risks associated with euro (previously Italian lira) rate fluctuations, but those transactions cannot eliminate the risks entirely, and there can be no assurance that we will be able to enter into those transactions on economical terms, or at all, in the future.

We depend on key officers and qualified scientific and technical employees. The loss of key personnel could have a material adverse effect on us.

We are highly dependent on the principal members of our management staff, the loss of whose services might impede the achievement of our development objectives. Although we believe that we are adequately staffed in key positions and that we will be successful in retaining skilled and experienced management, we cannot assure you that we will be able to attract and retain key personnel on acceptable terms. We do not have any employment agreements with any of our key executive officers, other than Marvin Samson, our President and Chief Executive Officer, and we do not maintain key person life insurance on the

lives of any of our executives. If we lose the services of any of these executive officers, it could have a material adverse effect on us. Due to the specialized scientific nature of our business, we are also highly dependent upon our ability to continue to attract and retain qualified scientific and technical personnel. Loss of the services of, or failure to recruit, key scientific and technical personnel would be significantly detrimental to our product development programs. We face competition for personnel from other companies, academic institutions, government entities and other organizations.

In some circumstances, we may retroactively reduce the price of products which we have already sold. These price reductions may result in reduced revenues.

In some circumstances including, for example, if we reduce our prices as a result of competition, we may issue to our customers credits and rebates for products that we have previously sold to them. These credits and rebates effectively constitute a retroactive reduction of the price of products already sold. Although we establish a reserve with respect to these potential credits and rebates at the time of sale, we cannot assure you that our reserves will be adequate.

Our business with wholesalers could adversely affect our operations and financial results.

In some circumstances, inventory levels maintained by our wholesalers may be in excess of end user demand. These surpluses may result in increased product returns from our wholesalers or reduced product orders in the future, which may result in reduced revenues.

A significant portion of our domestic pharmaceutical sales is made to wholesalers. Fluctuations in the buying patterns of our major wholesalers due to changes in inventory levels they maintain could adversely affect our operations. Furthermore, wholesaler buying patterns may not reflect end user demand.

Risks Related to Our Industry

Our industry is intensely competitive. The competition we encounter may have a negative impact on the prices we charge for our products, the market share of our products and our revenues and profitability.

Significant competition exists in the generic drug business. We compete with:

• the original manufacturers of the brand name equivalents of our generic products;

• other generic drug manufacturers, including brand name companies that also manufacture generic drugs; and

• manufacturers of new drugs that may compete with our generic drugs.

Many of our competitors have substantially greater financial, research and development and other resources than we do. Consequently, many of our competitors may be able to develop products and processes competitive with, or superior to, our own. Furthermore, we may be unable to develop products that are differentiated from those of our competitors or successfully develop or introduce new products that are less costly or offer better performance than those of our competitors. If we are unable to compete successfully, our revenues and profitability will be adversely affected.

Brand name companies frequently take actions to prevent or discourage the use of generic drug products such as ours.

Brand name companies frequently take actions to prevent or discourage the use of generic equivalents

to their products including generic products, which we manufacture or market. These actions may include:

• filing new patents on drugs whose original patent protection is about to expire;

• developing patented controlled-release products or other product improvements;

• mounting state-by-state initiatives for legislation that restrict the substitution of some generic drugs; and

• increasing marketing initiatives, regulatory activities and litigation.

Generally, no additional regulatory approvals are required for brand name manufacturers to sell directly, or through a third party, to the generic market. This facilitates the sale by brand name manufacturers of generic equivalents of their brand name products. If brand name manufacturers are successful in capturing a significant share of the generic market for our products, our revenues will be adversely affected.

Our revenues and profits from individual generic pharmaceutical products are likely to decline as our competitors introduce their own generic equivalents.

Revenues and gross profits derived from generic pharmaceutical products tend to follow a pattern based on regulatory and competitive factors unique to the generic pharmaceutical industry. As the patents for a brand name product and the related exclusivity periods expire, the first generic manufacturer to receive regulatory approval for a generic equivalent of the product is often able to capture a substantial share of the market. However, as other generic manufacturers receive regulatory approvals for competing products, the market share and the price of that product will typically decline. In 1999, we began to market the first generic formulation of propofol to be sold in the United States. The introduction of additional generic equivalents may have an adverse effect on revenues from our products.

New developments by others could make our products or technologies obsolete or noncompetitive.

Brand name manufacturers are constantly developing and marketing new pharmaceutical products which may be superior to our generic products for the therapeutic indications for which our products are marketed. These new products may render our products non-competitive or obsolete.

Legislative proposals, reimbursement policies of third parties, cost containment measures and health care reform could affect the marketing, pricing and demand for our products.

Our ability to market our products depends, in part, on reimbursement levels for those products and for related treatment established by healthcare providers, including government authorities, private health insurers and other organizations, including health maintenance organizations and managed care organizations. Reimbursement may not be available for some of our products and, even if granted, may not be maintained. Limits placed on reimbursement could make it more difficult for people to buy our products, and reduce, or possibly eliminate, the demand for our products. We are unable to predict whether governmental authorities will enact additional legislation or regulations which will affect third party coverage and reimbursement, and ultimately reduce the demand for our products. In addition, the purchase of our products could be significantly influenced by the following factors:

• trends in managed healthcare in the United States;

• developments in health maintenance organizations, managed care organizations and similar enterprises; and

• legislative proposals to reform healthcare and government insurance programs.

These factors could result in lower prices and a reduced demand for our products, which would have a material adverse effect on us.

Federal regulation of arrangements between manufacturers of brand name and generic drugs could materially affect our business.

On July 29, 2002 The Federal Trade Commission, or FTC, issued a report entitled “Generic Drug Entry Prior to Patent Expiration” which addressed, among other things, the use of agreements between brand name and generic drug manufacturers and other strategies used to delay competition from generic versions of patent-protected drugs. The report recommended legislation requiring brand name companies and first generic applicants to provide copies of certain agreements to the FTC, and also recommended the codification or clarification of certain court decisions concerning the 180-day exclusivity period applicable to first generic applicants. These or similar recommendations are reflected in proposals now pending before Congress as part of Medicare reform legislation. These proposals, if adopted, could affect the manner in which generic drug manufacturers resolve intellectual property litigation with brand name pharmaceutical companies, and could result generally in an increase in private-party litigation against pharmaceutical companies. While we have not entered into any of these types of agreements, we cannot assure you that we will not do so in the future. The impact of the passage of Medicare reform legislation, and the potential private-party lawsuits associated with arrangements between brand name and generic drug manufacturers is uncertain, and could have an adverse effect on our business.

The testing, marketing and sale of our products involves the risk of product liability claims by consumers and other third parties, and insurance against potential claims is expensive.

As a manufacturer of finished dosage pharmaceutical products, we face an inherent exposure to product liability claims in the event that the use of any of our technology or products is alleged to have resulted in adverse effects. This exposure exists even with respect to those products that receive regulatory approval for commercial sale, as well as those undergoing clinical trials. While we have taken, and will continue to take, what we believe are appropriate precautions, we cannot assure you that we will avoid significant product liability exposure.

In addition, as a manufacturer of APIs, we supply other pharmaceutical companies with APIs, which are contained in finished dosage pharmaceutical products. Our ability to avoid significant product liability exposure depends in part upon our ability to negotiate appropriate commercial terms and conditions with our customers and our customers’ manufacturing, quality control and quality assurance practices. We may not be able to negotiate satisfactory terms and conditions with our customers.

Although we maintain insurance for product liability claims, in amounts that we believe are in line with the insurance coverage carried by other companies in our industry, the insurance coverage may not be sufficient. In addition, adequate insurance coverage might not continue to be available at acceptable costs, if at all. Any product liability claim brought against us, whether covered by insurance or not, and the resulting adverse publicity, could have a material adverse effect on us.

Our business involves hazardous materials and may subject us to environmental liability, which would seriously harm our financial condition.

Our business involves the controlled storage, use and disposal of hazardous materials and biological hazardous materials. We are subject to numerous environmental regulations in the jurisdictions in which we operate. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation in each of our locations, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of

an accident, we could be held liable for any damages that result, and the liability could exceed our resources. Current or future environmental laws or regulations may substantially and detrimentally affect our operations, business and assets. We maintain liability insurance for some environmental risks, which our management believes to be appropriate and in accordance with industry practice. However, we may incur liabilities beyond the limits or outside the coverage of our insurance and may not be able to maintain insurance on acceptable terms.

Risks Related to Our Common Stock

An existing stockholder owns approximately 19% of our common stock, which may allow him to influence stockholder votes.

Carlo Salvi, Vice Chairman of our board of directors, currently beneficially owns approximately 19% of our outstanding shares of common stock. In addition, pursuant to a shareholder’s agreement, Rakepoll Finance, N.V., an entity controlled by Mr. Salvi, is entitled to nominate up to three of our directors (one of whom, however, must be an independent director), who in turn are entitled to nominate, jointly with two of our management directors (one of whom must be an independent director), five additional directors. The consent of the Rakepoll Finance nominated directors is required for us to take certain actions, such as a merger or sale of all or substantially all of our business or assets and certain issuances of securities. As a result of his ownership of our common stock, Mr. Salvi may be able to control substantially all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions.

A number of internal and external factors have caused and may continue to cause the market price of our common stock price to be volatile, which may affect your ability to sell the stock at an advantageous price.

The market price of the shares of our common stock, like that of the common stock of many other pharmaceutical companies, has been and is likely to continue to be highly volatile. For example, the market price of our common stock has fluctuated between $13.69 per share and $26.78 per share during the past twelve months ended October 31, 2003, and may continue to fluctuate. Therefore, especially if you have a short-term investment horizon, the volatility may affect your ability to sell your stock at an advantageous price. Market price fluctuations in our stock may be due to acquisitions or other material public announcements, along with a variety of additional factors including, without limitation:

• delays or negative announcements relating to our proposed merger with Teva;

• new product introductions;

• the purchasing practices of our customers;

• changes in the degree of competition for our products;

• the announcement of technological innovations or new commercial products by us or our competitors;

• changes in governmental regulation affecting our business environment;

• regulatory issues, including but not limited to, receipt of product approvals from the FDA, compliance with FDA or other agency regulations, or the lack or failure of either of the foregoing;

• the issuance of new patents or other proprietary rights;

• the announcement of earnings;

• the loss of key personnel;

• litigation or threats of litigation; and

• political developments or proposed legislation in the pharmaceutical or healthcare industries.

These and similar factors have had, and could in the future have, a significant impact on the market price of our common stock. Some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome or the merits of the action, it could result in substantial costs and a diversion of our management’s attention and resources. This could have a material adverse effect on us.

The market price of our common stock may drop significantly when our existing stockholders sell their stock.

If our stockholders sell substantial amounts of our common stock, including shares issued upon the exercise of outstanding options and warrants, the market price of our common stock may decline. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. As of September 30, 2003, we had 119,030,313 shares of common stock outstanding. Mr. Salvi, who beneficially owns 22,370,000 shares of our common stock, is a party to a stockholders’ agreement entered into in connection with the proposed merger with Teva, restricting his ability to sell, transfer or otherwise dispose of such common stock, and is subject to applicable limitations set forth in Rule 144 under the Securities Act of 1933. We have entered into registration rights agreements with Rakepoll Finance N.V. that entitle it to have all of its 18,150,000 shares of common stock registered pursuant to separate registration statements, of which 150,000 shares have already been registered. Rakepoll Finance N.V.’s 18,150,000 shares of common stock are included in the calculation of Mr. Salvi’s 22,370,000 shares. Mr. Salvi disclaims ownership of such shares, except to the extent of his pecuniary interest. All remaining shares held by our existing stockholders are eligible for immediate public sale if they were or are registered under the Securities Act of 1933 or are sold in accordance with Rule 144 thereunder.

We have entered into an agreement with Sankyo Company, Ltd., pursuant to which Sankyo may exchange 170,388 shares of its 340,776 shares of Series A Preferred Stock issued by Metabasis Therapeutics, Inc., into shares of our common stock within 30 days after January 10 of each of the years 2004 and 2005. The number of shares of our common stock exchangeable for the Metabasis preferred stock is determined pursuant to a formula based on the number of shares of Metabasis preferred stock being exchanged multiplied by a fraction, the numerator of which is $7.09 and the denominator of which is the average closing price of our common stock for a 20 trading day period prior to the date of Sankyo’s notice of exercise. It is not possible to determine the exact exchange ratio until Sankyo exercises its exchange right since the formula is partially based on the price trading levels of our common stock. We are obligated to register our shares of common stock issued on exchange of the Metabasis preferred stock as soon as practicable following the exchange.

Since we have not paid cash dividends on our common stock, investors must look to stock appreciation for a return on their investment in us.

We have never paid cash dividends on our common stock, and presently intend to retain earnings for the development of our businesses. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Thus, investors should only look to appreciation in the value of their shares for a return on their investment.

We have enacted a Stockholder Rights Plan and charter provisions that may have anti-takeover effects.

Our Restated Certificate of Incorporation and Bylaws include provisions that could discourage potential takeover attempts and make attempts by our stockholders to change management more difficult. We also have a stockholder rights plan, the effect of which may also deter or prevent takeovers. These rights will cause a substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts.

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

Certain federal and state governmental agencies, including the U.S. Department of Justice and the U.S. Department of Health and Human Services, have been investigating issues surrounding pricing information reported by drug manufacturers, including us, and used in the calculation of reimbursements under the Medicaid program administered jointly by the federal government and the states and under the Medicare program. We have supplied documents in connection with these investigations and have had discussions with representatives of the federal and state governments. In addition, we are named as a defendant in eight purported class action or representative lawsuits brought by private plaintiffs who allege claims arising from the reporting of pricing information by drug manufacturers for the calculation of patient co-payments and certain other payments under the Medicare program or other insurance plans and programs, and in two actions brought by the attorneys general of Nevada and Montana to recover on similar theories for payments made by those states and persons or entities within those states, pursuant to Medicaid programs or otherwise. These actions are among a number of similar actions which have been filed against many pharmaceutical companies raising similar allegations, and nine of the actions in which we are named as a defendant have been consolidated in the U.S. District Court for the District of Massachusetts. We have established a total reserve of $4.0 million, which represents management’s estimate of costs that will be incurred in connection with the defense of these matters. Actual costs to be incurred may vary from the amount estimated. There can be no assurance that these investigations and lawsuits will not result in changes to our pricing policies or other actions that might have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) On November 4, 2003, we amended and supplemented certain information in Item 1 of our Registration Statement on Form 8-A filed with the Securities and Exchange Commission (SEC File No. 0-18549), as follows:

Series I Participating Preferred Stock Purchase Rights

Effective October 31, 2003, SICOR Inc. and Computershare Trust Company, Inc. (successor to Harris Trust and Savings Bank, which was successor agent to Mellon Investor Services, which was successor agent to ChaseMellon Shareholder Services, L.L.C., which was successor agent to First Interstate Bank Ltd.) (“Computershare”), amended (“Amendment No. 3”) the Rights Agreement dated as of March 16, 1992, as amended by Amendment No. 1 dated as of November 12, 1996, as amended by Amendment No. 2 dated as of July 23, 2001 between SICOR Inc. and Computershare, as Rights Agent (the “Rights Agreement”). The following paragraphs summarize the principal amendments to the Rights Agreement as effectuated by Amendment No. 3. Capitalized terms not defined herein shall have the meanings as set forth in the Rights Agreement.

1. The definition of Acquiring Person was revised to exclude Teva Pharmaceutical Industries Ltd. (“Teva”) or Silicon Acquisition Sub, Inc. (“Merger Sub”) or any Affiliate or Associate thereof, as a result

of (i) the execution of the Agreement and Plan of Merger between Teva, SICOR Inc. and the other parties listed on the signature pages thereto (the “Merger Agreement”) (ii) the acquisition of the shares of Common Stock pursuant to the Merger (as defined in the Merger Agreement), (iii) the consummation of any of the transactions contemplated by the Merger Agreement, (iv) the approval, execution and delivery of the Stockholders Agreement dated as of October 31, 2003 by and between Teva, Rakepoll Finance N.V. a corporation organized under the laws of the Netherlands Antilles, and the parties listed on Schedule A attached thereto, as amended from time to time, or (v) the public announcement of any of the foregoing (each such event, an “Exempt Event”).

2. The definitions of Distribution Date and Stock Acquisition Date were revised to provide that in no event shall a Distribution Date or Stock Acquisition Date be deemed to occur as a result of an Exempt Event.

3. Sections 11(a) and 13 were revised to provide that such sections would not apply as a result of an Exempt Event.

(b) not applicable.

(c) On July 1, 2003, we issued warrants to purchase up to an aggregate of 50,000 shares of our common stock to Biomedical Frontiers Incorporated for milestones reached in connection with a License, Development and Marketing Agreement. The warrants have an exercise price of $20.10 per share. The issuances of these warrants was completed in reliance upon the safe harbors provided by Section 4(2) of the Securities Act of 1933.

(d) not applicable.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit Number		Description of Document
3(i)		Restated Certificate of Incorporation

3(ii)		Amended and Restated Bylaws

10.1		Form of Restated and Amended Indemnity Agreement entered into between the Company and its directors and officers.

31.1		Certification of the Chief Executive Officer of SICOR Inc. pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of the Interim Chief Financial Officer of SICOR Inc. pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)		Reports on Form 8-K

On July 24, 2003, we filed pursuant to Item 12 a current report on Form 8-K, with an exhibit attached thereto, furnishing information relating to the Company’s result of operations for the three and six months ended June 30, 2003.

On August 12, 2003, we filed pursuant to Item 9 a current report on Form 8-K, with an exhibit attached thereto, relating to the resignation of the Company’s Chief Financial Officer.

On October 31, 2003, we filed pursuant to Item 5 a current report on Form 8-K, with exhibits attached thereto, providing information relating to the following: an Agreement and Plan of Merger, dated as of October 31, 2003, by and among us, Teva Pharmaceutical Industries Ltd. and Silicon Acquisition Sub, Inc., a Stockholders Agreement between Teva and certain SICOR stockholders and a joint Press Release issued by SICOR and Teva dated October 31, 2003.

SIGNATURES

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

Date: November 14, 2003	By:	/s/ Marvin Samson
		Marvin Samson, President and Chief Executive Officer


Date: November 14, 2003	By:	/s/ David C. Dreyer
		David C. Dreyer, Vice President, Interim Chief Financial Officer and Treasurer