Noven Pharmaceuticals 2005 Annual Report

The Standard of Excellence i n Tra n s d e r m a l D r u g D e l i v e r y 2005 A N N UA L R E P O RT N e w P r o d u c t s, Diverse Markets Noven Financial Highlights (unaudited) (in thousands, except per share amounts) STATEMENTS OF OPERATIONS DATA: Net revenues: Product revenue . . . . . . . . . . . . . . . . . . . Contract and license revenue . . . . . . . . . Total net revenues . . . . . . . . . . . . . . . . . . Expenses: Cost of products sold (2) 2005 2004 2003 2002 2001 $ 40,451 12,081 (1) $ 36,871 9,020 45,891 20,514 9,498 17,271 47,283 (1,392) 17,641 999 17,248 6,024 $ 11,224 $ $ 0.48 0.46 $ 37,116 6,050 43,166 19,845 7,719 15,858 43,422 (256) 17,094 659 17,497 6,301 $ 11,196 $ $ 0.50 0.49 $ 50,199 5,173 55,372 23,297 11,310 14,257 48,864 6,508 14,368 822 21,698 7,819 $ 13,879 $ $ 0.62 0.60 $ 42,047 3,900 45,947 20,609 10,740 11,554 42,903 3,044 14,013 1,770 18,827 6,736 $ 12,091 $ $ 0.54 0.51 52,532 34,047 (3) ............. (2) Research and development ......... 13,215 16,915 64,177 (11,645) 24,655 2,242 15,252 5,280 $ $ $ 9,972 0.42 0.42 Marketing, general and administrative . . Total expenses. . . . . . . . . . . . . . . . . . . . . (Loss) income from operations . . . . . . . . . . . Equity in earnings of Novogyne . . . . . . . . . . Interest income, net . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per share . . . . . . . . . . . . . . . . Diluted earnings per share . . . . . . . . . . . . . . BALANCE SHEET DATA: Cash, cash equivalents and short-term investments . . . . . . . . . . Deferred license revenue . . . . . . . . . . . . . . . $ 84,864 23,655 $ 93,958 39,085 $ 83,381 50,005 $ 58,684 29,445 $ 49,389 32,758 (1) Includes the recognition of $5.7 million of previously deferred fentanyl license revenue. (2) Cost of products sold has been revised for all years presented to include certain amounts previously included in research and development expenses. (3) Includes $9.9 million in charges relating to the write-off of fentanyl inventories. The financial data presented above is derived from Noven’s audited financial statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and related notes appearing in Noven’s 2005 Form 10-K, included within this Annual Report. About Noven Noven Pharmaceuticals, Inc. (Nasdaq: NOVN) is a leading developer and manufacturer of advanced transdermal drug delivery technologies and prescription transdermal products. Our mission is to commercialize our patented DOT Matrix ™ technology with new products in diverse therapeutic markets, and to explore new technologies that may expand the universe of available transdermal therapies, for the benefit of patients, industry partners and shareholders. Our menopausal hormone therapy (HT) business is the foundation upon which we are building a more diversified Noven. Novartis Pharmaceuticals Corporation is our principal partner in HT and is the co-owner of our Novogyne joint venture. With the recent FDA approval of Daytrana™, our methylphenidate patch for ADHD, we are positioned to expand our business into a second therapeutic category. DaytranaTM is licensed globally to Shire plc, a leader in ADHD therapy. P&G Pharmaceuticals has engaged us to develop follow-on products for Intrinsa™, their in-licensed developmental patch for Hypoactive Sexual Desire Disorder, which could lead to our commercial participation in a third therapeutic category. $94 $83 $85 $59 $55 $46 $43 $46 $53 $49 (in millions) $25 $12 $14 $11 $11 $10 $14 $14 $17 $18 ‘01 ‘02* ‘03 ‘04 ‘05 ‘01 ‘02* ‘03 ‘04 ‘05 ‘01 ‘02* ‘03 ‘04 ‘05 ‘01 ‘02* ‘03 ‘04 ‘05 Net Revenues Net Income Equity in Earnings of Novogyne Cash & Short-Term Investments * Publication of Women’s Health Initiative Study (July 2002) To My Fellow Shareholders: L ooking back on 2005, the year included outstanding performance from our U.S. hormone therapy (HT) business, an unexpected and disappointing outcome on our fentanyl patch application, and significant clinical and regulatory progress on our novel methylphenidate patch that directly resulted in the approval of that product in early April, 2006. With best-in-class transdermal technology, a U.S. HT business generating profits and cash flow, a new product set to launch, and promising development collaborations underway, we enter 2006 with confidence in our strategy and optimism regarding our prospects for the years ahead. Novogyne Financial Highlights (in millions) $122 $102 Net Sales $90 Net Income Equity in Earnings of Novogyne $59 $58 $101 $105 In 2005, our Novogyne joint venture had the strongest year in its history, reporting $122 million in net sales $34 $43 $38 $29 $17 $37 $42 and contributing $25 million to Noven’s financial results. $11 $1 ‘99 (a) $25 $18 $14 $9 $14 ‘00 ‘01 ‘02 (b) ‘03 ‘04 ‘05 (a) Novogyne’s first full year of operations. (b) Publication of Women’s Health Initiative Study (July 2002) 2 Noven 2005 Annual Report The highlight of 2005 was the performance of Novogyne Pharmaceuticals, our women’s health joint venture with Novartis Pharmaceuticals Corporation (Novartis). Novogyne sells three prescription menopausal hormone therapy (HT) patches developed and manufactured by Noven, including Vivelle-Dot™, the smallest estrogen patch available and the top-selling transdermal estrogen therapy in the U.S. Vivelle-Dot™ is our current flagship product and incorporates our proprietary DOT Matrix ™ technology. Thanks to this product, in an overall U.S. hormone therapy market that has been declining, Novogyne reported the strongest results in its history and led Noven to its seventh consecutive year of profits. If Novogyne’s performance was the highlight of 2005, the FDA’s denial of our application for a generic fentanyl patch was clearly the low point. That decision resulted in $9.9 million in charges related to the write-off of fentanyl inventory, which was only partially offset by the recognition New Products, Diverse Markets 3 of $5.7 million in fentanyl deferred license revenues. Together, these items had the net effect of reducing our pre-tax income in 2005 by $4.2 million. More broadly, we lost a significant opportunity for revenues and income in 2005 and beyond, and facilities equipped and staffed for commercial production of a new product were underutilized for much of 2005, negatively affecting our gross margins. FDA Approves Daytrana™ Our strategy for growth, however, is not premised on the approval of any one product, but rather on broadening the commercial applications of our delivery platform across multiple therapeutic categories. That strategy took a major step forward in early April, 2006, when the FDA advised us that Daytrana™, licensed globally to Shire plc, had been approved for marketing in the U.S. Daytrana™ is Noven’s first major FDA product approval outside the hormone therapy category. With final approval in hand, launch should not be far off. At Shire’s request, we began manufacturing launch quantities of the product in December 2005. Now, with the product’s labeling agreed upon, we are working to complete the production process. Concurrently, Shire – the market share leader in the ADHD category – is organizing the sales In early April, 2006, the FDA approved Daytrana , our novel methylphenidate patch for ADHD, licensed globally to Shire. Upon approval, we became entitled to receive a $50 million milestone payment which will be recognized as revenues over time. TM and marketing efforts for an expected U.S. launch in the months ahead. Approval of Daytrana™ is a watershed event for our company. It should result in new revenues and income from a non-HT source to supplement those generated by our HT business. In the near-term, it also means additional cash – we became entitled to receive a $50 million milestone upon approval, and we have the opportunity to receive an additional $75 million in milestones depending on the level of Shire’s sales. For accounting purposes, we will recognize these mile- 4 Noven 2005 Annual Report stones as revenues as earned over time. This means that we will have both the benefit of a lump sum cash payment and a dependable source of future revenues. In addition to financial milestones, we also expect to supply finished product to Shire and earn a manufacturing profit on those sales. The manufacturing component of our Daytrana™ collaboration should also provide a combination of benefits – manufacturing revenues as well as improved utilization of our facilities. But most fundamentally, the approval of Daytrana™ advances our long-stated strategic goal of commercializing DOT Matrix™ technology in diverse markets with strong partners. 2005 Financial Results Noven’s revenues for 2005 increased 14% to $52.5 million. Looking at the components of our revenues, Vivelle® Family Market Share Vivelle-DotTM Market Share Vivelle® Market Share 37.7% 33.1% 28.8% 23.4% 42.9% 41.1% 46.6% 15.4% 4/99 12/99 12/00 12/01 12/02 12/03 12/04 12/05 In 2005, the Vivelle ® product family extended its market share lead in the U.S. transdermal estrogen market by almost four percentage points. total product revenues increased 10%, reflecting 10% gains in each of our U.S. and international HT product sales categories. License and contract revenues increased 34% due to the fourth quarter recognition of the $5.7 million in fentanyl license revenues. Cost of products sold included the aggregate $9.9 million in fentanyl inventory charges. In 2005, the Novogyne joint venture contributed a remarkable $24.7 million to our financial results. Including both the fentanyl license revenues and the fentanyl inventory charges, net income in 2005 was $10 million, or $0.42 per share, compared to $11.2 million, or $0.46 per share, in the prior year. As reflected in the table on page 2, in 2005 Novogyne’s net revenues increased 15% to $121.6 million, while net income increased 37% to $57.8 million. Higher sales of Vivelle-Dot™ and lower allowances for sales and returns drove the increase in net revenues, while a relatively New Products, Diverse Markets 5 HT Prescription Trends Comparing 2005 to 2004 11% fixed cost structure permitted Novogyne to deliver a substantial increase to the bottom line. In 2005, Novogyne’s net sales of Vivelle-Dot™ exceeded 7% $100 million for the first time and total prescriptions for the product increased 11% compared to 2004. VivelleDot™ was the most dispensed transdermal estrogen 4% therapy in the U.S for the third consecutive year, holding a 45% market share at year end. Driven by the HT Patches Novogyne Total (2 %) Vivelle® Family Vivelle-DotTM growth of Vivelle-Dot™ prescriptions, total prescriptions for Novogyne’s products, taken as a whole, increased 4% in 2005 compared to the prior year. Balance Sheet Noven maintains a strong balance sheet with a healthy cash position and no long-term debt. In 2005, our base business continued to generate cash, with Novogyne distributing $26 million to Noven. At year-end, we had $85 million in cash and short-term investments compared to $94 million at the end of 2004. Capital expenditures in 2005 were $15 million, much of which related to expansion of our facilities for future products like Daytrana™. We also funded additional clinical studies for Daytrana™ that supported product approval. Spending related to these two projects largely explains the $9 million decline in cash compared to 2004. With spending for facility expansion substantially complete, I expect significantly lower levels of capital spending in 2006. Furthermore, with $50 million due to be received following the recent approval of Daytrana™, we expect to end 2006 with considerably more cash than when we began the year. Novogyne Sales & Marketing For several years, Novogyne’s sales and marketing organization has delivered outstanding, sustained performance under difficult market In an overall U.S. hormone therapy market that declined 9%, Vivelle-Dot TM total prescriptions increased 11% in 2005 compared to 2004. (9 %) 6 Noven 2005 Annual Report conditions. Since the publication of the Women’s Health Initiative study results in mid-2002, the overall HT market has been reduced by more than half. Comparing 2005 to 2002, while competing against larger sales forces with greater resources and selling essentially only our HT patches, Novogyne increased net revenues and net income by 19% and 54%, respectively. This demonstrates what a great product can achieve in the hands of a great marketing and sales organization. In light of its success, it is no surprise that we recently sought gral to part make of the Novogyne sales force an inteNoven. Previously, the sales force had been employed by a third-party contract sales organization. Beginning in January 2006, the Novogyne sales force members became direct employees of Noven, raising Noven’s employee count to approximately 500. The sales force conversion reflects our commitment to the HT category and our confidence in a sales team that has – against considerable odds – carried Vivelle-Dot™ to market leadership in the transdermal estrogen market. We do not expect this move to meaningfully increase Noven’s cost structure because expenses incurred by Noven on behalf of Novogyne, including sales force compensation expenses, are reimbursed by the Neil Jones, Vice President – Marketing & Sales, Shirley Baird, Executive Director – National Sales and Jorge Lorenzo, Director – Women’s Health Marketing, are members of the sales and marketing team responsible for Novogyne’s record year in 2005. New Products, Diverse Markets 7 joint venture. On the contrary, because it eliminates the fees of the contract sales organization, this transition should result in cost savings at the Novogyne level that we plan to reinvest in the joint venture’s business. New Standards of Excellence Noven has been setting new standards of excellence in transdermal drug delivery for the past decade. Our research and development team developed the first adhesive matrix estrogen patch approved in the U.S. (Vivelle®), the first FDA-approved two-drug patch (CombiPatch®), the first transmucosal patch approved by the FDA (DentiPatch®), the smallest estrogen patch in the U.S. (Vivelle-Dot™), and now Daytrana™, the first patch therapy ever approved for ADHD. Unlike conventional adhesive matrix patches that rely on DOT Matrix™ technology utilizes a patented blend of drug and two adhesives – an acrylic and a silicone. The acrylic holds the drug in concentrated, microscopic cells (see electron microscope view in circle above), and the silicone holds the patch on the skin. This permits delivery of more active ingredient through a smaller patch area without adding irritating skin permeation enhancers. a single adhesive to both hold the drug and hold the patch on the skin, our DOT Matrix™ technology utilizes a patented blend of drug and two adhesives – an acrylic and a silicone. The acrylic holds the drug in concentrated, microscopic cells, and the silicone, largely uncompromised by the drug, holds the patch on the skin. This technology permits us to deliver more active ingredient through a smaller patch area without adding irritating permeation enhancers. Over 30 U.S. patents protect our technology, and the principal DOT Matrix ™ patents do not begin to expire until the year 2014. Not only can we make patches smaller and more comfortable, we can also deliver doses that are higher than previously thought deliverable in patch form. The combination of benefits that our patch technology provides has worked to our competitive advantage in the HT field, but we believe it offers broader benefits as well. For example, some drug therapies by their nature require relatively high daily doses to be effec- 8 Noven 2005 Annual Report tive. Methylphenidate is one of them. Once-daily methylphenidate pills for ADHD deliver doses that are generally beyond what traditional patch technologies have been capable of delivering in a commercially viable patch size. Thanks to our DOT Matrix ™ technology, Daytrana™ delivers more active ingredient per unit area per hour than any patch ever approved in the U.S., making the transdermal treatment of ADHD a reality. While we are confident that DOT Matrix ™ continues to have substantial commercial application and potential (the table on page 13 lists examples of compounds that we believe can be delivered via DOT Matrix ™ ), we are a science-driven company seeking to surpass our existing capabilities. In that regard, we have developed and filed patents on what we believe will be the next generation of our diffusion-based passive delivery technology. We believe this new generation will help expand the number of molecules we can deliver transdermally. In addition to our efforts on passive delivery systems, we are also investigating a range of active transport transdermal systems in development by third parties that one day may complement our existing platform and permit us to deliver even larger molecules in higher doses. Expanded Facilities As noted above, we invested in facility expansion over the past two years. During that period, we prepared our facilities and set staffing levels for the production of our fentanyl patch and Daytrana™. In the process, we established a controlled substance production facility approved by both the FDA and the U.S. Drug Enforcement Administration. Our expanded facilities reflect our expectations for Daytrana™ as well as other products that could be commercialized in the years ahead, and we expect them to support a Noven product line with greater diversity and higher volumes. Greater capacity for the long-term, however, comes at a near-term cost. In a perfect world, ongoing fentanyl produc- New Products, Diverse Markets 9 tion during 2005 would have helped absorb the overhead associated with our expanded the facilities, gap until bridging Daytrana™ production. Without an approval for fentanyl, however, our HT product line alone bore the increased overhead, and as a result our gross profit margin suffered in the second Our expanded production and storage facilities are capable of supporting a Noven product line with greater diversity and higher volumes, including controlled substance products. They reflect our expectations for Daytrana TM and other products that could be commercialized in the years ahead. half of 2005. With Daytrana™ now approved, we should see our gross margin improve from year-end levels beginning in the second half of 2006. Development Strategy Product development collaborations with strong partners are fundamental to our strategy. Although we would not rule out the possibility of developing and commercializing a product ourselves, in many cases we can achieve more with partners who have clinical expertise in the target therapeutic category and the sales and marketing capabilities to see the product through successful development and commercialization. Shire, with its expertise in the ADHD category and formidable sales and marketing organization, is an excellent example. We believe that Shire can advance the Daytrana™ commercial opportunity better than Noven could alone – perhaps better than any company in the pharmaceutical industry. We seek to establish new collaborations through the efforts of a multifunctional team that includes Pavan Handa (business development), Juan Mantelle (research & development), Jeff Mihm (legal) and others. Once a collaboration is established, our strategic alliances group, led by 10 Noven 2005 Annual Report Jeffrey Eisenberg, takes more active responsibility in assuring that the strategic objectives of the collaboration are achieved. In addition to collaborations with Novartis in HT and Shire in ADHD, we are working to develop new products with Endo Pharmaceuticals, P&G Pharmaceuticals and others. Endo Pharmaceuticals Our collaboration with Endo, established in 2004, initially included our generic fentanyl patch as well as a commitment to investigate other product opportunities. Noven and Endo spent much of the past two years working to advance our fentanyl generic drug application. The FDA’s decision not to approve our patch was a significant disappointment, especially in light of the FDA’s determination that our patch was indeed bioequivalent to the branded product. To our knowledge, this is the first time that an otherwise bioequivalent generic patch has been denied on the basis of drug content. Yet Noven has not given up on the fentanyl opportunity. We have embarked on reformulating the product in an effort to address the FDA’s concerns. Also, although Noven and Endo terminated those aspects of our collaboration that related to fentanyl at the end of 2005, Endo retained a right of first negotiation with respect to any reformulated product that we may develop, and they remain our partner of choice if a new product proceeds to market. We continue to work closely with Endo on other projects – as yet undisclosed – under the original collaboration agreement. These projects are in pre-clinical development, and our agreement provides that Endo would fund and manage clinical development of those compounds proceeding into clinical trials. The commercial success of Vivelle-Dot TM in the menopausal hormone therapy field helped us attract new development partners seeking access to our transdermal delivery platform, including Shire, P&G Pharmaceuticals, Endo Pharmaceuticals and others. New Products, Diverse Markets 11 P&G Pharmaceuticals In 2003, P&G Pharmaceuticals, the pharmaceutical unit of Procter & Gamble, selected Noven as its partner for the development of certain new prescription patches. Specifically, the products under development explore follow-on product opportunities for Intrinsa™, P&G With P&G Pharmaceuticals, we are working to develop follow-on product opportunities for IntrinsaTM, their inlicensed investigational patch for HSDD, which could introduce the benefits of our technology to what may be a significant new market. Pharmaceuticals’ in-licensed investigational transdermal testosterone patch intended to help restore desire in menopausal women with Hypoactive Sexual Desire Disorder (HSDD). P&G Pharmaceuticals is working to define a practical clinical strategy to address the safety concerns expressed by an FDA Advisory Committee that had considered the Intrinsa™ product in December 2004. Currently, there are no products – pills or patches – approved for this indication. Our product under this collaboration is in clinical development, and we earned $4.4 million in development milestones during 2004. If successfully developed and approved, our product could introduce the benefits of DOT Matrix™ technology to what may be a significant new commercial market. Additional Collaborations One of the highlights of 2005 was the establishment of new development collaborations relating to three transdermal products, each in a different therapeutic category. These new collaborations are in addition to those discussed above. They seek to advance our ongoing strategy to commercialize our patented technologies in new categories. If development proceeds successfully and on schedule, we believe those products could be commercialized over the 2007 to 2009 timeframe, potentially supplementing the growth that we expect from Daytrana™ revenues. Beyond our partnered projects, our research & development team is working to formulate new patch products. Promising formulations enter preliminary (pharmacokinetic) human studies to determine whether they achieve the target blood levels and delivery profile. 12 Noven 2005 Annual Report Armed with data from these human studies, we believe greater our business of ADHD Amphetamine Allergies Azelastine Citirizine Alzheimer’s Tacrine Angina Nitroglycerin Isosorbide Dinitrate Anxiety Alprazolam Birth Control Estrogen/Progestin Combinations Depression Buspirone Bupropion Epilepsy Clonazepam Hypertension Enalapril Ramipril Clonidine Timolol Guanfacine Hypogonadism /FSD Testosterone Incontinence Tolterodine Oxybutynin Motion Sickness Scopolomine * Through feasibility testing and/or other analysis, Noven believes the listed compounds can be delivered through its transdermal systems. Certain listed compounds are subject to third-party patents. DOT Matrix Opportunities* TM development group has a likelihood establishing a development collaboration on favorable terms. The ultimate goal of these efforts is to position Noven with a continuity of new product opportunities for the years ahead. Corporate Governance Our business is growing and diversifying, but we remain committed to our core values, including corporate Codifying responsible governance. Nausea Granisetron Obesity Phentermine Methamphetamine Pain Buprenorphine Fentanyl Sufentanyl Levorphanol Lidocaine Various NSAIDs Various Triptans Parkinson’s Pergolide Pramipexole Ropinirole Rotigotine our long-standing commitment in this area, our Board of Directors has adopted a Code of Business Conduct and Ethics and Corporate Governance Guidelines which, in conjunction with Noven’s corporate organizational documents, form the framework for the governance of Noven. The documents, as well as our board committee charters, are available for your review on our company website at www.noven.com. How do our governance policies compare to those of other companies? The independent organization Institutional Shareholder Services (ISS) regularly analyzes the governance policies of over 8,000 public compa- New Products, Diverse Markets 13 nies and assigns them a score called the Corporate Governance Quotient, or CGQ®. To facilitate comparison, each company is scored individually relative to its market index and its industry group. I am proud to report that Noven currently ranks above 92% of the companies in the S&P 600 and above 98% of companies in the ISS Pharmaceutical & Biotechnology Index. We periodically review and revise our policies and procedures as appropriate in light of evolving best practice standards in order to continue to ensure good governance at Noven. In Appreciation I speak for the Noven Board of Directors and the entire management team in expressing our sincere thanks and appreciation to the individuals at Noven and Novartis who have contributed to the success of our hormone therapy business, and to the Noven and Shire teams who worked tirelessly toward the I approval of Daytrana™ and the production of launch quantities. Juan Mantelle, Chief Technical Officer, Eduardo Abrao, M.D., Chief Medical Officer and Richard Gilbert, Vice President – Operations, led the Noven teams that worked closely with Shire and guided DaytranaTM through product development, regulatory approval and commercial scale-up. would also like to thank our colleagues at Endo Pharmaceuticals for being outstanding partners through the challenges that we faced together in 2005. Where We Stand I believe Noven is in a strong position for growth and profitability in the years ahead with a sizable and profitable HT business at Novogyne, a novel new product in the ADHD market that should augment our results beginning this year, and the opportunity for future growth from other products in development. Further, we have invested in the infrastructure for significantly increased production. Lastly, we have sub- 14 Noven 2005 Annual Report stantial cash and no long-term debt. Taken together, I believe these attributes offer a compelling combination of opportunity from new products and stability from our base business and strong balance sheet. Just as I believe Noven is not dependent on the success of any one product, I want to assure you that we will never be satisfied with the success of any one product – be it Vivelle-Dot™, Daytrana™ or any other Noven patch. We are proud of our achievements over the past year, but we have much work to do to capitalize on the opportunities that we believe reside in our technologies, in the minds of our employees, and in the commercial objectives of our partners. As an organization, we value the fact that you have entrusted your investment in Noven, and we are committed to executing with a sense of urgency on product development, on business development, and on overall operational improvement, all with a view toward setting new standards of excellence in our industry and enhancing value for you, the owners of this company. Sincerely, Robert C. Strauss President, Chief Executive Officer & Chairman April 10, 2006 New Products, Diverse Markets 15 Board of Directors Sidney Braginsky President & Chief Executive Officer Atropos Technology Inc. John G. Clarkson, M.D. Dean Emeritus & Professor of Ophthalmology University of Miami Miller School of Medicine Donald A. Denkhaus Executive Chairman TM Systems, LLC Pedro P. Granadillo Senior Vice President – Global Manufacturing & Human Resources (Retired) Eli Lilly & Company Robert G. Savage Worldwide Chairman, Pharmaceutical Group (Retired) Johnson & Johnson Robert C. Strauss President, Chief Executive Officer & Chairman Noven Pharmaceuticals, Inc. Wayne P. Yetter Chief Executive Officer Verispan, LLC Management Team Robert C. Strauss President, CEO & Chairman Eduardo G. Abrao, M.D., PhD VP – Clinical Development & Chief Medical Officer Diane M. Barrett VP & Chief Financial Officer Jeffrey F. Eisenberg Senior VP – Strategic Alliances W. Neil Jones VP – Marketing & Sales Juan Mantelle VP & Chief Technical Officer Board Committees Carolyn Donaldson Richard P. Gilbert VP – Operations Pavan Handa VP – Business Development Audit Committee Donald A. Denkhaus (Chairperson) Sidney Braginsky Pedro P. Granadillo Compensation Committee John G. Clarkson, M.D. (Chairperson) Pedro P. Granadillo Robert G. Savage Nominating & Corporate Governance Committee Wayne P. Yetter (Chairperson) John G. Clarkson, M.D. VP – Human Resources James W. Harris, Jr., PhD VP – Quality Assurance & Quality Control Joseph C. Jones VP – Corporate Affairs Jeff T. Mihm VP, General Counsel & Corporate Secretary Market Information Our Common Stock is listed on the Nasdaq Stock Market and is traded under the symbol NOVN. The following table sets forth, for the periods indicated, the high and low sale prices for our Common Stock as reported on the Nasdaq Stock Market. 2005 Fourth Quarter . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . First Quarter . . . . . . . . . . . . . . 2004 Fourth Quarter . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . First Quarter . . . . . . . . . . . . . . High Price $16.38 18.23 18.34 19.20 High Price $24.50 22.23 23.65 25.96 Low Price $10.44 12.14 15.58 14.80 Low Price $14.62 17.76 16.75 15.05 Holders & Dividends As of March 1, 2006, we had 264 stockholders of record of our Common Stock. We have never paid a cash dividend and do not anticipate paying cash dividends in the foreseeable future. Corporate Information S.E.C. Form 10-K Noven’s 2005 Annual Report on Form 10-K is included within this Annual Report. Additional copies are available free of charge by writing to or calling: Joseph C. Jones Vice President – Corporate Affairs Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, FL 33186 305-253-1916 Trademarks DOT MatrixTM is a trademark of Noven Pharmaceuticals, Inc. All other brand and product names are or may be trademarks of, and are used to identify products or services of, their respective owners. Forward Looking Statements This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are made to enable a better understanding of our business, but because they are subject to many risks, uncertainties and future developments, actual results may differ materially from those expressed or implied by such statements. Examples of forward-looking statements are statements about anticipated financial results, financial projections, business prospects, future product performance, future research and development results, anticipated regulatory filings and approvals, and other matters that are not historical facts. Such statements often include words such as “believes,” “expects,” “intends,” “may,” “plans,” “could,” “should,” “seeks,” “will,” “would” or similar expressions. These statements are based largely on our current expectations and are subject to a number of risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Please refer to the risks and factors detailed beginning on page 21 of our Form 10-K (included within this Annual Report), as well as in our other reports filed with the Securities and Exchange Commission. Annual Meeting Noven’s Annual Meeting of Stockholders will be held on May 23, 2006, at 10:00 a.m. at Noven’s facilities located at 13800 S.W. 119th Street, Miami, FL 33186. Transfer Agent and Registrar American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038 Independent Registered Public Accounting Firm Deloitte & Touche LLP 200 South Biscayne Boulevard Suite 400 Miami, FL 33131-2310 Noven Pharmaceuticals, Inc. 11960 S.W. 144th Street Miami, Florida 33186 www.noven.com