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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                              For the fiscal year ended December 31, 2002

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 0-26487

Women First HealthCare, Inc.

12220 El Camino Real, Suite 400, San Diego, California 92130

(Address of Principal Executive Offices) (Zip Code)

(858) 509-1171

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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 o     NO þ

      Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ     No o

      As of June 30, 2002, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $111.4 million based on the closing price of the registrant’s common stock on the NASDAQ National Market on June 30, 2002 of $7.80 per share.

      As of March 31, 2003, 22,971,255 shares of registrant’s common stock, $.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year are incorporated by reference into Part III of this report.

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PART I

Forward-Looking Statements

      This Annual Report on Form 10-K contains certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for these types of statements. To the extent statements in this Annual Report involve, without limitation, our expectations for growth, estimates of future revenue, expenses, profit, cash flow, balance sheet items or any other guidance on future periods, these statements are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” The forward-looking statements contained in this Annual Report are subject to various risks and uncertainties, including those identified in Item 1 below under the heading “Risks and Uncertainties” and other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications. We undertake no obligation to release publicly the results of any revisions to these forward-looking statements or to reflect events or circumstances arising after the date of this report.

Overview

      Women First is a specialty pharmaceutical company dedicated to improving the health and well-being of midlife women. Our mission is to help midlife women make informed choices about their physical and emotional health and to provide pharmaceutical products and self-care products to help these women improve the quality of their lives. We market these products in the United States through a number of channels including our dedicated sales force, our contract sales dermatology force, our direct-to-consumer marketing programs through our Internet sites, womenfirst.com, aswechange.com and vaniqa.com and through our As We Change® national mail order catalog.

      As of March 31, 2003, we offered the following products for sale:

	•	Ortho-Est® Tablets, an oral estrogen product that we acquired from Ortho-McNeil Pharmaceutical in January 2001, and
	•	EsclimTM, an estrogen patch system for which we have the exclusive right (subject to exceptions) to market, use, distribute and sell in various dosages in the United States and Puerto Rico pursuant to a distribution and license agreement with Laboratoires Fournier S.A., effective July 1999.

	•	Vaniqa® Cream (eflornithine hydrochloride), 13.9%, a topical cream clinically proven to slow the growth of unwanted facial hair in women for which we acquired exclusive worldwide rights in June 2002 from a joint venture formed by Bristol-Myers Squibb Company and The Gillette Company.

      In March 2003, we announced plans to consider the sale of product rights to those pharmaceutical products that are non-strategic and do not relate to our core mission of improving the health and well-being of midlife women.

	•	Midrin®, a prescription headache management product for which we acquired exclusive U.S. rights and title from Élan Pharma International Ltd. and Élan Corporation plc in June 2001,
	•	BactrimTM, an antibacterial product line used primarily in the treatment of certain urinary tract infections for which we acquired exclusive U.S. rights from Hoffman-LaRoche in October 2001,

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	•	Equagesic® Tablets, a pain management product for which we acquired all rights in the U.S. and Puerto Rico from American Home Products Corporation (now known as Wyeth) in November 2001, and
	•	Synalgos®-DC Capsules and “painpak,” a pain management product for which we acquired all rights in the U.S. and Puerto Rico from Wyeth in November 2001.

	•	Our self-care products include a broad array of nutritional, skin, beauty, herbal, exercise, libido, wellness and other products that we sell through our national mail-order catalog, As We Change®.

Industry Trends

      We believe that the markets for pharmaceutical and self-care products for midlife women are growing because of the following trends:

	•	a significant and expanding population of midlife women as the “baby boom” generation ages,
	•	the expanding roles of obstetricians, gynecologists, nurse practitioners and physician’s assistants focused on women’s health, and
	•	an increasing awareness of the conditions and diseases that affect midlife women and the development of new products to address them.

      The U.S. Census Bureau projects that there will be approximately 67 million women in the United States over age 40 in 2003. That number is expected to grow to 76 million women by the year 2013. IMS Health reports that U.S. prescription pharmaceutical sales were approximately $148 billion for the twelve months ending January 2003, and that approximately 58% of prescription drugs are used by women.

      As women transition through menopause, their bodies begin to reduce the production of the steroid hormones, estrogen and progesterone. Studies have shown that with the significant loss of estrogen and progesterone production after menopause, the long-term health care needs of women change significantly. Among other things, women experience changes in their cardiovascular, skeletal, neurological, urologic and reproductive systems and may experience changes in their sexual and emotional needs. Studies have shown that estrogen replenishment therapy alleviates the symptoms commonly associated with menopause. According to IMS Health, pharmaceutical sales for estrogen replenishment therapy in the United States were approximately $2.5 billion in 2001. Recent studies conducted by the National Cancer Institute found that women on estrogen replenishment therapy after menopause run a higher risk of ovarian cancer after ten years of use. Another study of combination estrogen/ progestin hormone replacement therapy, by the National Institutes of Health, was stopped prematurely during 2002 because of an increased risk of invasive breast cancer, heart attacks, strokes and blood clots. There remains a great deal of confusion in the market place concerning estrogen replenishment therapy and combination estrogen/ progestin replacement therapy, and we believe this has had an adverse effect on our sales of Esclim^TM and Ortho-Est® Tablets®.

      The estrogen in our Ortho-Est® Tablets is approved by the Food and Drug Administration for the prevention and/or treatment of osteoporosis in postmenopausal women. The National Osteoporosis Foundation estimates that the number of women age 50 and older who have osteoporosis, or are at risk for developing the disease, will increase from almost 30 million in 2002, to over 35 million in 2010, and to approximately 41 million in 2020.

Strategy

      Our objective is to become a premier marketer of health care products — both pharmaceutical and self-care — focused primarily on midlife women. We are focused on reaching our target market of 67 million midlife women through our sales and marketing programs to obstetricians and gynecologists, dermatologists, nurse practitioners and physician’s assistants focused on women’s health and our direct-to-consumer Internet

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	•	Refocus and Redirect our Women’s Health Franchise. We have refocused this division exclusively on the top performing obstetricians and gynecologists sales territories. Our product line-up consists of EsclimTM in the primary position, and Vaniqa® Cream as a secondary offering. We expect to have a new dosage strength of our Ortho-Est® Tablets, to be named O-EstTM, approved by the Food and Drug Administration in the fourth quarter of 2003, at which time it will join EsclimTM in the primary position.
	•	Build our Vaniqa® Cream Franchise. We have formed a new division in our pharmaceutical segment — Women First Skin Care — to focus its energies on promoting Vaniqa® Cream as its flagship product. We have hired a senior executive to run this division and have charged him with (1) managing our relationship with Ventiv Health U.S. Sales, L.L.C., our contract sales dermatology force, (2) managing our relationship with our investment banker for the licensing of our international rights to Vaniqa® Cream, (3) expanding into direct-to-physician programs and (4) initiating and managing clinical studies to support Vaniqa® Cream’s growth.
	•	Sell Non-Pharmaceutical Products. We intend to focus our efforts on the physical and emotional needs of midlife women, rather than on supporting our non-core products. Therefore, we are attempting to sell the rights to our pharmaceutical products that do not fit this niche, using the proceeds to reduce our debt and, where possible, fund current operations. We have hired a third party to assist us in this effort and will be required to pay a fee only if successful.
	•	Grow As We Change®. We plan to increase the revenue in our mail order catalog by continuing to change the product line-up to take advantage of current trends and by focusing on Internet commerce. We expect the catalog’s access to women to support Vaniqa® Cream prescriptions and, to a lesser extent, EsclimTM prescriptions.

Products and Product Agreements

      Ortho-Est® Tablets. We began selling and distributing Ortho-Est® Tablets (estropipate), a soybean-derived estrogen product, through wholesale and retail channels pursuant to an exclusive distribution agreement with Ortho-McNeil Pharmaceutical in July 1998. Ortho-Est® Tablets are available on the market in the United States in two strengths, ..625mg and 1.25mg and replenish declining estrogen levels in midlife women with estrone, the principal type of estrogen that the body makes following menopause. The distribution agreement required us to make minimum aggregate payments totaling $47.5 million to Ortho-McNeil Pharmaceutical over the life of the contract regardless of the actual sales performance of the product. We terminated the distribution agreement effective September 30, 2000 and entered into an asset transfer and supply agreement pursuant to which Ortho-McNeil Pharmaceutical transferred to us all of its right, title and interest in Ortho-Est® Tablets effective January 1, 2001 and granted to us an exclusive license to use the Ortho-Est® Tablets trademark from January 1, 2001 until June 1, 2008. This agreement reduced the minimum payment in 2000 from $5.4 million to $4.7 million. No further payments are required under the new agreement. In February 2002, we hired Pharmaceutics International Inc. to assume the commercial manufacturing responsibilities for Ortho-Est® Tablets and recently received approval from the Food and Drug Administration to commence sales of the Ortho-Est® Tablets manufactured by Pharmaceutics International. Ortho-Est® Tablets is on formulary at Medco Plan Sponsors.

      Esclim^TM. In July 1999, we entered into a distribution and license agreement with Laboratoires Fournier S.A. under which we were granted the exclusive right (subject to exceptions) to market, use, distribute and sell the Esclim^TM estradiol transdermal system in various dosages in the United States and Puerto Rico through 2007. In November 1999, we initiated sales and distribution of the Esclim^TM product, an estrogen patch system that releases small amounts of 17 Beta-estradiol, the main estrogen produced in the ovaries, through the skin on a continuous basis. Esclim^TM replenishes declining levels of estradiol using a patented matrix technology. The product, a patch that is changed twice a week, is available in a range of five dosage

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      Vaniqa® Cream. In June 2002, we acquired exclusive worldwide rights and title to Vaniqa® Cream (eflornithine hydrochloride), 13.9%, from a joint venture formed by Bristol-Myers Squibb and Gillette. Vaniqa® Cream is a topical cream clinically proven to slow the growth of unwanted facial hair in women. Vaniqa® Cream was approved for marketing by the Food and Drug Administration in July 2000 and is the only prescription pharmaceutical available for this prevalent condition. Vaniqa® Cream also has been granted regulatory approval in 25 international markets including the European Union, Canada and major Latin American countries. We paid $40.0 million in cash and assumed $3.7 million in liabilities for product returns for the Vaniqa® Cream product, including all related product rights, inventory, regulatory filings and patent rights. We also secured the right to pursue an over-the-counter strategy and to develop enhanced formulations of Vaniqa® Cream. We entered into an asset purchase agreement and license agreement with Bristol-Myers Squibb and Gillette to provide for the sale or license of all of the joint venture parties’ Vaniqa® Cream assets. We did not acquire any facilities, equipment or personnel in the transaction. We also entered into a related supply agreement with Bristol-Myers Squibb, whereby it will continue to manufacture Vaniqa® Cream for three years following the acquisition. We are currently in discussions with Bristol-Myers Squibb to extend the term of the manufacturing agreement through June 2007.

      We financed the acquisition through the issuance of $28.0 million of senior secured notes, $13.0 million of convertible redeemable preferred stock and $0.8 million in cash. The senior secured notes mature in September 2005 and bear interest at the initial rate of 11% per annum, which increases to 12.5% in December 2003, and 13% per annum in June 2004. Interest on the senior secured notes is required to be paid in cash except that we may pay interest amounts in excess of 11% per annum in cash or through the issuance of additional senior secured notes. We may redeem the senior secured notes at any time at a redemption price of 108% of the aggregate principal amount outstanding plus accrued and unpaid interest. Our obligations under the terms of the senior secured notes are secured by a pledge of our interest in the Vaniqa® Cream-related assets. The convertible redeemable preferred stock has an aggregate initial stated value of $13.0 million, which accretes at a rate of 10% per annum, calculated quarterly, which increases to 11.5% per annum in December 2003 and 12.5% per annum in June 2004. The convertible redeemable preferred stock is convertible at any time at the option of the holders into shares of our common stock at a rate equal to the accreted stated value divided by $6.35, subject to certain antidilution adjustments. Unless previously converted, we will be required to redeem the convertible redeemable preferred stock for cash at its accreted stated value plus accreted unpaid dividends, if any, in June 2006.

      Both the senior secured notes and the convertible redeemable preferred stock are required to be redeemed with 100% of the proceeds of future loans and sales of debt securities and 75% of the proceeds of future sales of equity securities, subject to various exceptions. In addition, the holders of the senior secured notes have the right to require us to redeem the senior secured notes at a price of 108% of the aggregate principal amount outstanding upon certain changes in control of us. We must also generally use 75% of our “excess cash flow”

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      The financing was provided by affiliates of CIBC Capital Partners and Whitney & Co., LLC. Among other affirmative covenants, we agreed that the holders of the senior secured notes and the convertible redeemable preferred stock are entitled to appoint together a single non-voting observer to attend meetings of our Board of Directors until the amount of outstanding senior secured notes and convertible redeemable preferred stock decreases below 10% of the principal or stated value of senior secured notes and convertible redeemable preferred stock issued by us at the closing.

      At December 31, 2002, we were in default under our senior secured notes. Our recent financial performance caused us to fall out of compliance with the covenants and other requirements of the senior secured notes, which require, among other things, minimum earnings, minimum fixed charge coverage ratio and minimum net worth measured as of December 31, 2002 and the four quarters then ended and limited capital expenditures during 2002. We are also out of compliance with the same covenants for the period ended March 31, 2003.

      In April 2003, we entered into a binding term sheet with the holders of the senior secured notes to remedy these defaults by, among other things, restructuring selected financial covenants in the senior secured notes, pledging additional assets to secure our obligations under the senior secured notes, amending selected terms of our convertible redeemable preferred stock, issuing new warrants to purchase common stock to the holders of the senior secured notes, and obtaining equity financing from an investor group led by Edward F. Calesa, our President, Chief Executive Officer and Chairman of the Board. The provisions of this term sheet and our preliminary agreement with the holders of the senior secured notes are described in more detail in this report under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Our default under the senior secured notes permits the note holders to accelerate our indebtedness under the notes and foreclose on the collateral pledged to secure our indebtedness. While we believe we have reached an agreement in principle with the note holders to remedy the defaults in a manner satisfactory to all parties, we have not yet completed definitive documents to implement the terms of the term sheet and obtain a formal waiver from the note holders of our noncompliance with the senior secured note covenants. In addition, any future default by us under the senior secured notes would allow the note holders to accelerate our indebtedness under the senior secured notes.

      Midrin®. In June 2001, we acquired exclusive U.S. rights and title to Midrin®, a prescription headache management product, from Élan. Midrin® is indicated for relief of symptoms of tension-type, migraine and migraine variant headaches and its active ingredients are isometheptene, dichloralphenazone and acetaminophen. We financed the acquisition in part through the issuance to Élan of an $11.0 million convertible secured promissory note. The convertible promissory note payable to Élan is due in June 2008 unless converted earlier into common stock. This note is convertible at the option of the holder into common stock based on a conversion price of $11.96 per share, subject to certain adjustments. Interest is compounded semi-annually and added to principal until June 2003. Thereafter interest is paid quarterly in cash. Interest, which has been added to principal, totaled $1.2 million at December 31, 2002. The Midrin® product rights and accounts receivable relating to Midrin® sales secure this note. In addition, we issued Élan an aggregate of .4 million shares of our common stock which were valued at $4.0 million ($9.47 per share) for purposes of the agreement. In August 2001, Midrin® was scheduled by the Drug Enforcement Agency, requiring that, effective May 2002, the product have tamper resistant packaging and disclosure about the product’s potential for abuse. This action has not had a material effect on Midrin® sales. Midrin® is on formulary at Caremark, Express Scripts and Medco Plan Sponsors. We are considering the sale of this product because it does not relate to our core mission of improving the health and well-being of midlife women.

      Bactrim^TM. In October 2001, we acquired exclusive U.S. rights to the Bactrim^TM family of antibacterial products from Hoffman-LaRoche. Bactrim^TM and Bactrim^TM DS are commonly used to treat urinary tract infections, acute otitis media, acute exacerbations of chronic bronchitis in adults and traveler’s diarrhea.

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      Equagesic® and Synalgos®. In November 2001, we acquired all rights in the U.S. and Puerto Rico to Equagesic® and Synalgos®, products used in the treatment of pain, from American Home Products Corporation (now known as Wyeth). The acquisition included relevant trademarks and the Abbreviated New Drug Application and New Drug Application for Equagesic®, a Drug Enforcement Agency schedule IV drug, and Synalgos®-DC, a Drug Enforcement Agency Schedule III drug. Equagesic® is indicated for short-term treatment of pain accompanied by tension and/or anxiety in patients with musculoskeletal disease. Synalgos®-DC is indicated for relief of moderate to moderately severe pain. We agreed to pay $17.3 million to acquire these products, with $7.5 million paid at closing and the remaining $9.75 million payable under a secured promissory note in three equal installments commencing November 2002. Pursuant to an amended agreement with Wyeth, the November 2002 payment was subsequently reduced to $3.0 million. The current principal outstanding under the secured promissory note is $6.5 million. To secure our obligations under the note, we granted Wyeth a security interest in Equagesic® and Synalgos®. Since September 2002, we have marketed Synalgos® in a blister package of 12 capsules, called the “painpak” to address the concerns of many physicians that the drug is susceptible to abuse. During the latter part of the third quarter of 2002, we engaged a contract sales organization, PDI Shared Sales, Inc., to market Synalgos® to dentists and oral surgeons. This arrangement proved unsatisfactory and we terminated PDI’s services in February 2003. We are considering the sale of our rights to these products because they do not relate to our core mission of improving the health and well-being of midlife women.

      We offer a variety of self-care products to midlife women through our subsidiary, As We Change, LLC, a national mail order catalog and Internet retailer directed at midlife women, and through our Internet site, aswechange.com. The As We Change® catalog offers women a wide range of products designed to offer product solutions to meet the needs of women at midlife.

Marketing and Sales

      In January 2003, there were approximately 54,000 board certified obstetricians and gynecologists in the United States. Following a downsizing of our sales force in a March 2003, we have 29 highly trained sales representatives to market Esclim^TM and Vaniqa® Cream to those obstetrician/gynecologist practices that historically have written the most prescriptions for our products. In addition, our four national account managers focus on placing our products on formulary at managed care organizations. We intend to hire additional sales representatives only when warranted by the growth of our business. We also maintain a staff to support the field sales force, including a marketing and regulatory department, customer service representatives, sales trainer and sales and contract administrators.

      From time to time, we engage the services of third-party contract sales forces to promote our products. Currently, we have contracted with Ventiv, an outsourced pharmaceutical sales company with established dermatology marketing teams, to promote Vaniqa® Cream to dermatologists on our behalf. We have committed to spending $2.0 million in support of this product and we compensate Ventiv for prescriptions generated in excess of a baseline. Our agreement with Ventiv expires in December 2005. Under the terms of the agreement, we may elect to terminate Ventiv’s services early if Ventiv fails to make minimum sales calls or achieve minimum prescriptions from dermatologists or upon other specified events. Ventiv may terminate the

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      As We Change offers a broad array of self-care products including nutritional, skin, beauty, herbal, exercise, libido, wellness, clothing and personal care products. The As We Change® catalog features private label products that are tailored to meet the individual lifestyle needs of women. As We Change has developed a sophisticated infrastructure including a call center with telephone and Internet customer support capability, warehouse and shipping, new product screening and sourcing, catalog design and production, database and circulation management and e-commerce. Through our aswechange.com and womenfirst.com sites, we provide access to all of the products sold through our catalog, As We Change®.

Manufacturing and Logistics

      We have entered into manufacturing and supply agreements with third-party manufacturers to provide us with the pharmaceutical products we offer. The third-party manufacturers generally are responsible for receipt and storage of raw materials, productions, packaging, labeling and shipping of finished goods. In each case, we are dependant on single sources of supply for the pharmaceutical products we offer. The following companies are currently our sole suppliers for the indicated products:

	•	Pharmaceutics International, Inc. supplies Ortho-Est® Tablets to us under an agreement with a four-year term, expiring in June 2005.
	•	Laboratoires Fournier S.A., a French company, acts as our exclusive supplier of EsclimTM under an agreement with a seven-year term, expiring in January 2007.
	•	Bristol-Myers Squibb Company acts as our exclusive supplier of Vaniqa® Cream under an agreement with a three-year term, expiring in June 2005. We are currently in discussions with Bristol-Myers Squibb to extend the term of the manufacturing agreement to June 2007.
	•	Mallinckrodt Inc. supplies Midrin® to us pursuant to purchase orders. We do not have a formal agreement with Mallinckrodt concerning the terms of supply of Midrin®.
	•	Mutual Pharmaceutical Company, Inc. acts as our exclusive supplier of BactrimTM under an agreement with a five-year term, expiring in January 2007.
	•	Wyeth, as successor to American Home Products Corporation, acts as our exclusive supplier of Equagesic® Tablets and Synalgos®-DC capsules under an agreement expiring in November 2004.

      In general, our agreements with our suppliers allow either party to terminate the agreement early if the other party is in default of any of its material obligations under the agreement and fails to cure the default after notice. In addition, our supply agreements typically permit either party to terminate the agreement early in the event of the other party’s liquidation, bankruptcy or insolvency or, in the case of our agreement with Laboratoires Fournier concerning Esclim^TM, if the other party undergoes specified changes of control.

      We have engaged UPS Supply Chain Management, Inc. for the storage and distribution of pharmaceutical products to our customers, including wholesalers, pharmacies and hospitals, and to provide physical distribution and logistics management for the pharmaceutical products we distribute. Our agreement with UPS Supply Chain Management can be terminated at any time upon 90 days notice.

Competition

      The health care industry is highly competitive. Most of our competitors are large, well-known pharmaceutical, life science and health care companies that have considerably greater financial, sales, marketing and technical resources than we have. Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with

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      The pharmaceutical products we offer face significant competition. Ortho-Est® Tablets compete in the estrogen replenishment therapy market, a market dominated by Premarin^TM, a product manufactured by Wyeth-Ayerst Laboratories, Inc., a division of Wyeth. The Esclim^TM estradiol transdermal system competes in the estrogen replenishment therapy market against products made by Berlex Laboratories, Watson Laboratories, Inc., Novogyne Pharmaceuticals and Novartis Pharmaceutical. The estrogen replenishment therapy products we market also compete with combination estrogen/progestin hormonal replenishment therapy products marketed by Wyeth, Parke-Davis, a division of Pfizer, Solvay Pharmaceuticals, Inc., Barr Laboratories, Inc., Pharmacia Corporation and others, as well as generic hormonal replenishment therapy products. Esclim^TM is not available generically but there is a generic estrogen replenishment therapy patch available. Ortho-Est® Tablets face significant generic competition. The estrogen replenishment therapy products we market also compete with non-hormonal replenishment therapy products marketed by Merck & Co., Inc. and Eli Lilly & Company. Each of these competitors has substantially greater marketing, sales and financial resources than we do.

      Midrin® competes against a class of drugs called triptans as well as against generic competitors. Several companies manufacture triptans, including GlaxoSmithKline (Imitrex®), Merck & Co. (Maxalt®) and AstraZeneca Pharmaceuticals LP (Zomig®). Bactrim^TM competes in the antibacterial market against Cotrim^TM marketed by Teva Pharmaceuticals, Septra®, manufactured by Monarch, a division of King Pharmaceuticals, and generic products made by High Tech Pharmaceutical Co., United Research Laboratories and Mutual Pharmaceutical Co., among others. Equagesic® competes against Flexeril®, manufactured by Merck & Co., and Valium®, manufactured by Roche Labs, as well as against generic cyclobenzaprine and generic diazepam. Synalgos® competes against hydrocodone products such as Vicodin® from Abbott Laboratories and codeine products such as Tylenol® with Codeine, manufactured by McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson.

      Vaniqa® Cream (eflornithine hydrochloride), 13.9%, competes in the women’s facial hair removal market against a variety of depilatory products, electrolysis, laser hair removal and other hair retardant and hair removal products. Although Vaniqa® Cream is not available generically, it has been on the market only a short period of time and our sales force, as well as our contract dermatology sales force supplied by Ventiv, have only recently begun to market the product. The competitive products for the removal of unwanted facial hair in women have substantially greater market presence than does Vaniqa® Cream. In addition, because Vaniqa® Cream is a prescription hair removal product that is generally not covered by pharmaceutical reimbursement plans, we may have difficulty competing against products that are more readily available to consumers in over-the-counter form.

      Competition for the self-care products we offer is significant. Our subsidiary, As We Change, competes with a number of catalog companies and Internet retailers focusing on self-care products. Luminesence, SelfCare®, Harmony^TM, InnerBalance and InteliHealth Family Meds^TM market and sell general lifestyle and personal care products.

Intellectual Property

      The protection of patents, copyrights, trademarks and other proprietary rights that we own or license is material to our success and competitive position. We rely on a combination of laws and contractual restrictions such as confidentiality agreements to establish and protect our proprietary rights. Laws and contractual restrictions, however, may not be sufficient to prevent misappropriation of our technology or other proprietary rights or deter others from independently developing products that are substantially equivalent or superior.

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      Patents. Due to the length of time and expense associated with bringing new pharmaceutical products to market, we recognize the considerable benefits associated with acquiring or licensing products that are protected by existing patents or for which patent protection can be obtained. However, only two of our products, Vaniqa® Cream and Esclim^TM, are subject to patent protection. Vaniqa® Cream has broad patent coverage in many countries worldwide, and is covered by patents related to the formulation of the product as well as patents related to the method of using eflornithine hydrochloride. We have licensed these patent rights from Gillete, and therefore, rely on a third party to maintain and protect against infringement of the patents relating to Vaniqa® Cream. Additionally, we acquired two patent applications covering new formulations of Vaniqa® Cream and improved manufacturing processes. We have filed these applications on a worldwide basis. Esclim^TM, for which we have an exclusive license (subject to exceptions), is also patent protected through 2008. Our other pharmaceutical products, and most of our self-care products, are not protected by patents. We intend to take the actions that we believe are necessary to protect our patent rights, but we may not be successful in doing so on commercially reasonable terms, if at all. In addition, parties that license their proprietary rights to us may face challenges to their patents and other proprietary rights and may not prevail in any litigation regarding those rights.

      Copyrights. We have received copyright registration for the Women First HealthCare logo. Copyrights for the source code of the womenfirst.com Internet site that we created with SF Interactive Inc. have been assigned to us.

      Trademarks and Domain Names. Our subsidiary As We Change owns the registered U.S. trademark As We Change®. In addition, we own several trademark registrations, including for our key name and mark “Women First®.” We have also applied to register several other marks, including the key marks “Women First HealthCare^TM” and “Women First^TM,” for additional goods that are presently covered by our existing registrations. Some of our agreements also include rights to use the manufacturer’s trademarks, such as the Ortho-Est® Tablets and Esclim^TM trademarks during the term of these agreements. We also own the rights to the Vaniqa® Cream trademark and the Vaniqa® Cream design trademark. These trademarks have been registered in several key markets worldwide and additional applications are pending. We intend to introduce new trademarks, service marks and brand names, as warranted, and to maintain registrations on trademarks that remain valuable to the business.

      We currently hold the Internet domain names womenfirsthealthcare.com and womenfirst.com, and As We Change holds the Internet domain name aswechange.com. Domain names are regulated by Internet regulatory bodies while trademarks are enforceable under local country law. As a result, while we may be able to maintain our existing .com domain names, we may not be able to acquire corresponding domain names in other top-level domains. Also, we may be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our domain names or trademarks.

Government Regulation

      The manufacturing, processing, formulation, clinical investigation, packaging, labeling, storage, promotion, distribution and advertising of the products we offer are subject to extensive regulation by one or more federal agencies including the Food and Drug Administration, Drug Enforcement Agency, Environmental Protection Agency, Federal Trade Commission, Occupational Safety and Health Administration, Consumer Product Safety Commission, the United States Customs Service and the United States Postal Service. These activities are also regulated by various agencies of the states and localities in which our products are sold. For both currently marketed and future products, failure to comply with applicable regulatory requirements could limit our ability to market and distribute such products and would harm our business.

      Pharmaceuticals. All pharmaceutical firms, including manufacturers, are subject to regulation by the Food and Drug Administration. Any restriction or prohibition applicable to sales of products we market could materially adversely affect our business.

      All of the prescription drug products that we market have been approved by the Food and Drug Administration, except Midrin®. Midrin® is a “grandfathered” product that was introduced prior to 1962. The Food and Drug Administration has the authority to revoke existing approvals or to review the status of

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      Drug products must be manufactured, packaged, and labeled in accordance with their approvals and in conformity with standards known as current Good Manufacturing Practices and other requirements. Drug manufacturing facilities must be registered with and approved by Food and Drug Administration and must list with the Food and Drug Administration the drug products they intend to distribute. The manufacturer is subject to inspections by the Food and Drug Administration and periodic inspections by other regulatory agencies. The Food and Drug Administration has extensive enforcement powers over the activities of pharmaceutical manufacturers, including authority to seize and prohibit the sale of unapproved or non-complying products, and to halt manufacturing operations that are not in compliance with current Good Manufacturing Practices. Also, the Food and Drug Administration regulates the distribution of samples of drugs. Both Food and Drug Administration and Drug Enforcement Agency may impose criminal penalties arising from non-compliance with applicable regulations.

      Cosmetics Regulations. We market cosmetic products through our As We Change® catalog and aswechange.com and womenfirst.com Internet sites. The Food and Drug Administration regulates the labeling on cosmetic products but does not require cosmetics to be approved before products are released to the marketplace. The Food and Drug Administration does not have the authority to require manufacturers to register their cosmetic establishments, file data on ingredients or report cosmetic-related injuries. The Food and Drug Administration maintains a voluntary data collection program, however, and companies wishing to participate in the program may do so. The Food and Drug Administration may inspect cosmetics manufacturing facilities, collect samples for examination and take action to remove adulterated and misbranded cosmetics from the market.

Employees

      As of April 1, 2003, we employed 101 full-time people. As part of our restructuring and downsizing in March 2003, we terminated 56 employees, mainly in the marketing and sales area. None of our employees are represented by a labor union, and we consider our relations with our employees to be good. Our ability to achieve our financial and operational objectives depends in large part upon the continued service of our senior management and key personnel and our continuing ability to attract and retain highly qualified managerial personnel. Competition for such qualified personnel in the pharmaceutical and health care industry is intense.

Seasonality

      Sales of our pharmaceutical products do not tend to be seasonal. However, we have found that sales of our self-care products are subject to seasonality. Sales of our self-care products typically are higher in the first two calendar quarters, perhaps due to our customers’ focus on wellness and lifestyle issues at the beginning of each new calendar year, perhaps because of New Year’s resolutions. We have also found that the sales of our merchandise related to fashion and exercise typically are higher in the spring months, reflecting our customers’ focus on outdoor activities and physical fitness in that portion of the calendar year. Typically, our customers do not use the catalog for gift buying, making the last calendar quarter the weakest. We anticipate that these trends will continue.

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Website Access to Reports

      On our website, womenfirst.com, we make our periodic and current reports available, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission.

Risks and Uncertainties

Risks related to our business

As of December 31, 2002, we were in default under our senior secured notes because of our failure to comply with financial covenants. Our inability to remedy these defaults or any future defaults under the senior secured notes would allow the holders to accelerate the indebtedness under the senior secured notes and would materially harm our business and, in turn, an investment in our common stock.

      As of December 31, 2002 and March 31, 2003, we were in default under our senior secured notes having a principal balance of $28.0 million. Our recent financial performance caused us to fall out of compliance with the covenants and other requirements of the senior secured notes, which require, among other things, minimum earnings, minimum fixed charge coverage ratio and minimum net worth measured as of December 31, 2002 and the four quarters then ended and limited capital expenditures during 2002. All of our Vaniqa® Cream-related assets have been pledged to the note holders to secure our obligations under the senior secured notes. Because we were in default, the note holders were entitled to terminate their commitments to us, declare the existing loans to be immediately due and payable, and to foreclose on the assets that have been pledged to secure these outstanding loans.

      In April 2003, we entered into a binding term sheet with the holders of the senior secured notes to remedy these defaults by, among other things, restructuring selected financial covenants in the senior secured notes, pledging additional assets to secure our obligations under the senior secured notes, amending selected terms of our convertible redeemable preferred stock, issuing new warrants to purchase common stock to the holders of the senior secured notes and obtaining equity financing from an investor group led by Edward F. Calesa, our President and Chief Executive Officer. The provisions of this term sheet and our preliminary agreement with the holders of the senior secured notes are described in more detail in this report under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Our default under the senior secured notes permits the note holders to accelerate our indebtedness under the notes and foreclose on the collateral pledged to secure our indebtedness under the notes. While we have entered into a binding term sheet with the note holders to remedy the defaults, we have not yet completed definitive documents to implement the terms of the term sheet and the closing of the restructuring is subject to conditions. In addition, any future default by us under the senior secured notes would allow the note holders to accelerate our indebtedness under the senior secured notes. Given our cash on hand of $10.9 million as of March 31, 2003, and our projections for the remainder of 2003, if the note holders sought to exercise their remedies against us, including immediate acceleration of the senior secured notes, we would likely file for protection under Chapter 11 of the federal bankruptcy laws which would have a material adverse effect on our business and, in turn, any investment in our common stock.

Significant differences between actual and estimated demand for our products could adversely affect us. If we overestimate demand, we may be required to write off inventories and/or increase our reserves for product returns in future periods. If we underestimate demand, we might not be able to fulfill orders for our products, which would lead to lost opportunities to generate revenues and could adversely affect our relationships with our customers.

      We continuously monitor the quantity of our products in the distribution channel and the demand for our pharmaceutical products through the number of prescriptions written. Our pharmaceutical products have expiration dates that range from 18 to 60 months from date of manufacture. We purchase data regarding quantities in the distribution channel and prescription activity from nationally recognized providers of this information. In addition, we obtain inventory information from key customers in order to provide more

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      We also establish reserves for potentially excess, dated or otherwise impaired inventory. Reserves for excess inventory are based on an analysis of expected future sales that will occur before the inventory on hand or under a firm commitment will expire. The analysis is based on the total amounts of inventory on hand or under a firm commitment, channel inventory data and prescription activity, which are purchased from nationally recognized providers of channel inventory data and prescription data. Judgment is required in estimating reserves for excess inventories. The actual amounts could be different from the estimates and differences are accounted for in the period in which they become known.

      If demand for specific products increases beyond what we forecast, our suppliers and third-party manufacturers may not be able to increase production rapidly enough to meet the demand. Our failure to meet market demand could lead to missed opportunities to increase our revenues, harm our relationships with our customers and negatively affect your investment in our common stock.

To recognize revenue under generally accepted accounting principles, we must be able to reasonably estimate the amount of future product returns. If we are unable to do so, we may be precluded from recognizing revenue until our products are “pulled through” from the wholesale level to the retail level.

      We defer recognition of revenue if we determine that there is excess channel inventory for our products. Excess channel inventory exists if our wholesale customers’ inventory of our products exceeds our estimates of demand for our products at the retail level, after considering factors such as product shelf life. We determine whether excess channel inventory exists based on an analysis of the amount of each product in the channel inventory and prescription activity and trends. In addition, we obtain inventory information from key customers in order to provide more detailed information regarding the channel inventory at specific customer locations. We defer sales, net of the related product cost we pay to our suppliers, associated with our estimated excess channel inventory. Therefore, we may be forced to defer product sales to our wholesale customers if we are not able to generate sufficient demand for those products at the retail level. As of December 31, 2002, we had deferred revenue of $4.2 million related to excess channel inventory, which is included in the accompanying consolidated balance sheets. The deferral of revenue arose from slower than anticipated prescription growth for our products during the fourth quarter of 2002. There can be no certainty that we will be able to recognize this revenue in the future. Judgment is required in estimating the amounts of excess channel inventory. The actual amounts could be different from the estimates and differences are accounted for in the period in which they become known. Our inability to recognize revenue related to excess channel inventory may cause us to fail to meet the expectations of investors and, in turn, cause the price of our common stock to decline.

We believe we will have adequate cash to meet our operating and capital needs during 2003. If our assumptions about cash generation and usage are incorrect, we may be forced to withhold payment to suppliers, debt holders and others and to file for bankruptcy protection, which could diminish completely the value of an investment in our common stock.

      We have estimated the timing and amounts of cash receipts and disbursements during 2003 and we believe we will have adequate cash to meet our operating and capital needs through December 31, 2003. However, our assumptions may be wrong. In particular, we have assumed that we will be successful in our efforts to raise funds through additional private placement of equity securities. If we are forced to seek

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We have been in business a short time and have experienced significant losses since our inception.

      We have incurred significant losses since we were founded in November 1996, accumulating a deficit of $74.6 million through December 31, 2002. We have not achieved profitability in any complete fiscal year since our inception. Small, relatively new companies such as ours frequently encounter problems, delays and expenses that may be beyond their control. These include, but are not limited to, unanticipated problems and additional costs related to marketing, competition, manufacturing and product acquisitions and development. These problems could cause significant losses and/or volatility in our profitability which could adversely affect your investment in our common stock.

We have incurred significant debt obligations and issued other securities that will require us to make debt service and similar payments in the future.

      As of December 31, 2002, we had outstanding debt obligations of $46.3 million, the proceeds of which were used to finance the acquisitions of Midrin®, Equagesic®, Synalgos® and Vaniqa® Cream. We issued an $11.0 million convertible promissory note payable to Élan to acquire the product rights for Midrin®. The note bears interest at 7% and the interest accretes to the principal of the note for the first two years. Beginning in the third quarter of 2003, we are required to make quarterly interest payments in cash. The principal plus unpaid interest under our note to Élan is due in June 2008. We issued a promissory note to Wyeth to acquire the product rights for Equagesic® and Synalgos®, of which $6.5 million remains outstanding. Under our note to Wyeth, we are required to make a cash payment of $3.25 million on each of November 28, 2003 and November 30, 2004.

      In June 2002, we financed the acquisition of Vaniqa® Cream through the issuance of $28.0 million of senior secured notes and $13.0 million of convertible redeemable preferred stock. The senior secured notes mature in September 2005 and bear interest at the initial rate of 11% per annum, which increases to 12.5% in December 2003, and 13% per annum in June 2004. Interest on the senior secured notes is required to be paid in cash except that we may pay interest amounts in excess of 11% per annum in cash or through the issuance of additional senior secured notes. The convertible redeemable preferred stock has an aggregate initial stated value of $13.0 million, which accretes at a rate of 10% per annum, calculated quarterly, which increase to 11.5% per annum in December 2003 and 12.5% per annum in June 2004. Unless previously converted, we will be required to redeem the convertible redeemable preferred stock for cash at its accreted stated value plus accreted unpaid dividends, if any, in June 2006.

      We have pledged our Vaniqa® Cream-related assets to secure our obligations under the senior secured notes and convertible redeemable preferred stock. We have also pledged assets related to Midrin®, Equagesic® and Synalgos® as security for the repayment of debt obligations incurred to finance the purchases of those assets. If we fail to make payment on these instruments as required, we may be declared in default and lose our rights to the products that secure their repayment.

Our senior secured notes and convertible redeemable preferred stock contain provisions and requirements that could limit our ability to secure additional financing and respond to changing business and economic conditions.

      The restrictions contained in the senior secured notes and convertible redeemable preferred stock that we issued to finance the acquisition of Vaniqa® Cream in June 2002 may limit our ability to implement our business plan, finance future operations, respond to changing business and economic conditions, secure additional financing, and acquire additional pharmaceutical products. Both our senior secured notes and our convertible redeemable preferred stock restrict our ability to incur additional indebtedness and require us to offer to use proceeds from additional indebtedness or the sale of other securities to repay the senior secured notes and redeem the convertible redeemable preferred stock, subject in each case to limited exceptions. Our senior secured notes, among other things, restrict our ability to create liens, make capital expenditures and sell

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	•	earnings before interest, taxes, depreciation and amortization,
	•	net worth, and
	•	fixed charge coverage ratio.

      As noted above, as of December 31, 2002 and March 31, 2003, we were in default under our senior secured notes. Our recent financial performance caused us to fall out of compliance with the covenants and other requirements of the senior secured notes. In April 2003, we entered into a binding term sheet with the holders of the senior secured notes to remedy these defaults by, among other things, restructuring selected financial covenants in the senior secured notes, pledging additional assets to secure our obligations under the senior secured notes, amending selected terms of our convertible redeemable preferred stock, issuing new warrants to purchase common stock to the holders of the senior secured notes and obtaining equity financing from an investor group led by Edward F. Calesa, our President, Chief Executive Officer and Chairman of the Board. The provisions of this term sheet and our preliminary agreement with the holders of the senior secured notes are described in more detail in this report under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      If we fail to satisfy any of the covenants in the senior secured notes in the future, we could again be in default under our senior secured notes. In addition, if we fail to comply with the covenants governing our indebtedness, we may need additional financing in order to service or extinguish our indebtedness. We may not be able to obtain financing or refinancing on terms that are acceptable to us, or at all.

If our products do not achieve and maintain market acceptance, we will be unable to realize our operating objectives.

      Our estrogen replenishment therapy products may not maintain market acceptance. Esclim^TM and our Ortho-Est® Tablets compete in the estrogen replenishment therapy market. Esclim^TM accounted for 20.4% and 21.1% of our total revenues for the years ended December 31, 2002 and 2001, respectively. Ortho-Est® Tablets accounted for 7.7% and 33.1% of our total revenues for the years ended December 31, 2002 and 2001, respectively. In a study published in the Journal of the American Medical Association in July 2002, researchers affiliated with the National Cancer Institute reported that women on estrogen replenishment therapy after menopause ran a higher risk of ovarian cancer after ten years of use. This study and others could decrease the demand for our Esclim^TM and Ortho-Est® Tablets products. These products also compete with combination estrogen/progestin hormonal replenishment therapy products. In another study published in the Journal of the American Medical Association in July 2002, researchers affiliated with the National Institutes of Health announced that its National Heart, Lung and Blood Institute had stopped the clinical trial of combination estrogen replenishment therapy in healthy menopausal women because of an increased risk of invasive breast cancer, heart attacks, strokes and blood clots. While this study noted no increased risk of breast cancer, heart attacks, strokes or blood clots for women on estrogen replenishment therapy, the perception of such a risk could decrease the demand for our Esclim^TM and Ortho-Est® Tablets products and result in litigation from patients who used these products similar to that faced by some manufacturers of estrogen/progestin hormonal replenishment therapy products.

      Other products we have acquired, such as Midrin®, Bactrim^TM, Equagesic®, Synalgos® and Vaniqa® Cream, and those products we may acquire in the future, if any, likewise may not achieve or maintain market acceptance. The market acceptance of all of our products will depend on, among other factors:

	•	their advantages over existing competing products,
	•	their perceived efficacy, safety and cost,
	•	the extent to which they are substituted generically by the pharmacy,

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	•	the actual or perceived side effect profile of our products, and
	•	the reimbursement policies of the government and third-party payers.

      Our business model assumes that our marketing programs and strategies and the growth in our target market will result in increased revenues. If our marketing programs and strategies do not succeed in generating increased revenues, we will be unable to realize our operating objectives. If the clinicians we target do not recommend and prescribe the products we offer or if their patients do not regularly use these products, we will experience losses in the future that could, in turn, adversely affect the trading price of our common stock and the value of your investment.

We have announced plans to consider the sale of product rights for those pharmaceutical products that are non-strategic and do not relate to our core mission of improving the health and well being of midlife women. We may sell these product rights for less than their book value, thereby increasing the size of our net loss in 2003.

      Part of our strategy for reaching our objective to become a premier marketer of health care products for midlife women is to focus our energies on those products — pharmaceutical and self-care — that directly target this audience. Other products in our portfolio, Midrin®, Bactrim^TM, Equagesic® and Synalgos®, do not meet this criteria, and we have announced plans to attempt to sell these non-strategic products. In the event we are successful, we will use any proceeds we receive to pay down our debt and where possible, increase our working capital. We do not know whether the products will be sold in a group or individually, or at all, but it is possible that we will sell some or all of them at a price less than our book value. A sale of some or all of the products would improve our debt position and may increase our cash position (assuming we sell products for greater than the associated debt). However, selling products below their book value would increase our net loss beyond the loss we have projected for 2003. This may disappoint investors and further depress the price of our common stock and the value of an investment in our common stock.

Our business model requires the development and profitability of our pharmaceutical division and consumer division. If we fail to implement key elements of our business plan, we may not succeed.

      We have embarked on an ambitious plan to provide prescription and non-prescription products to midlife women. As part of our plan, we have acquired rights to specialty pharmaceutical products that we believe are well suited to midlife women. We may seek to acquire additional product rights in the future. We also offer products through our consumer division. To promote our products, we will seek to persuade obstetricians, gynecologists, dermatologists, nurse practitioners and physicians’ assistants focused on women’s health to prescribe and recommend the products we offer. However, there is a limited market awareness of our company and the products and services we offer. If we do not generate sufficient demand for our current or future products or if general economic conditions cause a drop off in discretionary spending, our business may not succeed and our stockholders’ investments in us may suffer.

Our quarterly and annual financial results may fail to meet or exceed the expectations of investors, which could cause the price of our stock to remain depressed.

      Our quarterly and annual operating results may fail to meet or exceed the expectations of securities analysts or investors because of a number of factors, including the following:

	•	changes in the acceptance or availability of the products we offer,
	•	the timing of new product offerings, acquisitions or other significant events by us or our competitors,
	•	regulatory approvals and legislative changes affecting the products we offer or those of our competitors,
	•	research studies and news reports concerning the safety or efficacy of our products or similar products,
	•	the productivity of our sales force,

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	•	reserves we may need to record and revenues we may need to defer due to an excess supply of our pharmaceutical products in the distribution channel,
	•	return of excess inventory from our customers that exceed the reserves we have established, and
	•	general economic and market conditions and conditions specific to the health care industry.

      Failure to meet or exceed the expectations of securities analysts or investors could negatively affect our stock price and your investment.

We are dependent on a single source of supply for each of the pharmaceutical products we offer. If one of our suppliers fails to supply adequate amounts of a product we offer, our sales may suffer.

      We are dependent on single sources of supply for the pharmaceutical products we offer. The following companies are currently our sole suppliers for the indicated products:

	•	Pharmaceutics International, Inc. supplies Ortho-Est® Tablets to us under an agreement with a four-year term, expiring in June 2005.
	•	Laboratoires Fournier S.A., a French company, acts as our exclusive supplier of EsclimTM under an agreement with a seven-year term, expiring in January 2007.
	•	Bristol-Myers Squib Company acts as our exclusive supplier of Vaniqa® Cream under an agreement with a three- year term, expiring in June 2005. We are currently in discussions with Bristol-Myers Squibb to extend the term of the manufacturing agreement to June 2007.
	•	Mallinckrodt Inc. supplies Midrin® to us pursuant to purchase orders. We do not have a formal agreement with Mallinckrodt concerning the terms of supply of Midrin®.
	•	Mutual Pharmaceutical Company, Inc. acts as our exclusive supplier of BactrimTM under an agreement with a five-year term, expiring in January 2007.
	•	Wyeth, as successor to American Home Products Corporation, acts as our exclusive supplier of Equagesic® Tablets and Synalgos®-DC Capsules under an agreement expiring in November 2004.

      In general, our agreements with our suppliers allow either party to terminate the agreement early if the other party is in default of any of its material obligations under the agreement and fails to cure the default after notice. In addition, our supply agreements typically permit either party to terminate the agreement early in the event of the other party’s liquidation, bankruptcy or insolvency or, in the case of our agreement with Fournier concerning Esclim^TM, if the other party undergoes specified changes of control.

      With respect to our products and the ingredients contained in these products, we cannot guarantee that these third parties will be able to provide adequate supplies of products or materials in a timely fashion. These third parties may pursue the manufacture and supply of their own pharmaceutical products in preference to those being manufactured for us. In addition, our third-party suppliers may terminate their agreements with us earlier than we expect, and as a result we may be unable to continue to market and sell the related pharmaceutical products on an exclusive basis or at all. We also face the risk that one of our suppliers could lose its production facilities in a disaster, be unable to comply with applicable government regulations or lose the governmental permits necessary to manufacture the products it supplies to us. If a third-party supplier cannot meet our needs for a product, we may not be able to obtain an alternative source of supply in a timely manner. In these circumstances, we may be unable to continue to fill customers’ orders as planned.

Because we depend on a small number of customers for a significant portion of our revenues, the loss of any of these customers, any cancellation or delay of a large purchase by any of these customers or the return of unsold product in excess of reserves we have established could significantly reduce our revenues.

      Historically, a limited number of customers has accounted for a significant portion of our total revenues. Four customers, McKesson Drug Operations, QK Healthcare, Inc., Cardinal Health, Inc. and AmerisourceBergen Corp., each individually accounted for greater than 10% of our total revenues for the year

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We have recently reduced our sales force, and cannot be certain the remaining sales force will continue to achieve desired sales levels.

      In March 2003, we announced that we had not generated sufficient demand to meet our internal projections for prescription growth. As a result, we reduced the size of our sales force by 60% to eliminate those territories that have not been profitable. Our smaller sales force may not be successful in generating sufficient awareness or demand for our products, which could significantly reduce our revenues, harm our financial results and depress the price of our common stock. Further, in those sales territories that we have terminated sales personnel, our competitors may be able to encroach on our business which could also reduce our revenues, harm our financial results and depress the price of our common stock.

In some cases, we rely on third-party sales organizations to promote our products and cannot be sure their efforts will lead to adequate sales of our products.

      For selected products, we hire outside organizations to conduct sales and marketing projects to promote awareness of these products to targeted physicians. In December 2002, we hired Ventiv to market Vaniqa® Cream to dermatologists. In April 2003, Ventiv will begin to market Synalgos® to dentists and oral surgeons on a test basis. As a result of our reliance on third-party sales organizations, some of the variables that may affect our revenues, cash flows and operating results are not exclusively within our control. Third-party sales organizations may not devote adequate attention to the promotion and marketing of our products, which could result in our failure to realize the full sales potential of our products. Even if the third parties that market our products are initially successful, they may not continue to be successful. We may not be able to renew these third-party arrangements successfully in the future, and new outside sales arrangements may not continue to be available on commercially reasonable terms.

Our inability to obtain new proprietary rights or to protect and retain our existing rights could impair our competitive position and adversely affect our sales.

      We believe that the patents, trademarks, copyrights and other proprietary rights that we own or license, or that we will own or license in the future, will continue to be important to our potential success and competitive position. If we fail to maintain our existing rights or cannot acquire additional rights in the future, our competitive position may be harmed. Due to the length of time and expense associated with bringing new pharmaceutical products to market, there are benefits associated with acquiring or licensing products that are protected by existing patents or for which patent protection can be obtained. While the Esclim^TM estradiol transdermal system and our Vaniqa® Cream incorporate patented technology, the other pharmaceutical products and most of the self-care products we sell are not protected by patents. We have applied for registration of a number of key trademarks and intend to introduce new trademarks, service marks and brand names as warranted. We intend to take the actions that we believe are necessary to protect our proprietary rights, but we may not be successful in doing so on commercially reasonable terms, if at all. In addition, parties that license their proprietary rights to us may face challenges to their patents and other proprietary rights and may not prevail in any litigation regarding those rights. Under the terms of a license agreement, we rely on Gillette to maintain and protect against infringement of the patents relating to our Vaniqa® Cream. Moreover, our trademarks and the products we offer may conflict with or infringe upon the proprietary rights of third parties. If any such conflicts or infringements should arise, we would have to defend ourselves against such challenges. We also may have to obtain a license to use those proprietary rights or possibly cease using

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Potential future impairments under Financial Accounting Standards Board Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” could adversely affect our future results of operations and financial position.

      In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets, including product rights, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured and recognized if the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset. If the carrying amount of the asset were determined to be impaired, an impairment loss to write-down the carrying value of the asset to fair value by using quoted market prices when available, would be required. When a quoted market price is not available, an estimated fair value would be determined through other valuation techniques. We have used projected cash flows discounted to reflect the expected technical, commercial, competitive and other factors related to acquired technologies or products, and comparisons to similar asset sales and valuations by others, to estimate the fair value of our intangible assets. These future tests may result in a determination that these assets have been impaired. If at any time we determine that an impairment has occurred, we will be required to reflect the impaired value as a charge, resulting in a reduction in ea