WOMEN FIRST HEALTHCARE INC - 10-K Annual Report

(Mark One)


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


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

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 þ NO o

Indicate by check mark if disclosure of delinquent filers 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. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Securities Exchange Act of 1934). Yes þ No o

As of June 30, 2003, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $30,206,105 based on the closing price of the registrant’s common stock on the NASDAQ National Market on June 30, 2003 of $1.14 per share.

As of March 26, 2004, 26,657,548 shares of registrant’s common stock, $.001 par value, were outstanding.

This Annual Report on Form 10-K includes “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. These forward-looking statements include statements about our strategies, objectives and our future achievements. To the extent statements in this Annual Report involve, without limitation, our expectations for growth, estimates of future revenue, our sources and uses of cash, our liquidity needs, our intentions to divest strategic and non-strategic assets, 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.” 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. Important factors that could cause actual results to differ materially from those in these forward-looking statements are disclosed in this Annual Report on Form 10-K, including, without limitation, those discussions under “Risk Factors” in “Item 1. Business” and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as other risks identified from time to time in our filings with the Securities and Exchange Commission, press releases and other communications.

In this Annual Report on Form 10-K, “Women First HealthCare, Inc.,” “Women First,” “we,” “us,” “its,” and “our” refer to Women First HealthCare, Inc. and our wholly-owned subsidiaries, As We Change and Women First HealthCare Limited, a U.K. subsidiary.

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 historically marketed these products in the United States through a number of channels including our dedicated sales force, tele-sales and our direct-to-consumer marketing programs through our Internet sites, womenfirst.com, and Vaniqa.com. In March 2004, we announced restructuring plans in order to conserve cash and laid off 78 employees (80% of our workforce), including our entire sales force of 44 employees, all 28 employees employed by the As We Change® mail order catalog business and 6 support employees from our corporate office.


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

	•	Esclim^TM, an estrogen patch system. We acquired the exclusive rights (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. (“Fournier”), effective July 1999,

	•	Ortho-Est® Tablets, an oral estrogen product that we acquired from Ortho-McNeil Pharmaceutical in January 2001,

	•	Midrin®, a prescription headache management product for which we acquired exclusive U.S. rights and title from Élan Pharma International Ltd. (“Élan”) and Élan Corporation plc in June 2001,

	•	Bactrim^TM, 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,

	•	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, a pain management product for which we acquired all rights in the U.S. and Puerto Rico from Wyeth in November 2001.

As a result of our inability to execute on the sale of any of our pharmaceutical product rights in 2003, the declining prescription demand for our products and shift of all strategic sales and marketing focus to Vaniqa® Cream during the fourth quarter of 2003, we evaluated the recoverability of our product rights carrying values and determined that our product rights for Bactrim^TM, Midrin®, Synalgos® and Equagesic® were impaired and, accordingly, we recognized impairment charges totaling $19.2 million in the fourth quarter of 2003. For 2003, we recognized impairment charges totaling $25.1 million. There can be no assurance that we will be successful in recovering the current carrying values of our product and license rights in the event we sell any or all such rights.

We believe that the markets for pharmaceutical 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 and gynecologists and the 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 68 million women in the United States over age 40 in 2004. That number is expected to grow to 77 million women by the year 2014.

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 menopausal hormonal therapy alleviates the symptoms commonly associated with menopause. Recent studies conducted by the National Cancer Institute found that women on menopausal hormonal therapy after menopause run a higher risk of ovarian cancer after ten years of use. However, a 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. In addition, a sub-study of the Women’s Health Initiative Memory Study (WHIMS) recently concluded that women treated in the study with conjugated estrogens combined with medroxyprogesterone acetate have a greater risk of developing probable dementia than those on placebo. In March 2004, the National Institutes of Health announced that it had stopped clinical trials of estrogen-only replenishment therapy because it found that oral estrogens not only failed to improve participants’ health but also may have slightly raised the risk of strokes. There remains a great deal of confusion in the market place concerning menopausal hormonal therapy, combination estrogen/progestin replacement therapy and estrogen-only replacement therapy and the market for these products has shrunk considerably. We believe this has had an adverse effect on our sales of Esclim^TM and Ortho-Est® Tablets. According to IMS Health, pharmaceutical sales for menopausal hormonal therapy in the United States were approximately $2.2 billion in 2002, down significantly from approximately $2.9 billion in 2001. Data is based on total prescription sales (TRx) at retail cost or Average Wholesale Price (AWP) for USC’s 52110 and 52130 (at USC 4 level.)

The estrogen in our Ortho-Est® Tablets is approved by the Food and Drug Administration (“FDA”) 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.

In order to address our current debt service requirements and working capital needs, our near term strategic priorities are to: (i) identify an acquisition or merger partner with interest in acquiring our company or all or a significant portion of our assets; (ii) identify and implement measures to conserve our existing cash resources, (iii) restructure our existing indebtedness including various general creditors, and (iv) raise sufficient capital to satisfy our working capital and debt service requirements for the foreseeable future. Presently we are considering the sale of all of our pharmaceutical product and license rights. We laid off our sales force in March 2004 for cash conservation purposes. We also committed in December 2003 to sell or discontinue the operations of the As We Change mail order catalog business as we projected that it would continue to incur losses for the foreseeable future and was not a core element of our specialty pharmaceutical business.

Pending the sale of our company or key assets, we are seeking to continue generating prescription demand and product sales at minimal costs with limited marketing and no detail sales efforts.

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 Company and The Gillette Company. Vaniqa® Cream is a topical cream clinically proven to slow the growth of unwanted facial hair in women, was approved for marketing by the FDA in July 2000 and is the only prescription pharmaceutical product 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 $39.2 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 BMS 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 supply agreement with BMS, whereby, as amended, BMS will manufacture Vaniqa® Cream through June 2007.

We financed the Vaniqa® Cream acquisition and related costs 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 January 2004, and to 13% per annum in July 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 with a first security interest by our Vaniqa® Cream, Ortho-Est®, and Bactrim^TM product rights and substantially all other assets of the Company, other than our license rights to Esclim^TM. In addition, the notes are secured with a second security interest in our Equagesic® and Synalgos® product rights. The convertible redeemable preferred stock had an aggregate initial stated value of $13.0 million, accreted quarterly at a rate of 10% per annum through December 31, 2003, increases to 11.5% per annum through June 30, 2004, and 12.5% per annum thereafter. 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 or redeemed early, we will be required to redeem the convertible redeemable preferred stock for cash at its accreted stated value plus accreted unpaid dividends 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, 75% of the proceeds of future sales of equity securities, and 50% to 100% of the proceeds derived from asset sales, as specified in the relevant documents. 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. We must also generally use 75% of our “excess cash flow,” as defined, to redeem the senior secured notes and, subject to the rights of the senior secured notes, the convertible redeemable preferred stock.

The financing was provided by certain affiliates of CIBC Capital Partners and Whitney & Co., LLC. Among other affirmative covenants, the holders of the senior secured notes and the convertible redeemable preferred stock are jointly entitled to appoint one non-voting observer to attend our Board of Directors meetings, 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 at the closing. For more information about possible defaults under the senior secured notes and the holders’ rights in such an event, see “Risks and Uncertainties — Risks Related to Our Business.”

In December 2003, we entered into an agreement with Shire Pharmaceuticals Ireland Limited (“Shire”), an affiliate of Shire Pharmaceuticals Group plc, to sub-license exclusive rights to manufacture,

Under the terms of our sub-license and supply agreement with Shire, we sold and transferred to Shire certain trademarks, regulatory documentation and books and records relating to Vaniqa® Cream in the licensed territories and granted sublicenses of certain of our rights under the license and related agreements with BMS, Gillette and their former joint venture partnership. In addition, for a limited period of time, Shire may purchase its supply of Vaniqa® Cream indirectly through us, from BMS, pursuant to the Company’s existing supply agreement with BMS.

In accordance with the terms of our senior secured notes and convertible redeemable preferred stock, we applied 75% of the net proceeds from the Shire transaction to redeem a portion of our outstanding convertible redeemable preferred stock. As part of the transaction, the holders of our senior secured notes and convertible redeemable preferred stock consented to the transaction and released their security interest in the assets sold to Shire under the terms of a collateral release and non-disturbance agreement.

Esclim^TM. In July 1999, we entered into a seven year distribution and license agreement with Laboratoires Fournier S.A. (“Fournier”) 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 July 2006). 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 strengths including 0.025, 0.0375, 0.05, 0.075 and 1.0 milligrams per day. The Esclim^TM product, which received FDA approval in August 1998, is a leading transdermal estrogen product in France and has been launched in a number of European countries and Canada. The distribution and license agreement required us to pay Fournier a non-refundable license fee of $1.1 million, of which $0.75 million was paid in 1999 and $0.35 million was paid in November 2001. Fournier is solely responsible for the manufacture of the product and for quality assurance, quality control and other aspects of manufacturing the product. Fournier has transferred to us responsibility for the New Drug Application filed with the FDA with respect to the product. We are solely responsible for U.S. customs clearance, sales, marketing, advertising and distribution of the product and for handling product complaints. In January 2002, Esclim^TM was added to the highest priority formulary listing with the country’s largest prescription benefit manager, AdvancePCS. In March 2002, Esclim^TM was added to formularies at two additional large prescription benefit managers: Caremark’s Preferred and Primary Drug Lists and Express Scripts® Expanded Formulary. Effective April 1, 2003, Esclim^TM was added to the formulary at Medco Plan Sponsors.

On March 30, 2004, we received a notice of default and request for cure from Fournier relating to $0.2 million due on February 29, 2004. Under the distribution and license agreement, we have 60 days to cure this breach. Fournier also has asked for adequate assurances of due performance under the agreement under Section 2-609 of the Uniform Commercial Code and has indicated that it will suspend performance under the agreement until it receives such assurances. Fournier further states that unless it receives the requested assurances from us by April 30, 2004, it will take the position that we have repudiated the agreement. If not cured, we do not believe Fournier’s suspension of performance will have a material impact on us for at least the next two to five months. We believe there is at least two months of product at each dosage in the distribution channel and at our third-party distribution center.

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 us an exclusive license to use the “Ortho-Est®” 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. Ortho-Est® Tablets are manufactured by Pharmaceutics International Inc. under a five-year agreement that expires in February 2007. Ortho-Est® is on formulary at Advance PCS, Express Scripts and MedCo Plan Sponsors.

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. In August 2001, Midrin® was scheduled by the Drug Enforcement Agency (“DEA”), 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. The purchase price of $15.0 million was financed through the issuance to Élan of an $11.0 million convertible secured promissory note as well as the issuance of 0.4 million shares of common stock valued at $4.0 million. 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 $10.49 per share, subject to certain adjustments. Interest totaling $1.6 million was compounded semi-annually and added to principal through June 2003, and is payable in cash quarterly thereafter. The Midrin® product rights secure this note. We recorded an impairment charge of $11.4 million against the Midrin® product rights in 2003. Midrin® is on formulary at Caremark, Express Scripts® and Medco Plan Sponsors.

Bactrim^TM. In October 2001, we acquired exclusive U.S. rights to the Bactrim^TM family of antibacterial products, including an exclusive royalty-free license to use the Bactrim^TM trademark in the U.S., 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. Subject to certain terms of the agreement, we can extend this royalty-free license in the U.S. to new delivery forms, reformulations and other modified forms of Bactrim^TM. We paid $6.0 million in cash to acquire all existing U.S. inventory and rights to the New Drug Applications for Bactrim^TM DS Tablets, Bactrim^TM Tablets, Pediatric Suspension and Intravenous Infusion. The active ingredients in Bactrim^TM are trimethoprim and sulfamethoxazole. We recorded an impairment charge of $4.0 million against the Bactrim^TM product rights in 2003.

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 includes relevant trademarks and the Abbreviated New Drug Application and New Drug Application for Equagesic®, a DEA schedule IV drug, and Synalgos®-DC, a DEA 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 remainder payable in cash in three equal annual installments. As amended, the November 2002 note payment was reduced to $3.0 million and the November 2003 payment was split into two installments of $1.63 million, of which the first installment was paid in December 2003, and the second installment is due in May 2004, with interest at 12%. The current principal outstanding under the amended promissory note is $4.9 million. The note is secured by the Equagesic® and Synalgos® product rights. We recorded an impairment charge of $9.7 million against the Equagesic® and Synalgos® product rights in 2003.

We previously offered 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 offered women a wide range of products designed to offer product solutions to meet the needs of women at midlife. In December 2003, we committed to selling or shutting down our consumer products subsidiary, As We Change, as we projected it would incur losses for the foreseeable future and does not constitute a core element of our specialty pharmaceutical business.

In January 2004, there are estimated to be over 57,000 board certified obstetricians and gynecologists and over 13,000 board certified dermatologists in the United States. Up through our restructuring in mid-March 2004, we had 29 highly trained dedicated sales representatives and 8 flex-time representatives to market and sell Vaniqa® Cream and Esclim^TM to those dermatological practices where we believe there was the greatest potential for Vaniqa® Cream and those obstetrician/gynecologist practices that have proven to be our top prescribers. As of March 26, 2004, we had no sales representatives, and only one national account manager focused on maintaining our products on formulary at managed care organizations. We have retained management and staff to support our marketing and regulatory efforts, and a customer service representative.

From time to time, we engaged the services of third-party contract sales organizations to promote our products. In September and December 2002, we hired third-party sales organizations with established dental and dermatology marketing and sales teams, to promote Synalgos® to dental offices and Vaniqa® Cream to dermatologists. In March and August 2003, we terminated these relationships as the forecasted prescription demand was not achieved. We may look to partner with other contract sales organizations in the future.

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, production, packaging, labeling and shipping of finished goods to our distribution center. In each case, we are dependent on single sources of supply for the pharmaceutical products we offer. The following companies are sole suppliers for the indicated products:


	•	BMS supplies Vaniqa® under a five-year agreement, as amended, that expires in June 2007.

	•	Fournier, a French company, supplies Esclim^TM under a seven-year agreement that expires in July 2006.

	•	Pharmaceutics International, Inc. supplies Ortho-Est® Tablets to us under a five-year agreement that expires in February 2007.

	•	Mallinckrodt Inc. supplies Midrin® pursuant to periodic purchase orders, as we do not have a formal supply agreement.

	•	Mutual Pharmaceutical Company, Inc. supplies Bactrim^TM under a five-year term agreement that expires in January 2007.

	•	Wyeth, as successor to American Home Products Corporation, supplied Equagesic® Tablets and Synalgos®-DC capsules under an agreement that expired in November 2003. We are in final negotiations with an alternative supplier and believe we have sufficient quantities on hand to cover expected sales orders for several quarters.

In general, our supplier agreements allow either party to terminate the agreement early if the other party is in default of any material obligations and fails to cure the default timely after notice. In addition, our supplier 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.

We have an agreement with UPS Supply Chain Management, Inc. for warehousing, distribution, logistics management and billing for the pharmaceutical products we sell. Such an agreement may be terminated, by either party, at any time upon 90 days notice.

The health care industry is intensely competitive, characterized by continuous product development and subject to rapid technological change. Our principal competitors are large, well-known pharmaceutical, life science, health care companies and manufacturers of generic substitutes that have considerably greater financial, sales, marketing, technical and developmental capabilities and resources than we have. Additionally, these competitors have research and development capabilities that may allow them to develop new

Vaniqa® (eflornithine hydrochloride) Cream, 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 has only recently begun to market the product. Vaniqa® Cream is the only prescription product available for unwanted facial hair in women. 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 the over-the-counter form.

The hormone replacement therapy pharmaceutical products we offer face significant competition. 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 and Pharmacia Corporation, divisions of Pfizer, Solvay Pharmaceuticals, Inc., Barr Laboratories, Inc., King Pharmaceuticals 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 compete in the estrogen replenishment therapy market, a market dominated by Premarin^TM, a product manufactured by Wyeth. 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. Triptans are manufactured by several companies, 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® and Vicoprofen® from Abbott Laboratories and codeine products such as Tylenol® with Codeine, manufactured by McNeil Consumer Healthcare, a subsidiary of Johnson & Johnson.

Competition for the self-care products has been significant. As We Change competed 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.

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.

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 two patents on Vaniqa®, a use patent covering eflornithine hydrochloride for inhibition of hair growth that expires January 2005, and a formulary patent that expires in July 2014. We have licensed these patent rights from Gillette, 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 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 defending 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 have been assigned to us.

Trademarks and Domain Names. As We Change owns the registered U.S. trademark As We Change®. In addition, we own several trademark registrations, including 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® and Esclim^TM trademarks during the term of these agreements. We also own the rights to the Vaniqa® trademark and the Vaniqa® 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,” “vaniqa.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.

The manufacturing, processing, formulation, clinical investigation, packaging, labeling, storage, promotion, distribution and advertising of the products we offer are subject to extensive rigorous regulation by one or more federal agencies including the FDA, DEA, U.S. Department of Agriculture, Environmental Protection Agency (“EPA”), 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.

The FDA administers the Food, Drug and Cosmetic Act, or FDCA, and related regulations, which govern, among other things, the development, testing, approval, safety, effectiveness, manufacture, labeling, storage, recordkeeping, export, advertising and promotion of prescription drugs, a category that includes our products. Failure to comply with FDA requirements may subject us and/or our contract manufacturers to administrative or judicial sanctions, including FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, fines, injunctions and/or criminal prosecution.

All of the prescription drug products that we market have been approved by the FDA, except Midrin®, however, we are subject to a number of post-approval requirements. Midrin® is a “grandfathered” product that was introduced prior to 1962. The FDA has the authority to revoke existing approvals or to review the status of currently exempt pharmaceuticals and require application and approval of prescription drugs if new information reveals that they are not safe or effective. Drugs that contain ingredients that are considered to be controlled substances under the Controlled Substances Act and related regulations are administered by the DEA. These regulations require registration of facilities that manufacture, distribute, dispense, import or export controlled substances; establish labeling and packaging requirements; establish production and manufacturing quotas; require extensive recordkeeping and reporting; and impose other requirements to ensure appropriate security, control and accounting mechanisms to prevent drug loss and diversion. The DEA conducts periodic inspections of establishments that handle controlled substances. Failure of our manufacturers or distributors to comply with DEA requirements could result, among other consequences, in DEA failure to renew registrations, suspension or revocation of existing registrations, civil penalties, forfeitures or criminal prosecution. Midrin®, Equagesic® and Synalgos®, contain such ingredients. As a result, packaging for these drugs must be clearly labeled and be in tamper-resistant packages. In addition, we are required to maintain a DEA license to distribute the products, and because the active ingredient in Synalgos® is strictly controlled by the DEA, the quantity of Synalgos® that we may have manufactured is limited.

If we seek to make certain changes to an approved product, such as promoting or labeling a product for a new indication, making certain manufacturing or dosage changes or product enhancements or adding labeling claims, we will need FDA review and approval before the change can be implemented. While physicians may use products for indications that have not been approved by the FDA, we may not label or promote the product for an indication that has not been approved. Securing FDA approval for new indications or product enhancements and, in some cases, for manufacturing and labeling claims, is generally a time-consuming and expensive process that may require us to conduct clinical studies under FDA’s investigational new drug regulations. Even if such studies are conducted, the FDA may not approve any change in a timely fashion, or at all. In addition, certain adverse experiences associated with use of the products must be reported to the FDA, and FDA rules govern how we can label, advertise or otherwise promote our products.

We and the third party manufacturers on which we rely for the manufacture of our products are subject to requirements that drugs be manufactured, packaged, and labeled in conformity with current Good Manufacturing Practices and other requirements. To comply with GMP requirements, manufacturers must continue to spend time, money and effort to meet organization and personnel, facilities, equipment, production and process, labeling and packaging, quality control, recordkeeping and other requirements. Drug manufacturing facilities must be registered with and approved by FDA and must list with the FDA the drug products they intend to distribute. The manufacturer is subject to periodic inspections by the FDA and by other regulatory agencies. The FDA 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 FDA regulates the distribution of samples of drugs. Both FDA and DEA may impose criminal penalties arising from non-compliance with applicable regulations.

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

As of March 26, 2004, we employed 16 continuing full-time people. In March 2004, we announced restructuring plans in order to conserve cash and laid off 78 employees (80% of our workforce), including our entire sales force of 44 employees, 28 employees employed by the As We Change® mail order catalog business

and 6 other operational and administrative support personnel. As part of a restructuring and downsizing in March 2003, we laid off 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 satisfactory. Our ability to achieve our strategic, financial and operational objectives depends in large part upon the continued service of our senior management and key personnel. Competition for qualified personnel in the pharmaceutical and health care industry is intense.

Sales of our pharmaceutical products do not tend to be seasonal. Sales of our self-care products typically were 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 sales of our merchandise related to fashion and exercise typically were 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 did not use the catalog for gift buying, making the last calendar quarter the weakest.

On our website, www.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.

Unless we are able to sell assets or raise additional financing, we may not have adequate cash to meet our working capital and debt service needs beyond mid-April 2004. Substantial doubt exists about our ability to continue as a going concern.

We had approximately $1.1 million in cash and cash equivalents as of March 26, 2004. As of December 31, 2003, our working capital deficit was approximately $56.0 million, including long-term debt re-classified to current liabilities of approximately $38.0 million. We have estimated the timing and amounts of cash receipts and disbursements over the near term, and believe that unless we are able to raise additional financing we may not have adequate cash to meet our working capital and debt service needs beyond mid-April 2004. All of our assets (other than our license rights interest to the Esclim^TM patch) have been pledged to secure our obligations under our various debt agreements. We expect that we will be in default of our obligations under our $28.0 million original principal amount of senior secured notes for the quarter ending March 31, 2004. We also expect that we will not have adequate cash to make our interest and principal payments due in the second quarter under the Elan and Wyeth notes payable. Under each of these notes, any default would provide the note holders with rights to declare the notes to be immediately due and payable and to foreclose on the assets that have been pledged to secure our obligations under the notes. If our note holders choose to exercise their rights upon our anticipated defaults, our other lenders also could seek to accelerate our indebtedness under those obligations and we would likely seek the protection afforded by the federal bankruptcy laws. Any such exercise would have a material adverse effect on our business. In addition, even if we did not elect to seek bankruptcy protection, our lenders could institute an involuntary bankruptcy proceeding against us. There would likely be no assets available for distribution to our stockholders if the obligations under our debt agreements were to be accelerated.

Our cash shortage, significantly negative working capital position, anticipated defaults under our debt agreements and our potential need to seek protection under the federal bankruptcy laws raise substantial doubt about our ability to continue as a going concern. Our independent public accountants have expressed substantial doubt about our ability to continue as a going concern in their audit report.

We have retained Miller Buckfire Lewis Ying & Co., LLC (“MBLY”) to assist in exploring opportunities to sell our company or some or all of our pharmaceutical products or license rights, to restructure our significant outstanding indebtedness and to obtain new sources of financing. We and MBLY have begun discussions with the holders of our $28.0 original principal amount of senior secured notes to obtain a

forbearance agreement to defer near-term interest payments, address likely future covenant violations and additional financing needs, but there can be no assurance that the senior lenders will grant such forbearance or that such additional financing will be available. If we are unsuccessful in promptly implementing a transaction to sell our company or some or all of our assets or in obtaining additional financing, our company may be forced to continue to withhold payment to suppliers, commence withholding payment to debt holders and others. In such a case, our company could be required to file for bankruptcy protection. Although we have received indications of interest from potential acquirers of one or more of our pharmaceutical products and potential sources of financing, our company does not have any definitive agreements in place. There can be no assurance that a sale of assets or a financing on terms acceptable to us or our creditors can be agreed to and implemented.

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

As of December 31, 2003, we had outstanding debt obligations of $42.7 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 interest totaling $1.6 million accreted to the principal balance of the note through June 2003. Thereafter, we have been required to make quarterly interest payments in cash. The total principal plus accrued interest under our note of $12.6 million to Élan is due in June 2008. We issued a non-interest bearing promissory note to Wyeth to acquire the product rights for Equagesic® and Synalgos®, of which $4.9 million remains outstanding. As amended, we are required to make a principal payment of $1.6 million plus 12% interest in May 2004, and a $3.25 million principal only payment on 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 January 2004, and 13% per annum in July 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 had 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 January 2004 and 12.5% in July 2004. Unless previously converted, we are 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 pledged our Vaniqa® Cream, and substantially all of our other assets other than our rights to Esclim^TM and Midrin®, to secure our obligations under the senior secured notes and convertible redeemable preferred stock. We also pledged assets related to Midrin®, Equagesic® and Synalgos® as first security for the repayment of the related debt obligations. If we default on our obligations, we may lose our rights to the products in which the lenders have a security interest.

We estimate that existing channel inventories for our significant products, as of December 31, 2003, are adequate to satisfy expected prescription demand for the next three to 15 months. As a result, we may be unable to record any significant cash-generating revenues during 2004.

We estimated inventories in the distribution channel (“channel inventories”) by obtaining and utilizing detailed inventory information obtained from key customers, historical data and trends, and industry information we purchase from nationally recognized providers of this information. Based on our expected prescription demand for our significant products, we estimated that existing channel inventories are adequate to satisfy prescription demand for the next three to 15 months as of December 31, 2003. Due to the adequacy of the existing channel inventories, the amounts of replacement product we owed to customers as of December 31, 2003, and the elimination of the sales force in March 2004, there is a significant risk that we will be unable to generate any significant cash-generating revenues (as compared to revenues recognized upon completion of sales previously recorded as deferred revenues for which we previously received payment) during 2004. This may cause us to default on our debt covenants, harm our ability to raise financing and infringe on our formulary position under our managed care contracts.

We estimate our inventory obsolescence and product returns reserve requirements based, in part, on our expected trends for future prescriptions and sales.

We report revenue net of estimated reserve for product returns, replacements, rebates, chargebacks and prompt pay discounts. We estimate out reserve requirements utilizing historical data, industry information and information obtained from key customers. We generally accept for credit or exchange pharmaceutical products that have become unsaleable or unusable due to expiration dating, drug recall or discontinuance. If actual results differ from the estimates, the reserves are adjusted in the period the difference is known. Based on our agreements with our customers and our historical experience with actual product returns for replacement or credit, we estimate the amount of product that we expect to be returned for replacement or credit. The estimated product to be returned for replacement is provided for at our inventory value (actual replacement cost), and the estimated product to be returned for credit is provided for at our sales price. The actual amounts could be different from the estimates and differences are accounted for in the period they become known. We may be unable to generate the prescription demand forecasted for certain products in 2004. The loss of our managed care contracts would adversely affect demand for our products. Any significant decline in prescription demand from our estimates could result in a material increase in our inventory obsolescence and product return requirements reserve requirements, which would adversely affect our results of operations and could harm our stock price.

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 our senior secured notes and convertible redeemable preferred stock 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 and sell assets. In addition, our senior secured notes require us to maintain minimum cash revenues, set maximum cash expenditure levels and maintain a minimum cash balance of $2.0 million through December 31, 2004. The minimum cash we are required to have at the end of each month in 2004 is $1.5 million. As of March 26, 2004, we had cash and cash equivalents of approximately $1.1 million, and we do not expect to satisfy the “cash revenue” covenant under the senior secured notes for the period ending March 31, 2004. Any default by us under the senior secured notes allows the note holders to accelerate our indebtedness under the senior secured notes. If the note holders seek to exercise their remedies against us, including immediate acceleration of the senior secured notes, we would likely be required to file for protection under the federal bankruptcy laws which would have a material adverse effect on our business and, in turn, any investment in our common stock.

We face possible delisting from the Nasdaq National Market, which would result in a limited public market for our common stock.

Our common stock trades on the Nasdaq National Market, which specifies certain requirements for the continued listing of common stock. There are several requirements for the continued listing of our common stock on the Nasdaq National Market including, but not limited to, a minimum stockholders’ equity value of $10.0 million and a minimum stock bid price of $1.00 per share. As of December 31, 2003, we had a stockholders’ deficit of $24.3 million, and our closing stock price as of March 26, 2004 was $0.20. We expect that the Nasdaq National Market will notify us of its intent to de-list our common stock soon after the filing of this Annual Report on Form 10-K. While we expect that our stock would continue to trade on the Over The Counter (“OTC”) Bulletin Board following any delisting from the Nasdaq National Market, any such delisting of our common stock could have a material adverse effect on the market price of, and the efficiency of the trading market for, our common stock. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise such equity capital.

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

Historically, a limited number of customers have accounted for a significant portion of our total revenues. Four key customers, McKesson Drug Operations, QK Healthcare, Inc., Cardinal Health, Inc. and AmerisouceBergen Corp., each individually accounted for greater than 10% of our total revenues for the year ended December 31, 2003. Together, these customers accounted for approximately 55% of our gross revenues for the year ended December 31, 2003, and 88% and 70% of our total revenues for the years ended December 31, 2002 and 2001, respectively. We have no long-term purchase commitments from any customers or managed care organizations. We anticipate that our operating results will continue to depend to a significant extent upon revenues from a small number of customers. The loss of any of our key customers or managed care providers, or a significant reduction in sales to or prescription demand pull through from those customers/organizations, could significantly reduce our revenues. During 2003, we experienced such a reduction in our sales to these customers primarily due to our declining prescription demand across most products. In addition, because these key customers purchase such a relatively large percentage of our products and the managed care organizations generate significant prescription demand for us, we may be particularly susceptible to risks of cancellation of product orders or returns of unsold products from these key customers.

In March 2004, we laid off our 44-member sales force in an effort to conserve cash. Our sales force previously served as the primary means by which we sought to generate awareness or demand for our products. The termination of our sales efforts could significantly reduce our revenues, harm our financial results and further depress the price of our common stock. Further, our competitors may be able to encroach on our business, which could reduce our revenues, harm our financial results and further depress the price of our common stock. In addition, we have deferred payments owed to some of our managed care organizations and this may adversely affect our ability to retain their service in the future.

We have experienced significant losses since our inception, and rely on sales from two major products for a substantial portion of our future revenue and cash flow.

We have incurred significant losses since we were founded in November 1996, accumulating a deficit of $147.9 million through December 31, 2003. We have not achieved profitability in any complete fiscal year since our inception. Problems, delays and expenses that we may encounter include, but are not limited to, unanticipated product returns or problems and additional costs related to marketing, competition, technology transfers, manufacturing and supply, 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.

A substantial portion of our future revenues and cash flows are estimated to come from sales of Vaniqa® Cream and Esclim^TM products. We rely on these products for substantially all of our revenues and cash flows. Effective March 19, 2004, we laid off our 44-member sales force. Accordingly, we do not expect to maintain or increase prescription levels for these products, adversely affecting our sales. Sales of our products also are subject to the following risks, among others: (i) the ability of our competitors to price products below a price at which we can competitively sell these products; (ii) physician or public perception that these products are not safe or effective; (iii) the introduction of new competitive generic or branded products; and (iv) a suspension or reduction in sales of these products as a result of an adverse event experienced by a patient.

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 or liabilities to customers in future periods.

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

detailed information regarding the channel inventory at specific customer locations. We will generally accept for credit or replacement pharmaceutical products that have become unsaleable or unusable due to expiration dating, drug recall or discontinuance. We establish reserves for these credits and replacements at the time of sale. There can be no assurance that we will be able to accurately estimate the reserve requirement that will be needed in the future. Although our estimates are reviewed quarterly for reasonableness, our product return, rebate or chargeback activity could differ significantly from our estimates. Because of the impact of our lay off of our sales force in March 2004, our analysis of product shipments, prescription trends and the amount of product in the distribution channel may not be accurate. Judgment is required in estimating these reserves and we rely on data from third parties. The actual amounts could be different from the estimates, and differences are accounted for in the period in which they become known. If we determine that the actual amounts exceed the reserve amounts, we will record a charge to earnings approximating such difference. A material reduction in earnings resulting from such a charge could cause us to fail to meet our covenant requirements, the expectations of investors and securities analysts, which could cause the price of our stock to decline.

We also establish reserves for potentially excess, dated or otherwise impaired inventories. Reserves for excess inventories are based on an analysis of expected future sales that will occur before the inventories on hand or under a firm commitment will expire. The analysis is based on the total amount of inventories on hand or under a firm purchase commitment, forecasts of future sales, promotional focus, channel inventory data and prescription activity, which are purchased from nationally recognized providers of channel inventory data and prescription data. In addition, we obtain detailed inventory information from key customers in order to provide more meaningful analysis of the channel inventories. Judgment is required in estimating the inventory reserves. The actual amounts could be different from the estimates and differences are accounted for in the period in which they become known.

To recognize revenue under generally accepted accounting principles, we must be able to reasonably estimate the amount of future product returns and rebate/chargeback liabilities. 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 report revenue net of actual product returns received for replacement, estimated reserves for product returns, exchanges, rebates, distributor chargebacks, and prompt pay discounts. We estimate our reserve requirements utilizing historical data, industry information, and detailed information obtained from key customers. We generally accept for credit or exchange pharmaceutical products that have become unsaleable or unusable due to expiration dating, drug recall or discontinuance. If we experience actual results that are significantly different than our estimates, and we conclude that we are unable to reasonably estimate the amount of future returns, rebates, and chargebacks, we may be precluded from recognizing revenue until our products are “pulled through” from the wholesale level to the retail level. This could materially decrease our recognized revenues on a quarterly and annual basis. Our inability to recognize revenue due to our inability to reasonably estimate the amount of future returns, rebates, and chargebacks may cause us to fail to meet the expectations of investors and, in turn, cause the price of our common stock to decline. If actual results differ from the estimates, we adjust the reserves in the period the difference is known.

Certain governmental health insurance providers as well as hospitals and clinics that are members of group purchasing organizations may be entitled to price discounts and rebates to our products used by those organizations and their patients. When recording sales, we estimate the likelihood that products sold to wholesale distributors will ultimately be subject to a rebate or price discount and record sales net of estimated discounts for rebates and chargebacks. This estimate is based on historical trends and industry data from the utilization of our products. If actual rebate liabilities exceed our established reserve provisions, we may incur higher costs than we had expected, and higher cash expenditures for rebates.

We defer revenue, net of direct cost of sales, if, in our judgment, we estimate that key wholesale customers have excess channel inventory (i.e., if our wholesale customers’ inventory exceeds our estimates of demand at the retail level, after considering factors such as product shelf-life, prescription activity and trends). As of December 31, 2003, we had deferred revenue of $1.8 million, which is included in the accompanying consolidated balance sheets. The deferral of revenue primarily arose from slower than anticipated prescription growth for our products during the fourth quarter of 2002 and 2003. There can be no certainty that we will be

able to recognize this revenue in the future. The actual amounts could be different from the estimates and differences are accounted for in the period 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 have taken significant impairment charges against product rights assets in 2003. We may sell these product rights for less than their adjusted book value, thereby negatively impacting future earnings.

We have announced plans to consider the sale of all of our product rights. 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 and for less than the outstanding debt for which such assets are collateral. 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 our expectations and those of our investors. This may further depress the price of our common stock.

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 decline further.

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 demand for our products,

	•	our ability adequately to address our current financial condition,

	•	the timing of new product offerings or other significant events by our competitors,

	•	our ability to maintain our formulary status with Esclim^TM,

	•	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,

	•	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 or further deterioration in our prescription demand for our promoted products,

	•	the timing and amount of possible future impairment write-downs or write-offs of product rights and other long-lived assets,

	•	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. In addition, we have deferred payments owed to some of these suppliers, and this may adversely affect our ability to obtain future supply of such product. The following companies are currently our sole suppliers for the indicated products:


	•	BMS supplies Vaniqa® under a five-year agreement, as amended, that expires in June 2007,

	•	Fournier, a French company, supplies Esclim^TM under a seven-year agreement that expires in July 2006,

	•	Pharmaceutics International, Inc. supplies Ortho-Est® Tablets to us under a five-year agreement that expires in February 2007,

	•	Mallinckrodt Inc. supplies Midrin® pursuant to periodic purchase orders as we do not have a formal supply agreement,


	•	Mutual Pharmaceutical Company, Inc. supplies Bactrim^TM under a five-year agreement that expires in January 2007, and

	•	Wyeth, as successor to American Home Products Corporation, supplied Equagesic® Tablets and Synalgos®-DC capsules under an agreement that expired in November 2003. We believe we have sufficient quantities on hand to cover expected sales orders for several quarters.

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 or it may not be cost effective to pursue incurring the costs to effectuate a technology transfer. In these circumstances, we may be unable to continue to fill customers’ orders as planned.

Our inability 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 will continue to be important to our potential success and competitive position. If we fail to maintain our existing rights, our competitive position will be harmed. Our license rights to the Esclim^TM estradiol transdermal system expire in July 2006, and Fournier has notified us that it does not intend to renew our license. 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 we sell are not protected by patents. We hold a number of registered trademarks and have applied for registration of a number of key trademarks. 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 those rights altogether. Any of these events could harm our business and your investment in our common stock.

Potential future impairments under SFAS 144 could adversely affect our future results of operations and financial position.

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we periodically evaluate the recoverability of our long-lived assets as well as the related useful lives to determine whether facts and circumstances warrant adjustments to the carrying values and/or estimated useful lives. An impairment loss is measured and recognized if the sum of the expected future discounted 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 would be recorded to write-down the carrying value of the asset to fair value by using quoted market prices when available. When a quoted market price is not available, an estimated fair value would be determined through other valuation techniques. We have used projected discounted cash flows to reflect the expected technical, commercial, competitive and other factors related to acquired technologies or product, and comparisons to similar asset sales and valuations by others, to estimate the fair value of our intangible assets. Performance in future periods may result in our products not meeting expectations and leading to lower than expected cash flows, in which case product rights will be revalued and an impairment charge will be recorded when determined. A material reduction in earnings resulting from such a charge could cause us to fail to be profitable in the period in which the charge is taken or otherwise to fail to meet the expectations of investors and securities analysts, which could cause the price of our stock to decline. In 2003, we recorded impairment charges of $25.1 million.

In addition, under the SFAS 142, Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to have indefinite lives are not amortized but instead are subject to annual impairment tests in accordance with the statement. As of December 31, 2003, we had no carrying value for goodwill and intangible assets as we wrote off all such assets in December 2003 upon committing to discontinue our As We Change catalog operation.

Our stock price has recently suffered significant declines and remains volatile.

The market price of our common stock declined significantly in March 2004 and may continue to decline in the future. From January 1, 2000 to March 26, 2004, our stock has ranged from a high sales price of $11.84 to a low sales price of $0.18. Factors beyond our control such as stockholders’ reactions to our public announcements, de-listing from the Nasdaq National Market, our liquidity problems, our restructuring efforts, sales of substantial amounts of shares by large stockholders, concern as to safety of drugs, competitive factors and general market conditions, can have an adverse effect on the market price of our securities. Shortfalls in our revenues, earnings, customer growth or other business metrics in any given period relative to the levels and schedule expected by securities analysts, could immediately, significantly and adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the subject company. Litigation of this type could result in substantial costs and a diversion of our management’s attention and resources which could, in turn, have a material adverse effect on our business, financial condition and results of operations. We have directors and officers insurance for this type of action but may be unable to buy such coverage in the future because of our results and expected increase in cost.

We have implemented anti-takeover provisions that could delay or prevent a change of control of our Company and prevent an acquisition at a premium price.

Provisions of our Fourth Amended and Restated Certificate of Incorporation, as amended, and Second Amended and Restated Bylaws may discourage, delay or prevent a merger or other change of control that stockholders may consider favorable or may impede the ability of the holders of our common stock to change our management. These include provisions classifying our board of directors, prohibiting stockholder action by written consent and requiring advance notice for nomination of directors and stockholders’ proposals. In addition, Section 203 of the Delaware General Corporation Law also imposes restrictions on mergers and other business combinations between our Company and any holders of 15% or more of our common stock. Moreover, our certificate of incorporation allows our board of directors to issue, without further stockholder approval, preferred stock that could have the effect of delaying, deferring or preventing a change in control. The issuance of preferred stock also could adversely affect the voting power of the holders of our common

stock, including the loss of voting control to others. In 2001, we adopted a Change in Control/Severance Policy that may have the effect of discouraging a third-party from attempting to acquire us. Our option plans provide that unvested options will become fully vested and exercisable upon a change in control of Women First. The provisions of our certificate of incorporation and bylaws, our option plans, as well as certain provisions of Delaware law, may have the effect of discouraging or preventing an acquisition, or disp


Delaware		13-3919601
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Consolidated Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results Of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
SIGNATURES
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
EXHIBIT 10.41
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


		Page

PART I
Item 1.	Business		1
Item 2.	Properties		20
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		21
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		21
Item 6.	Selected Consolidated Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		36
Item 8.	Financial Statements and Supplementary Data		36
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		36
Item 9a.	Controls and Procedures		36
PART III
Item 10.	Directors and Executive Officers of the Registrant		37
Item 11.	Executive Compensation		40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		43
Item 13.	Certain Relationships and Related Transactions		45
Item 14.	Principal Accountant Fees and Services		46
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Forms 8-K		47

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Item 1.	*Business*


	*Pharmaceutical Products*


	Pharmaceutical Products


	Self-Care Products