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

FORM 10-Q

Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

Commission file number 0-17254

NOVEN PHARMACEUTICALS, INC.

11960 S.W. 144th Street, Miami, FL 33186

(305) 253-5099

     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   x    No   o.

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

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NOVEN PHARMACEUTICALS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOVEN PHARMACEUTICALS, INC.

The accompanying notes are an integral part of these statements.

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NOVEN PHARMACEUTICALS, INC.

The accompanying notes are an integral part of these statements.

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NOVEN PHARMACEUTICALS, INC.

The accompanying notes are an integral part of these statements.

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NOVEN PHARMACEUTICALS, INC.

1.    DESCRIPTION OF BUSINESS:

	Noven Pharmaceuticals, Inc. (“Noven”) was incorporated in Delaware in 1987 and is engaged in the research, development, manufacture and marketing of prescription transdermal drug delivery products.
	Noven and Novartis Pharmaceuticals Corporation (“Novartis”) entered into a joint venture, Vivelle Ventures LLC (d/b/a Novogyne Pharmaceuticals) (“Novogyne”), effective May 1, 1998, to market and sell women’s prescription healthcare products in the United States and Canada. These products include Noven’s transdermal estrogen delivery systems marketed under the brand names Vivelle® and Vivelle-Dot® and, effective March 30, 2001, Noven’s transdermal combination estrogen/progestin delivery system marketed under the brand name CombiPatch®. Novogyne’s rights to CombiPatch® were acquired from Aventis Pharmaceuticals, the U.S. pharmaceuticals business of Aventis Pharma, AG (“Aventis”), in March 2001 in a series of transactions involving Noven, Novogyne, Novartis and Aventis. Noven accounts for its 49% investment in Novogyne under the equity method and reports its share of Novogyne’s earnings as “Equity in earnings of Novogyne” on its Statements of Operations. Noven defers the recognition of 49% of its profit on products sold to Novogyne until the products are sold by Novogyne.

2.    BASIS OF PRESENTATION:

In management’s opinion, the accompanying unaudited condensed financial statements of Noven contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, the financial position of Noven as of September 30, 2002, and the results of its operations for the three and nine months ended September 30, 2002 and 2001. Noven’s business is subject to numerous risks and uncertainties including, but not limited to, those set forth in Noven’s Annual Report on Form 10-K for the year ended December 31, 2001 (“Form 10-K”) as well as the risk that the results of recent and ongoing studies on the adverse health effects of certain forms of hormone replacement therapy (“HRT”) may result in lower sales by Noven or Novogyne in future periods and the risk that the increase in inventory levels at Novogyne and Novogyne’s trade customers may have a further material adverse impact on Noven’s liquidity, results of operations and business. Accordingly, the results of operations and cash flows for the three and nine months ended September 30, 2002 and 2001 are not, and should not be construed as, necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 2002.

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The unaudited condensed financial statements should be read in conjunction with the financial statements and the notes to the financial statements included in Noven’s Form 10-K.

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	The accounting policies followed for interim financial reporting are the same as those disclosed in Note 2 of the notes to the financial statements included in Noven’s Form 10-K.

3.    INVENTORIES:

	The following are the major classes of inventories (in thousands):

4.    CASH FLOW INFORMATION:

	Cash payments for income taxes were $4.8 million in 2002 and $0.9 million in 2001. Cash payments for interest were $14,000 in 2002 and $29,000 in 2001.
	In connection with the CombiPatch® transaction consummated in March 2001, a final $10.0 million quarterly installment of the purchase price was paid by Novogyne directly to Aventis in March 2002.
	Noven recorded $0.2 million and $1.3 million in income tax benefits to additional paid-in capital for the nine months ended September 30, 2002 and 2001, respectively, which were derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options.

5.    LICENSE AGREEMENTS:

In the fourth quarter of 2001, Noven received a $5.0 million milestone payment from Novartis Pharma AG (“Novartis AG”) under the Estradot® license agreement even though the regulatory approval that was to trigger the milestone payment had not yet been received. Novartis AG received the applicable regulatory approval in the first quarter of 2002. Accordingly, the $5.0 million payment was deferred at December 31, 2001 and is being recognized as license revenue beginning in the first quarter of 2002 through the fourth quarter of 2010.

6.    INVESTMENT IN NOVOGYNE:

Noven shares in the earnings of Novogyne, after satisfaction of an annual preferred return of $6.1 million to Novartis, according to an established formula. Noven’s share of Novogyne’s earnings increases as Novogyne’s product sales increase, subject to a cap of 49%. Novogyne produced sufficient income in the first quarters of 2002 and 2001 to meet Novartis’ annual preferred return for those years and for Noven to recognize earnings from Novogyne under the formula.

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	During the three and nine months ended September 30, 2002 and 2001, Noven had the following transactions with Novogyne (in thousands):