ANDRX CORP /DE/ - 10-Q Quarterly Report

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

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FORM 10-Q

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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2003

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Commission file number 0-31475

ANDRX CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 65-1013859
State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)

4955 ORANGE DRIVE
DAVIE, FLORIDA 33314
(Address of principal executive offices) (Zip Code)

(954) 584-0300
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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:
[X] YES [ ] NO

The approximate number of shares outstanding of the issuer's common stock as of
May 12, 2003 is 71,871,000.

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ANDRX CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003

PAGE
NUMBER
======

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ANDRX CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets - 2
as of March 31, 2003 and December 31, 2002

Unaudited Condensed Consolidated Statements of Income - 3
for the three months ended March 31, 2003 and 2002

Unaudited Condensed Consolidated Statements of Cash Flows - 4
for the three months ended March 31, 2003 and 2002

Notes to Unaudited Condensed Consolidated Financial Statements 5-17

Item 2. Management's Discussion and Analysis of 18-41
Financial Condition and Results of Operations

Item 4. Controls and Procedures 42

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 43
Item 6. Exhibits and Reports on Form 8-K 43

SIGNATURES 43

CERTIFICATIONS 44-45

This Form 10-Q contains trademarks held by Andrx and third parties. Andrx's
trademarks, including licensed trademarks, that may be used in this report
include: Altocor(TM), Anexsia(R), Embrex(R), Entex(R), Metformin XT(TM), and
Taztia(TM) XT. Trademarks held by third parties that may be used in this report
include: Advicor(TM), Cardizem(R) CD, Claritin(R), Dilacor XR(R), Glucophage(R),
K-Dur(R), Naprelan(R), Oruvail(R), Pepcid(R), Prozac(R), Prilosec(R), Tiazac(R),
Trental(R), Ventolin(R), Wellbutrin SR(R), and Zyban(R).

1

ANDRX CORPORATION AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

MARCH 31, DECEMBER 31,
2003 2002
ASSETS ======== ============

Current assets

Cash and cash equivalents $ 38,626 $ 35,521
Investments available-for-sale, at market value 28,321 61,873
Accounts receivable, net of allowance for doubtful accounts of $16,776 and
$15,495 at March 31, 2003 and December 31, 2002, respectively 137,553 130,044
Inventories 169,678 147,967
Income taxes receivable 28,317 33,710
Deferred income tax assets 68,148 68,148
Prepaid and other current assets 9,675 12,371
--------- ----------
Total current assets 480,318 489,634

Property, plant and equipment, net 241,156 233,828
Goodwill 33,981 33,981
Other intangible assets, net 19,183 19,941
Other assets 12,591 12,095
--------- ----------
Total assets $ 787,229 $ 789,479
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable $ 85,693 $ 80,850
Accrued and other liabilities 110,865 127,208
--------- ----------
Total current liabilities 196,558 208,058

Deferred income tax liabilities 12,590 12,590
Other liabilities 3,766 3,124
--------- ----------
Total liabilities 212,914 223,772
--------- ----------

Commitments and contingencies

Stockholders' equity
Convertible preferred stock; $0.001 par value, 1,000,000 shares authorized;
none issued and outstanding -- --
Common stocks:
Andrx Group common stock; $0.001 par value, 100,000,000 shares authorized;
issued and outstanding 71,829,200 shares and 71,501,200 shares
at March 31, 2003 and December 31, 2002, respectively 72 72
Cybear Group common stock; $0.001 par value, 12,500,000 shares
authorized; none issued and outstanding -- --
Additional paid-in capital 491,927 487,928
Restricted stock units (8,232) (6,525)
Retained earnings 90,394 84,038
Accumulated other comprehensive income, net of income taxes 154 194
--------- ----------
Total stockholders' equity 574,315 565,707
--------- ----------
Total liabilities and stockholders' equity $ 787,229 $ 789,479
========= ==========

The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated balance sheets.

2

ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)

THREE MONTHS ENDED
MARCH 31,
---------------------------
2003 2002
---------- ---------

Revenues
Distributed products $ 154,617 $ 127,045
Andrx products 48,432 54,536
Licensing and royalties 31,138 114
Other 2,998 1,624
----------- ----------
Total revenues 237,185 183,319
----------- ----------

Operating expenses
Cost of goods sold 159,033 126,517
Selling, general and administrative 55,480 41,285
Research and development 13,340 9,922
----------- ----------
Total operating expenses 227,853 177,724
----------- ----------

Income from operations 9,332 5,595

Other income (expense)
Equity in earnings of joint ventures 448 645
Interest income 646 1,613
Interest expense (611) (27)
Gain on sales of assets 436 --
----------- ----------
Income before income taxes 10,251 7,826
Provision for income taxes 3,895 3,313
----------- ----------
Net income $ 6,356 $ 4,513
=========== ==========

EARNINGS (LOSS) PER SHARE

ANDRX GROUP COMMON STOCK:

Net income allocated to Andrx Group
(including Cybear Group commencing May 17, 2002) $ 6,356 $ 8,395
=========== ==========

Net income per share of Andrx Group common stock:

Basic $ 0.09 $ 0.12
=========== ==========
Diluted $ 0.09 $ 0.12
=========== ==========
Weighted average shares of Andrx Group common stock outstanding:
Basic 71,597,000 70,552,000
=========== ==========
Diluted 72,059,000 72,317,000
=========== ==========

CYBEAR GROUP COMMON STOCK:
Net loss allocated to Cybear Group (through May 17, 2002) $ (3,882)
==========

Basic and diluted net loss per share of
Cybear Group common stock $ (0.58)
==========

Basic and diluted weighted average shares of
Cybear Group common stock outstanding 6,743,000
==========

The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated statements.

3

ANDRX CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

THREE MONTHS ENDED
MARCH 31,
---------------------------
2003 2002
---------- ---------
Cash flows from operating activities:

Net income $ 6,356 $ 4,513
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,923 5,127
Provision for doubtful accounts 1,517 241
Gain on sales of assets (436) --
Compensation expense on amortization of restricted stock units 377 --
Equity in earnings of joint ventures (448) (645)
Income tax benefits on exercises of Andrx Group stock options 712 1,686
Changes in operating assets and liabilities:
Accounts receivable, net (9,026) 13,776
Inventories (21,711) (11,544)
Prepaid and other assets 2,646 3,605
Income taxes 5,393 1,523
Accounts payable and accrued and other liabilities (11,546) (16,293)
---------- ----------
Net cash provided by (used in) operating activities (19,243) 1,989
---------- ----------
Cash flows from investing activities:
Maturities of investments available-for-sale, net 33,512 39,310
Purchases of property, plant and equipment (12,304) (15,563)
Proceeds from sale of assets 125 --
---------- ----------
Net cash provided by investing activities 21,333 23,747
---------- ----------

Cash flows from financing activities:
Proceeds from exercises of Andrx Group stock options 908 789
Proceeds from issuances of Andrx Group shares
under the employee stock purchase plan 297 616
Principal payments on capital lease obligations (190) --
---------- ----------
Net cash provided by financing activities 1,015 1,405
---------- ----------

Net increase in cash and cash equivalents 3,105 27,141
Cash and cash equivalents, beginning of period 35,521 62,311
---------- ----------
Cash and cash equivalents, end of period $ 38,626 $ 89,452
========== ==========

Supplemental disclosure of cash paid during the period for:
Interest $ 259 $ 27
========== ==========
Income taxes (refunds) $ (2,227) $ 124
========== ==========

Supplemental disclosure of non-cash investing and financing
activities:
Assets acquired through capital leases $ 1,189 $ --
========== ==========

The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated statements.

4

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

1. GENERAL

The accompanying unaudited condensed consolidated financial statements
for each period include the consolidated balance sheets, statements of income
and cash flows of Andrx Corporation and subsidiaries ("Andrx" or the "Company").
All significant intercompany items and transactions have been eliminated in
consolidation. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted pursuant to the SEC rules and
regulations. However, management believes that the disclosures contained herein
are adequate to make the information presented not misleading. In the opinion of
management, the unaudited condensed consolidated financial statements reflect
all material adjustments (which include normal recurring adjustments) necessary
to present fairly the Company's unaudited financial position, results of
operations and cash flows. The unaudited results of operations and cash flows
for the three months ended March 31, 2003, are not necessarily indicative of the
results of operations or cash flows that may be expected for the remainder of
2003. The unaudited condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and related notes
thereto included in Andrx's Annual Report on Form 10-K for the year ended
December 31, 2002. The December 31, 2002 Consolidated Balance Sheet included
herein was extracted from the December 31, 2002 Audited Consolidated Balance
Sheet included in the 2002 Form 10-K.

EQUITY REORGANIZATION AND CONVERSION

On September 7, 2000, Andrx completed an equity reorganization (the
"Reorganization") whereby it acquired the outstanding equity of its Cybear Inc.
subsidiary ("Cybear") that it did not own, reincorporated in Delaware, and
created two new classes of common stock: (i) Andrx Group common stock ("Andrx
Common Stock") to track the performance of Andrx Group, and (ii) Cybear Group
common stock ("Cybear Common Stock") to track the performance of Cybear Group.

On May 17, 2002, each share of Cybear common stock was converted into
0.00964 of a share of Andrx common stock resulting in the issuance of
approximately 65,000 shares of common stock (the "Conversion"). The Conversion
included a 25% premium on the value of Cybear common stock as provided by the
terms of Andrx's Certificate of Incorporation. Subsequent to the Conversion,
Andrx has only one class of common stock outstanding.

RECLASSIFICATIONS

As a result of the Conversion, Internet expenses for the former Cybear
Group operations have been classified as either Selling, general and
administrative expenses ("SG&A") or cost of goods sold, as appropriate. Certain
other prior period amounts have also been reclassified to conform to the current
year presentation.

5

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.146 "Accounting for
Costs Associated with Exit or Disposal Activities". The provisions of this
pronouncement require that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred and nullifies the
guidance of Emerging Issues Tasks Force ("EITF") 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring)", which recognized a
liability for an exit cost at the date of an entity's commitment to an exit
plan. The provisions of SFAS No. 146 require that the initial measurement of a
liability be at fair value. SFAS No. 146 will be effective for exit or disposal
activities that are initiated after December 31, 2002. Andrx adopted the
provisions of SFAS No. 146 in 2003 and its adoption did not have any effect on
the Company's consolidated financial statements.

ACCOUNTING FOR GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR
GUARANTEES

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". The provisions of FIN 45 require
that a liability be recorded in the guarantor's balance sheet at fair value upon
issuance of a guarantee. The recognition provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. Adoption of FIN 45 had no
impact on the Company's consolidated financial statements.

VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin ("ARB") No. 51". FIN 46 requires a company to make certain
disclosures about variable interest entities ("VIEs") with which it has
involvement, if it is reasonably possible that it will consolidate or disclose
information about the VIE when FIN 46 becomes fully effective in July 2003. The
disclosure requirements are fully effective for all financial statements issued
after January 31, 2003. The Company does not believe it has any VIEs and
therefore no additional disclosures have been provided.

6

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition to the fair value method of accounting for stock-based
employee compensation, and to require disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for their employee stock-based
awards using the fair value method. However, the disclosure provisions are
required for all companies with stock-based employee compensation, regardless of
whether they utilize the fair value method of accounting described in SFAS No.
123 or the intrinsic value method described in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." The
disclosure requirements of SFAS No. 148 are included herein. The Company
currently intends to continue to account for employee stock-based compensation
in accordance with APB No. 25.

The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB No. 25 and related
interpretations. Options granted under those plans are to employees or members
of the Board of Directors with an exercise price equal to the market value of
the underlying common stock on the date of grant. Accordingly, no stock-based
employee compensation expense is reflected in the Consolidated Statements of
Income. For restricted stock unit grants, the fair value on the date of the
grant is fixed and is amortized on a straight-line basis over the related period
of service and such amortization expense is included in SG&A.

The following table summarizes the pro forma consolidated results of
operations of Andrx as though the provisions of the fair value based accounting
method of accounting for employee stock-based compensation of SFAS No. 123 had
been used:

THREE MONTHS ENDED
MARCH 31,
-----------------------------
ANDRX GROUP 2003 2002
------------- ------------

Net income allocated to Andrx Group
(including Cybear Group commencing May 17, 2002)
As reported $ 6,356 $ 8,395
Add: stock-based employee compensation expense included in
reported net income, net of related tax effect 234 --
Deduct: total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effect (4,877) (5,893)
--------- ---------
Pro forma net income $ 1,713 $ 2,502
========= =========

Basic net income per Andrx Group common share
As reported $ 0.09 $ 0.12
========= =========
Pro forma $ 0.02 $ 0.04
========= =========

Diluted net income per Andrx Group common share
As reported $ 0.09 $ 0.12
========= =========
Pro forma $ 0.02 $ 0.03
========= =========

7

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

The fair value of Andrx options was estimated using the Black-Scholes
option pricing model and the following assumptions:

THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------- ------------

Risk-free interest rate 2.9% 4.4%
Average life of options (years) 5.5 6.4
Average volatility 91% 59%
Dividend yield -- --

The range of fair values per share of Andrx options as of the
respective dates of grant was $6.70 to $23.49, and $14.19 to $21.92, for stock
options granted during the three months ended March 31, 2003, and 2002,
respectively.

THREE MONTHS
ENDED
MARCH 31,
2002
CYBEAR GROUP ------------

Net loss allocated to Cybear Group
(through May 17, 2002)
As reported $ (3,882)
Deduct: total stock-based employee compensation expense determined
under the fair value based method for all awards (820)
------------
Pro forma $ (4,702)
============

Basic and diluted net loss per Cybear Group
common share
As reported $ (0.58)
============
Pro forma $ (0.70)
============

No Cybear options were awarded during the three months ended March 31,
2002. Accordingly, related Black-Scholes option pricing model assumptions are
not provided herein.

The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model, like all
option valuation models, requires highly subjective assumptions including the
expected stock price volatility. As the Company's employee stock options have
characteristics significantly different than those of traded options, and
changes in the assumptions can materially affect the fair value estimate, in
management's opinion, the option pricing models do not necessarily provide a
reliable measure of the fair value of its employee stock options.

8

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

2. EARNINGS (LOSS) PER SHARE

As a result of the Reorganization, Andrx's operating results for the
three months ended March 31, 2002 (a period prior to the Conversion) have been
allocated to each class of common stock. Subsequent to the Conversion, operating
results and basic and diluted net income (loss) per share of Andrx common stock
include the operating results of Cybear.

ANDRX

For the three months ended March 31, 2003 and 2002, the shares used in
computing basic net income per share of Andrx common stock are based on the
weighted average shares of Andrx common stock outstanding and for the three
months ended March 31, 2003 include the vested portion of restricted stock
units. Diluted per share calculations include weighted average shares of common
stock outstanding during the three months ended March 31, 2003 and 2002 plus
dilutive common stock equivalents, as computed using the treasury stock method.
The Company's dilutive common stock equivalents consist of stock options. For
all periods presented, the anti-dilutive common stock equivalents include stock
options and for the three months ended March 31, 2003, also include the unvested
portion of restricted stock units in which the exercise price or the issuance
price, respectively, were in excess of the average market price for the
respective three month period.

A reconciliation of the denominators of basic and diluted earnings per
share of Andrx common stock is as follows:

THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
-------------- --------------

Basic weighted average shares of common stock
outstanding 71,597,000 70,552,000
Effect of dilutive items:
Stock options 462,000 1,765,000
------------- -------------
Diluted weighted average shares of common stock
outstanding 72,059,000 72,317,000
============= =============
Anti-dilutive common stock equivalents 5,993,000 2,797,000
============= =============

CYBEAR

The shares used in computing net loss per share of Cybear common stock
were based on the weighted average shares of Cybear common stock outstanding for
the three months ended March 31, 2002. As Cybear incurred a net loss for such
period, all Cybear common stock equivalents were excluded from the Cybear
calculation of diluted shares, since the effects were anti-dilutive.

9

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

3. INVENTORIES

Inventories consist of the following:

MARCH 31, DECEMBER 31,
2003 2002
--------------- -------------------

Raw materials $ 40,443 $ 32,866
Work in process 11,562 8,176
Finished goods 117,673 106,925
--------------- -------------------
$ 169,678 $ 147,967
=============== ===================

As of March 31, 2003, the Company had approximately $8,617 in
inventories relating to products pending launch while the Company awaits receipt
of final FDA marketing approval and/or satisfactory resolution of patent
infringement litigation. Such amounts exclude the Company's inventories of its
bioequivalent versions of Tiazac, which was approved and launched in April 2003,
and Claritin D-24, which was approved in February 2003. Pursuant to an
arrangement with L. Perrigo Company ("Perrigo"), the Company believes Perrigo
will launch Andrx's bioequivalent version of over-the-counter Claritin D-24 in
June 2003.

During the three months ended March 31, 2003, cost of goods sold
included charges totaling $7,590 for the production of the Company's products
and product candidates of which $5,723 relates to reserves on the pre-launch
production of Andrx's bioequivalent versions of Wellbutrin SR/Zyban placed into
production after December 31, 2002. In late February 2003, Andrx proposed
amendments to its Abbreviated New Drug Applications ("ANDA") for its
bioequivalent versions of Wellbutrin SR/Zyban, even though it believed that
those ANDAs were nearing the last stages of FDA's final approval process, and it
was in the late stage of the process of building launch quantities for these
products. This action was taken to change a specification which Andrx had
previously agreed to, but later determined, based upon additional manufacturing
experience and analysis, should be changed. Though Andrx has supplied scientific
evidence that this issue only affects expiration dating, and not the efficacy or
safety of the products, and is consistent with the FDA's guidance on impurities,
the FDA has advised that the specification that it previously agreed to needs to
be further revised, in a manner adverse to the Company's position, as a result
of updated USP specifications that the FDA is now seeking to enforce. The
Company is in discussions with the FDA and USP on this issue, and cannot at this
time accurately advise whether or when such issues will be satisfactorily
resolved or these product introductions will occur.

During the three months ended March 31, 2003 Andrx also recorded a
total of $1,600 in charges directly to cost of goods sold associated with its
Weston, Florida manufacturing facility, which is in the start-up phase, its
Morrisville, North Carolina manufacturing facility which the Company plans to
renovate and utilization issues at its Davie, Florida manufacturing facilities.
Cost of goods sold during the three months ended March 31, 2003 also includes
$1,713 relating primarily to excess capacities at Andrx's Massachusetts aerosol
manufacturing facilities, which the Company is considering, among other things,
divesting.

10

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

4. GAIN ON SALES OF ASSETS

INTERNET ASSETS

On July 31, 2002, Andrx sold its Dr. Chart and @Rx applications,
licensed its patents for the Internet transmission of prescriptions, and entered
into a two-year marketing agreement relating to Andrx's Physicians' Online
("POL") web portal with a business unit of Aventis S.A. In connection with these
agreements, Andrx is entitled to receive approximately $6,000 through April
2004. Though the $6,000 is generally non-refundable once paid and partially paid
in advance, revenue will be recognized in the Consolidated Statements of Income
as services are rendered or otherwise earned. Due to the related nature of the
transactions, $1,348 of gain on sale of assets was deferred and will be
recognized as Other income ratably in the same period as the revenue is earned
under the marketing agreement. During the three months ended March 31, 2003,
$1,154 was recorded as Other revenues and $311 was recognized as a Gain on sale
of assets in the Unaudited Condensed Consolidated Statements of Income. Through
March 31, 2003, the Company has received $2,875 in cash from these agreements.

HISTEX PRODUCT LINE

On June 28, 2002, the Company sold its Histex cough and cold line of
products. During the three months ended March 31, 2003, the Company recognized a
Gain on sale of assets of $125, which was previously deferred.

5. PROVISION FOR INCOME TAXES

For the three months ended March 31, 2003 and 2002, the Company
recorded provision for income taxes of $3,895 and $3,313 or 38% and 42%,
respectively, of income before income taxes. For the three months ended March
31, 2003 and 2002, the Company provided for income taxes in excess of the
expected annual effective federal statutory rate of 35% primarily due to the
effect of state income taxes and for the three months ended March 31, 2002 also
includes the effect of the amortization of certain intangible assets, which are
not deductible for income tax purposes.

6. COMPREHENSIVE INCOME

The components of the Company's comprehensive income are as follows:

THREE MONTHS
ENDED MARCH 31,
-----------------------------------
2003 2002
-------------- ----------------

Net income $ 6,356 $ 4,513
Investments available-for-sale
Unrealized loss, net (59) (287)
Income tax benefit 19 107
------------ ------------
(40) (180)
------------ ------------
Comprehensive income $ 6,316 $ 4,333
============ ============

11

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

7. BUSINESS SEGMENTS

See the Company's Form 10-K for the year ended December 31, 2002 for a
discussion of its business segments.

As the Company's Internet business operations were integrated into
other operating segments of Andrx following the Conversion, it is impracticable
to report the current segment information under the old basis of segmentation.
Accordingly, for segment reporting for the quarter ended March 31, 2002, the
Company has reclassified its former Internet segment operations to the
distributed products segment and brand products segment, as appropriate, to
conform to the current period presentation.

The following table represents unaudited financial information by
business segment:

AS OF OR FOR THE THREE MONTHS ENDED
MARCH 31, 2003
---------------------------------------------------------------------------------
DISTRIBUTED BIOEQUIVALENT BRAND CORPORATE
PRODUCTS PRODUCTS PRODUCTS & OTHER CONSOLIDATED
------------ ------------- ------------ ------------- ---------------

Revenues $ 154,617 $ 72,842 $ 9,726 $ -- $ 237,185
Income (loss) from operations 10,894 28,802 (19,259) (11,105) 9,332
Equity in earnings of joint ventures -- 448 -- -- 448
Interest income -- -- -- 646 646
Interest expense -- -- 27 584 611
Gain on sales of assets -- -- 436 -- 436
Depreciation and amortization 1,344 4,286 1,280 13 6,923
Purchases of property, plant and
equipment 1,278 10,640 115 271 12,304
Total assets, end of period 230,977 309,870 70,501 175,881 787,229

AS OF OR FOR THE THREE MONTHS ENDED
MARCH 31, 2002
-----------------------------------------------------------------------------------
DISTRIBUTED BIOEQUIVALENT BRAND CORPORATE
PRODUCTS PRODUCTS PRODUCTS & OTHER CONSOLIDATED
------------ --------------- ----------- -------------- ----------------

Revenues $ 127,045 $ 49,831 $ 6,443 $ -- $ 183,319
Income (loss) from operations 10,665 19,942 (17,532) (7,480) 5,595
Equity in earnings of joint ventures -- 645 -- -- 645
Interest income -- -- -- 1,613 1,613
Interest expense -- -- -- 27 27
Depreciation and amortization 629 2,670 1,810 18 5,127
Purchases of property, plant and
equipment 1,423 13,586 351 203 15,563
Total assets, end of period 191,994 261,615 62,772 266,111 782,492

12

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

In August 2002, Andrx management learned that an employee had made
numerous improper entries that affected the adequacy of the Company's allowance
for doubtful accounts receivable. Management determined that the Company's
provision for doubtful accounts receivable (included in SG&A) was understated
during 1999, 2000, 2001 and the first quarter of 2002, by an aggregate amount of
$4,902. The understatement to the allowance for doubtful accounts receivable
applicable to the March 31, 2002 unaudited quarterly period was $888, of which
$803 was applicable to the Distributed Products Segment and $85 was attributable
to the Bioequivalent Products Segment. After consideration of all of the facts
and circumstances, the Company recognized the full amount of the $4,902 prior
period misstatement in the second quarter of 2002, as the Company believed it
was not material to any period affected. In May 2003, Andrx and the SEC entered
into an administrative consent Order arising out of this matter pursuant to
which the Company agreed to cease and desist from future violations of the
internal controls provisions of the securities laws (see Note 9).

8. LITIGATION AND CONTINGENCIES

ENTEX LINE OF PRODUCTS

On February 25, 2003, the FDA announced that it intends to publish a
FEDERAL REGISTER notice to describe its enforcement policy with respect to
products such as the Entex line of products that are presently on the market and
sold by prescription without an approved ANDA or NDA. As a result of the FEDERAL
REGISTER notice, Andrx may be required to seek FDA approval for marketing the
Entex line of products and may be required to market some or all of these
products as over-the-counter ("OTC") products. Upon issuance of definitive
guidance on this matter, Andrx will assess the unamortized portion of the Entex
product rights ($12,126 as of March 31, 2003) and Entex inventories ($283 as of
March 31, 2003) for any resulting impairment.

ALPHARMA RECALL CLAIMS

In March 2002, Alpharma USPD, Inc. ("Alpharma"), for whom Andrx's
aerosol manufacturing facility provided contract manufacturing of Epinephrine
Mist, notified Andrx that the product was subject to a recall. Alpharma claims
that Armstrong breached its manufacturing agreement and has requested
indemnification for the full amount of its losses arising from the recall.
Alpharma presently estimates its losses at approximately $11,250. Andrx is
investigating this matter, but has disputed both the basis for liability and the
amount of damages owed. Andrx believes that at least part of the cause of the
recall is attributable to Alpharma, and that indemnification for at least part
of these claims may be owed by Medeva, from whom Andrx purchased these
operations in March 2001. The Company is not in a position to determine the
ultimate outcome of this matter.

13

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

TIAZAC RELATED SECURITIES CLAIMS

Several securities fraud class action complaints were filed on or about
March 2002 alleging that Andrx and certain of its officers and directors engaged
in securities fraud and/or made material misrepresentations regarding the
regulatory status of the Company's ANDA for a bioequivalent version of Tiazac.
The amended class action complaint sought a class period for those persons or
institutions that acquired Andrx common stock from April 30, 2001 through
February 21, 2002. In November 2002, the U.S. District Court for the Southern
District of Florida granted in part Andrx's motion to dismiss the amended
consolidated class action complaint and determined that all but one of the
statements allegedly made in violation of the federal securities laws should be
dismissed as a matter of law. The Court's decision reduced the class period to
six weeks commencing January 9, 2002 and ended February 21, 2002. The Court also
later granted Andrx's motion to strike all allegations of insider trading from
the complaint.

Though the Company believes that the plaintiffs are unlikely to prevail
in their claims, an adverse judgment could have a material adverse effect on the
Company's business and consolidated financial statements.

CARDIZEM CD ANTITRUST LITIGATION

Beginning in August 1998, several putative class action lawsuits were
filed against Andrx and Aventis arising from a 1997 stipulation (the "1997
Stipulation") entered into between Andrx and Aventis in connection with a patent
infringement suit brought by Aventis with regard to its product, Cardizem CD.
The actions pending in federal court have been consolidated for multi-district
litigation purposes in the U.S. District Court for the Eastern District of
Michigan. The complaint in each action alleges that Andrx and Aventis, by way of
the 1997 Stipulation, have engaged in alleged state antitrust and other
statutory and common law violations that allegedly gave Aventis and Andrx a near
monopoly in the U.S. market for Cardizem CD and a bioequivalent version of that
pharmaceutical product. According to the complaints, the monopoly possessed by
the defendants enables Aventis to perpetuate its ability to fix the price of
Cardizem CD at an artificially high price, free from generic competition, with
the result that direct purchasers such as pharmacies, as well as indirect
purchasers such as medical patients who have been issued prescriptions for
Cardizem CD are forced to overpay for the drug. Each complaint seeks
compensatory damages on behalf of each class member in an unspecified amount
and, in some cases, treble damages, as well as costs and counsel fees,
disgorgement, injunctive relief and other remedies. In June 2000, the District
Court granted summary judgment to plaintiffs finding that the 1997 Stipulation
was a per se violation of antitrust laws. Aventis and Andrx appealed the
judgment to the U.S. Court of Appeals for the Sixth Circuit. No decision has yet
been announced.

14

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

On May 14, 2001, the State Attorney Generals for the States of New York
and Michigan, joined by 13 additional states and the District of Columbia, filed
suit against Andrx and Aventis in the same federal court in which the above
described consolidated Cardizem CD antitrust class action litigation is being
conducted. The attorney generals' suit is brought on behalf of their government
entities and consumers resident in their jurisdictions who allegedly were
damaged as a result of the 1997 Stipulation. Subsequently, an amended complaint
was filed adding twelve additional states and Puerto Rico to the action. The
lawsuit essentially reiterates the claims asserted against Andrx in the
aforementioned Cardizem CD antitrust class action litigation and seeks the same
relief sought in that litigation.

On July 26, 2001, Blue Cross Blue Shield of Michigan, joined by three
other Blue Cross Blue Shield plans (one in Minnesota and two in New York), filed
suit against Andrx and Aventis in the U.S. District Court for the Eastern
District of Michigan on behalf of themselves and as claim adjustors for their
self-funded customers to recover damages allegedly caused by the 1997
Stipulation. The complaint essentially repeats the claims asserted against Andrx
that are being litigated in the above-described consolidated Cardizem CD
antitrust class action litigation and seeks substantially the same relief sought
in that litigation.

In addition to the consolidated proceedings in the U.S. District Court
for the Eastern District of Michigan, there are two actions pending in state
courts in Florida, and two actions pending in state courts in Kansas. These
actions are currently stayed.

In anticipation of potentially reaching settlements with all plaintiffs
in the related litigations, Andrx recorded an estimated litigation settlements
charge of $60,000 in the second quarter of 2002. Such contingency became
estimatable in 2002 as a result of the mediation discussions with the plaintiffs
in the litigations and the settlement referred to above. Andrx intends to
vigorously litigate any of these cases that cannot be settled on a reasonable
basis. On November 26, 2002, the Court approved a settlement between the direct
purchasers and Andrx and Aventis. In January 2003, Andrx announced it had
reached a settlement with the indirect purchasers and state attorney generals.
Discovery is still ongoing for the remaining group of litigants, including those
who timely choose to opt out of the settlements described above. If not settled,
Andrx anticipates that these matters may take several years to be resolved but
an adverse judgment could have a material adverse effect on the Company's
business and consolidated financial statements.

15

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

WELLBUTRIN SR/ZYBAN RELATED SECURITIES FRAUD CLAIMS

Seven putative securities fraud class action complaints have been filed
against Andrx and certain of its officers and directors for alleged violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5. All of these complaints relate to the Company's generic
Wellbutrin SR/Zyban product, and generally allege that, during the class period,
Andrx made a series of misrepresentations and/or positive statements regarding
FDA approval of its product and failed to disclose dating issues with respect to
its product and product inventory. Six of these complaints purport to bring the
suit on behalf of all persons or institutions who acquired Andrx common stock
from October 31, 2002 through March 4, 2003, and focus solely on Andrx's
bioequivalent version of Wellbutrin SR. The remaining suit alleges a class
period from March 1, 2002 through March 4, 2003 and also contains allegations
regarding Andrx's bioequivalent version of Zyban. The Company is not currently
in a position to determine the ultimate outcome of this litigation.

LEMELSON PATENT LITIGATION

On November 23, 2001, the Lemelson Medical, Education & Research
Foundation, LP filed an action in the United States District Court for the
District of Arizona alleging patent infringement against Andrx and others
involving "machine vision" or "computer image analysis." On March 20, 2002, the
Court entered an Order of Stay in the proceedings, pending the resolution of
another suit that involves the same patents, but does not involve Andrx. The
Company is not in a position to determine the ultimate outcome of this matter.

ALTOCOR TRADEMARK OPPOSITION

In May 2002, Kos Pharmaceuticals filed a notice of opposition to
Andrx's application for a registered trademark for Altocor alleging a likelihood
of confusion between their trademark, Advicor, and Altocor. If Kos were to
institute and prevail in litigation to enjoin the sale of Andrx's product under
the Altocor name or recover damages as a result thereof, this could have a
material adverse effect on our business and consolidated financial statements.
The Company is not in a position to determine the ultimate outcome of this
matter.

9. SUBSEQUENT EVENTS

TIAZAC LAUNCH

On April 10, 2003, the Company launched its bioequivalent version of
Tiazac, Taztia XT, upon receiving final FDA marketing approval of its ANDA for
the 120mg, 180mg, 240mg, 300mg, and 360mg strengths.

16

ANDRX CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(in thousands, except share and per share amounts)

Andrx is required to make certain payments in connection with the net
sales the Company derives from its bioequivalent version of Tiazac. In
connection with its agreement to, among other things, resolve various pending
litigation matters and implement a dispute resolution mechanism for future
disputes, Biovail Corporation ("Biovail") is entitled to a royalty at an
undisclosed rate on net sales of Taztia XT, as defined in that agreement. The
Biovail royalties will be recognized in conjunction with the related net revenue
and charged to cost of goods sold. In addition, one of the law firms the Company
utilized in connection with, among other things, that litigation is entitled to
a fee based on a percentage of net sales of Andrx's Taztia XT product, as
defined in that agreement. The estimated aggregate amount due to the law firm
for prior services rendered, which has not yet been determined, will be
recognized as a charge at the time of product launch. Consequently, Andrx will
record the liability and related legal expense in SG&A at the present value of
the estimated aggregate amount due the law firm over the life of the product.
Such estimate will then be periodically evaluated and adjusted, as appropriate,
based on changes in, among other things, market factors affecting its net
revenues for Taztia XT. Such non-cash charge to be recorded in the three months
ending June 30, 2003 may be significant to Andrx's second quarter consolidated
results of operations. On an ongoing basis, as the liability will be funded on
a monthly basis as net sales occur, the cash flows resulting from this agreement
are not expected to be significant to the Company's operations.

SEC SETTLEMENT

In February 2001, the Southeast Regional Office of the SEC commenced a
formal private investigation of Cybear, which focused on Cybear's revenue
reporting, disclosure and internal controls in 1999 and 2000 with respect to
Cybearclub LC, a joint venture between Andrx and Cybear intended to promote the
distribution of certain healthcare products through the Internet. The Cybear
matter involved whether approximately $1,300 in revenue, representing
approximately $27 in gross profit, should properly have been recognized by
Cybear. In an administrative Order, to which the Company consented without
admitting or denying the SEC's findings, the SEC found that, although senior
management of both Andrx and Cybear had consulted with the Company's then
auditors concerning this issue prior to Cybear's reporting of that revenue in
its Form 10-Q for the quarterly period ended June 30, 2000 that revenue should
not have been recognized by Cybear. In a separate matter addressed in the same
consent Order, the SEC found that the Company's allowance for doubtful accounts
receivable was understated due to the unauthorized actions of a single lower
level employee who had altered certain of the Company's accounts receivable
records (see Note 7). Without admitting or denying the SEC's findings with
respect to these two matters, in May 2003 the Company agreed to cease and desist
from future violations of the books and records, internal controls and proxy
solicitation provisions of the securities laws and, on behalf of Cybear, to pay
a $100 penalty.

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Andrx Corporation and subsidiaries ("Andrx" or the "Company"):

o develops and commercializes bioequivalent versions of selected
controlled-release brand name pharmaceuticals, using its
proprietary drug delivery technologies,

o develops and commercializes bioequivalent versions of
specialty, niche and immediate-release pharmaceutical
products, including oral contraceptives,

o develops and commercializes brand name pharmaceuticals where
it believes that the application of Andrx's drug delivery
technologies may improve the efficacy or other characteristics
of existing pharmaceutical products, and

o distributes pharmaceutical products manufactured by third
parties, primarily generics, to independent pharmacies,
pharmacy chains which do not maintain their own central
warehousing facilities, pharmacy buying groups and, to a
lesser extent, physicians' offices.

In its bioequivalent program, Andrx currently manufactures and sells
bioequivalent versions of Cardizem CD, Dilacor XR, Ventolin, Glucophage, K-Dur,
Naprelan and Tiazac (which was launched in April 2003). In its brand program,
Andrx currently sells and markets Altocor, its first internally developed brand
product, as well as brand products it has acquired or licensed from third
parties, primarily cough and cold and pain products.

EQUITY REORGANIZATION AND CONVERSION

On September 7, 2000, Andrx completed an equity reorganization (the
"Reorganization") whereby it acquired the outstanding equity of its Cybear Inc.
subsidiary ("Cybear") that it did not own, reincorporated in Delaware, and
created two new classes of common stock: (i) Andrx Group common stock ("Andrx
common stock") to track the performance of Andrx Group, and (ii) Cybear Group
common stock ("Cybear common stock") to track the performance of Cybear Group.

On May 17, 2002, each share of Cybear common stock was converted into
0.00964 of a share of Andrx common stock resulting in the issuance of
approximately 65,000 shares of common stock (the "Conversion"). The Conversion
included a 25% premium on the value of Cybear common stock as provided by the
terms of Andrx's Certificate of Incorporation. Subsequent to the Conversion,
Andrx has only one class of common stock outstanding.

18

FORWARD LOOKING STATEMENTS

Forward-looking statements (statements which are not historical facts)
in this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. For this purpose, any statements
contained herein or which are otherwise made by or on behalf of Andrx that are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "to," "plan," "expect," "believe," "anticipate," "intend,"
"could," "would," "estimate," or "continue" or the negative other variations
thereof or comparable terminology are intended to identify forward-looking
statements. Investors are cautioned that all forward-looking statements involve
risk and uncertainties, including but not limited to, the Company's ability to
continue to depend on a relatively small number of products and licensing
revenues, the timing and outcome of litigation, FDA approvals and product
launches, government regulation, competition, and manufacturing output. Andrx is
also subject to other risks detailed herein or detailed from time to time in
Andrx Corporation's U.S. Securities and Exchange ("SEC") filings.

Readers are cautioned not to place reliance on these forward-looking
statements, which are valid only as of the date they were made. Andrx undertakes
no obligation to update or revise any forward-looking statements to reflect new
information or the occurrence of unanticipated events or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of its consolidated financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates including but not limited to those related to:

o allowance for doubtful accounts receivable,
o inventories,
o sales returns and allowances,
o useful life or impairment of goodwill and other intangible assets,
o deferred income tax asset valuation allowance,
o licensing revenues and royalties,
o litigation settlements and related accruals, and
o estimated fees to law firm on net revenues of Taztia XT.

The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Estimates may differ if different assumptions or conditions are
utilized, and actual results may differ from these estimates.

The Company believes that the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of
its consolidated financial statements:

19

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

The Company maintains an allowance for doubtful accounts receivable for
estimated losses resulting from the Company's inability to collect from certain
customers. As of March 31, 2003, the Company's accounts receivable, net of
$137.6 million includes an allowance for doubtful accounts receivable of $16.8
million. Accounts receivable generated from the Company's distribution
operations are principally due from independent pharmacies, pharmacy chains
which do not maintain their own central warehousing facilities, pharmacy buying
groups and, to a lesser extent, physicians' offices. Accounts receivable
generated from the Company's bioequivalent and brand product sales are
principally due from large warehousing pharmacy chains, wholesalers and large
managed care customers. In extending credit, the Company attempts to evaluate
the customer's financial condition, both initially and on an ongoing basis.
Collateral is generally not required. In evaluating the adequacy of its
allowance for doubtful accounts receivable, management analyzes accounts
receivable, historical bad debts, customer concentrations, customer
credit-worthiness, the percentage of accounts receivable by aging category, and
changes in customer payment terms or payment patterns. If the financial
condition of the Company's customers were to deteriorate, resulting in an
impairment of their ability to make payments or the Company's ability to
collect, an increase to the allowance may be required. Also, should actual
collections of accounts receivable be different than the Company's estimates
included in the determination of its allowance, the allowance would be increased
or decreased through charges or credits to Selling, general and administrative
expenses ("SG&A") in the Consolidated Statements of Income in the period in
which such changes in collection become known. If conditions change in future
periods, additional allowances or reversals may be required. Such additional
allowances could be significant.

In August 2002, Andrx management learned that an employee had made
numerous improper entries that affected the adequacy of the Company's allowance
for doubtful accounts receivable. Management determined that the Company's
provision for doubtful accounts receivable was understated during 1999, 2000,
2001 and the first quarter of 2002, by an aggregate amount of $4.9 million.
After consideration of all of the facts and circumstances, the Company
recognized the full amount of the $4.9 million prior period misstatement in the
second quarter of 2002, as the Company believed it was not material to any
period affected. The SEC was notified of this matter promptly upon discovery. In
May 2003, Andrx and the SEC entered into an administrative consent Order arising
out of this matter pursuant to which the Company agreed to cease and desist from
future violations of the internal controls provisions of the securities laws
(see Notes 7 and 9 to the accompanying Unaudited Condensed Consolidated
Financial Statements).

INVENTORIES

Inventories consist primarily of finished goods held for distribution,
and raw materials, work-in-process and finished goods of Andrx bioequivalent and
brand products. As of March 31, 2003, the Company had $169.7 million in
inventories. Inventories are stated at the lower of cost (first-in, first-out)
or market. Cost of inventories held for distribution is based on purchase price,
net of vendor discounts, rebates and other allowances, but excludes shipping,
warehousing and distribution costs, which are expensed as incurred and reported
as SG&A in the Unaudited Condensed Consolidated Statements of Income. In
evaluating whether inventories are stated at the lower of cost or market,
management considers such factors as the amount of inventory on hand and in the
distribution channel, the estimated time required to sell such inventory,
remaining shelf life and current and expected market conditions, including
levels of competition and for its inventories held for distribution, the
Company's right to return or exchange such products with the products'
manufacturer. As appropriate, provisions through cost of goods sold are made to
reduce inventories to their net realizable value. If conditions change in future
periods, additional provisions may be required. Such additional provisions could
be significant.

20

Andrx has made, is in the process of making and/or will scale-up and
make commercial quantities of certain of its product candidates prior to the
date Andrx anticipates that such products will receive FDA final marketing
approval and/or satisfactory resolution of the patent infringement litigation
involving them (i.e., pre-launch inventory). The scale-up and commercial
production of pre-launch inventories involves the risk that such products may
not be approved for marketing by the FDA on a timely basis, or ever, and/or that
the outcome of related litigation may not be satisfactory. This risk
notwithstanding, Andrx plans to continue to scale-up and build pre-launch
inventories of certain products that have not yet received final FDA approval
and/or satisfactory resolution of patent infringement litigation when it
believes that such action is appropriate in relation to the commercial value of
its product launch opportunity.

As of March 31, 2003, the Company had approximately $8.6 million of
inventories pending final approval and/or satisfactory resolution of litigation.
Such amounts exclude the Company's inventories of its bioequivalent versions of
Tiazac, which was approved and launched in April 2003 and Claritin D-24, which
was approved in February 2003. Pursuant to an arrangement with L. Perrigo
Company ("Perrigo") the Company believes Perrigo will launch Andrx's
bioequivalent version of over-the-counter ("OTC") Claritin D-24 in June 2003.

For the three months ended March 31, 2003, cost of goods sold includes
charges totaling $7.6 million for the production of the Company's products and
product candidates, of which $5.7 million relates to reserves on the pre-launch
production of Andrx's bioequivalent versions of Wellbutrin SR/Zyban placed into
production after December 31, 2002. In late February 2003, Andrx proposed
amendments to its AANDA for its bioequivalent versions of Wellbutrin SR/Zyban,
even though it believed that those ANDAs were nearing the last stages of FDA's
final approval process, and it was in the late stage of the process of building
launch quantities for these products. This action was taken to change a
specification which Andrx had previously agreed to, but later determined, based
upon additional manufacturing experience and analysis, should be changed. Though
Andrx has supplied scientific evidence that this issue only affects expiration
dating, and not the efficacy or safety of the products, and is consistent with
the FDA's guidance on impurities, the FDA has advised that the specification
that it previously agreed to needs to be further revised, in a manner adverse to
the Company's position, as a result of updated USP specifications that the FDA
is now seeking to enforce. The Company is in discussions with the FDA and USP on
this issue, and cannot at this time accurately advise whether or when such
issues will be satisfactorily resolved or these product introductions will
occur. For the three months ended March 31, 2003 Andrx also recorded a total of
$1.6 million in charges directly to cost of goods sold relating to its Weston,
Florida manufacturing facility, which is in the start-up phase, its Morrisville,
North Carolina manufacturing facility, which the Company plans to renovate and
utilization issues at its Davie, Florida manufacturing facilities. Cost of goods
sold for the three months ended March 31, 2003 also includes $1.7 million
relating primarily to excess capacities at Andrx's Massachusetts aerosol
manufacturing facilities, which the Company is considering, among other things,
divesting.

21

SALES RETURNS AND ALLOWANCES

Allowances against net sales for estimated returns, chargebacks,
inventory credits, rebates and other sales allowances are established by the
Company concurrently with the recognition of revenue. The allowances which are
included in accounts receivable, net and in accrued and other liabilities, as
appropriate, in the Unaudited Condensed Consolidated Balance Sheets, are
established based upon consideration of a variety of factors, including but not
limited to, actual return experience by product type, the number and timing of
competitive products approved for sale both historically and as projected, the
market for the product, estimated customer inventory levels by product and
current and projected economic conditions, levels of competition and price
declines. Actual product returns, chargebacks and other sales returns and
allowances incurred are dependent upon future events. The Company periodically
monitors the factors that influence sales returns and allowances and makes
adjustments to these provisions when management believes that actual product
returns, chargebacks and other sales allowances may differ from established
allowances. If conditions in future periods change, additional allowances may be
required. Such additional allowances could be significant. Net sales of the
Company's bioequivalent and brand products may be affected by the Company's
estimated sales returns and allowances.

The Company has entered into an arrangement with Perrigo under which
Andrx and Perrigo will share in the risks and rewards associated with the sale
of Andrx's bioequivalent version of Loratadine-D12, Loratadine D-24 and
Loratadine Quick Dissolve Tabs that are bioequivalent to the related Claritin
brand products. Andrx will manufacture and Perrigo will package and market these
over-the-counter products. Under the terms of the arrangement, Andrx and Perrigo
will share the net profits, as defined, from product sales. Commencing with the
launch by Perrigo, Andrx will be required to estimate the profit sharing amounts
earned from its arrangement with Perrigo.

The pharmaceutical industry practice is generally to grant customers
the right to return or exchange purchased goods. In the generic pharmaceutical
industry, this practice has resulted in generic manufacturers issuing inventory
credits (also known as shelf-stock adjustments) to customers based on the
customers' existing inventory, following decreases in the market price of the
related generic pharmaceutical product. Shelf-stock adjustments occur
frequently, often in significant amounts. The determination to grant an
inventory credit to a customer following a price decrease is generally at the
discretion of the Company, and not pursuant to contractual arrangements with
customers. Accordingly, the Company makes significant accounting estimates,
including quantities shipped and still on customers' shelves, and price declines
before the products pull through the distribution channel. The Company accrues
an estimate for the sales allowances in the same period the sale is recognized
and periodically reviews such estimates. If conditions in future periods change,
additional allowances or reversals may be required. Such additional allowances
could be significant.

The Company's significant accounting estimates for sales returns and
allowances for brand products are dependent on the Company's ability to promote
to physicians, create demand for products, pull products through the
distribution channel and estimate returns, future levels of prescriptions for
its products and the inventory levels in the distribution channel. It is a
common pharmaceutical industry practice for brand manufacturers to offer
customers, among other things, buy-in allowances on initial purchases prior to
promotion activities by the manufacturer. As there are a limited number of large
customers, all customer purchases are generally subject to the right of return
or exchange. Accordingly, the Company makes significant accounting estimates
related to sales allowances in connection with the recognition of revenues, and
periodically reviews such estimates. The Company's policy is to recognize net
sales to the extent it can reasonably estimate returns and the product being
pulled through the distribution channel. If conditions change in future periods,
additional allowances or reversals may be required. Such additional allowances
could be significant.

22

USEFUL LIFE OR IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

Under the purchase method of accounting for acquisitions, goodwill
represents the excess of purchase price over the fair value of the net assets
acquired. As of March 31, 2003, the Company had approximately $34.0 million of
goodwill in the Unaudited Condensed Consolidated Balance Sheet consisting of
$26.3 million from the acquisition of CTEX Pharmaceuticals, Inc ("CTEX") in
January 2001 and $7.7 million from the acquisition of Valmed Pharmaceuticals,
Inc. ("Valmed") in March 2000. With the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142 in 2002, goodwill is no longer amortized
and is subject to at least an annual assessment for impairment in value by
applying a fair value based test. Any applicable impairment loss is the amount,
if any, by which the implied fair value of goodwill is less than the carrying
value. If conditions in future periods change, impairment charges may be
required. Such additional charges could be significant.

As of March 31, 2003, the Company had $19.2 million of other intangible
assets, net in the Unaudited Condensed Consolidated Balance Sheet, which
consisted primarily of $4.1 million related to POL and related trademarks, $1.3
million related to patents for Andrx's electronic prescription process, and
$12.1 million, $1.7 million and $10,000 for product rights related to the Entex,
Anexsia and Embrex product lines, respectively. POL and related trademarks, and
patents relating to Andrx's electronic prescription process are being amortized
over periods ranging from four to fourteen years. Brand product rights purchased
from other pharmaceutical companies or acquired through the allocation of
purchase price upon the acquisition of another entity are being amortized over
periods ranging from three to ten years. Management established the amortization
period based on an estimate of the period the assets would generate positive
cash flow. If conditions in future periods change, the Company may be required
to decrease the estimated amortization period. Amortization is provided using
the straight-line method over the estimated useful life. Intangible assets are
reviewed for change in useful life or impairment whenever events or changes in
circumstances have occurred that may warrant revision of the estimated useful
life or indicate that the carrying amount of an asset may not be recoverable. If
conditions in future periods change, impairment charges may be required, which
could be significant.

On February 25, 2003, the FDA announced that it intends to publish a
FEDERAL REGISTER notice to describe its enforcement policy with respect to
products such as the Entex line of products that are presently on the market and
sold by prescription without an approved ANDA or New Drug Application ("NDA").
As a result of the FEDERAL REGISTER notice, Andrx may be required to seek FDA
approval for marketing the Entex line of products and may be required to market
some or all of these products as OTC products. Upon issuance of definitive
guidance on this matter, Andrx will assess the unamortized portion of the Entex
product rights ($12.1 million as of March 31, 2003) and Entex inventories
($283,000 as of March 31, 2003) for any resulting impairment.

23

DEFERRED INCOME TAX ASSET VALUATION ALLOWANCE

Under the provisions of SFAS No. 109, the Company is required to record
a valuation allowance to reduce its deferred income tax assets to the amount
that is more likely than not to be realized. As of March 31, 2003, the Company
had a $68.1 million deferred income tax asset. As of March 31, 2003, the Company
determined that no valuation allowance was necessary on its deferred income tax
asset after considering its ability to carry back certain net operating losses,
future taxable income projections and ongoing prudent and feasible tax planning
strategies. In the event the Company were to determine that it would not be able
to realize all or part of its deferred income tax asset in the future, an
adjustment to the deferred income tax asset would be charged to the Consolidated
Statements of Income in the period such determination was made.

LICENSING REVENUES AND ROYALTIES

In October 2002, Andrx entered into an agreement with Genpharm Inc.
("Genpharm") and Kremers Urban Development Co. ("KUDCo"), pursuant to which
Andrx and Genpharm relinquished any marketing exclusivity rights to the 10mg and
20mg strengths of omeprazole (generic Prilosec), thereby accelerating the
ability of KUDCo to receive final FDA marketing approval for its version of that
product, which KUDCo received on November 1, 2002. Pursuant to the agreement,
Andrx is entitled to receive:

o 15.0% of KUDCo's net profits, as defined in the agreement
("Net Profits"), for approximately six months,
o 9.0% of KUDCo's Net Profits for
(i) approximately the next twelve months, or
(ii) until an appellate court decision, as defined in the
agreement, occurs and
o 6.25% of KUDCo's Net Profits during approximately the next 24
months thereafter.

Such licensing fees may also cease if either Andrx or Genpharm becomes
lawfully permitted to launch their own bioequivalent version of Prilosec. Under
the agreement, KUDCo is required to provide Andrx with an estimate of Andrx's
licensing revenues for each month within 10 days subsequent to such month.
Payments to Andrx for amounts earned in December 2002 and January 2003 were due
to Andrx 90 days after month end. Amounts earned thereafter are due to Andrx 60
days after the respective month end. Based on the estimates received from KUDCo,
Andrx recorded $30.4 million in estimated licensing revenues in the first
quarter of 2003 of which $19.2 million was collected on April 30, 2003. The fees
of $11.2 million earned for March 2003 are due on May 30, 2003. Future KUDCo
licensing revenues will be dependent on a number of factors, including, among
other things, KUDCo's profits from its sales of its generic Prilosec, the
licensing rate due to Andrx (which reduces from 15% to 9% in June 2003), the
outcome of the various appeals involving generic Prilosec and other factors
outside of Andrx's control. KUDCo has advised Andrx that it estimates that
licensing revenues to be earned by Andrx for April 2003 will be approximately
$12.6 million.

LITIGATION SETTLEMENTS AND RELATED ACCRUALS

The Company accounts for the exposure of its various litigation matters
under the provisions of SFAS No. 5 "Accounting for Contingencies", which
requires, among other things, an exposure to be accrued when it becomes probable
and estimatable. No accrual or disclosure of legal exposures judged to be remote
is required. The exposure to legal matters is evaluated and estimated, if
possible, based on, among other things, consultation with legal counsel. Such
estimates are based on currently available information and their ultimate
outcome may be significantly different than the amounts estimated given the
subjective nature and complexities inherent in these areas. The Company's
disclosures related to possible significant exposure for legal matters are
included herein in Note 8 to the Unaudited Condensed Consolidated Financial
Statements.

24

In anticipation of potentially reaching a settlement on certain
litigation, Andrx's results for the second quarter of 2002 included an estimated
litigation settlement charge of $60.0 million. This contingency became probable
and estimatable in June 2002 as a result of mediation discussions between the
Company and the plaintiffs. In July 2002, Andrx and Aventis entered into a
settlement, which is now binding, with the direct purchaser class of plaintiffs
in the Cardizem CD antitrust litigation that was pending for multidistrict
proceedings in the United States District Court for the Eastern District of
Michigan. In January 2003, Andrx and Aventis entered into a settlement agreement
in the Cardizem CD antitrust litigation with the indirect purchaser class of
plaintiffs as well as with the attorney generals for all 50 states, the District
of Columbia and Puerto Rico, which calls for a cash payment by Andrx and Aventis
to this group in an undisclosed amount. This settlement agreement is subject to
court approval. Andrx intends to vigorously litigate any outstanding related
cases that cannot settle on a reasonable basis. The portion of the accrued
litigation settlements charge that was not paid as of March 31, 2003, is
included in Accrued and other liabilities in the March 31, 2003 Unaudited
Condensed Consolidated Balance Sheet.

ESTIMATED FEES TO LAW FIRM ON NET REVENUES OF TAZTIA XT

Andrx is required to make certain payments in connection with the net
sales the Company derives from Taztia XT, its bioequivalent version of Tiazac.
One of the law firms the Company utilized in connection with, among other
things, its Tiazac litigation is entitled to a fee based on a percentage of net
sales of Andrx's Taztia XT product, as defined in that agreement. The estimated
aggregate amount due to the law firm for prior services rendered, which has not
yet been determined, will be recognized as a charge at the time of product
launch. Consequently, Andrx will record the liability and related legal expense
in SG&A at the present value of the estimated aggregate amount due to the law
firm over the life of the product. Such estimate will then be periodically
evaluated and adjusted, as appropriate, based on changes in, among other things,
market factors affecting its net revenues for Taztia XT. Such non-cash charge to
be recorded in the three months ending June 30, 2003 may be significant to
Andrx's second quarter consolidated results of operations. On an ongoing basis,
as the liability will be funded on a monthly basis as net sales occur, the cash
flows resulting from this agreement are not expected to be significant to the
Company's operations.

The estimated liability relating to fees to the law firm will be
dependent on a number of factors, including an estimate of Andrx's future sales
of Taztia XT, market competition for Taztia XT, manufacturing output of this
product (which may be influenced by manufacturing capacity and product mix
decisions), and other factors both within and outside of Andrx's control. The
monthly fee amounts due to the law firm are also subject to numerous estimates
by Andrx, including shelf stock adjustments, returns, discounts, rebate and
other sales allowances and certain related expense items.

25

ANDRX CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2003 ("2003 QUARTER") AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2002 ("2002 QUARTER")

For the 2003 Quarter, the Company generated net income of $6.4 million,
as compared to net income of $4.5 million for the 2002 Quarter. For the 2002
Quarter, of the $4.5 million of net income, $8.4 million net income was
allocated to Andrx common stock and $3.9 million of net loss was allocated to
the former Cybear common stock.

REVENUES AND COST OF GOODS SOLD

THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
----------------------------
2003 2002
----------- -------------

Distributed Products

Revenues $ 154,617 $ 127,045
Cost of goods sold 125,027 103,755
Gross profit 29,590 23,290
Gross margin 19.1% 18.3%

Andrx Products - Bioequivalent

Revenues $ 40,503 $ 48,988
Cost of goods sold 28,753 17,668
Gross profit 11,750 31,320
Gross margin 29.0% 63.9%

Andrx Products - Brand

Revenues $ 7,929 $ 5,548
Cost of goods sold 2,516 2,541
Gross profit 5,413 3,007
Gross margin 68.3% 54.2%

Andrx Products - Total

Revenues $ 48,432 $ 54,536
Cost of goods sold 31,269 20,209
Gross profit 17,163 34,327
Gross margin 35.4% 62.9%

TOTAL PRODUCT SALES

Revenues $ 203,049 $ 181,581
Cost of goods sold 156,296 123,964
Gross profit 46,753 57,617
Gross margin 23.0% 31.7%

LICENSING AND ROYALTIES

Revenues $ 31,138 $ 114
Gross margin 100.0% 100.0%

OTHER

Revenues $ 2,998 $ 1,624
Cost of goods sold 2,737 2,553
Gross profit (loss) 261 (929)
Gross margin (loss) 8.7% (57.2)%

TOTAL REVENUE

Revenues $ 237,185 $ 183,319
Cost of goods sold 159,033 126,517
Gross profit 78,152 56,802
Gross margin 32.9% 31.0%

26

TOTAL REVENUES AND COST OF GOODS SOLD

DISTRIBUTED PRODUCTS

Revenues from distributed products increased by 21.7% to $154.6 million
for the 2003 Quarter, from $127.0 million for the 2002 Quarter. The increase in
sales from distributed products to an all time high level reflects the
participation in the distribution of generic products introduced by generic
manufacturers, and an increase in sales to existing and new customers, which was
partially offset by the overall price declines generally associated with generic
products.

For the 2003 Quarter, net sales of distributed products generated $29.6
million of gross profit with a gross margin of 19.1%, as compared to $23.3
million of gross profit with a gross margin of 18.3% for the 2002 Quarter. These
levels of gross margin on sales of distributed products are at the higher end of
the historical range of 14% - 21%. The increase in the 2003 Quarter gross margin
is primarily the result of the Company's participation in the distribution of
generic products that face competition from multiple generic manufacturers, as
well as the Company's participation in other marketing opportunities.

BIOEQUIVALENT PRODUCTS

Revenues from Andrx bioequivalent products decreased by 17.3% to $40.5
million for the 2003 Quarter, as compared to $49.0 million in the 2002 Quarter.
Revenues from Andrx bioequivalent products for both periods include sales of the
Company's bioequivalent versions of Cardizem CD, Dilacor XR, Ventolin metered
dose inhalers, and Glucophage. For the 2003 Quarter, such revenues also include
net sales of the Company's bioequivalent versions of K-Dur and Naprelan, which
were launched subsequent to the 2002 Quarter. The decrease in revenues from
Andrx bioequivalent products for the 2003 Quarter as compared to the 2002
Quarter results primarily from price declines, notwithstanding and a partial
offset by product launches subsequent to the 2002 Quarter. No new products were
launched in the 2003 Quarter. Andrx's bioequivalent version of Cardizem CD
continues to generate significant levels of net sales and gross profit and
materially contributes to Andrx's current overall operating results.

For the 2003 Quarter, Andrx's bioequivalent products generated $11.8
million of gross profit with a gross margin of 29.0%, as compared to $31.3
million of gross profit with a gross margin of 63.9% in the 2002 Quarter. The
decrease in gross profit and gross margin primarily results from a $7.9 million
charge related to production of currently marketed bioequivalent products and
pre-launch inventories of bioequivalent products, including $5.7 million for
Wellbutrin SR/Zyban placed into production after December 31, 2002. In late
February 2003, Andrx proposed amendments to its ANDA for its bioequivalent
versions of Wellbutrin SR/Zyban, even though it believed that those ANDAs were
nearing the last stages of FDA's final approval process, and it was in the late
stage of the process of building launch quantities for these products. This
action was taken to change a specification which Andrx had previously agreed to,
but later determined, based upon additional manufacturing experience and
analysis, should be changed. Though Andrx has supplied scientific evidence that
this issue only affects expiration dating, and not the efficacy or safety of the
products, and is consistent with the FDA's guidance on impurities, the FDA has
advised that the specification that it previously agreed to needs to be further
revised, in a manner adverse to the Company's position, as a result of updated
USP specifications that the FDA is now seeking to enforce. The Company is in
discussions with the FDA and USP on this issue, and cannot at this time
accurately advise whether or when such issues will be satisfactorily resolved or
these product introductions will occur. Andrx also recorded $1.6 million in
charges directly to cost of goods sold relating to its Weston, Florida
manufacturing facility, which is in the start-up phase, its Morrisville, North
Carolina manufacturing facility, which the Company plans to renovate and to
utilization issues at Andrx's Davie, Florida manufacturing facility.

27

BRAND PRODUCTS

For the 2003 Quarter, revenues from Andrx brand products increased by
42.9% to $7.9 million from $5.5 million in the 2002 Quarter. Revenues from Andrx
brand products for the 2003 Quarter include sales generated from the Entex
(cough and cold), Embrex (prenatal vitamins), Anexsia (pain) product lines and
Altocor (lipid lowering). The increase in revenues in the 2003 Quarter, as
compared to the 2002 Quarter, was primarily the result of $4.1 million in net
sales of Altocor which the Company began marketing in the third quarter of 2002,
partially offset by a lower level of net sales from the cough and cold product
lines and the Embrex product, which were primarily affected by the advent of
generic competition.

For the 2003 Quarter, Andrx brand products generated $5.4 million of
gross profit with a gross margin of 68.3%, as compared to $3.0 million of gross
profit with a gross margin of 54.2% for the 2002 Quarter. The increase in gross
profit and gross margin for the 2003 Quarter from the 2002 Quarter results
primarily from the 2002 third quarter launch of Altocor. Gross margins were
affected by, among other things, the Company recording an inventory allowance
due to obsolescence of $326,000 and $818,000 through cost of goods sold in the
2003 Quarter and 2002 Quarter, respectively. Cost of goods sold in the 2003
Quarter and 2002 Quarter included royalties accrued on the net sales generated
from the Entex cough and cold product line and Anexsia, as well as amortization
of the product rights for CTEX, Entex and Anexsia, calculated on a straight-line
basis.

ANDRX PRODUCTS - TOTAL

Revenues from total Andrx products decreased by 11.2% to $48.4 million
for the 2003 Quarter, as compared to $54.5 million in the 2002 Quarter. The
decrease in revenues from total Andrx products for the 2003 Quarter as compared
to the 2002 Quarter results primarily from a decrease in net revenues for Andrx
bioequivalent products, partially offset by an increase in net revenues of
Andrx's brand products.

For the 2003 Quarter, total Andrx products generated $17.2 million of
gross profit with a gross margin of 35.4%, as compared to $34.3 million of gross
profit with a gross margin of 62.9% in the 2002 Quarter. The decrease in gross
profit and gross margin primarily results from a $7.9 million charge related to
production of currently marketed bioequivalent products and pre-launch
inventories of bioequivalent products, including $5.7 million for Wellbutrin SR
/ Zyban placed into production after December 31, 2002 and $1.6 million in
charges directly to cost of goods sold relating to Andrx's manufacturing
facilities.

TOTAL PRODUCT SALES

Total product sales increased by 11.8% to $203.0 million for the 2003
Quarter, as compared to $181.6 million in the 2002 Quarter. The increase in
total product sales for the 2003 Quarter as compared to the 2002 Quarter results
primarily from increases in net revenues of distributed products and Andrx brand
products partially offset by a decline in net revenues from Andrx bioequivalent
products.

28

For the 2003 Quarter, total product sales generated $46.8 million of
gross profit with a gross margin of 23.0%, as compared to $57.6 million of gross
profit with a gross margin of 31.7% in the 2002 Quarter. The decrease in gross
profit and gross margin for the 2003 Quarter, as compared to the 2002 Quarter
resulted primarily from a decline in gross profit and gross margin from Andrx
bioequivalent products, partially offset by increases in gross profit and gross
margin from distributed products and Andrx brand products.

LICENSING AND ROYALTIES

In the 2003 Quarter, Andrx generated $31.1 million in licensing and
royalties revenue, as compared to $114,000 in the 2002 Quarter. Licensing and
royalties revenue for the 2003 Quarter include $30.4 million of revenues from
the agreement with KUDCo.

OTHER REVENUES

The Company generated $3.0 million of other revenues in the 2003
Quarter, as compared to $1.6 million in the 2002 Quarter. Other revenues for the
2003 Quarter primarily represented revenues from the contract manufacture of
aerosols at the Company's Massachusetts facility and revenues generated from the
Company's agreement with Aventis, relating to its physician Internet operations,
including the POL web portal.

In the 2003 Quarter, cost of goods sold related to other revenues
includes $1.7 million relating primarily to excess capacity at its Massachusetts
aerosol manufacturing facilities. The Company is considering, among other
things, divesting both its physician Internet operations and its Massachusetts
aerosol manufacturing operations.

TOTAL REVENUES

Total revenues increased by 29.4% to $237.2 million for the 2003
Quarter from $183.3 million for the 2002 Quarter. The increase in total revenues
for the 2003 Quarter as compared to the 2002 Quarter resulted primarily from
increases in licensing and royalties revenue, revenues from distributed products
and Andrx brand products, partially offset by a decline in revenues from Andrx
bioequivalent products.

For the 2003 Quarter, total revenues generated total gross profit of
$78.2 million with a gross margin of 32.9%, as compared to a total gross profit
of $56.8 million with a gross margin of 31.0% in the 2002 Quarter. The increase
in total gross profit for the 2003 Quarter as compared to the 2002 Quarter
resulted primarily from increased licensing and royalties revenue, gross profit
from distributed products, and Andrx brand products, and was partially offset by
a decline in gross profit from Andrx bioequivalent products.

29

SG&A

SG&A expenses were $55.5 million or 23.4% of total revenues, as
compared to $41.3 million or 22.5% of total revenues for the 2002 Quarter. SG&A
expenses include expenses relating to the administration, marketing, selling,
distributing and warehousing of products, brand sales and marketing efforts,
royalties to the Company's former Co-Chairman and Chief Scientific Officer
related to sales of the Company's bioequivalent version of Cardizem CD,
corporate overhead and legal costs (primarily patent infringement matters
relating to the Company's ANDA filings and antitrust matters). The increase in
SG&A expenses in the 2003 Quarter, as compared to the 2002 Quarter, was
primarily due to increases in brand sales and marketing costs, the continued
expansion of distribution operations, including the opening of a new Ohio
distribution facility in 2002, and increases in legal costs, insurance premiums,
allowances for doubtful accounts receivable and corporate overhead, which were
partially offset by a decrease in Internet operating expenses. The Company had
approximately 425 sales representatives at March 31, 2003, as compared to
approximately 300 at March 31, 2002. The average direct cost of an Andrx sales
representative, including training costs, is approximately $125,000 per year.
Operating expenses related to Andrx's Internet operations are classified as SG&A
or cost of goods sold, as appropriate for all periods presented.

R&D

R&D expenses were $13.3 million for the 2003 Quarter, as compared to
$9.9 million for the 2002 Quarter. R&D expenses reflect the Company's continued
commercialization efforts in its bioequivalent (ANDA) and brand (NDA) product
development programs. During the 2003 Quarter, 56% of R&D expenses were in the
bioequivalent program and 44% were in the brand program. During the 2003
Quarter, ANDAs for three products were accepted as filed by the FDA, a NDA for a
valproate product was submitted to the FDA, and Andrx's NDA for metformin XT was
accepted by the FDA as filed.

In its bioequivalent R&D operations, the Company is attempting to
develop bioequivalent formulations of marketed products, and is generally
working on developing, or is considering developing, approximately 60 products
at any point in time. The cost of related bioequivalent biostudies are generally
less than $100,000 for each small-scale or pilot study, and approximately
$250,000 for each study used in connection with an ANDA submission. The Company
estimates that the average cost of developing a controlled-release product
(excluding legal costs) is approximately $2.0 million and the cost of developing
a specialty, niche or immediate release product is approximately $1.0 million.
The principal costs incurred in connection with these projects are personnel
costs, overhead costs, costs paid to third party contract research organizations
for conducting bioequivalence studies and costs for raw materials used in
developing the products. In its brand R&D operations, Andrx develops product
formulations, manages the clinical studies performed on those products by
contract research organizations and prepares NDAs. Brand R&D expenses include
laboratory services, clinical investigators and contract research organizations,
as well as Andrx personnel costs, overhead, raw material costs, and other
professional services. The Company estimates that the average cost of developing
an Andrx brand product (from formulation to NDA approval) could range from
approximately $20 million to $30 million, and could take up to approximately
five years assuming Andrx continues to focus on pursue approval of its NDAs
through the 505(b)(2) regulatory process.

30

EQUITY IN EARNINGS OF JOINT VENTURES

The Company generated $448,000 of equity in earnings of its
unconsolidated joint ventures in the 2003 Quarter, compared to $645,000 in the
2002 Quarter. For the 2003 Quarter and 2002 Quarter, equity in earnings of its
joint ventures were generated by ANCIRC's net sales of its bioequivalent
versions of Oruvail and Trental and CARAN's net sales of its bioequivalent
versions of Pepcid and Prozac. ANCIRC is Andrx's 50/50 joint venture with Watson
Pharmaceuticals, Inc. and CARAN is Andrx's 50/50 joint venture with Carlsbad
Technologies, Inc.

INTEREST INCOME

The Company generated interest income of $646,000 in the 2003 Quarter,
as compared to $1.6 million in the 2002 Quarter. The decrease in interest income
is primarily the result of the lower average level of cash, cash equivalents and
investments available-for-sale maintained and lower interest rates on these
investments during the 2003 Quarter, as compared to the 2002 Quarter. The
Company invests in taxable, tax-advantaged and tax-free investment grade
securities.

INTEREST EXPENSE

The Company incurred interest expense of $611,000 in the 2003 Quarter,
as compared to $27,000 in the 2002 Quarter. During the 2003 Quarter interest
expense incurred was primarily related to the unused line fee, amortization of
issuance costs on the Company's secured line of credit and financing charges on
capital lease obligations. The 2003 Quarter and 2002 Quarter also included
financing charges on certain insurance policies.

GAIN ON SALES OF ASSETS

In conjunction with the sale of Dr. Chart and @Rx applications, the
licensing of its patents for Internet transmission of prescriptions and the
two-year marketing agreement with a business unit of Aventis SA relating to
Andrx's POL web portal, revenue will be recognized in the Consolidated
Statements of Income as services are rendered or otherwise earned. Due to the
related nature of these transactions, Gain on sale of assets was deferred and
will be recognized as Other income ratably as revenue is earned under the
marketing agreement. During the 2003 Quarter, the Company recognized a $311,000
gain in connection with the asset sale. Additionally for the 2003 Quarter, the
Company recognized $125,000 gain on the sale of Histex product line from the
final quarterly cash installment due in connection with the Company's June 28,
2002 sale of the product line. Such gain was previously deferred.

INCOME TAXES

For the 2003 Quarter and the 2002 Quarter, the Company provided income
taxes of $3.9 million and $3.3 million, or 38% and 42%, respectively, of income
before income taxes. For the 2003 Quarter and the 2002 Quarter, the Company
provided for income taxes in excess of the expected annual effective federal
statutory rate of 35%, primarily due to the effect of state income taxes and for
the 2002 Quarter also includes the effect of the amortization of certain
intangible assets, which are not deductible for tax purposes.

31

WEIGHTED AVERAGE SHARES OUTSTANDING

The basic and diluted weighted average shares of Andrx common stock
outstanding was 71.6 million and 72.1 million, respectively, in the 2003
Quarter, as compared to 70.6 million and 72.3 million, respectively, in the 2002
Quarter. The weighted average share computation for the 2003 Quarter, includes
the vested portion of restricted stock units. Diluted per share calculations
include weighted average shares of common stock outstanding during the three
months ended March 31, 2003 and 2002 plus dilutive common stock equivalents
which are computed using the treasury stock method. The Company's dilutive
common stock equivalents consist of stock options. The increase in the basic
weighted average number of shares of Andrx common stock outstanding in the 2003
Quarter, as compared to the 2002 Quarter, was attributable to exercises of stock
options and issuances of shares under the Company's employee stock purchase
plan, which commenced on January 1, 2002, approximately 65,000 shares of Andrx
common stock issued in connection with the Conversion, and 7,500 vested
restricted stock units.

The basic and diluted weighted average shares of Cybear common stock
outstanding was 6.7 million for the 2002 Quarter. All common stock equivalents
were excluded from the diluted share computation as Cybear was allocated a net
loss, and accordingly, such stock equivalents were anti-dilutive. After May 17,
2002, no Cybear common stock was outstanding as a result of its conversion into
Andrx common stock.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2003, the Company had $66.9 million in cash, cash
equivalents and investments available-for-sale, and $283.8 million of working
capital. The Company had $102.8 million available under the Company's $185
million secured line of credit. As of March 31, 2003, no borrowings were
outstanding under the secured line of credit.

OPERATING ACTIVITIES

In the 2003 Quarter, net cash used in operating activities was $19.2
million, compared to net cash provided by operating activities of $2.0 million
in the 2002 Quarter.

In the 2003 Quarter, net cash used in operating activities of $19.2
million incl