UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number 000-31475

ANDRX CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

(954) 584-0300

(Registrant’s telephone number, including area code)

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

None

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

Andrx Corporation — Andrx Group common stock, $0.001 par value

(Title of Class)

Rights to Purchase Series A Junior Participating Preferred Stock

(Title of Class)

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

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

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

      As of June 30, 2004, the aggregate market value of Andrx common stock held by non-affiliates (based on the closing price on June 30, 2004 as reported on the Nasdaq National Market) was approximately $2.0 billion.

      There were 73,033,500 shares of Andrx common stock outstanding as of March 1, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2005 annual meeting of stockholders.

      As used in this Form 10-K, “Andrx Corporation,” “Andrx,” “we,” “us,” “our” or the “Company” refer to Andrx Corporation and all of its subsidiaries taken as a whole. “Management” and “board of directors” refer to our management and board of directors.

      This Form 10-K contains trademarks held by third parties and us. Our trademarks, including licensed trademarks, contained within this report include: Altoprev®, AndaConnect®, AndaMeds^tm, AndaNet®, Anexsia^tm, Cartia XT®, Diltia XT®, Embrex®, Entex®, Entex® LA, Fortamet®, Metformin XT^tm, Monopril HCT®, Taztia XT®, VIPConnect^tm and VIPpharm^tm. Trademarks used in this report belonging to others include: Accupril®, Actos®, Cardizem® CD, Cardura® XL, Claritin-D® 24, Claritin-D® 12, Claritin RediTabs®, Depakote®, Dilacor XR®, Glucophage®, Glucophage XR®, Glucotrol XL®, K-Dur®, Lotensin®, Lotensin HCT®, Mevacor®, Monopril®, Naprelan®, Ortho Cyclen®, Ortho Novum® 1-35, Ortho Novum® 7/7/7, Ortho Tri-Cyclen®, Oruvail®, Paxil®, Pepcid®, Pletal®, Procardia® XL, Prozac®, Prilosec®, Remeron®, Tiazac®, Toprol-XL®, Trental®, Tylenol®, Ventolin®, Vicodin® HP, Vicoprofen®, Wellbutrin SR® and Zyban®.

      Our Internet website address is www.andrx.com. Our Annual Report on Form  10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available free of charge on our website, as soon as reasonably practicable after such material is electronically filed with the U.S. Securities and Exchange Commission (SEC). Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K or any other SEC filings.

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 or 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, our dependence on a relatively small number of products; licensing revenues; the timing and outcome of patent, antitrust and other litigation and future product launches; whether we will be awarded any marketing exclusivity period and, if so, the precise dates thereof; government regulation generally; competition; manufacturing capacities, safety issues, output and quality processes; our ability to develop and successfully commercialize new products; the loss of revenues from existing products; development and marketing expenses that may not result in commercially successful products; our inability to obtain, or the high cost of obtaining, licenses for third party technologies; the operating losses that will be incurred by our brand business while we are attempting to dispose of such business; the consolidation or loss of customers; our relationship with our suppliers; the success of our joint ventures; difficulties in integrating, and potentially significant charges associated with, acquisitions of technologies, products and businesses; our inability to obtain sufficient supplies and/or active pharmaceuticals from key suppliers; the impact of sales returns and allowances; product liability claims; rising costs and limited availability of product liability and other insurance; the loss of key personnel; failure to comply with environmental laws; and the absence of certainty regarding the receipt of required regulatory approvals or the timing or terms of such approvals. Actual results may differ materially from those projected in a forward-looking statement. We are also subject to other risks detailed herein, including those under the heading Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” or detailed from time to time in this Annual Report or in our other SEC filings. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Annual Report and in our other 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. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

PART I

Overview

      We are a pharmaceutical company that:

      Our controlled-release pharmaceutical products use our proprietary controlled-release drug delivery technologies. Controlled-release pharmaceutical products generally provide more consistent drug levels in the bloodstream than immediate-release dosage forms and may improve drug efficacy and reduce side effects, by releasing drug dosages at specific times and in specific locations in the gastrointestinal tract of the body. They also provide “patient friendly” dosage forms that reduce the number of times a drug must be taken, thus improving patient compliance.

      We also commercialize brand pharmaceuticals that, in some instances, use our proprietary controlled-release drug delivery technologies. On March 2, 2005, we entered into agreements with First Horizon Pharmaceutical Corporation for the sale and licensing of certain rights and assets related to our two main brand products, Altoprev and Fortamet. The closing of the transaction, which is subject to certain customary conditions including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, is expected to occur by May 2005.

Business Strategy

      We are focusing our efforts on our core competencies of formulation development of generic versions of controlled-release and other pharmaceutical products as well as the sales, marketing and distribution of both our own and others’ generic pharmaceuticals. We intend to grow through both internal and external efforts, such as strategic alliances, collaborative agreements and acquisitions. We continue to seek agreements with third parties that will leverage our formulation capabilities and our controlled-release technologies, including but not limited to agreements to develop combination and other products.

      Our research and development efforts are focused on developing generic products using our proprietary controlled-release drug delivery technologies, as well as niche and immediate-release products, including oral contraceptives. We also continue to develop a brand product combining Takeda Chemical Industries, Ltd.’s Actos (pioglitizone) and our extended-release metformin product. Total research and development expenses were approximately $40.5 million, $52.2 million and $51.5 million, in 2004, 2003 and 2002, respectively. We anticipate that research and development expenses will total approximately $49 million during 2005. Our level of research and development spending will be periodically evaluated during 2005 to take into consideration, among other things, our level of profitability and cash flows. The expenses associated with generic research and development are primarily costs relating to personnel, overhead, laboratories for conducting bioequivalence studies and raw materials used in developing our products.

      We incurred significant levels of research and development expenses for brand products through 2003, but curtailed our brand product research and development in the latter part of 2003. The expenses associated with those brand research and development were primarily for costs related to personnel, overhead, professional services, filing fees and laboratory services, clinical investigators and clinical research organizations responsible for conducting the clinical trials required to support a product application with the Food and Drug Administration (FDA) and preparing New Drug Applications (NDAs).

      We intend to consider and, as appropriate, enter into strategic alliances and collaborative agreements with other companies to, among other things, license or acquire rights to generic products or product candidates, and possibly to acquire complementary businesses. We also intend to divest ourselves of products or businesses that are no longer a strategic fit to our business strategy.

Generic Pharmaceuticals

      Generic pharmaceutical products contain the same active pharmaceutical ingredient as the brand product they are allowed to be substituted for, and otherwise mimic the physiological characteristics of that brand product. We have historically focused on developing generic versions of controlled-release, patent-protected brand pharmaceuticals, using our controlled-release technologies and formulation techniques to develop products that do not infringe the patents protecting the brand product. Over the past several years, we have broadened our generic business strategy to include the research and development of immediate-release and niche pharmaceuticals, including oral contraceptives, and to enter into collaborative agreements with other companies to, among other things, license or acquire rights to their generic products or product candidates.

      In connection with our generic products, we generally conduct studies to establish that our product is bioequivalent to the brand product, and obtain legal advice that our product does not infringe the patents of the NDA owner or the innovator, or that such patents are invalid or unenforceable and/or have expired. FDA approval is required before a generic version of a previously approved brand pharmaceutical product or certain new dosage forms of an existing product can be marketed. Approval for such products generally is sought using an Abbreviated New Drug Application (ANDA). In most cases, bioavailability and bioequivalence studies are required in support of an ANDA. Bioavailability indicates the rate of absorption and levels of concentration of a drug in the blood stream. Bioequivalence compares the bioavailability of one drug product with another and, when established, indicates that the rate of absorption and levels of concentration in the body are substantially equivalent to the previously approved reference listed drug. An ANDA may be submitted for a drug product on the basis that it is the equivalent of a previously approved pharmaceutical product or, in the case of a new dosage form, that it is suitable for use for the indications specified without the need to conduct additional safety or efficacy testing.

      As further detailed below, the law provides a complex, time-consuming and litigious process for gaining approval to market generic versions of brand products that are covered by existing patents (See “Regulation — Pharmaceuticals — ANDA Process — Generic Pharmaceuticals” for a description of this regulatory process and “Patent Infringement Litigation” for a discussion of the pending litigation involving our ANDA products).

      If the ANDA applicant is the first to successfully file an application for a patent-protected product and provides the appropriate patent certification notice to the FDA, the NDA holder and the patent holder, the applicant may be awarded a 180-day period of marketing exclusivity against other companies that subsequently file ANDAs for that same product. However, during such period of marketing exclusivity, the brand company or its licensee, or both, may market the brand product using a generic label, which is commonly referred to as an authorized generic. Other approved generic products can immediately come to market if this exclusivity period is not awarded or, if awarded, the marketing exclusivity period has expired. We believe this 180-day period of marketing exclusivity provides an opportunity for the recipient to build market share, to better defend that market share against competition that will arise when the exclusivity period expires, to realize greater gross profit, and in some cases, to gain value by relinquishing or transferring its marketing exclusivity right to others. The ability to secure the benefit of this exclusivity period, and the extent of the benefit it confers, is dependent upon a variety of factors, some beyond the ANDA applicant’s control, including whether the brand product will also be marketed as an authorized generic, either before or during such exclusivity period; the date in which its ANDA was filed, and consequently, the law pertaining to its ANDA and its exclusivity period; and the speed and results of litigation involving other ANDA filers (See “Regulation — Pharmaceuticals — ANDA Process — Generic Pharmaceuticals”).

      As of March 1, 2005, our portfolio of generic pharmaceutical products includes the following products:

      Our generic versions of Cardizem CD and, to a lesser extent, Tiazac, Claritin D 24, Claritin RediTabs and Glucotrol XL account for a substantial portion of the revenues and profits we presently derive from our

generic product portfolio. (See “Risk Factors”). Our ANDAs for generic versions of Accupril, Biaxin XL, Claritin-D 12, Monopril and Monopril HCT have received FDA approval. For various reasons, as of March 1, 2005, we have not commenced the sale of these products.

      We continue to work to expand our generic product line. In 2004, we received 10 final product approvals and two tentative approvals, launched nine generic products, two of which were in-licensed from affiliates of Genpharm Inc., and submitted 14 ANDAs to the FDA, some of which we believe may have been the first-filed ANDAs for such product. The FDA issues a “tentative approval” when it has determined that the ANDA is approvable, but there is a patent or exclusivity period prohibiting it from granting final approval. We currently have approximately 30 ANDAs pending at the FDA.

      For various reasons, we generally do not publicly comment on the identity, or approval, launch or litigation status of the products that are the subject of our pending ANDAs. Disclosure of the names of our ANDA products could cause our competitors to also develop such products or to pursue various strategies to delay or avoid generic competition from our product. Disclosure of the approval or litigation status or the probable timing of the approval of our pending ANDAs or the launch of our products is inherently uncertain, and any indications we receive are preliminary and, therefore, subject to change. Actual results sometimes differ from our expectations and we believe that disclosure of our expectations with respect to the approval, launch or litigation status of our ANDA filings could create unrealistic expectations among investors. However, from time to time the identity of some of our pending ANDA products may become publicly known as a result of, among other things, the initiation of patent infringement litigation against us with respect to the product or the inclusion of such product on various formularies. Our disclosed ANDAs currently pending approval at the FDA include our generic versions of Toprol-XL (50mg), for which we believe we will be entitled to a 180-day period of marketing exclusivity, Toprol-XL (25mg, 100mg and 200mg), Concerta, Wellbutrin SR, Zyban, and certain oral contraceptive products, including Ortho Novum 1-35 and Ortho Novum 7/7/7.

      Our generic products are generally sold through our internal sales team under the Andrx Pharmaceuticals, Inc. label primarily to warehousing pharmacy chains, wholesalers, large managed care customers and selected government agencies. While there were no sales to a single customer that represented 10% of Andrx Corporation’s consolidated net revenues, the top 10 customers in our generic segment represent approximately 70% of the segment’s revenues. Since this distribution network has undergone consolidation, marked by the growth of a few large retail drug store chains, securing and maintaining customers for generic products is highly competitive, and significant price erosion often results when competitors attempt to gain market share from each other. In addition to these customers, we sell our generic products through our distribution operations directly to independent pharmacies, pharmacy chains, buying groups and physicians’ offices.

      We are continually evaluating potential generic product candidates. As part of this evaluation process, we look for brand products that we can formulate as generics and review the pharmaceutical patents associated with such products to determine whether we can challenge those patents as being invalid or not infringed by the application of our technologies or know how. Though the majority of such products have historically been controlled-release products, we also develop certain niche and immediate-release pharmaceutical products, including oral contraceptives.

      We intend to consider and, as appropriate, enter into collaborative agreements and strategic alliances with other companies to, among other things, license or acquire rights to generic products or product candidates, to collaborate on the formulation of brand products employing our controlled-release technologies, to acquire complementary businesses and to achieve other business objectives. We also intend to consider and, as appropriate, enter into collaborative agreements and strategic alliances with other companies to, among other

things, manufacture, market or sell our generic products or product candidates. The following are examples of these types of collaborative agreements:

2004

2003

2002

      Consistent with generic industry practice, we have a return policy that allows customers to return our products within a specified period both prior and subsequent to the product’s expiration date. If we reduce the selling price of our product, we may also provide inventory credits, known as shelf-stock adjustments, to our customers in an amount approximating the decrease in the value of the inventory owned by our customers as of the date of that price reduction. We also have indirect customer arrangements whereby chain pharmacies and certain other customers purchase our products at prices negotiated with us, but obtain those products through wholesalers they independently select, and agreements with certain wholesalers to establish contract pricing for certain products that the wholesaler will agree to place in their preferential pricing program. Under either form of arrangement, we will provide the wholesaler or customer with a credit, known as a chargeback, for an amount equal to the difference between our agreed upon contract price and the price we previously invoiced to the wholesaler. (See “Critical Accounting Policies and Estimates — Revenue Recognition”). We have from time to time entered into long-term supply agreements with certain customers related to our generic products.

      We have established two unconsolidated joint ventures for the commercialization of generic products, including:

Pharmaceutical Distribution Operations

      Through our distribution business, which consists of our Anda, Anda Pharmaceuticals and Valmed (also known as VIP) subsidiaries, we distribute predominantly generic pharmaceutical products and certain brand pharmaceuticals, nutritional products and medical office products. While most of the shelf-keeping units (SKUs) in our distribution operations are for products commercialized by unrelated entities, we also utilize these operations for the sale and marketing of our, and our collaborative partners’, generic products. We believe that our distribution operations are a valuable resource in the national distribution of generic pharmaceuticals.

      Our distribution operations offer next day delivery, competitive pricing, and responsive customer service for more than 6,000 SKUs, which we believe are the critical elements to competing effectively in this market. We purchase these products from approximately 180 vendors, no one of whom accounts for more than 10% of

our SKUs or dollar volume, and market them primarily to independent pharmacies, pharmacy chains, pharmacy buying groups and physicians’ offices.

      We sell and receive orders for these products through both telemarketing and electronic means. Our telemarketing staff is comprised of approximately 230 persons, as well as sales executives responsible for national accounts. These telemarketers initiate approximately 80,000 phone calls per week to approximately 17,000 active accounts throughout the United States and Puerto Rico from our South Florida and Grand Island, New York offices. Our internally developed, proprietary Internet ordering systems, AndaNet, AndaMeds and VIPpharm, as well as our hand-held Palm-ordering devices, AndaConnect and VIPConnect, also allow our customers to place their orders electronically. During 2004, approximately 15.9% of sales were generated through our order entry Internet sites, and approximately 9.4% of sales were generated through AndaConnect and VIPConnect. These amounts were approximately 12.5% and 5.2%, respectively in 2003.

      We are seeking to further leverage our distribution operations by dedicating a portion of our telemarketing staff and warehouses to other synergistic business-to-business opportunities. As an example, we are seeking to provide non-warehousing customers with a “virtual warehouse” service that will allow these customers to use our warehousing and distribution capabilities to ship and store their products. We believe that this virtual warehouse will allow us to provide operational benefits to these customers and will result in an expansion of our relationship with them.

      We presently distribute products from our facilities in Weston, Florida and Columbus, Ohio. For the year ended December 31, 2004, approximately half of our distribution sales were shipped from each of these facilities, though this percentage can vary. Our Ohio distribution center provides us with additional distribution opportunities for the foreseeable future.

Brand Pharmaceuticals

      We currently sell brand products under the Andrx Laboratories, Inc. label. These sales are made primarily to wholesalers, warehousing pharmacy chains and pharmacy benefit managers (PBMs). Unlike generic products, which are generally substituted at the pharmacy, brand products need to generate demand through a sales force dedicated to describing to physicians the pharmaceutical characteristics of the product, as well as marketing materials. The cost of maintaining a sales force and promoting a brand pharmaceutical product is substantial.

      In our brand business, there are a limited number of large customers. These customers may attempt to modify the terms by which we have historically done business, such as through the imposition of service fees and/or additional concessions. During the years ended December 31, 2004, 2003 and 2002, approximately 75%, 69% and 70%, respectively, of our brand product shipments were made to four customers.

      As of March 1, 2005, our principal brand products are Altoprev and Fortamet, two internally developed extended-release products that we market through approximately 160 primary care sales representatives in approximately 160 territories. Our brand business also has approximately 90 marketing, regulatory, medical affairs and related personnel. We anticipate continuing to operate our brand business unit until such time as we complete its sale or disposition.

      On March 2, 2005, we entered into agreements with First Horizon for the sale and licensing of certain rights and assets related to our Fortamet and Altoprev brand pharmaceutical products. First Horizon has agreed to pay us $50 million for Fortamet and up to $35 million for Altoprev. The amount that we may receive from First Horizon related to Altoprev, if any, is contingent upon meeting and maintaining certain supply requirements, as defined. We will also be entitled to receive royalties on net sales, as defined, of Fortamet and Altoprev of 8% and 15%, respectively. We will retain our obligation to pay a royalty to Sandoz related to Fortamet subject to certain minimums and a maximum. We have also entered into a long-term manufacturing and supply arrangement for Fortamet and Altoprev with First Horizon. The closing of the transaction, which is subject to certain customary conditions including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, is expected to occur by May 2005. After that closing occurs, we have agreed to provide certain transitional services to First Horizon for a period of time. In connection with this divestiture of our brand

business, we estimate that we will incur personnel related expenses of approximately $8.0 million, including severance, performance incentives and retention. In addition, we estimate we will incur approximately $6.5 million in other costs, including $4.0 million in non-cash charges.

      We also sell, but do not actively market, the Entex line of cough and cold products. The continued commercial sale of our Entex product line is subject to uncertainty as a result of the draft compliance policy guide issued by FDA on October 17, 2003, pertaining to pharmaceutical products that are presently permitted to be on the market and sold without an approved ANDA or NDA. This draft guidance advises that, once FDA approves a version of such product, unapproved drug products, such as our Entex product line, may become subject to FDA enforcement action. Even though the FDA approved an NDA for an OTC product containing the same active ingredients as our Entex PSE prescription product in June 2004, as of March 1, 2005, we have not received any indication of an enforcement action from the FDA concerning our Entex PSE product (See Note 9 to Consolidated Financial Statements). The contemplated brand business divestiture does not include the sale of the Entex product rights, and this product line will continue to be sold as part of our generic business.

Our Proprietary Controlled-Release Drug Delivery Technologies

      Certain of our pharmaceutical products (both generic and brand) utilize our proprietary controlled-release drug delivery technologies to control the release characteristics of a variety of orally administered drugs. Controlled-release products are formulations that gradually and predictably release active drug compounds in the gastrointestinal tract of the body over a 12 to 24-hour period and therefore need be taken only once or twice daily, as compared to immediate-release products that have to be taken three to four times per day. Controlled-release products typically provide benefits over immediate-release drugs.

      We have 15 proprietary drug delivery technologies that have been patented for certain applications or for which we have filed for patent protection for certain applications. These include:

Patents and Other Intellectual Property Rights

      Like others in the pharmaceutical industry, we place considerable importance on obtaining patent and trademark protection and otherwise preserving the confidentiality of our trade secrets and proprietary know-

how pertaining to our technologies, products and processes. Our general policy is to file patent applications and trademarks for our technologies, products and processes that we consider important to our business.

      We hold numerous U.S. and foreign patents and expect to continue to file U.S. and foreign patent applications to protect our intellectual property. As of December 31, 2004, we had 100 patents issued, allowed or applied for in the U.S. and 135 internationally, and had exclusively licensed additional U.S. and foreign patents and patent applications from others. Our success depends, in part, on our ability to obtain U.S. patent protection for certain of our products, to preserve our trade secrets and proprietary rights, and to operate without infringing on the intellectual property rights of third parties or having third parties circumvent our rights.

      We also seek to protect our trade secrets and proprietary know-how through confidentiality agreements with our partners, employees and consultants. It is possible that these agreements will be breached or will not be enforceable in every instance, and that we will not have adequate remedies for any such breach. It is also possible that our trade secrets will otherwise become known or independently developed by competitors.

      We may find it necessary to initiate litigation to enforce our patent rights, to protect our trade secrets or know-how or to determine the scope and validity of the proprietary rights of others. Litigation concerning patents, trademarks, copyrights and proprietary technologies can often be protracted and expensive and, as with litigation generally, the outcome is inherently uncertain.

Raw Materials

      The active chemical raw materials used in the manufacture of our products are generally available from multiple sources. However, certain raw materials are available from limited sources, and our ANDAs generally specify a particular single source for the active pharmaceutical ingredient. We have at times experienced problems as a result of a lack of raw material availability. Such problems result from, among other things, a supplier’s delay in providing raw materials, the closure of a particular source of raw materials, the unavailability of a replacement, and the shipment to us of raw materials that fail to meet our specifications. In addition, since FDA approval of raw material suppliers or product manufacturers is generally required in connection with each product, a significant delay in the manufacture or supply of that product could occur if raw materials or finished products from an approved supplier or manufacturer were to become unavailable.

Manufacturing and Quality

      We currently operate manufacturing facilities in Florida totaling approximately 250,000 square feet, which are primarily used for the manufacture of controlled-release and immediate-release solid dosage products, as well as oral contraceptives. An expansion is underway in our Davie, Florida facility to increase our manufacturing capacity. Though we anticipate that this expansion project will provide us with our required capacity through 2007, additional expansion at that site is also possible. We are also upgrading our high-potency manufacturing operations at certain of our other facilities in South Florida. For certain of our products, we contract with third parties for the manufacture of the products, some of which are currently available only from that supplier.

      We believe it is more likely than not that we will sell our 500,000 square foot manufacturing facility in Morrisville, North Carolina.

      We sometimes file our ANDA or NDA based on study results utilizing product batches that are smaller than what we anticipate may be required for the commercial launch of that product. Thus, in order to manufacture these products in sufficient quantities for commercial launch, we are required to “scale-up” our manufacturing process for use on larger equipment, in accordance with FDA regulations.

      To meet the market demand for our current and anticipated products, and manufacture our products in compliance with our regulatory submissions and FDA’s current good manufacturing practices (cGMP), we continue to focus on improving the efficiency and quality of our manufacturing operations. These efforts include, among others: (i) optimizing our processes, thereby reducing product rejections; (ii) implementing quality initiatives to ensure compliance with cGMP, including laboratory information management systems;

(iii) increasing personnel training, accountability, development and expertise; (iv) implementing JD Edwards Enterprise Resource Planning (ERP) system, an integrated planning and operating system, which we accomplished in early 2005; (v) evaluating the commercial viability of producing certain products that we anticipate will generate a relatively small amount of profit compared to the utilization of resources in order to allow us to optimize our output and maximize our profitability; (vi) transferring production (or portions thereof) for certain products to equipment capable of handling larger batch sizes or to third parties, including foreign contract manufacturers; and (vii) renovating our facilities to increase capacity and optimize production. Until all of our efforts come to fruition, we will continue to incur significant costs related to inefficiencies and excess capacity at our manufacturing facilities and production related write-offs.

      Our pharmaceutical manufacturing operations are required to comply with cGMP. cGMP encompasses all aspects of the production process, including validation and record keeping, in addition to standards for facilities, equipment and personnel, and involves changing and evolving standards. Consequently, continuing compliance with cGMP can be a particularly difficult, extensive and expensive part of pharmaceutical manufacturing operations. Similar cGMP regulations and other requirements apply to products that we manufacture for sale in Canada. We are subject to regular inspections by the FDA. Any non-compliance with cGMP or the corrective action plan we proposed to the FDA in response to the two Form FDA-483s issued by the FDA in 2004 and the FDA Warning Letter we received in August 2000, could have a material adverse effect on our financial condition and results of operations (See “Risk Factors”).

      As a result of all of the foregoing factors, we may at times have difficulty fulfilling all of the market demand for our products and having pre-launch quantities of our product candidates available when we obtain FDA approval to market our products (See “Risk Factors”).

Information Systems

      We have experienced significant growth in our operations, which has required the expansion, upgrading and improvement of our administrative, operational, and management systems, controls and resources. To achieve this objective, in 2002 we began the implementation of an integrated Enterprise Resource Planning (ERP) suite of operational and financial systems, with the JD Edwards Enterprise One (JDE) software package. The objective of this initiative was to build an information systems platform to support our current and future operational needs as our business continues to grow. In early 2005, we successfully completed the JDE implementation, as the systems portfolio has been deployed across all operating entities. As a result, we believe we have achieved the following benefits:

      In 2002, Andrx also began the implementation of the PeopleSoft human resources and payroll system. PeopleSoft is an enterprise-wide software package intended to enable us to better manage, optimize and leverage our employees and thereby achieve a higher level of business performance. The payroll software modules were successfully implemented among our divisions in 2003 and the human resource modules were completed in 2004.

      We will continue to incur costs to support and modify these systems for our expanding or changing operations. We also intend to enhance the information systems capabilities of our distribution operations and to invest further in new technology and systems to enhance customer and supplier relationships and internal capabilities and efficiencies.

Regulation — Pharmaceuticals

      In our generic operations, we apply our proprietary technology processes and formulations to develop a product that will reproduce the brand product’s physiological characteristics (i.e., the rate and extent of absorption into the bloodstream), but not infringe the patents of the brand owner or other innovator of the NDA. In connection with this process, we conduct studies to establish that our product is bioequivalent to the brand product, and obtain legal advice that our product does not infringe the NDA owner’s or the innovator’s patents or that such patents are invalid or unenforceable. FDA approval is required before a generic version of a previously approved drug or certain new dosage forms of an existing drug can be marketed. Approval for such products generally is sought using an ANDA. In most cases, bioavailability and bioequivalence studies must be conducted in support of the ANDA and clinical studies are not required. Bioavailability indicates the rate of absorption and levels of concentration of a drug in the blood stream. Bioequivalence compares the bioavailability of one drug product with another and, when established, indicates that the rate of absorption and levels of concentration in the body are substantially equivalent to the previously approved reference listed drug. An ANDA may be submitted for a drug product on the basis that it is bioequivalent to a previously approved drug product or, in the case of a new dosage form, that it is suitable for use for the indications specified without the need to conduct additional safety or efficacy testing.

      The Drug Price Competition and Patent Restoration Act of 1984, known as the Hatch-Waxman Amendments, require that we submit an ANDA to the FDA for each generic product we seek to market. The ANDA contains a substantial amount of information about the proposed product’s formulation, ingredients, chemistry and manufacturing controls, stability and the bioavailability and bioequivalence studies conducted on such product, all of which is reviewed by the FDA’s Office of Generic Drugs (OGD). In addition, the ANDA is required to contain the ANDA applicant’s certification concerning each patent that has been listed for the reference brand product in the Orange Book. If there is no patent listed in the Orange Book, the ANDA applicant so states by submitting what is referred to as a Paragraph I certification. If the patent listed in the Orange Book has expired, the ANDA applicant so states by submitting what is referred to as a Paragraph II certification. If the ANDA applicant intends to wait until the expiration of the patent listed in the Orange Book before it intends to market its product, the ANDA applicant so states by submitting what is referred to as a Paragraph III certification. And, if the ANDA applicant believes that the listed patent is invalid or unenforceable, or that its product does not infringe such patent(s), the ANDA applicant so states by submitting what is referred to as a Paragraph IV certification in its ANDA.

      If a Paragraph IV certification is made, the ANDA applicant must also send a notice containing its factual basis for its Paragraph IV certification to the NDA owner and any patent holder. The NDA owner or patent holder may then initiate a legal challenge against the ANDA applicant for patent infringement. Before the December 2003 Amendments to Hatch-Waxman were enacted, if the NDA owner or patent holder asserted a patent challenge within 45 days of their receipt of notice of the ANDA applicant’s Paragraph IV certification, FDA was prevented from approving that ANDA until the earlier of 30 months, the expiration of the patent, or when the infringement case concerning each such patent was favorably decided in an ANDA applicant’s favor, or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In some cases, NDA owners and patent holders obtained additional patents for their products after an ANDA had been filed, but before that ANDA received final marketing approval, and then initiated a new patent challenge, which resulted in more than one 30-month stay.

      The December 2003 Amendments to Hatch-Waxman were intended to eliminate certain unfair advantages of patent holders in the implementation of Hatch-Waxman. As a result of those amendments, the NDA owner remains entitled to an automatic 30-month stay if they initiate a patent infringement lawsuit within 45 days of their receipt of notice of our Paragraph IV certification, but only if their patent infringement lawsuit is directed to patents that were listed in the Orange Book before the ANDA was filed. Where there are no patents listed in the Orange Book at the time the applicant files its ANDA, there is no automatic 30-month stay of regulatory approval. If patents are listed in the Orange Book after the ANDA has been filed, the NDA owner may still sue the ANDA applicant for that patent, but the ANDA will not be subject to an automatic

stay of regulatory approval. An ANDA applicant is permitted to take legal action to enjoin or prohibit the listing of certain patents in the Orange Book.

      An FDA regulation effective August 2003 further defines the types of patents that may be listed in the Orange Book and requires increased disclosure requirements for listed patents in an effort to decrease the number of improperly listed patents. While most of these changes should help prevent improperly listed patents, the long-term effectiveness of this regulation and the December 2003 amendments is unclear.

      If an ANDA applicant is the first to file an ANDA with a Paragraph IV certification and provides appropriate notice, the NDA holder and all patentees for a particular generic product, the applicant may be awarded a 180-day period of marketing exclusivity against other companies that subsequently file ANDAs containing Paragraph IV certifications for that same product. We believe this period of marketing exclusivity can provide an opportunity for the successful patent challenger to build its market share, to recoup the expense of patent litigation and to realize greater profit margins, and in some cases, to gain value by relinquishing or transferring this marketing exclusivity right to others. In addition, once that exclusivity period has lapsed, we believe that the marketer of the first commercialized product may more effectively defend its market share position against future competition. However, an ANDA applicant’s ability to secure the benefit of this exclusivity period, and the actual benefit it gains from the exclusivity period, depends on a variety of factors, some beyond the applicant’s control, such as: the timing of FDA approval; whether other ANDA applicants share that exclusivity; patent litigation related to the product and competitors’ products; raw material availability; and whether the brand product will also be marketed as a generic (sometimes referred to as an authorized generic). Court decisions, FDA interpretations, legislative changes and the date of filing of an ANDA all affect, among other things, how this exclusivity period is to be awarded, how it is affected by other ANDA applicants, and the benefit, if any, which may be obtained from the 180-day marketing exclusivity period.

      As an example, FDA had previously taken the position that it could award “shared” 180-day marketing exclusivity if different ANDA applicants were first-to-file Paragraph IV certifications to different patents listed in the Orange Book for the same product. This interpretation was both accepted and rejected by two separate United States District Courts. The Federal Circuit Court of Appeals declined to address the issue on appeal. FDA has announced that it will continue to rely on this interpretation for ANDAs filed before December 8, 2003. For ANDAs submitted after December 8, 2003, the December 2003 Hatch-Waxman Amendments to Hatch-Waxman prospectively eliminated patent-by-patent shared exclusivity, so that the 180-day marketing exclusivity period will only be awarded to the first ANDA applicant(s) to assert a Paragraph IV certification as to any patent listed in the Orange Book for the product. However, FDA will award shared 180-day marketing exclusivity to multiple ANDA applicants who all file the first Paragraph IV certification on the same day.

      The December 2003 Amendments to Hatch-Waxman also modify the rules governing when generic products are eligible for 180-day exclusivity periods and when the 180-day exclusivity period is triggered or forfeited. Prior to the Amendments, the 180-day marketing exclusivity period was triggered upon the first commercial marketing of the ANDA or a court decision holding the patent invalid, unenforceable or not infringed. For ANDAs accepted for filing before March 2000, that court decision had to be final and non-appealable, for ANDAs accepted for filing after March 2000, any court decision, including a district court decision, could trigger exclusivity, and in all cases, the court decision trigger did not have to involve the first ANDA applicant, but could be a court decision by a subsequent ANDA applicant. The Amendments retroactively apply a final and non-appealable court decision trigger for all ANDAs filed before December 8, 2003. As for ANDAs filed after December 8, 2003, exclusivity is only triggered upon the first commercial marketing of the ANDA product. However, that exclusivity may be forfeited under certain circumstances, including among other things, if the ANDA is not marketed by the first-filer or another ANDA applicant within a certain timeframe after a final and non-appealable court decision, or if the FDA does not tentatively approve the first-filer’s ANDA within 30 months.

      Regulatory approval of an ANDA may also be affected by the grant of a period of “pediatric exclusivity.” Pediatric exclusivity rewards brand pharmaceutical companies for conducting research in a pediatric

population through the grant of an additional six months of exclusivity, which is attached to any patent or market exclusivity period protecting its product. Thus, where pediatric exclusivity is requested by a brand company and granted by FDA, final marketing approval could be delayed by an additional six months.

      Certain ANDA procedures for generic controlled-release drugs and other products are presently the subject of petitions filed by brand name drug manufacturers, which seek changes from FDA in the approval process for generic drugs. We cannot predict at this time whether FDA will make any changes to the ANDA procedures as a result of such petitions, ongoing rulemakings or litigation, or the effect that such changes may have on us. Any changes in FDA regulations, policies or procedures may make ANDA approvals more difficult or may otherwise have a significant adverse effect on our business.

      Under the Generic Drug Enforcement Act of 1992, the FDA is allowed to impose debarment and other penalties on individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the affected company. The Generic Drug Enforcement Act also allows for civil penalties and withdrawal of previously approved applications.

      Approval of a new drug requires the filing and FDA approval of an NDA. The NDA must contain complete pre-clinical, clinical safety and efficacy data, as well as reference to such data or literature. Before clinical testing can begin, stringent governmental requirements for pre-clinical evaluation must be satisfied. Pre-clinical data are typically obtained from studies in animal species, as well as laboratory studies, and are submitted to FDA in an Investigational New Drug Application (IND). The pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initiation of clinical trials (i.e., trials in humans) and demonstrate that such studies would not expose subjects to an unreasonable or significant risk of illness or injury.

      Clinical trials are typically conducted in three sequential phases, Phase I, Phase II and Phase III, although the phases may overlap. The process of completing clinical trials for a new drug typically takes several years and requires the expenditure of substantial resources. Preparing an NDA involves considerable data collection, verification, analysis and expense. The approval process is affected by a number of factors, including the risks and benefits of a drug product as demonstrated in clinical trials, the severity of the target disease or health condition and the availability of alternative treatments. FDA or other health authorities may deny approval of an NDA if the regulatory criteria are not satisfied, or may require additional testing or information before an NDA will be approved. The safety and effectiveness testing necessary to obtain approval of an NDA is time-consuming and expensive.

      The NDAs we submitted for Altoprev, Fortamet and Zalkote (which is currently pending marketing approval), our internally developed brand pharmaceutical products, used a procedure permitted by Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act. A Section 505(b)(2) NDA must contain safety and effectiveness studies, but may rely on published reports or prior FDA determinations that related products are safe and effective (e.g., approval of a controlled-release version of a previously approved immediate-release drug product) for those studies. Thus, by eliminating the need for certain duplicative testing, the Section 505(b)(2) NDA process may significantly reduce the time and expense of new drug development.

      There are limitations on the use of Section 505(b)(2) NDAs, however. First, patent listing/certification requirements and exclusivity awarded to reference or competitor products may result in the lengthy and uncertain delay of approvals similar to those described above for ANDAs. Second, the extent to which Section 505(b)(2) NDAs may rely upon prior FDA findings that reference listed drugs are safe and effective for approved uses is currently being challenged. For example, Abbott has filed a Citizens Petition asserting that the Andrx NDA for Zalkote should not be approved on these grounds. There may therefore be limitations on a Section 505(b)(2) NDA applicant’s ability to innovate without conducting substantial clinical testing.

      NDA products, including Section 505(b)(2) NDAs, may qualify for specific patent and marketing exclusivity protections against competitive products submitted for approval via the Section 505(b)(2) NDA or ANDA processes.

Patent Infringement Litigation

      Patent litigation can be a part of the business of bringing some generic or brand pharmaceuticals to market. If such action is filed within the 45-day period prescribed by law, such litigation may, in certain circumstances, result in a delay in FDA’s ability to approve the marketing of a pharmaceutical product. Numerous patent infringement actions have been filed against us, and we have been successful in resolving many of such litigation matters, either through a court decision or through settlement, in a manner that permits our product to be marketed. Examples of this litigation include former proceedings relating to our generic versions of Dilacor XR, Cardizem CD, Glucotrol XL, Tiazac, Remeron, Claritin-D 24, Claritin-D 12, Claritin RediTabs, Monopril and Monopril HCT. We did not prevail in our patent infringement litigation involving our generic version of Prilosec and are currently unable to market such product. We are continuing to litigate patent issues pertaining to our generic versions of Naprelan and Toprol-XL, as well as our brand valproate product (See, “Ongoing Patent Litigation”). Though the patent litigation pertaining to our generic versions of Wellbutrin SR and Zyban was dismissed, we have not received final FDA marketing approval for those products.

      Patent litigation was also filed against Andrx and Carlsbad, one of our joint venture partners, with respect to the raw material used in the generic version of Pepcid that Carlsbad developed and that we sell as part of our CARAN joint venture. This litigation was settled.

      We anticipate that additional actions may be filed as we or companies we collaborate with file additional ANDAs containing Paragraph IV certifications.

      The outcome of patent litigation or any litigation is difficult to predict because of the uncertainties inherent to litigation. Our business could be harmed by the delay in obtaining FDA approval to market our products as a result of patent litigation (both with respect to patents listed with FDA when the ANDA was filed and thereafter), the delay in obtaining judicial decisions in such litigation, the expense of litigation whether or not we are successful, or an adverse outcome of such litigation. Moreover, this litigation or other events may precipitate additional litigation affecting the marketing of our products.

      We often encounter substantial delay in obtaining judicial decisions in ANDA Paragraph IV litigation. Such delay could cause us to decide to launch a product prior to final resolution of the pending litigation. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for infringement include, among other things, damages measured by the profits lost by the patent owner and not by the profits earned by the infringer. Because of the discount pricing typically involved with generic products, patented brand products generally realize a higher profit margin than generic products. In the case of a willful infringer, the definition of which is unclear, such damages may be trebled. We believe that this profit differential can act as a disincentive for the patent holder to settle patent litigation on terms that will allow our products to be marketed upon the settlement of that litigation. Thus, we have faced, and will continue to be faced with, the decision of whether, and in what manner, time-frame or other circumstances, we should launch our product prior to the conclusion of patent litigation, or to discontinue selling our product in the face of new patent litigation. In making these determinations, we intend to consider and balance what we then believe are the relevant considerations and factors, including: (i) the risk that our product will be found to infringe the brand product, the size of the market and the claim for damages that could result from the sale of an infringing product, and other costs, including inventory; (ii) the potential claim for damages that could result from the sale of an infringing product against our current capital resources, and our future capital needs; (iii) the risk of being enjoined from making such sales and thereby losing our exclusivity rights for such product; (iv) the possibility that launching the product may increase the incentive for the owner of the patented brand product to settle the pending litigation on a basis that would allow us to continue to market our product without further legal risk; and (v) the lost opportunity cost if we do not have available launch quantities of our product when the patent litigation is ultimately resolved, particularly in instances where that court decision starts the

180-day period of marketing exclusivity for us, and additional competition awaits the expiration of that period of marketing exclusivity.

Ongoing Patent Infringement Litigation

      Following submission of a Paragraph IV certification that our ANDA product candidate does not infringe the valid patent rights of the referenced brand product, we would anticipate that patent infringement litigation will be commenced against us. Generally, unless we commence selling such ANDA product before the related litigation has been concluded, we would not incur any substantial damages in connection with this type of litigation.

      In March 2002, the U.S. District Court for the Southern District of Florida issued an order that Elan Corporation Plc’s patent was invalid, and in September 2002, we commenced selling naproxen sodium, our generic version of Naprelan. In March 2003, the District Court issued an order denying, among other things, (i) Elan’s motion for reconsideration of the March 2002 order invalidating its patent, and (ii) our motion asking the District Court for a ruling on our non-infringement defenses. Both parties appealed that March 2003 decision. On May 5, 2004, the Federal Circuit Court of Appeals reversed the District Court’s determination that the Elan patent was invalid, and remanded the case back to the District Court for a determination as to whether our product infringes the Elan patent. On August 31, 2004, the District Court entered an order indicating that it will delay issuing findings of fact and conclusions in this matter until the Federal Circuit Court of Appeals has issued its decision (in a non-related case) on how a court should address issues of claim construction. We are continuing to sell our generic version of Naprelan. However, in January 2005, Elan both sought a status conference with the District Court to amend that order and filed a new complaint in the U.S. District Court for the Southern District of Florida seeking willful damages as a result of our sale of our generic version of Naprelan. Though we are not in a position to determine the ultimate outcome of this matter, an adverse determination could have a material adverse effect on our business and our consolidated financial statements.

      In 2003 and 2004, we filed ANDAs seeking FDA approval to market metoprolol succinate extended-release tablets in the 25mg, 50mg, 100mg and 200mg strengths, respectively, our generic versions of Toprol-XL. AstraZeneca AB, Aktiebolaget Hassle and AstraZeneca LP sued us for patent infringement in the U.S. District Court for the District of Delaware in February 2004 on the 50mg strength, in July 2004 on the 25mg strength, and in December 2004 on the 100mg and 200mg strengths. On August 9, 2004, the Multidistrict Litigation Panel consolidated and sent to the U.S. District Court for the Eastern District of Missouri the three pending metoprolol succinate patent infringement cases brought by Astra against Andrx and two other generic drug companies for pretrial discovery purposes. The trial of this matter has been tentatively scheduled to begin in August 2005.

      We filed an ANDA seeking FDA approval to market a generic version of Depakote, and in March 2000, Abbott Laboratories sued us in the U.S. District Court for the Southern District of Florida for patent infringement. The FDA refused to accept our ANDA and as a result, we filed a 505(b)(2) application to market a sodium valproate product that is bioequivalent to Depakote. In May 2003, Abbott filed a new infringement complaint against us in the same U.S. District Court in connection with our new application. Both cases were consolidated and the original ANDA lawsuit was subsequently dismissed without prejudice. The trial of this matter has been tentatively scheduled to begin in July 2005.

      We filed an ANDA seeking FDA approval to market paroxetine hydrochloride 40mg, our generic version of Paxil 40mg, and in June 2001, SmithKline Beecham Corporation and Beecham Group plc (SmithKline) sued us, and our raw material supplier, in the U.S. District Court for the Eastern District of Pennsylvania for patent infringement. We later amended our ANDA to add the 10mg, 20mg and 30mg strengths of paroxetine hydrochloride and in November 2003, SmithKline filed a new infringement complaint against us in the U.S. District Court for the Eastern District of Pennsylvania in connection with those lower strengths. These cases and several other cases related to other companies’ ANDAs for generic versions of Paxil were consolidated for pre-trial discovery purposes only. In April 2004, the U.S. Court of Appeals for the Federal Circuit invalidated SmithKline’s hemihydrate patent in a case not directly involving us. Thereafter, SmithKline voluntarily dismissed its claims against us relating to all but the hemihydrate patent. With respect to the hemihydrate patent, the United States District Court for the Eastern District of Pennsylvania entered an Order on July 2, 2004 staying (i.e., placing on hold) all discovery and pre-trial proceedings against us pending the outcome of SmithKline’s appeal of the Federal Circuit decision. If that decision is not overturned, SmithKline has agreed to dismiss its remaining claims against us. In September 2004, we withdrew our ANDAs for Paxil, which will likely lead to the dismissal of this action as being moot.

      In 1998, we filed an ANDA seeking approval from the FDA to market omeprazole, our generic version of Prilosec. In May 1998, AstraZeneca plc filed suit under the provisions of the Hatch-Waxman Act alleging patent infringement. The matter was tried in the U.S. District Court for the Southern District of New York along with the consolidated claims of three other ANDA applicants. In October 2002, the District Court entered an order and an opinion finding that Astra’s ‘505 and ‘230 patents are valid and that the generic versions of Prilosec developed by us infringe those patents. On December 11, 2003, the Federal Circuit Court of Appeals affirmed the lower court’s opinion that Astra’s patents are valid and infringed by our product. Astra advised the District Court that it believes it may be entitled to damages as a result of our decision to build an inventory of our product prior to the District Court’s determination, but has not sought to enforce such claims. On May 19, 2004, the District Court ruled that our product does not infringe any valid claims of the ‘281 patent, and that Astra’s ‘505 and ‘230 patents are not unenforceable against our product. Both Astra and we have appealed this determination. The District Court has not issued an opinion on Astra’s claims for willful infringement of the ‘505 and ‘230 patents or on Astra’s request for attorneys’ fees. Though we believe that Astra is unlikely to prevail in its request for damages or attorneys’ fees and that Astra has not been damaged as a result of our decision to build inventory prior to the District Court’s determination, if Astra were to prevail in these claims, it could have a material adverse effect on our business and consolidated financial statements.

      The following patent infringement matters were resolved in 2004:

      In June 1999, we filed ANDAs seeking FDA approval to market bupropion hydrochloride, our generic versions of Wellbutrin SR/ Zyban. In September 1999, Glaxo SmithKline (Glaxo) filed suit against us in the U.S. District Court for the Southern District of Florida, claiming patent infringement. In May 2004, after settling this matter without payment from us, Glaxo dismissed its lawsuit against us.

      In February 2003, we filed ANDAs seeking FDA approval to market fosinopril sodium tablets, our generic version of Monopril, and fosinopril sodium hydrochlorothiazide tablets, our generic version of Monopril HCT. On April 10, 2003, Bristol-Myers Squibb Company and E.R. Squibb and Sons, LLC filed identical suits against us in the U.S. District Court for the Southern District of New York and Florida for alleged patent infringement. The New York action was transferred to Florida and on April 16, 2004, dismissed. On June 4, 2004, after a trial on the merits, the U.S District Court for the Southern District of Florida issued a final judgment of non-infringement in our favor. Bristol-Myers did not appeal the judgment.

Seasonality

      There are no significant seasonal aspects to our business, except that shipments of pharmaceutical products indicated for cold and flu symptoms are typically higher during the fourth quarter as customers supplement inventories in anticipation of the cold and flu season.

Personnel

      As of December 31, 2004, Andrx had approximately 2,100 employees. The following chart generally reflects the areas in which such personnel are engaged:

RISK FACTORS

      You should carefully consider the following factors and other information contained and incorporated by reference in this Form 10-K. Any of these risks could adversely affect our results of operations, financial condition and cash flows. Any of these events could also cause the market price of our common stock to decline.

Risks Relating to Andrx

      Currently, our overall level of profitability depends in large part on a relatively small number of products. If the revenues and profitability we derive from these products, and particularly our generic version of Cardizem CD, and to a lesser extent our generic versions of Tiazac, our Claritin Products (D 24 and RediTabs), and Glucotrol XL (which we currently purchase from Pfizer), were to be significantly reduced prior to the introduction of significant new products, it would adversely affect our results of operations, financial condition and cash flows. Such reductions could result from many factors, including, among other things, price reductions and/or reduced market share as a result of competition, cGMP, manufacturing or regulatory issues, and/or the unavailability of raw materials or finished product. Potential new competition for our generic versions of Cardizem CD and Tiazac products could arise at any time.

      Our competitors vary with respect to each of our operations, and many of our competitors have greater financial, research and development, marketing and other resources than we do. We expect to be subject to competition from numerous other entities that currently operate or intend to operate in the pharmaceutical industry. We also face competition for the acquisition or licensing of new product opportunities from other companies.

      Our sales efforts for generic products compete with domestic and international companies and with generic divisions of large brand pharmaceutical companies that may offer a wider variety of generic products to their customers. Some of these companies currently engage in the development of controlled-release products. Even more develop immediate-release products. Some of these companies manufacture their products in other countries, such as India and China, where raw materials are obtained and finished product can be manufactured at a significantly lower cost. The unit price of a generic product will generally decline as the number of generic competitors increases or the existing competitors seek to expand their market share. The timing and extent of these price decreases is unpredictable and can result in significantly reduced profitability for a generic product. The profitability of our generic products may also be affected by the market withdrawal of the corresponding brand product, competition with that brand product, the promotion of an alternative to that brand product (including a follow-on or OTC version of that product), the marketing of an authorized generic, and by the significant reduction in the amount of large customers for generic products.

      In our pharmaceutical distribution business, we compete with a number of large wholesalers and other distributors of pharmaceuticals, including McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc., which market both brand and generic pharmaceutical products to their customers. We believe that increased competition, the growing role of Managed Care Organizations (MCOs), the formation of buying groups and competition between manufacturers could result in increased price erosion and competition for market share.

      In the sales efforts for our brand products, we compete with large domestic and international brand pharmaceutical companies with significantly larger and more experienced sales forces and significantly greater financial resources to support their products. As these pharmaceutical companies compete aggressively to have their products included in formularies, our lack of a broad range of brand products places us at a competitive

disadvantage when competing for inclusion on some MCO formularies. Our brand sales may also be affected by our announced agreement to divest this segment of our business, the introduction of new brand products in the same therapeutic class and by the advent of generic competition for our products.

      Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize new generic products in a timely manner. We can encounter numerous difficulties in our efforts to develop and commercialize our new products, including:

      These and other difficulties may delay, prevent or stop the marketing of our products, and products being developed or manufactured in collaboration with others. We cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products.

      The manufacture, use and sale of pharmaceutical products, and their ingredients, have been the subject of substantial litigation in the pharmaceutical industry, particularly in the context of Paragraph IV litigation involving the ANDAs and NDAs filed with the FDA. These lawsuits can, and have, delayed or prevented the marketing of some of our products. We anticipate that additional actions may be commenced against our products in the future.

      Litigation is generally costly and time-consuming, and can divert the attention of our management and technical personnel. The timing and outcome of litigation is difficult to predict and inherently uncertain. If our products, or their ingredients, infringe on the rights of others, we could lose our right to develop or manufacture products, be required to license proprietary rights from third parties or be required to pay monetary damages, in the form of lost profits, a reasonable royalty or a combination of the two. Such damages could even apply if we did not begin to sell that product until after the relevant patent expired. Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on terms we believe to be acceptable. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which could harm our business, financial condition, results of operations and cash flows.

      We often encounter delays in obtaining judicial decisions in connection with patent litigation, and may not be able to obtain a final or even a preliminary judicial decision as to whether our products, or the material incorporated therein, infringe the intellectual property rights of others at the time FDA approves the marketing of our product, and we are otherwise able to do so. If we were to wait for a preliminary or final

judicial decision, we face the risk that, during the interim, additional competition may arise, the brand product may be offered as an authorized generic or an OTC product, other brand products may be introduced and promoted to prescribers instead of, or in addition to, the brand, additional exclusivities may be awarded to the brand product, additional patents that cover the brand product may issue or be listed in the Orange Book, the labeling of the brand product may change or other matters could occur that lessen the economic opportunity for our product.

      We could invest a significant amount of time and expense in the development of our generic products only to be subject to significant additional delay and changes in the economic prospects for our products. Accordingly, we may be faced with the decision whether we should commercialize our products prior to final resolution of our pending litigation. The risk involved in marketing these products can be substantial because the remedies available to the owner of a patent for infringement could include, among other things, damages measured by the profits lost by the patent owner as opposed to the profits earned by the infringer. Because of the discount pricing typically involved with generic products, brand products generally realize a significantly higher profit margin than generic products. In the case of a willful infringer, the definition of which is unclear, these damages may even be trebled. This profit differential can act as a disincentive to the patent holder to settle patent litigation on terms that could allow our products to be marketed upon the settlement of such litigation. Thus, in order to reap the economic benefits of some of our products, we may decide to risk an amount, which exceeds the profit we anticipate making on our product, or even the selling price for such product.

      In addition to the risks associated with patent litigation described above, we are also involved in the other litigation matters more particularly described in Item 3 “Litigation.” An adverse judgment in any of our pending or future litigation matters could adversely affect our results of operations, financial condition and cash flows. Our failure to prevail in any of the litigation matters reflected in Item 3 “Litigation,” as well as Item 1 — “Patent Infringement Litigation” could result in material damages or adversely affect our results of operations, financial condition and cash flows.

      The continued increase in the amount of products we market and those pending approval at the FDA requires us to continue to expand our manufacturing capabilities, including making changes to our manufacturing facilities in Florida. An expansion is underway in our Davie, Florida facility to significantly increase our cGMP manufacturing capacity. The timely completion of these efforts is necessary for us to maintain sufficient manufacturing capacity for the anticipated quantities of the products we expect to market in the future. We are also upgrading our high-potency manufacturing operations at certain of our other facilities in South Florida.

      Our manufacturing and other processes utilize sophisticated equipment, which sometimes requires a significant amount of time to obtain and install. Although we endeavor to properly maintain our equipment and spare parts on hand, our business could suffer if certain manufacturing or other equipment, or a portion or all of our facilities were to become inoperable for a period of time. This could occur for various reasons, including catastrophic events such as hurricane or explosion, unexpected equipment failures or delays in obtaining components or replacements thereof, as well as construction delays or defects and other events, both within and outside of our control.

      The manufacture of certain of our generic products and product candidates, such as our controlled-release products and generic Concerta and oral contraceptives, is more difficult than the manufacture of immediate-release products. Successful manufacturing of these types of products requires precise manufacturing process controls, raw materials that conform to very tight tolerances for specific characteristics and equipment that operates consistently within narrow performance ranges. Manufacturing complexity, testing requirements, and safety and security processes combine to increase the overall difficulty of manufacturing these products and resolving manufacturing problems that we may encounter.

      Our results of operations, financial condition and cash flows could be adversely affected if we are unable to timely complete our construction, conversion and upgrading projects, or adequately equip our facilities in a timely manner, or we are otherwise unable to manufacture any of our significant products.

      In addition, we sometimes file an ANDA or NDA based on study results utilizing product batches that are smaller than what we anticipate may be required for the commercial launch of that product. Thus, in order to manufacture these products for commercial launch, we must “scale-up” our manufacturing process for use on larger equipment, in accordance with FDA regulations. Our results of operations, financial condition and cash flows could be adversely affected if we are unable to successfully scale-up any of our significant products or if successful scale-up of any such product is delayed.

      Some of the raw materials used in the manufacture of our generic and brand products are available from limited sources and, in some cases, a single source. Any curtailment in the availability of these raw materials could be accompanied by production or other delays and, in the case of products for which only one raw material supplier exists or has been approved by the FDA, could result in a material loss of sales, with consequential adverse effects on our results of operations, financial condition and cash flows. In addition, because raw material sources for pharmaceutical products must generally be identified and approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales and customers. We also obtain a portion of our raw materials from foreign suppliers, and our arrangements with these suppliers are subject to, among other risks, FDA approval, governmental clearances, natural disasters, export duties, political instability, currency fluctuations and restrictions on the transfer of funds abroad.

      We have at times experienced problems as a result of a lack of availability of raw materials. These problems result from the supplier’s delay in providing these materials, delays in getting these materials through customs, the closure of a particular materials source and the unavailability of a comparable replacement, and defects in the materials received by us. We have at times also experienced problems as a result of our acquisition cost of raw materials becoming too close to, or even more than, the price at which finished pharmaceutical product may be obtained in the marketplace. While we have improved our efforts to actively identify alternative and redundant sources of raw materials and negotiated lower prices for current raw materials, any inability to obtain raw materials on a timely and cost effective basis could adversely affect our results of operations, financial condition and cash flows.

      From time to time, we purchase raw materials and make commercial quantities of our product candidates prior to the date that we receive FDA final marketing approval or satisfactory resolution of the patent infringement litigation, if any. Purchase of raw materials and production of pre-launch inventories involves the risks that such product may not be approved for marketing by the FDA on a timely basis or ever, that such approval may require additional or different testing and/or specifications than what was performed in the manufacture of such pre-launch inventory and that we may be liable for patent infringement damages. If any of these risks were to occur or the launch of such products is significantly postponed, we may be required to reassess the net realizable value of the related raw materials or inventory and could, in such case, incur a charge, which may be significant, to write down the value of such materials or inventory.

      The consolidated and condensed consolidated financial statements that we file with the SEC are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets

and liabilities. The most significant estimates we are required to make under GAAP include, but are not limited to, those related to revenue recognition and sales returns and allowances, allowance for doubtful accounts receivable, inventories and cost of goods sold, useful life or impairment of goodwill and other long-lived assets, litigation settlements and related accruals, income taxes, and self insurance programs. In instances where we have entered into collaborative agreements for the sale of certain generic products, the net revenues that we have reported are subject to numerous estimates by these other parties, such as returns and other sales allowances and certain related expenses. We periodically evaluate estimates used in the preparation of the consolidated financial statements for reasonableness, including estimates provided by those with whom we have entered into collaborative agreements. Appropriate adjustments to the estimates will be prospectively made, as necessary, based on such periodic evaluations. We base our estimates on, among other things, currently available information, our historical experience and on various assumptions, which together form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although we believe that these assumptions are reasonable under the circumstances, estimates would differ if different assumptions were utilized and these estimates may prove in the future to have been inaccurate.

      Allowances against sales for estimated discounts, rebates, returns, chargebacks, shelf stock adjustments and other sales allowances are established by us concurrently with the recognition of revenue.

      Our most significant sales allowances vary depending upon the business segment. In our distribution business, our most significant sales allowances are for estimated returns, discounts and rebates. Sales returns and allowances for estimated discounts and rebates have historically have been predictable and less subjective. In our generic business, our most significant sales allowances are for estimated discounts, customer and Medicaid rebates, returns, chargebacks and shelf stock adjustments. The estimates for returns, chargebacks and shelf stock adjustments are more subjective and, consequently, may be more variable. In our brand business, our most significant sales allowances are for estimated discounts, returns and Medicaid and managed care rebates. The estimates for returns are more subjective and, therefore, may be more variable.

      These allowances are established based upon consideration of a variety of factors, including, but not limited to, prescription data, inventory reports and other information received from our customers and other third parties, our customers’ right of return, historical information by product, the number and timing of competitive products approved for sale, both historically and as projected, the estimated size of the market for our products, current and projected economic conditions, anticipated future product pricing, future levels of prescriptions for our products and other analyses that we perform. We believe that the sales allowance accruals are reasonably determinable and are based on the information available at that time to arrive at our best estimate of the accruals. The key assumptions used to arrive at our best estimate of the accruals for sales allowances are our estimate of inventory levels in the distribution channel, our estimates of future price changes and potential returns. Our estimates of prescription data, inventory at customers and in the distribution channel are subject to inherent limitations of estimates that rely on third party data, as certain third party information may itself rely on estimates, and reflect other limitations. Actual product returns, chargebacks, shelf stock adjustments and other sales allowances incurred are dependent upon future events. We periodically monitor the factors that influence sales returns and allowances and make adjustments to these provisions when we believe that actual product returns, chargebacks, shelf stock adjustments and other sales allowances may differ from previously established allowances. If conditions in future periods change, revisions to previous estimates may be required, potentially in significant amounts. Changes in the level of provisions for estimated product returns, chargebacks, shelf stock adjustments and other sales allowances will affect revenues.

      Our success with the products that we develop will depend, in part, on our ability to obtain patent protection for these products. We currently have a number of U.S. and foreign patents issued and pending. We cannot be sure that we will receive patents for any of our patent applications. Furthermore, the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. Accordingly, our patents may not prevent other companies from developing similar or functionally equivalent products or

from successfully challenging the validity of our patents. If our patent applications are not approved or, even if approved, such patents are circumvented or not upheld in a court of law, our ability to competitively exploit our patented products and technologies may be significantly reduced. Also, such patents may or may not provide competitive advantages for their respective products or they may be challenged or circumvented by competitors, in which case our ability to commercially exploit these products may be diminished. From time to time, we may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such products may be inhibited or prevented.

      We also rely on trade secrets and proprietary know-how that we seek to protect, in part, through confidentiality agreements with our partners, customers, employees and consultants. It is possible that one or more of these agreements will be breached or that they will not be fully enforceable in every instance, and that we will not have adequate remedies for any such breach. It is also possible that our trade secrets will become known or independently developed by our competitors.

      If we are unable to adequately protect our technology, our results of operations, financial condition and cash flows could be adversely affected.

      We may need to obtain licenses to patents and other proprietary rights held by third parties to develop, manufacture and market products. If we are unable to obtain these licenses or unable to obtain these licenses on commercially reasonable terms in a timely manner, our ability to commercially exploit one or more of our products may be inhibited or prevented.

      Our federal income tax returns for the years 1999 to 2003 are currently under audit by the Internal Revenue Service. Despite our belief that our tax return positions are correct and supportable, our policy is to establish accruals for tax contingencies that may result from examinations by tax authorities. While it is difficult to predict the final outcome of any particular tax matter, we believe that our tax accruals provide an adequate allowance for such contingencies. The tax accruals are analyzed periodically and adjustments are made, as events occur to warrant such adjustment. Our effective tax rate and/or cash flows may be materially impacted by the ultimate resolution of our tax positions.

      Our business depends on the efficient and uninterrupted operation of our computer and communications software and hardware systems, and our other information technology. We have substantially completed the implementation of significant upgrades to our information systems, including the implementation and qualification of our JDE software. If our systems were to fail or we were unable to successfully expand the capacity of these systems or to integrate new technologies into our existing systems, our operations and financial results could suffer.

      The success of our present and future operations will depend, to a significant extent, upon the experience, abilities and continued service of key personnel, including senior corporate and divisional executive officers. We cannot be assured that we will be able to attract and retain key personnel, and our failure to do so could adversely affect our results of operations, financial condition and cash flows.

      On March 2, 2005, we entered into agreements for the sale and licensing of certain rights and assets related to our Fortamet and Altoprev brand pharmaceutical products. The closing of this transaction is subject to certain customary conditions including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. We anticipate continuing to operate our brand business unit until the closing occurs, which we anticipate to be on or before May 2005. Subsequent to the closing, we have agreed to provide certain transition services. In connection with this divestiture, we estimate that we will incur personnel related expenses of approximately $8.0 million, including severance, performance incentives and retention. In addition, we estimate we will incur approximately $6.5 million in other costs, including $4.0 million in non-cash charges.

      Until that disposition is completed, net sales of our brand products could be adversely affected by the reduction in our existing sales force as a result of our announced intention to dispose of this business to First Horizon or manufacturing issues which, as of March 1, 2005, we are experiencing with respect to Altoprev.

      Pharmaceutical companies increasingly have used state and federal legislative, regulatory and other means to delay generic product competition. These efforts have included:

      If pharmaceutical companies are successful in limiting the use of generic products through these or other means or in securing changes in FDA regulations, policies or procedures, the approval of our generic products may be adversely affected, which could adversely affect our results of operations, financial condition and cash flows.

      In recent years, the distribution network for both brand and generic products has undergone significant consolidation marked by mergers and acquisitions among wholesalers and the growth of large retail drug store chains and mail order pharmacies that control a significant share of the market. As a result of the concentration of the customer base and the potential for further consolidation, the loss of any of our customers or significant defaults in payment or reductions in purchases from our customers could adversely affect our results of operations, financial condition and cash flows.

      The ability of our distribution business to provide consistent, sequential quarterly growth is affected, in large part, by our participation in the launch of new products by us and other generic manufacturers and the subsequent advent and extent of competition encountered by these products. This competition can result in significant and rapid declines in the prices of these products and a corresponding decrease in the net sales of our distribution operations. Our margins can also be affected by the risks inherent to the generic industry.

      We regularly review potential acquisitions of technologies, products and businesses. Acquisitions typically entail many risks and could result in difficulties in integrating the operations and personnel of companies that we acquire and the technologies and products that we acquire. If we are not able to successfully integrate our acquisitions, we may not obtain the advantages that the acquisitions were intended to create, which could adversely affect our results of operations, financial condition and cash flows. In addition, in connection with acquisitions, we could experience disruption in our business or employee base. There is also a risk that key employees of companies that we acquire or key employees necessary to successfully commercialize technologies and products that we acquire may seek employment elsewhere, including with our competitors.

      As a result of acquiring businesses or products or entering into other significant transactions, we may incur significant charges to earnings for merger and related expenses, including transaction costs, closure costs and acquired in-process research and development charges. These costs may include substantial fees for investment bankers, attorneys, accountants and other advisors and severance and other closure costs associated with the elimination of duplicate or discontinued products, operations and facilities. Charges that we may incur in connection with acquisitions could adversely affect our results of operations for a particular quarter or annual period.

      The cost of insurance, including directors’ and officers’, workers’ compensation, product liability, business interruption and general liability insurance, continues to represent a significant expense to us. In response, we may increase deductibles and/or decrease some coverages to mitigate these costs. These increases, and our increased risk due to increased deductibles and reduced coverages, could adversely affect our results of operations, financial condition and cash flows.

      The design, development, manufacture, sale and utilization of our products and the products we distribute involve an inherent risk of product liability claims and represent a continuing risk, as no reasonable amount of insurance can fully protect against all such risks because of the potential liability inherent to the business of producing or distributing pharmaceuticals for human consumption or use. Although we currently maintain product liability insurance in amounts we believe to be commercially reasonable, product liability insurance is expensive and may not be available in the future on acceptable terms or in sufficient amounts, if it is available at all, particularly for certain classes of products. A claim brought against us, even if covered by our insurance policies, could adversely affect our results of operations, financial condition and cash flows.

      As most of our operations are located in South Florida, on an annual basis we are faced with the possibility of incurring damages or business disruption as a result of a hurricane. Business interruption insurance is expensive and may not be available in amounts that will fully protect us from such occurrences, whether caused by casualties such as hurricanes or fire, or other events, which may or may not be within our control.

      On May 6, 2003, we entered into an administrative consent Order with the SEC pursuant to which, without admitting or denying the SEC’s findings, we agreed to cease and desist from committing or causing any future violations of certain of the reporting provisions of the Securities Exchange Act of 1934. The order related to the SEC’s finding that Cybear had improperly recognized approximately $1.3 million in revenue (representing approximately $27,000 in gross profit) pursuant to a joint venture between Andrx and Cybear. In a separate matter addressed in the same consent Order, the SEC found that our allowance for doubtful accounts receivable was understated due to the unauthorized actions of an employee who had altered certain of our accounts receivable records. A future violation of the SEC consent decree could result in the imposition of fines or other sanctions that could have a material adverse effect on our business and results of operations.

Risks Relating to the Pharmaceutical Industry Generally and to Andrx Specifically

      All pharmaceutical companies, including us, are subject to extensive, complex, costly and evolving regulation by the federal government, principally the FDA, and, to a lesser extent, by DEA, Environmental Protection Agency (EPA), Occupational Safety and Health Administration (OSHA) and state government agencies and regulators. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act, the Prescription Drug Marketing Act and other federal and state statutes and regulations govern or influence the testing, manufacturing, packaging, labeling, storage, purchase, record keeping, safety, approval, marketing, advertising, promotion, sale and distribution of our products and those that we distribute. The process of complying with these statutes and regulations is rigorous, time-consuming and costly, and our failure to comply could adversely affect our results of operations, financial condition and cash flows.

      Under these regulations, we are subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by FDA, DEA, EPA, OSHA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether our facilities and manufacturing techniques are in compliance with cGMP and other FDA regulations. Following these inspections, the FDA may provide inspectional observations on a Form 483 and issue warning letters that could cause us to modify activities identified during the inspection. A Form 483 is generally issued at the conclusion of an FDA inspection and lists conditions the FDA staff believes are objectionable conditions with respect to cGMP or other FDA regulations. FDA guidelines specify that a warning letter is issued only for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. Any non-compliance with cGMP or the corrective action plan we proposed to the FDA in response to the Form 483 observations issued by the FDA on July 16, 2004 and March 3, 2004, and the FDA Warning Letter we received in August 2000, could have a material adverse effect on our financial condition and results of operations.

      We cannot assure you that the FDA will not seek to impose sanctions against us for violations of applicable statutes and regulations. The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’s review of product applications, enforcement actions, injunctions and civil or criminal prosecution. Any such sanctions, if imposed, could adversely affect our results of operations, financial condition and cash flows. Under some circumstances, the FDA also has the authority to revoke previously granted drug approvals. Sanctions similar to those enumerated above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If our operations are deemed deficient in any significant way, it could have a material adverse effect on our financial condition and results of operations. Some of our vendors are subject to similar regulation and periodic inspections. We cannot predict the extent to which we, or they, may be affected by these types of regulatory developments.

      We are also subject to numerous and increasingly stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances and the discharge of pollutants into the air and water. Environmental permits and controls are required for some of our operations, and these permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing activities at any of our facilities. We could be adversely affected by any failure to comply with environmental laws, including the costs of undertaking a clean-up at a site to which our wastes were transported.

      Pharmaceutical manufacturers are generally required to obtain approval from the FDA, and possibly other regulatory agencies, before manufacturing, marketing and shipping their products. This approval process is often costly, time-consuming and litigious. We cannot assure you that our drug applications will be timely approved by the FDA or by any other regulatory agency, if at all.

      For generic products, FDA approval is required before a generic version of a previously approved drug or certain new dosage forms of an existing drug can be marketed, generally using an ANDA. However, if some of our generic products do not qualify for ANDA approval, as may be the case with some of our controlled-release formulations, we may be required to proceed under the lengthier and costlier approval process typically associated with brand products. We may invest a substantial amount of time and money in the development of a generic product only to be subject to significant delay and the uncertain results of patent litigation, or issues relating to the manufacture of our product, which may adversely affect our ability to commercialize our product.

      If we are the first ANDA with a Paragraph IV certification accepted for filing by the FDA, and timely provide notice of our Paragraph IV certification to the NDA owner and any patent holders, we may be eligible to receive 180 days of marketing exclusivity. Our ability to secure the benefit of this exclusivity period depends on a variety of factors, some of which are beyond our control, which may decrease the value of the exclusivity period for some of our ANDA filings. Additionally, marketing exclusivity may also be shared with one or more other generic manufacturers depending on the circumstances.

      For brand products, the FDA approval process necessitates the filing of an NDA, which typically involves time-consuming and costly safety and effectiveness testing. To date, we have submitted for approval our brand name controlled-release pharmaceutical products using a type of NDA referred to as a Section 505(b)(2) NDA, which enables the applicant to rely on published reports for safety and effectiveness studies, thus reducing the time and expense of new drug development. There are limitations on the use of Section 505(b)(2) NDAs, however. 505(b)(2) NDA’s are subject to potential 30-month stays, like ANDAs, but are not eligible for 180-days of marketing exclusivity. Patent listing/certification requirements and marketing exclusivity awarded to reference or competitor products may result in delays in the approval process similar to those described above for ANDAs. There is also a great deal of uncertainty concerning the extent to which Section 505(b)(2) NDAs may rely upon prior FDA findings that reference drugs are safe and effective for approved uses, and what additional clinical and other testing is necessary to obtain approval of such applications.

      Federal legislation requires pharmaceutical manufacturers to pay to state Medicaid agencies prescribed rebates on drugs to enable them to be eligible for reimbursement under Medicaid programs. Various federal and state Medicaid agencies and other enforcement officials are investigating the effects of pharmaceutical industry pricing practices such as how average wholesale price (AWP) and average manufacturer’s price

(AMP) are calculated and how pharmaceutical manufacturers report their “best price” on a drug under the federal Medicaid rebate program. AWP and AMP are standard pricing measures (calculated by a third-party such as First Data Bank) used throughout the industry as a basis for calculating drug prices under contracts with health plans and pharmacies and rebates with pharmaceutical manufacturers.

      There are numerous lawsuits pending throughout the country brought by consumer and governmental entities claiming that drug makers overcharged Medicaid for prescription medications, and they were damaged as a result. We have been named as a defendant in a number of these lawsuits. We are not in a position to determine the ultimate outcome of this litigation or any other such claims that may subsequently be brought by others, but our business, financial condition or results of operations could be materially adversely affected by an adverse determination.

      Studies and/or monitoring of the proper utilization, safety and efficacy of pharmaceuticals are conducted by industry participants (including us), government agencies and others. Such studies and monitoring can call into question the utilization, safety and efficacy of previously marketed products, including those marketed by us in our brand and generic operations, and may result in the discontinuation of their marketing or changes in the manner in which they are labeled and prescribed. FDA has the authority to withdraw approvals of previously approved pharmaceutical drugs as a result of such post-marketing actions and for other reasons. The DEA and state agencies also have similar authority. Our business, financial condition or results of operations could be materially adversely affected by any such actions.

      We may be required to notify the FTC of agreements that we enter into with other pharmaceutical companies, either pursuant to legislation enacted in January 2004 and guidelines issued by the FTC prescribing certain notifications that must be sent to the FTC, or pursuant to the Consent Decree we entered into with the FTC in May 2001. Under either scenario, the law by which the FTC or the courts in litigation commenced by private litigants will evaluate such agreements is extremely unclear. As a result, the manner in which we seek to resolve intellectual property litigation with branded pharmaceutical companies or to commercialize our or other’s ANDAs or exclusivity rights could be the subject of additional private-party litigation against pharmaceutical companies, additional investigations or proceedings by the FTC or other governmental authorities, or uncertainties concerning the appropriateness of proposed transactions which make commercial sense, but which may potentially have asserted anticompetitive implications.

      Our products and services are intended to function within the structure of the healthcare financing and reimbursement system currently existing in the United States. In recent years, the healthcare industry has undergone significant changes in an effort to reduce costs and government spending. These changes include an increased reliance on managed care, cuts in Medicare funding affecting our healthcare provider customer base, consolidation of competitors, suppliers and customers, and the development of large, sophisticated purchasing groups. We expect the healthcare industry to continue to change significantly in the future. Some of these potential changes, such as a reduction in governmental support of healthcare services or adverse changes in legislation or regulations governing prescription drug pricing, healthcare services or mandated benefits, may cause healthcare industry participants to greatly reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services. Changes in pharmaceutical manufacturers’ pricing or distribution policies could also significantly reduce our income. Federal legislation was enacted in 2004 giving Medicare beneficiaries a prescription drug benefit in 2006 and drug discounts prior to 2006. It is uncertain to what extent this legislation will impact us, if at all.

Risks Associated With Investment in Our Common Stock

      The market price of our common stock has been and may continue to be volatile. For example, through March 1, 2005, the market price of our common stock has fluctuated during the past 12 months between $14.09 per share and $30.87 per share. Therefore, this volatility may affect a stockholder’s ability to sell our stock at an advantageous price. Market price fluctuations in our stock may be due to acquisitions, dispositions or other material public announcements, along with a variety of additional factors, including:

      These and similar factors have had and could in the future have a significant impact on the market price of our common stock. In addition, the stock markets in general, including The Nasdaq Stock Market, have experienced extreme price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often have been unrelated or disproportionate to changes in operating performance. These broad market fluctuations may affect adversely the market prices of our common stock.

      We have never paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We are prohibited from paying dividends under our senior credit facility without the consent of the agent and the lenders parties thereto. Consequently, any economic return to a stockholder will be derived, if at all, from appreciation in the price of our stock, and not as a result of dividend payments.

      Our board of directors has the authority to issue shares of our common stock and shares of preferred stock or other securities convertible into shares of our common stock. Under many circumstances, such issuances would not require the approval of our stockholders. Any such preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock. In March 2003, our board of directors approved the issuance of a stockholder rights plan and authorized the issuance of Series A Junior Participating Preferred Stock, of which there are currently no shares outstanding.

      Our board of directors has adopted a stockholder rights plan, the purpose of which is to protect stockholders against unsolicited attempts to acquire control of us that do not offer a fair price to all of our stockholders. The rights plan may have the effect of dissuading a potential acquirer from making an offer for our common stock at a price that represents a premium to the then current trading price.

      Some provisions in our certificate of incorporation and bylaws may have anti-takeover effects and may delay, defer or prevent a takeover attempt of us. We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prevents us from engaging in a “business combination” with a person who is an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless prescribed approvals are obtained. The application of Section 203 also could have the effect of delaying or preventing a change of control of us.

EXECUTIVE OFFICERS

      The Board of Directors appoints our executive officers each year. As of March 1, 2005, our executive officers were as follows:

      Thomas P. Rice, Andrx Corporation Chief Executive Officer, was appointed CEO on February 3, 2004, and has been a director of Andrx since April 1, 2003. Mr. Rice served as a director of Chesapeake Biological Laboratories, Inc., a provider of contract manufacturing services for sterile, injectible pharmaceuticals, from 1997 to January 2001 and served as President and Chief Executive Officer from January 1999 through March 2003. In 1996, he co-founded Columbia Investments LLC, which invests in emerging service companies. From 1993 to January 1996, Mr. Rice was Executive Vice President and Chief Operating Officer of Circa Pharmaceuticals, Inc. and from 1993 to January 1995, Chief Financial Officer of Circa. Mr. Rice was employed by Deloitte & Touche LLP from 1978 to 1985.

      Angelo C. Malahias, Andrx Corporation President has been with Andrx since 1996. Prior to his appointment as President in February 2004, Mr. Malahias served as Executive Vice President and Chief Financial Officer. Mr. Malahias was a director of Cybear, from April 1999 until the September 2000 reorganization. Mr. Malahias was Vice President and Chief Financial Officer of Circa Pharmaceuticals, Inc. from January 1995 to January 1996, where he also served as Corporate Controller from July 1994 to January 1995. Mr. Malahias was employed by KPMG LLP from 1983 to July 1994.

      Scott Lodin, Andrx Corporation Executive Vice President, General Counsel and Secretary has been with Andrx since January 1994. Mr. Lodin was the Secretary and a director of Cybear Inc. from February 1997 until the September 2000 reorganization. Prior to joining Andrx, Mr. Lodin was Special Counsel to Hughes, Hubbard & Reed and a predecessor firm where he practiced primarily in the areas of corporate and commercial law.

      John M. Hanson, Andrx Corporation Senior Vice President and Chief Financial Officer has been with Andrx since April 2003. Prior to his appointment as Chief Financial Officer in February 2004, Mr. Hanson served as Vice President, Finance. From November 2000 through June 2001, Mr. Hanson served as Chief Financial Officer of Mylan Laboratories, Inc. and from September 1996 through October 2000, Mr. Hanson served as Chief Financial Officer of Zenith-Goldline Pharmaceuticals, Inc., the U.S. generic products subsidiary of IVAX Corporation. Mr. Hanson was employed by Arthur Andersen LLP from 1984 to 1995 and is a certified public accountant.

      Thomas R. Giordano, Andrx Corporation Senior Vice President and Chief Information Officer has been with Andrx since November 2002. From December 2001 through November 2002, Mr. Giordano was an information systems consultant. From 1998 through December 2001, Mr. Giordano served as global Chief Information Officer for Burger King Corporation. Prior to working for Burger King Corporation, Mr. Giordano served as Senior Vice President and Chief Information Officer for Racal Data Group.

      Ian J. Watkins, Andrx Corporation Senior Vice President, Human Resources has been with Andrx since April 2003. Mr. Watkins served as Corporate Vice President of Human Resources of Bausch and Lomb, Inc., an ophthalmic healthcare company from November 1999 through December 2002. From 1996 to November 1999, Mr. Watkins served as Vice President of Human Resources for Bausch & Lomb’s Europe, Middle East and Africa Region.

      Lawrence J. Rosenthal, Andrx Pharmaceuticals, Inc. President has been with Andrx since January 1999. From 1999 through 2003, Mr. Rosenthal served as Executive Vice President of Sales and Marketing for Andrx Pharmaceuticals, Inc. From 1986 through January 1999, Mr. Rosenthal was employed at Teva Pharmaceuticals, Inc., last serving as its Vice President of Sales and Marketing.

      Daniel H. Movens, Anda, Inc. President has been with Andrx since 1995. Prior to his appointment as President in February 2004, Mr. Movens served as Anda’s Executive Vice President of Operations. For 15 years before joining Andrx, Mr. Movens worked in the retail pharmacy industry, working in independent pharmacies and pharmacy chains.

      On May 6, 2003, Mr. Lodin entered into an administrative consent Order with the SEC pursuant to which, without admitting or denying the SEC’s findings, agreed to cease and desist from committing or causing any future violations of certain of the reporting provisions of the Securities Exchange Act of 1934. The Order related to the SEC’s finding that Cybear had improperly recognized approximately $1.3 million in revenue (representing approximately $27,000 in gross profit) pursuant to a joint venture between Andrx and Cybear. The SEC’s Order found that these amounts were improperly recognized in Cybear’s March 31, 2000 and June 30, 2000 Forms 10-Q, and in the July 31, 2000 joint proxy statement/ prospectus with respect to the reorganization completed in September 2000.

      Andrx officers, directors and certain other employees from time to time may enter into “Rule 10b5-1 Plans”. Under an appropriate Rule 10b5-1 Plan, such individuals may instruct a third party, such as a brokerage firm, to engage in specific securities transactions in the future based on a formula without further action by the stockholder, provided that the plan satisfies the legal requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

      We conduct our operations using a combination of owned and leased properties which are used for manufacturing, research and development (R&D), warehousing, distribution, sales and marketing and administrative functions. We believe that these facilities are suitable for the purposes for which we use them. The following table provides a summary of our significant owned and leased premises:

      Following our expansion at some of our Florida facilities, we believe that we will have sufficient facilities to conduct our operations through 2007. However, we continue to evaluate the purchase or lease of additional properties, as our business requires.

      See also “Item 1 — Patent Infringement Litigation” of this report for a description of certain patent and other litigation.

Ongoing Other Litigation

      On August 3, 2004, the City of New York filed an action in the U.S. District Court for the Southern District of New York against numerous pharmaceutical companies, including us, claiming they overcharged Medicaid for prescription medications. Three similar complaints were filed in January 2005 by Onondaga, Rockland and Westchester counties of New York against numerous pharmaceutical companies, including us. Additionally, Suffolk County of New York has sought leave to amend its original complaint, wherein the amended complaint seeks to add us and other additional pharmaceutical companies and Erie County of New

York filed a similar complaint in New York State Court in March 2005. These complaints generally allege overpayments of varying amounts with respect to our metformin and Cartia XT products. These cases have been, or are expected to be consolidated, in the U.S. District Court for the District of Massachusetts. In addition, the state of Alabama through its Attorney General, has filed a similar lawsuit against numerous pharmaceutical companies, including Andrx, in the Circuit Court of Montgomery County, Alabama. There are numerous other lawsuits pending throughout the country brought by consumer and governmental entities related to this issue.

      Beginning in August 1998, several putative class action lawsuits were filed against Aventis (formerly Hoechst Marion Roussel, Inc.) and us arising from a 1997 stipulation entered into between Aventis and us 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, with one of the cases filed by a group of direct purchasers having since been remanded back to the U.S. District Court for the Southern District of Florida. The complaint in each action alleges that Aventis and us, by way of the 1997 stipulation, have engaged in alleged state antitrust and other statutory and common law violations that allegedly have given Aventis and us a near monopoly in the U.S. market for Cardizem CD and a generic version of that pharmaceutical product. 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 U.S. District Court for the Eastern District of Michigan granted summary judgment to plaintiffs finding that the 1997 stipulation was a per se violation of antitrust laws. On June 13, 2003, the U.S. Court of Appeals for the Sixth Circuit affirmed the district court’s decision. On October 12, 2004, the U.S. Supreme Court declined to review this case.

      Essentially reiterating the claims asserted against us in the aforementioned Cardizem CD antitrust class action litigation and seeking the same relief sought in that litigation are: (i) the May 14, 2001 complaint filed by the attorneys general for the states of New York and Michigan, joined by 13 additional states and the District of Columbia, on behalf of their government entities and consumers resident in their jurisdictions, which was subsequently amended to add 12 additional states and Puerto Rico to the action; (ii) the July 26, 2001 complaint filed by Blue Cross Blue Shield of Michigan, joined by three other Blue Cross Blue Shield plans; (iii) two actions pending in state courts in Florida, and (iv) two actions pending in state courts in Kansas.

      On November 26, 2002, the U.S. District Court for the Eastern District of Michigan approved a settlement between the direct purchasers and Aventis and us. In October 2003, the U.S. District Court for the Eastern District of Michigan approved a settlement between the indirect purchasers and Aventis and us. In November 2004, the United States Court of Appeals for the Sixth Circuit denied an appeal of the District Court’s approval of that settlement. The plaintiffs have additional time to determine whether they want to request the U.S. Supreme Court review of this matter.

      In April 2004, we settled our litigation with the four Blue Cross Blue Shield plaintiffs who opted-out of the settlement with the indirect purchasers. We have also agreed with all remaining plaintiffs, consisting of the direct purchaser groups that opted out of the settlement with the direct purchaser class, upon a methodology for disposing of the claims asserted by that group after receiving such guidance as the U.S. Supreme Court may give on the issues raised. As a result of that methodology, and the U.S. Supreme Court’s determination that it will not review the decision of the Court of Appeals for the Sixth Circuit, the parties have settled this matter and have dismissed or are in the process of dismissing all related cases.

      Seven complaints were filed against us and certain of our current and former officers and directors for alleged material misrepresentations regarding the expiration dating for our generic versions of Wellbutrin SR/ Zyban and that we knew that our products would not receive timely FDA approval. All of these cases were

consolidated and on October 20, 2003, the plaintiffs filed a consolidated amended class action complaint in the U.S. District Court for the Southern District of Florida against us and Richard J. Lane, our former Chief Executive Officer, alleging a class period from March 1, 2002 through March 4, 2003. After the District Court granted our motion to dismiss this complaint, on March 5, 2004, the plaintiffs further amended their complaint to assert that we knew, when we filed our ANDAs, that the products would not be approved by the FDA because of their expiration dating.

      Beginning in October 2001, 12 product liability lawsuits were filed against us and others for personal injuries allegedly arising out of the use of phenlypropanolamine (PPA). The actions have been consolidated and transferred to the U.S. District Court for the Western District of Washington. We were named in the suits because we acquired the Entex product from Elan. While PPA was at one time contained in Elan’s Entex product, we reformulated Entex upon acquiring it from Elan and eliminated PPA as an active ingredient thereof. All of these cases were dismissed, either voluntarily or pursuant to court order. Notwithstanding a court order dated September 15, 2004, which dismissed the case and enjoined the re-filing of that case in state court, in December 2004, the plaintiff in one of those actions, Laura M. Bonucchi, filed an amended complaint in the Michigan Circuit Court for the County of Ingham, to again name us as a defendant in connection with this matter. Elan has agreed to indemnify us with respect to this claim.

      On November 23, 2001, the Lemelson Medical, Education & Research Foundation, LP filed an action in the U.S. District Court for the District of Arizona alleging patent infringement against us and others involving “machine vision” or “computer image analysis.” On March 20, 2002, the U.S. District Court for the District of Arizona entered an Order of Stay in the proceedings, pending the resolution of another suit before the U.S. District Court for the District of Nevada, which involves the same patents, but does not involve us. On January 23, 2004, that Nevada court issued an order determining that certain Lemelson patents, including the patents asserted against us, were unenforceable. Lemelson moved to amend or alter that judgment and on May 27, 2004, an amended judgment of non-infringement was entered. On June 22, 2004, Lemelson appealed the judgment to the U.S. Court of Appeals for the Federal Circuit.

Other Pending Matters

      We are involved in various other disputes, governmental and/or regulatory inspections, inquiries, investigations and proceedings that are deemed immaterial by us, and litigation may arise from time to time in the ordinary course of business. The process of resolving such matters through litigation or other means is inherently uncertain, and it is possible that the resolution of these matters could have a material adverse effect on our business and consolidated financial statements.

Litigation Resolved in 2004

      Several securities fraud class action complaints were filed in March 2002, alleging that we and certain of our current and former officers and directors engaged in securities fraud and/or made material misrepresentations regarding the regulatory status of our ANDA for a generic version of Tiazac. The amended class action complaint sought a class period for those persons or institutions that acquired our 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 our 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 ending February 21, 2002. The Court also later granted our motion to strike all allegations of insider trading from the complaint. In December 2003, defendant’s motion for summary judgment was granted and a final judgment was entered in favor of the defendants. The plaintiffs have filed a

notice of appeal of the motion to dismiss and the summary judgment orders. On August 6, 2004, the Court entered a final judgment and granted final approval of the settlement stipulation entered by the defendants and the class members.

      On August 13, 2003, Kos Pharmaceuticals, Inc. filed a complaint in the U.S. District Court for the District of New Jersey alleging trademark infringement and unfair competition, and seeking to enjoin us from using the Altocor name. On September 18, 2003, the District Court denied Kos’ motion for preliminary injunction. On May 24, 2004, the U.S. Court of Appeals for the Third Circuit reversed the District Court’s opinion, and remanded the matter back to the District Court. On May 27, 2004, the District Court issued a preliminary injunction, effective June 18, 2004, enjoining us from the continued use of the Altocor name. On June 9, 2004, Kos and Andrx entered into a settlement requiring our payment of $6 million to Kos. As part of the settlement, Kos, and later the District Court, agreed to the dismissal of this case and certain modifications to the District Court’s preliminary injunction. Pursuant to that modified preliminary injunction, product labeled Altocor was permitted to remain in the distribution channel through August 15, 2004, but all product and promotional materials bearing the Altocor name had to be withdrawn from the distribution channel by that date. On August 25, 2004, we certified to the District Court that we had fully complied with the terms and conditions of the injunction and described in detail the steps undertaken to assure compliance.

      As part of the CARAN joint venture between us and Carlsbad Technologies, Inc., Carlsbad developed and is manufacturing for distribution by us, famotidine, a generic version of Pepcid. In July 2001, Richter Gedeon Vegyeszeti Gyar RT sued us, Carlsbad and seven other defendants for patent infringement in the U.S. District Court for the Eastern District of New York. Carlsbad agreed to indemnify us from any liability arising out of this lawsuit and settled this matter. The U.S. District Court for the Eastern District of New York entered a stipulation of dismissal in May 2004.

      On October 19, 1993, Terrill Hill Burnett filed an action in the U.S. District Court for the Southern District of New York against Physicians’ Online (POL), and some of the original shareholders thereof, alleging POL breached her employment contract, securities and common law fraud with respect to the sale of shares of common stock, breach of fiduciary duty, negligent misrepresentation and gender discrimination, and seeking damages in excess of $1 million plus punitive damages. In May 2004, the parties agreed to settle this matter upon our payment to the plaintiff of an immaterial amount.

      On September 26, 2003, Alpharma filed a complaint against one of our subsidiaries, Armstrong Pharmaceuticals, Inc., in the U.S. District Court for the Southern District of New York. Alpharma alleged that the contractual breach by Armstrong resulted in the recall of epinephrine mist, a product manufactured by Armstrong for Alpharma. In the complaint, Alpharma sought to recover $18 million in damages for breach of contract, $17.4 million in damages for negligent misrepresentations (many of which preceded our involvement), and $50 million in punitive damages. On June 30, 2004, the parties reached a settlement requiring the payment of $5.25 million to Alpharma for the dismissal of this complaint and a release of all parties’ claims against each other in connection with this matter. Andrx and Celltech Manufacturing Inc., from whom we purchased Armstrong in March 2001, shared this payment equally.

      No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.

PART II

(A)     Market Information

      Andrx common stock is listed on The Nasdaq Stock Market under the ticker symbol “ADRX”.

      For the calendar quarters indicated, the table below sets forth the high and low sales prices per share of Andrx common stock, as reported on The Nasdaq Stock Market, based on published financial resources.

      See Note 15 to Consolidated Financial Statements included in Item 8 of this report with respect to a stockholder rights plan adopted in March 2003.

(B)     Holders

      As of March 1, 2005, there were approximately 270 holders of record of Andrx common stock. We believe the number of beneficial owners of Andrx common stock to be approximately 62,000.

(C)     Dividends

      We have never paid any cash dividends on our common stock and do not intend to pay cash dividends for the foreseeable future. We are also prohibited from paying dividends under our senior credit facility without the consent of the agent and the lenders parties thereto.

(D)     Securities Authorized for Issuance under Equity Compensation Plans

      The following table summarizes information, as of December 31, 2004(1), relating to Andrx’s equity compensation plans pursuant to which grants of options, Restricted Stock Units (RSUs) and other rights to acquire shares may be granted from time to time.

      See Note 15 to the Consolidated Financial Statements included in Item 8 of this report.

      Selected Financial Data from Item 7 included is herein incorporated by reference.

OVERVIEW

      We are a pharmaceutical company that:

      Our controlled-release pharmaceutical products use our proprietary controlled-release drug delivery technologies. Controlled-release pharmaceutical products generally provide more consistent drug levels in the bloodstream than immediate-release dosage forms and may improve drug efficacy and reduce side effects, by releasing drug dosages at specific times and in specific locations in the gastrointestinal tract of the body. They

also provide “patient friendly” dosage forms that reduce the number of times a drug must be taken, thus improving patient compliance.

      We also commercialize brand pharmaceuticals that, in some instances, use our proprietary controlled-release drug delivery technologies. On March 2, 2005, we entered into agreements with First Horizon Pharmaceutical Corporation for the sale and licensing of certain rights and assets related to our two main brand pharmaceutical products, Fortamet® and Altoprev®. The closing of the transaction, which is subject to certain customary conditions including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, is expected to occur by May 2005 (see Note 21 of Notes to Consolidated Financial Statements).

      We are focusing our efforts on our core competencies of formulation development of generic versions of controlled-release and other pharmaceutical products as well as the sales, marketing and distribution of both our own and others’ generic pharmaceuticals. Our growth strategies include both internal and external efforts, such as strategic alliances, collaborative agreements and acquisitions. We continue to seek agreements with third parties that will leverage our formulation capabilities and our controlled-release technologies, including but not limited to, agreements to develop combination and other products.

      Led by the performances of our distribution business and our generic business, we achieved revenues of approximately $1.1 billion in 2004. Our distribution business reported revenues of $676.4 million. Our generic business generated $387.7 million in revenues, of which $344.4 million related to product revenues and $43.3 million related to licensing and royalties revenues. We launched nine generic products, including two in-licensed from Genpharm Inc., filed 14 Abbreviated New Drug Applications (ANDAs), received two tentative approvals and 10 final approvals from the Food and Drug Administration (FDA). Our brand business generated $81.0 million in revenues, of which $77.4 million related to product revenues and $3.5 million related to licensing and royalties revenues. We launched our Fortamet product in May 2004, and began marketing our cholesterol-lowering product, originally launched in June 2002, under the new name, Altoprev, in June 2004.

      At the end of 2004, our board of directors approved a plan to divest, or seek other strategic alternatives for our brand pharmaceutical business, which we announced in January 2005. We engaged Banc of America Securities LLC to solicit offers for our brand business, which is primarily a sales and marketing organization with a limited number of products. This plan does not include our Entex® and Anexsia^tm product lines, which had revenues of $15.8 million and $3.8 million, respectively, for the year ended December 31, 2004. We believe that the brand business will continue to incur operating losses until the disposition of this business is completed. Anticipated operating losses will include charges as a result of our decision to divest our brand business, including retention, performance incentives and severance costs, as well as contract termination costs, including facilities and equipment leases.

      On March 2, 2005, we entered into agreements with First Horizon for the sale and licensing of certain rights and assets related to our Fortamet and Altoprev brand pharmaceutical products. First Horizon has agreed to pay us $50 million for Fortamet and up to $35 million for Altoprev. The amount that we may receive from First Horizon related to Altoprev, if any, is contingent upon meeting and maintaining certain supply requirements, as defined. We will also be entitled to receive royalties on net sales, as defined, of Fortamet and Altoprev of 8% and 15%, respectively. We will retain our obligation to pay a royalty to Sandoz related to Fortamet subject to certain minimums and a maximum. We have also entered into a long-term manufacturing and supply arrangement for Fortamet and Altoprev with First Horizon. The closing of the transaction, which is subject to certain customary conditions including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, is expected to occur by May 2005. After that closing occurs, we have agreed to provide certain transitional services to First Horizon for a period of time.

      In January 2005, we notified Pfizer Inc. that we were exercising our right to terminate our supply and distribution agreement for Cardura® XL, as a result of FDA’s failure to approve Pfizer’s New Drug Application (NDA) for that product by December 31, 2004. The $10 million we previously paid to Pfizer in connection with the execution of the agreement was refunded to us in February 2005.

      In 2004, we recorded numerous charges to cost of goods sold, including $18.7 million for production related write-offs, $11.3 million for write-offs of pre-launch inventories, and a $14.5 million write-down of our North Carolina facility as a result of our June 2004 determination that we would discontinue renovation of that facility, and it is more likely than not that this facility will be sold. We also incurred charges of approximately $8.2 million related to under-utilization and inefficiencies at our manufacturing facilities and $3.5 million related to the impairment of our Entex product rights. While our goal in 2005 is to significantly reduce production write-offs, we expect to continue to experience significant charges to cost of goods sold as a result of production related write-offs and inefficiencies at our manufacturing facilities. We will also charge excess capacity directly to cost of goods sold until such time as the level of production meets the normal capacity requirements subsequent to our Florida renovation.

      In 2004, we also incurred $7.8 million in litigation settlement charges, primarily a $6.0 million settlement relating to the Altoprev name change.

      In our generic business, growth will continue to result primarily from the launch of our new products and will be influenced by the extent of competition such products will encounter. Such growth will be offset by reductions in price and market share of our existing products.

      In our distribution business, growth will continue to be primarily a function of our participation in the distribution of new generic products launched by others, offset by the net price declines typically associated with the distribution of generic products over time.

      Our operating results have been and continue to be highly dependent on a limited number of products, particularly the revenues from our generic versions of Cardizem® CD and, to a lesser extent, Tiazac®, Glucotrol XL® (currently supplied by Pfizer), and our generic versions of Claritin® products (marketed by L. Perrigo Company as “store-brand” over-the-counter (OTC) products), as well as results of our distribution business, which is generally reflective of the growth of the generic industry as a whole. Our future operating results will be less dependent on revenues from Altoprev and Fortamet and the related sales and marketing expenses from our brand business once we close the transaction with First Horizon, and less dependent on licensing revenues (due to the expiration of our agreements with Teva Pharmaceuticals Curacao N.V. and Impax Laboratories, Inc. related to generic versions of Wellbutrin SR® 150mg and Zyban®). Our future operating results may also be highly affected by production related write-offs, inefficiencies and excess capacity at our manufacturing facilities.

      Future operating results will also be dependent on the extent of operating losses our brand business incurs until we close the transaction with First Horizon, the timing and extent of additional competition for our existing generic products, and the timing of our launch of our future generic products, particularly our generic versions of Concerta®, Biaxin® XL, Toprol® XL and additional oral contraceptives, and the extent of competition that those products will face. The timing and value of generic product introductions depends on a number of factors, including successful scale-up, receiving FDA marketing approval, satisfactory resolution of patent litigation and Citizen Petitions, our manufacturing capabilities and capacities, our maintaining compliance with current Good Manufacturing Practices (cGMP) and other FDA guidelines, competition, the expiration of others’ patent and exclusivity rights, and various other factors described in this Annual Report on Form 10-K, our earlier Quarterly Reports on Form 10-Q, and in our other U.S. Securities and Exchange Commission (SEC) filings.

      Our most significant 2005 cash requirement will be for facilities, machinery and equipment related to the expansion of our Florida manufacturing facilities. Capital expenditures are currently estimated to be $51 million in 2005. In connection with the divestiture of our brand business, we estimate that we will incur personnel related expenses of approximately $8.0 million, including severance, performance incentives and retention. In addition, we estimate we will incur approximately $6.5 million in other costs which consist of

approximately $4.0 million in non-cash charges primarily related to potential lease impairments as well as payments of approximately $2.5 million for transaction costs and contract termination costs.

      Our 2003 income tax return reflected a significant tax loss as the result of certain ordinary business developments. We believe the loss is appropriate and deductible. Nevertheless, we have recorded an accrual, which is included in accrued expenses and other liabilities in the Consolidated Balance Sheets, to fully offset the resulting 2003 and 2004 income tax benefits of approximately $17.2 million and $24.9 million, respectively. The remaining federal loss carryforward of approximately $29.2 million tax effected, may be available to reduce certain future taxable income, which at that time may be similarly offset by an accrual for financial reporting purposes.

      The Internal Revenue Service (IRS) has begun an audit of our 2003 tax return and will likely challenge the 2003 tax loss. As of December 31, 2004, the accrual for this tax loss was $31.3 million and is included in accrued expenses and other liabilities in our Consolidated Balance Sheet. If the IRS were to prevail, we would be required to pay an amount up to the accrual, which will include interest at the statutory rate. If we were to prevail or settle this issue with the IRS, we would reverse all or a portion of the accrual, reduce income tax expenses accordingly, and pay the IRS the settlement amount, if any, including interest at the statutory rate.

      Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such adjustment. It is reasonably possible that our effective tax rate and/or cash flows may be materially impacted by the ultimate resolution of our tax positions.

      We had $210.1 million in cash, cash equivalents and investments available-for-sale at December 31, 2004. As a result of the January 2005 termination of our supply and distribution agreement with Pfizer for Cardura XL, Pfizer refunded $10 million to us in February 2005. In addition, we have a $185 million secured credit facility, of which $169 million was available as of December 31, 2004, pursuant to the borrowing base limits. No amounts were outstanding under this credit facility as of December 31, 2004.

      Our contractual obligations are as follows:

      Absent a significant acquisition of a product or business or other presently unforeseen circumstances, we anticipate that our existing capital resources and cash flows from operations will be sufficient to enable us to maintain our operations and meet our capital expenditure requirements and other commitments through at least the next 12 months without drawing on our credit facility.

      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 or 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, our dependence on a relatively small number of

products; licensing revenues; the timing and outcome of patent, antitrust and other litigation and future product launches; whether we will be awarded any marketing exclusivity period and, if so, the precise dates thereof; government regulation generally; competition; manufacturing capacities, safety issues, output and quality processes; our ability to develop and successfully commercialize new products; the loss of revenues from existing products; development and marketing expenses that may not result in commercially successful products; our inability to obtain, or the high cost of obtaining, licenses for third party technologies; the operating losses that will be incurred by our brand business while we are attempting to dispose of such business; the consolidation or loss of customers; our relationship with our suppliers; the success of our joint ventures; difficulties in integrating, and potentially significant charges associated with, acquisitions of technologies, products and businesses; our inability to obtain sufficient supplies and/or active pharmaceuticals from key suppliers; the impact of sales returns and allowances; product liability claims; rising costs and limited availability of product liability and other insurance; the loss of key personnel; failure to comply with environmental laws; and the absence of certainty regarding the receipt of required regulatory approvals or the timing or terms of such approvals. Actual results may differ materially from those projected in a forward-looking statement. We are also subject to other risks detailed herein or detailed from time to time in this Annual Report or in our other SEC filings. Subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this Annual Report and in our other 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. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise.

      Andrx was organized in August 1992 as a Florida corporation. On September  7, 2000, we completed a reorganization whereby we acquired the outstanding equity of our Cybear Inc. subsidiary that we did not own, reincorporated in Delaware, and created two new classes of common stock: (i) Andrx common stock to track the performance of the Andrx Group, which then included Andrx Corporation and its wholly owned subsidiaries, other than its ownership of the Cybear Group and (ii) Cybear common stock to track the performance of the Cybear Group. Cybear Group then included (i) Cybear Inc. and its subsidiaries, (ii) certain potential future Internet businesses of Andrx Corporation, and (iii) certain operating assets of AHT Corporation. Mediconsult.com, Inc. and its subsidiaries were added to the Cybear group following our acquisition by merger of Mediconsult.com, Inc. in April 2001.

      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 2002 Cybear conversion included a 25% premium on the value of Cybear common stock as provided by the terms of our Certificate of Incorporation. Subsequent to the conversion we have only one class of common stock outstanding.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us 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, we evaluate our estimates, including but not limited to those related to:

      We base our estimates on, among other things, currently available information, our historical experience and various assumptions, which together form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although we believe that our assumptions are reasonable under the circumstances, estimates would differ if different assumptions were utilized and these estimates may prove in the future to have been inaccurate.

      We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

      Andrx’s distributed product revenues are revenues derived from the sale of pharmaceutical products purchased from third parties, including generic products sold on behalf of our unconsolidated joint ventures. Andrx product revenues include Andrx’s generic and brand product revenues. Andrx generic product revenues are revenues derived from the sale of generic products either manufactured by us pursuant to our ANDAs or sold with our New Drug Code (NDC), excluding generic products sold on behalf of our unconsolidated joint ventures. Andrx brand product revenues are revenues derived from the sale of branded products either manufactured by us pursuant to our NDA or sold with our NDC.

      Revenues from our distributed products and the related cost of goods sold are recognized at the time the product is accepted by our customers.

      Revenues from our generic and brand products and the related cost of goods sold are recognized after products are accepted by our customers and are based on our estimate of when such products will be pulled through the distribution channel. We do not recognize revenue and the related cost of goods sold where we believe the customer has more than a reasonable level of inventory, taking into account, among other things, historical prescription data provided by external independent sources, projected prescription data, historical purchases and demand, incentives granted to customers, customers’ right of return, competing product introductions and our product inventory levels in the distribution channel, all of which we periodically evaluate. As a result, $1.3 million and $5.7 million of deferred revenue related to our brand business was included in the December 31, 2004 and 2003 Consolidated Balance Sheets, respectively.

      Allowances against sales for estimated discounts, rebates, returns, chargebacks, shelf stock adjustments and other SRAs are established by us concurrently with the recognition of revenue. Accruals for these SRAs are presented in the Consolidated Balance Sheets as reductions to accounts receivable, net or within accrued expenses and other liabilities.

      Our most significant SRAs vary depending upon the business segment. In our distribution business, our most significant SRAs are for estimated returns, discounts and rebates. SRAs for estimated discounts and rebates have historically been predictable and less subjective. In our generic business, our most significant SRAs are for estimated discounts, customer and Medicaid rebates, returns, chargebacks and shelf stock adjustments. Of these estimates, the estimates for returns, chargebacks and shelf stock adjustments are more subjective and, consequently, may be more variable. In our brand business, our most significant SRAs are for estimated discounts, returns, Medicaid rebates and managed care rebates. Of these estimates, the estimates for returns are more subjective and, therefore, may be more variable.

      SRAs are established based upon consideration of a variety of factors, including, but not limited to, prescription data, inventory reports and other information received from our customers and other third parties, our customers’ right of return, historical information by product, the number and timing of competitive products approved for sale, both historically and as projected, the estimated size of the market for our products, current and projected economic conditions, anticipated future product pricing, future levels of prescriptions for our products and analysis that we perform. We believe that the sales allowance accruals are

reasonably determinable and are based on the information available at that time to arrive at our best estimate of the accruals. The key assumptions we use to arrive at our best estimate of the accruals for SRAs are our estimates of inventory levels in the distribution channel, future price changes and potential returns, as well as historical information by product. Our estimates of prescription data, inventory at customers and in the distribution channel are subject to the inherent limitations of estimates that rely on third party data, as certain third party information may itself rely on estimates, and reflect other limitations. Actual product returns, chargebacks, shelf stock adjustments and other SRAs incurred are dependent upon future events. We periodically monitor the factors that influence SRAs and make adjustments to these provisions when we believe that actual product returns, chargebacks, shelf stock adjustments and other SRAs may differ from established allowances. If conditions in future periods change, revisions to previous estimates may be required, potentially in significant amounts. Changes in the level of provisions for estimated product returns, chargebacks, shelf stock adjustments and other SRAs will affect revenues.

      Accruals for estimated rebates and discounts are estimated based on historical payment experience, historical relationship to revenues and contractual arrangements. We believe that such accruals are readily determinable due to the limited number of assumptions involved and the consistency of historical experience. As discussed below, accruals for estimated returns, chargebacks, and shelf stock adjustments involve more subjective judgments and are more complex in nature.

      Returns — Consistent with industry practice, we maintain a return policy that allows our customers to return product within a specified period both prior and subsequent to the product’s expiration date. Our estimate of the provision for returns is based upon our historical experience with actual returns and estimated levels of inventory in the distribution channel. We periodically monitor the factors that influence our provision for returns and make adjustments to the provision when we believe that actual product returns may differ from our established reserves. These adjustments may occur over a prolonged period of time.

      In our distribution business, our return allowances as a percentage of gross sales were 0.8%, 1.1% and 1.1% for the years ended December 31, 2004, 2003 and 2002, respectively. If our 2004 distribution return allowances as a percentage of gross revenues were to differ by 10% from our estimates, our distribution business return allowances for the year ended December 31, 2004 would change by $574,000. In our generic product business, our return allowances as a percentage of gross sales were 1.6%, 1.8% and 2.2%, for the years ended December 31, 2004, 2003 and 2002 respectively. If our 2004 generic return allowances as a percentage of gross revenues were to differ by 10% from our estimates, our generic business return allowances for the year ended December 31, 2004 would change by $783,000. In our brand product business, our return allowances, excluding market withdrawals and recalls, as a percentage of gross sales were 1.4% and 2.8%, for the years ended December 31, 2004 and 2003 respectively. If our 2004 brand return allowances as a percentage of gross revenues were to differ by 10% from our estimates, our brand business return allowances for the year ended December 31, 2004 would change by $149,000.

      Chargebacks — We enter into agreements with certain pharmacy chains and other customers to establish contract pricing for certain of our products, which these entities purchase from the wholesaler of their choice. Alternatively, we enter into agreements with certain wholesalers to establish contract pricing for certain products that the wholesaler will agree to place in their preferential pricing programs. Under either form of agreement, we will provide our customers with a credit, known as a chargeback, for an amount equal to the difference between our agreed upon contract price and the price we previously invoiced to the wholesaler. The provision for chargebacks is based on our estimate of wholesaler inventory levels, and the expected sell-through of our products by the wholesalers at the contract price, based on historical chargeback experience and other factors. Our estimates of inventory levels at the wholesalers are subject to inherent limitations, as they rely on third party data, and their data may itself rely on estimates, and be subject to other limitations. We periodically monitor the factors that influence our provision for chargebacks, and make adjustments when we believe that actual chargebacks may differ from established allowances. These adjustments occur in a relatively short period of time.

      As of December 31, 2004, our chargeback accrual as a percentage of our estimate of generic product inventory levels at wholesalers was 19%, based on historical experience, our estimate of wholesaler inventory

levels and the expected sell-through of our generic products by the wholesalers at the contract price. In 2004, the accrual as a percentage of our estimate of generic product inventory levels at wholesalers has ranged from 16% to 23%. If actual chargeback rates as a percentage of the inventory levels at wholesalers or our estimate of wholesaler inventory levels were to differ by 10% from the rates or levels used in our provision estimate, the impact on our chargeback accrual as of December 31, 2004 would be $324,000.

      Shelf Stock Adjustments — Shelf stock adjustments are inventory credits we issue to our customers to reflect decreases in the selling prices of our generic products. These adjustments are based upon the amount of product that our customers have remaining in their inventories at the time we decide to reduce the selling price of our product, generally as a result of market conditions, and not pursuant to contractual arrangements with customers. These inventory credits allow customers with existing inventories to compete with those buying product at the current market price, and allows us to maintain shelf space, market share and customer loyalty. Amounts recorded for estimated shelf stock adjustments are based on estimated launch dates of competing products, estimated declines in market price and estimates of inventory held by the customer. These estimates are subject to inherent limitations, as they both rely on third party data and our judgment of the likelihood of future events and the likely impact of those events. We periodically monitor these and other factors that influence our provision for shelf stock adjustments and make adjustments when we believe that actual shelf stock adjustments may differ from established allowances.

      As of December 31, 2004, our generic business shelf stock adjustment accrual is based on estimated declines in market price by product ranging from 2% to 25% and estimated levels of inventory at customers by product ranging from approximately one month to two and one half months on average. If actual declines in market price were to differ by 5% on average from our estimates, the impact on our generic business shelf stock adjustment accrual as of December 31, 2004 would be $2.3 million. If actual levels of inventory at customers were to differ by 10% from our estimates, the impact on our generic business shelf stock adjustment accrual as of December 31, 2004 would be $876,000.

      In our brand business, there are a limited number of large customers. These customers may attempt to modify the terms by which we have historically done business, such as through the imposition of service fees and/or additional concessions. During the years ended December 31, 2004, 2003 and 2002, approximately 75%, 69% and 70%, respectively, of our brand product shipments were made to four customers.

      When other parties market our products or when we are entitled to revenues from the sale of their products, we recognize revenue based on information supplied by the other parties related to shipment to, and their customers’ acceptance of, the products, less estimates for SRAs. We receive periodic reports from the other parties that support the amount of revenue we recognize, and amounts recognized are then compared to the cash subsequently remitted to us. The revenues we report are subject to several estimates, similar to those we experience with the sales of our products. We periodically monitor the factors that influence SRAs and conduct inquiries of the other parties regarding these estimates. Such estimates are revised as changes become known.

      When we receive licensing and royalties revenues, we recognize those revenues when the obligations associated with the earning of that revenue have been satisfied, based upon the terms of the contract. If obligations associated with the earning of that revenue remain, we will defer all or a portion of the payment, whether or not it is refundable, and recognize such amount over future periods after the remaining services have been rendered or delivery has occurred and the amounts are fixed or determinable.

      When we enter into revenue arrangements with multiple deliverables, we divide the deliverables into separate units of accounting. If there is objective and reliable evidence of fair value for all units of accounting, the arrangement consideration is allocated to the separate units based on their relative fair values. If there is no reliable and objective evidence of fair value for a delivered item, but there is objective and reliable evidence of fair value for the undelivered item(s), the amount of consideration allocated to the delivered item equals the total arrangement consideration less the aggregate fair value of the undelivered item(s).

      We maintain an allowance for doubtful accounts receivable for estimated losses resulting from our inability to collect from customers. As of December 31, 2004, our accounts receivable, net totaled $144.0 million, including an allowance for doubtful accounts receivable of $4.7 million. Accounts receivable generated from our distribution business are generally of relatively small amounts from a large number of customers. Accounts receivable generated from our generic and brand businesses are generally of relatively larger amounts and from a smaller number of customers. In extending credit, we assess our customer’s credit worthiness by, among other factors, evaluating the customer’s financial condition, credit history and the amount involved, both initially and on an ongoing basis. Collateral is generally not required. In evaluating the adequacy of our allowance for doubtful accounts receivable, we primarily analyze accounts receivable balances, the percentage of accounts receivable by aging category, and historical bad debts and also consider, among other things, customer concentrations, customer credit-worthiness, and changes in customer payment terms or payment patterns. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments or our ability to collect, an increase to the allowance may be required. Also, should actual collections of accounts receivable be different than our estimates included in the determination of our allowance, the allowance would be increased or decreased through charges or credits to selling, general and administrative (SG&A) expenses 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 or reversals could be significant.

      In August 2002, we learned that an employee had made numerous improper entries that affected the aging of certain customer accounts receivable and, accordingly, the adequacy of our allowance for doubtful accounts receivable. After extensive investigation and analysis, including discussions with certain customers regarding past due amounts, management determined that our provision for doubtful accounts receivable included in SG&A was understated for the years ended 2001, 2000 and 1999, by an aggregate amount of $4.0 million. After consideration of all of the facts and circumstances, we recognized the full amount of the $4.0 million prior period misstatement in the second quarter of 2002, as we believed it was not material to any period affected.

      Activity in the allowance for doubtful accounts receivable is as follows:

      In 2004, our allowance for doubtful accounts benefited from a reduction in the provision for doubtful accounts due to the favorable resolution of disputed customer deductions that had been provided for in 2003 and 2002. The allowance for doubtful accounts decreased in 2003 primarily due to the write-off of accounts whose collection had been deemed doubtful in 2002. The 2003 provision also benefited from the settlement of certain accounts that had been provided for in 2002. Our allowance for doubtful accounts increased significantly in 2002 due to the increase in our provision for doubtful accounts as a result of the matter discussed above.

      Inventories consist primarily of finished goods held for distribution, and raw materials, work-in-process and finished goods of our generic and brand products. As of December 31, 2004, we had $197.3 million in inventories. Inventories are stated at the lower of cost (first-in, first-out) or market. We evaluate lower of cost or market separately for commercial and pre-launch inventories. 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 expenses. In evaluating whether inventory is 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. 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 allowances may be required. Such additional allowances could be significant.

      From time to time, we have made, are in the process of making or may make commercial quantities of our product candidates prior to the date that we anticipate that such products will receive FDA final marketing approval and/or satisfactory resolution of the patent infringement litigation, if any, involving them (i.e. pre-launch inventories). Each of our ANDA submissions is made with the expectation that (i) the FDA will approve the marketing of the product therein described, (ii) we will validate our process for manufacturing that ANDA product within the specifications that have been or will be approved by the FDA for such product, (iii) we will prevail in any patent infringement litigation involving our ANDA product, and (iv) a future economic benefit will be derived from the commercialization of our ANDA product. All of these expectations are reconfirmed in connection with our determination to build pre-launch quantities of that product, and to capitalize such cost as inventory.

      There are typically few risks and uncertainties concerning market acceptance of our approved generic products because the brand product has an established demand, and our lower priced product may be substituted for that referenced brand product. Therefore, we will generally seek to have launch quantities of our product available for shipment on the day we obtain the ability to prudently market our product (i.e., without undue patent infringement or other risks). This requires us to, among other things, begin to validate our manufacturing processes in accordance with FDA regulations well before the date we anticipate our product will be approved, and may entail a “scale-up” process. The scale-up process allows us to modify the equipment and processes employed in the manufacture of our product to increase our manufacturing lot sizes.

      Scale-up activities are expensed, including the raw material used in such activities. Direct and indirect manufacturing costs incurred during the manufacture of the validation lots (which are permitted to be sold) as well as the manufacture of additional product to meet estimated launch demand are capitalized. In evaluating whether it is probable that we will derive future economic benefits from our pre-launch inventories and whether the pre-launch inventories are stated at the lower of cost or market, we take into consideration, among other things, the remaining shelf life of that inventory, the current and expected market conditions, the amount of inventory on hand, the substance of communications with the FDA during the regulatory approval process and the views of patent and/or litigation counsel. We also consider potential alternative uses for our pre-launch inventories that are in the form of raw material, such as returning those materials to the vendor, and/or reselling them to other companies. As appropriate, provisions through cost of goods sold are made to reduce pre-launch inventories to their net realizable value. Production of pre-launch inventories involves the risk that FDA may not approve such product(s) for marketing on a timely basis, if ever, that each approval may require additional or different testing and/or specifications than what was performed in the manufacture of such pre-launch inventory, and/or that the results of related litigation may not be satisfactory. If this risk were to materialize or the launch of such product is significantly postponed, additional allowances may be required. Such additional allowances could be material. Generally, pre-launch inventories related to publicly disclosed product candidates are separately identified except in circumstances which we believe would place us at a competitive disadvantage to do so.

      As of December 31, 2004 and 2003, we had pre-launch inventories pending final FDA approval and/or satisfactory resolution of litigation broken down as follows:

      Pre-launch inventories as of December 31, 2004 consist primarily of our generic version of Concerta, which we currently believe will receive final FDA approval in 2005. Pre-launch inventories as of December 31, 2003 include $10.6 million of our generic version of Concerta and products approved and/or launched subsequent to December 31, 2003. Shelf lives of pre-launch inventories generally exceed one year.

      The following table summarizes charges to cost of goods sold associated with production related write-offs, write-offs of pre-launch inventories, impairment charges, and under-utilization and inefficiencies related to the manufacture of our products and product candidates:

      Production related write-offs represent inventory write-offs at our manufacturing facilities. For the year ended December 31, 2004, write-offs of pre-launch inventories included $4.5 million of our generic version of Concerta (as a result of the delay caused by a Citizen Petition filed with FDA and changes in the in-process testing that were subsequently required by FDA) and $4.2 million of our generic version of Accupril (as a result of raw material issues). For the year ended December 31, 2003, write-offs of pre-launch inventories primarily related to our generic versions of Wellbutrin SR/ Zyban (which was not approved by FDA because of expiration dating issues), placed into production in 2003. For the year ended December 31, 2002, write-offs of pre-launch inventories included a $41.2 million charge for our generic versions of Prilosec® (as a result of an adverse district court decision) and a $21.5 million charge related to our generic versions of Wellbutrin SR/Zyban (which was not approved by FDA because of expiration dating issues) (see Note 17 of Notes to Consolidated Financial Statements).

      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 December 31, 2004, we had $34.0 million of goodwill consisting of $7.7 million from the acquisition of Valmed Pharmaceuticals, Inc. in March 2000 and $26.3 million from the acquisition of CTEX Pharmaceuticals, Inc. in January 2001. The CTEX goodwill is included in assets held for sale in the Consolidated Balance Sheets. Goodwill 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. Accordingly, if there is a change in the value of the goodwill we acquired, impairment charges may be required. Such additional charges could be significant. In the event that we integrate an acquired business unit into our other operations, as we did with CTEX into our brand business, the acquired business and its related goodwill are combined with our other operations, and the potential impairment is evaluated in relation to the business unit as a whole.

      Product rights acquired from other pharmaceutical companies, either separately or through an allocation of the price paid for the acquisition of an entity (included in other intangible assets), are being amortized over a period ranging from two to eight years. Other intangible assets also include patents relating to electronic prescription processes, which are being amortized over a period of 14 years. We established these amortization periods based on our estimate of the period the assets would generate positive cash flows. If conditions change, we may decrease the estimated amortization period. Amortization is provided using the straight-line method over the estimated useful life. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If conditions in future periods change, additional allowances may be required, which could be significant.

      As of December 31, 2004, we had $7.1 million of other intangible assets, net which consisted primarily of $1.1 million related to patents for our electronic prescription process and $4.5 million and $1.3 million for product rights related to the Entex and Anexsia product lines, respectively. Additionally, we had $3.9 million for product rights related to Fortamet classified as assets held for sale in the 2004 Consolidated Balance Sheet.

      In June 2004, we recorded a $14.5 million write-down of our North Carolina facility as a result of our June 2004 determination that we would discontinue renovation of our North Carolina facility. As we believe that it is more likely than not that this facility will be sold, we reduced the carrying value of this facility to an amount equal to its estimated fair value based on independent appraisals, resulting in a $14.5 million impairment charge to cost of goods sold.

      As a result of the FDA approval of an NDA for an OTC product containing the same active ingredients as our Entex PSE prescription product, we recorded a charge of $3.5 million to cost of goods sold related to the impairment of our Entex product rights in June 2004, representing the difference between the carrying amount and the fair value of the Entex product rights based on the present value of estimated future cash flows. According to FDA guidance, once the FDA approves a version of any product that is presently permitted to be on the market and sold by prescription without an approved ANDA or NDA, similar unapproved drug products, such as our Entex product line, may be subject to FDA action. It is unclear whether FDA will permit a grace period for the continued sale of Entex PSE or, if granted, how long such grace period will be. As a result of the uncertain continued viability of our Entex line of products, including Entex LA, we changed the amortization of our Entex product rights from its original 10-year period on a straight-line basis. In July 2004, we began amortizing the remaining carrying amount of our Entex product rights over 18 months and the amortization expense related to our Entex product rights increased by $3.1 million to $4.5 million on an annual basis. We will continue to periodically assess the unamortized portion of our Entex product rights and inventories ($4.5 million and $50,000, respectively, as of December 31, 2004)

and the useful life of our Entex product rights whenever events or changes in circumstances indicate that the carrying amount of our Entex product rights may not be recoverable.

      As a result of our determinations to no longer commit additional resources and divest our Massachusetts aerosol manufacturing operation, in 2003 and 2002, we recorded to cost of goods sold charges of $7.9 million and $11.8 million, respectively, related to an excess facilities lease, related leasehold improvements, excess aerosol product inventories, and equipment and severance at that operation, which we sold in October 2003.

      We recorded a charge of $7.8 million for the impairment of goodwill and certain intangible assets related to Physicians’ Online (POL) in 2002. That charge was the result of our belief that the future benefits previously associated with this transaction no longer existed following our decision to not commit additional resources to POL, to seek the sale of POL and our evaluation of the goodwill and intangible assets arising from the acquisition of Mediconsult and its subsequent integration into Andrx. In December 2003, we sold our POL web portal operations for $2.0 million.

      We utilize the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires a long-lived asset or a disposal group to be disposed of by sale to be classified as “held for sale” when all of the criteria for a qualifying plan of sale are met and to measure the long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell. At the end of 2004, our board of directors approved a plan to divest, or seek other strategic alternatives for our brand pharmaceutical business, which is primarily a sales and marketing organization with a limited number of products. The assets and liabilities of the brand pharmaceutical business to be divested pursuant to this plan (which does not include our Entex and Anexsia product lines) have been measured at the lower of their carrying amounts or fair value less costs to sell and have been classified as assets held for sale and liabilities held for sale, respectively, in our December 31, 2004 and 2003 Consolidated Balance Sheets. As of December 31, 2004, we have ceased depreciating and amortizing the long-lived assets included in assets held for sale.

      We account for the exposure of our various litigation matters under the provisions of SFAS No. 5 “Accounting for Contingencies”, which requires, among other things, an exposure to be accrued with a charge to our Consolidated Statements of Income when it becomes probable and can be reasonably estimated. No accrual or disclosure of legal exposures judged to be remote is required. The exposure to legal matters is evaluated and estimated, if possible, following consultation with legal counsel. Such estimates are based on currently available information and, given the subjective nature and complexities inherent in making these estimates, the ultimate outcome of our legal matters may be significantly different than the amounts estimated. We disclose possible significant exposure for legal matters in Note 17 and litigation settlements and other charges in Note 18 of our Notes to Consolidated Financial Statements.

      Our litigation related charges were $7.8 million in 2004, primarily consisting of settlement costs related to the Kos Pharmaceuticals trademark litigation and the Alpharma USPD Inc. breach of contract litigation, $8.8 million in 2003, including the negotiated settlement of an obligation to one of our law firms with respect to our generic version of Tiazac, and $65.0 million in 2002, which was our estimate of the amount required to reach a settlement of our Cardizem CD antitrust litigation.

      The provisions of SFAS No. 109, “Accounting for Income Taxes”, require, among other things, recognition of future tax benefits measured at enacted rates attributable to the deductible temporary differences between the financial statement and income tax bases of assets and liabilities and to benefit deferred tax assets to the extent that the realization of such benefits is “more likely than not”. Under the provisions of SFAS No. 109, deferred income tax assets and liabilities are determined based on the difference

between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

      We record a valuation allowance to reduce our deferred income tax assets to the amount that is more likely than not to be realized. As of December 31, 2004, we had deferred income tax assets totaling $58.5 million, of which $599,000 pertains to the brand business to be divested and is included in assets held for sale. We have considered our ability to carry back certain net operating losses, future taxable income and ongoing prudent and feasible tax planning strategies and have determined that no valuation allowance is necessary on our deferred income tax assets. In the event that we were to determine that we would not be able to realize all or part of our deferred income tax assets in the future, an adjustment to the valuation allowance would be charged to the Consolidated Statement of Income in the period such determination was made.

      Our future effective tax rate is based on estimates of expected income and enacted statutory tax rates, as applied to our operations. Significant judgment is required in making these determinations and the ultimate resolution of our tax return positions. Despite our belief that our tax return positions are correct, our policy is to establish accruals for tax contingencies that may result from examinations by tax authorities.

      Our 2003 income tax return reflected a significant tax loss as the result of certain ordinary business developments. We believe the loss is appropriate and deductible. Nevertheless, we have recorded an accrual, which is included in accrued expenses and other liabilities in the Consolidated Balance Sheets, to fully offset the resulting 2003 and 2004 income tax benefits of approximately $17.2 million and $24.9 million, respectively. The remaining federal loss carryforward of approximately $29.2 million tax effected, may be available to reduce certain future taxable income, which at that time may be similarly offset by an accrual for financial reporting purposes.

      The IRS has begun an audit of our 2003 tax return and will likely challenge the 2003 tax loss. As of December 31, 2004, the accrual for this tax loss was $31.3 million and is included in accrued expenses and other liabilities in our Consolidated Balance Sheet. If the IRS were to prevail, we would be required to pay an amount up to the accrual, which will include interest at the statutory rate. If we were to prevail or settle this issue with the IRS, we would reverse all or a portion of the accrual, reduce income tax expenses accordingly, and pay the IRS the settlement amount, if any, including interest at the statutory rate.

      The IRS is in the process of concluding its audit for the years 1999 through 2002. During those years, despite our belief that our tax return positions were correct, we established accruals for tax contingencies that may become payable in the event our positions are not upheld. During 2004, the IRS proposed a settlement of certain matters related to this audit, to which we agreed, and we reversed $7.9 million of tax accruals related to these contingencies. As of December 31, 2004, we had remaining accrued tax contingencies of $22.9 million included in accrued expenses and other liabilities in the Consolidated Balance Sheet.

      Our tax accruals are analyzed periodically and adjustments are made as events occur to warrant such adjustment. It is reasonably possible that our effective tax rate and/or cash flows may be materially impacted by the ultimate resolution of our tax positions.

      We maintain self-insured retentions and deductibles for some of our insurance programs and limit our exposure to claims by maintaining stop-loss and/or aggregate liability coverages. The estimate of our claims liability, which may be material, is subject to inherent limitations as it relies on our judgment of the likely ultimate costs that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date. When estimating our liability for such claims, we consider a number of factors, including, but not limited to, self-insured retentions, deductibles, historical claim experience, demographic factors, severity factors and maximum claims exposure. If actual claims exceed these estimates, additional charges may be required.

ANDRX CORPORATION AND SUBSIDIARIES

CONSOLIDATED SELECTED FINANCIAL DATA

      The following summary historical financial information is based on our consolidated audited financial statements, including the consolidated audited financial statements for the years ended December 31, 2004, 2003 and 2002, included elsewhere herein. Our consolidated audited financial statements for the years ended December 31, 2004, 2003, 2002 and 2001, have been audited by Ernst & Young LLP, our current independent registered public accounting firm. Our consolidated financial statements for the year ended December 31, 2000 were audited by Arthur Andersen LLP, our former independent auditors.

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Consolidated Selected Financial Data (Continued)

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Consolidated Selected Financial Data (Continued)

ANDRX CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

Revenues and Gross Profit (Loss)

      Activity related to SRA accruals is as follows: