UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934

IVAX CORPORATION

4400 Biscayne Boulevard, Miami, Florida 33137
305-575-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 Rule 12b-2 of the Securities Exchange Act of 1934). Yes þ No o

     As of February 28, 2005, there were 261,045,330 shares of Common Stock outstanding.

     The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2004, was approximately $3.8 billion, based on the price at which the equity stock was last sold on the American Stock Exchange on such date of $19.19 per share. Solely for the purpose of this calculation, shares held by directors, executive officers and 10% shareholders of the registrant as of such date have been excluded.

DOCUMENTS INCORPORATED BY REFERENCE:

     Information required by Part III is incorporated by reference to portions of the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission by April 29, 2005.

 

IVAX CORPORATION

Annual Report on Form 10-K
for the year ended December 31, 2004

TABLE OF CONTENTS

Easi-Breathe^TM and Airmax^TM are trademarks of IVAX Corporation and its subsidiaries. All rights reserved. QVARÒ is currently a registered trademark of 3M through its subsidiary, Riker Laboratories, Inc.

 

PART I

Item 1. Business

Business

Overview

     We are a multinational company engaged in the research, development, manufacture and marketing of pharmaceutical products.

     We manufacture and/or market several brand name pharmaceutical products and a wide variety of brand equivalent and over-the-counter pharmaceutical products, primarily in the United States, Europe and Latin America. We also have subsidiaries located throughout the world, some of which are among the leading pharmaceutical companies in their markets. We maintain manufacturing operations in Argentina, Chile, the Czech Republic, Germany, Ireland, Italy, Mexico, Peru, Poland, Puerto Rico, the United Kingdom, the United States, the U.S. Virgin Islands and Venezuela. We conduct our research and development programs in Chile, the Czech Republic, Hungary, India, Ireland, Peru, Poland, Puerto Rico, the United Kingdom and the United States. We also have marketing and sales operations in Azerbaijan, Belgium, Bulgaria, China, Costa Rica, Croatia, the Czech Republic, Denmark, the Dominican Republic, El Salvador, Estonia, Finland, France, Germany, Guatemala, Honduras, Hong Kong, Ireland, Kazakhstan, Latvia, Lithuania, The Netherlands, Nicaragua, Norway, Panama, Peru, Poland, Portugal, Romania, Russia, the Slovak Republic, Sweden, Switzerland, Taiwan, Ukraine, Uruguay and Uzbekistan and market our products through distributors or joint ventures in other foreign markets.

Growth Strategies

     We expect our future growth to come from:

	•	discovering, developing and/or acquiring new proprietary products;
	•	developing, licensing and/or marketing selected brand equivalent pharmaceuticals;
	•	leveraging proprietary technology and development strengths in the respiratory and oncology areas;
	•	pursuing complementary, accretive or strategic acquisitions; and
	•	strategically expanding sales and distribution of our proprietary and branded products as well as our brand equivalent pharmaceutical products.

Discovery, Development and/or Acquisition of New Proprietary Products

     We expect that new proprietary products that we discover, develop and/or acquire will provide a cornerstone for our future growth.

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     Among the proprietary compounds we have in development that have either entered or that we expect to enter clinical trials in the near future are:

	•	Xorane™, an oral form of paclitaxel;
	•	a compound for the treatment of multiple sclerosis and epilepsy;
	•	a compound for the treatment of inflammation disorders;
	•	a compound for the treatment of recurrent glioblastoma; and
	•	one or more of the soft steroids that we are developing for bronchial asthma, allergic rhinitis, dermatology and gastrointestinal indications in both humans and companion animals.

     We also have other new compounds in earlier stages of development that are being designed to treat neurological disorders.

Developing Licensing and/or Marketing Selected Brand Equivalent Pharmaceuticals

     In addition to seeking to develop new proprietary products, we also seek to develop, license and/or market selected brand equivalent pharmaceuticals that no longer enjoy patent protection or that have patents, which we believe our products do not infringe. We seek to develop brand equivalent pharmaceutical products that possess characteristics that we believe could make it difficult for our competitors to develop competing products. Developing selected brand equivalent pharmaceutical products generally involves more time and resources than developing common brand equivalent pharmaceutical products. The characteristics of the selected brand equivalent pharmaceutical products we pursue may include one or more of the following:

	•	those requiring specialized manufacturing capabilities;
	•	those where sourcing the raw material may be difficult;
	•	those with complex formulation or development characteristics;
	•	those with significant sales potential;
	•	those that must overcome unusual regulatory or legal challenges; or
	•	those that confront difficult sales and marketing challenges.

     We believe that products with some or all of these characteristics may face limited brand equivalent competition and may produce higher profits for a longer period of time than products without these characteristics.

Leverage Proprietary Technology and Development Strengths

     We believe we possess significant proprietary technology and development strengths in the areas of respiratory diseases and oncology, including:

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our experience in the development and commercialization of oncology drug products;

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our patented inhalation technology and our expertise in developing and commercializing respiratory drug products; and

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our expertise in developing and commercializing respiratory drug products.

     In the respiratory area, we were the first company to obtain approvals of formulations of certain drugs that did not contain chlorofluorocarbon (CFC). We are also developing several of our products using dry-powder formulations, including CFC-free beclomethasone and albuterol. We intend to continue to leverage our proprietary technology and development strengths in these fields to develop a portfolio of pharmaceutical products.

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Pursue Complementary, Accretive or Strategic Acquisitions

     Acquisitions have in the past helped build our company, and we expect to use carefully selected acquisitions to continue to drive our growth. We primarily intend to pursue acquisitions that we believe will complement our existing businesses or provide new product and market opportunities, as well as leverage our existing assets. In assessing strategic opportunities, we will consider whether we expect the acquisition to:

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be accretive to our earnings;

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allow us to leverage our expertise in our areas of therapeutic focus by adding new products or product development capabilities;

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offer geographic expansion opportunities; and

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allow us to penetrate further our existing markets.

     In the past five years, we have completed acquisitions of pharmaceutical companies and facilities in Argentina, Chile, Mexico, Peru, Poland and Venezuela, which complement our existing operations and continue the expansion of our European and Latin American operations. Our future plans include the acquisition of additional manufacturing and distribution capabilities in Asia, Europe and Latin America.

     In addition to business acquisitions, we intend to continue to actively pursue strategic product acquisitions and other collaborative arrangements.

Strategically Expand Sales and Distribution of Our Products

     We intend to continue to strategically expand the sales and distribution of our products. We are developing sales capabilities in various European countries to market respiratory products. In 2000, we began marketing proprietary products through our subsidiaries in the United States and in Central and Eastern Europe. In 2003, we purchased 3M’s branded respiratory products business, including related marketing and sales people in nine European countries adding over 200 sales professionals to our sales capabilities. In December 2004, we acquired a leading Polish pharmaceutical company with over 200 sales representatives, which we intend to use as a springboard for significant expansion of our activities in the region.

     In Asia, we believe that we can complement the operations of our subsidiaries IVAX Asia Limited, IVAX India PVT Limited and IVAX Pharmaceutical (Beijing) Co. Ltd., and our Kunming Baker Norton joint venture company, by establishing additional joint ventures and selectively establishing distribution channels for our major products.

     At the same time, we are attempting to further integrate operations and are continuously seeking to identify and implement cross-marketing and distribution opportunities that may exist among our various subsidiaries. For example, our Czech Republic subsidiary is a large producer of bulk and final dosage form cyclosporin, a drug used to prevent rejection in organ transplant recipients. Cyclosporin is also used in conjunction with our Xorane™ product.

Pharmaceutical Business

Current Proprietary and Branded Products

     Through our subsidiaries, we market a number of proprietary and brand name products treating a variety of conditions throughout the world. These products are marketed by our direct sales forces to physicians, pharmacies, hospitals, managed health care organizations and government agencies.

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     We believe that we have substantial expertise in the development, manufacture and marketing of respiratory drugs, primarily for bronchial asthma, delivered by metered-dose and dry powder inhalers. Our subsidiary in the United Kingdom, Norton Healthcare Limited, trading as IVAX Pharmaceuticals UK, is the third largest respiratory company in that market based on IMS sales data for 2004. At the core of our respiratory franchise are our advanced delivery systems, which include a patented breath-operated inhaler called BREATHMATICä in the United States and Easi-Breathe™ in other countries and a patented dry powder inhaler, as well as conventional metered-dose inhalers.

     BREATHMATIC™/Easi-Breathe™. We hold patents on our breath-operated inhaler, which is designed to overcome the difficulty many users experience with conventional metered-dose inhalers in coordinating inhalation with the emission of the medication. Our breath-operated inhaler emits the medication automatically in one step upon inhalation, minimizing coordination problems. We market Easi-Breathe™ through our subsidiaries in the Czech Republic, France, Ireland, Mexico, Poland, Russia, the Slovak Republic and the United Kingdom and through distributors in Africa, Asia, Cyprus and Germany.

     In October 2001, we acquired from Elan Corporation the United States rights to the intranasal steroid brand product, NasarelÒ, for the treatment of allergic rhinitis. In March 2002, we also acquired from the Roche Group the rights to the same intranasal steroid products, which are marketed under a number of trademarks in Belgium, Canada, the Czech Republic, France, Ireland, The Netherlands, Norway and the United Kingdom.

     In April 2002, we entered into an exclusive United States agreement with Minnesota Mining and Manufacturing Company, also known as 3M, related to the QVAR® brand (beclomethasone dipropionate) inhalation aerosol, an inhaled corticosteroid prescribed to treat chronic bronchial asthma. QVAR® is a novel metered-dose inhaler that delivers asthma medicine via a non-ozone depleting hydrofluoroalkane (HFA) aerosol rather than conventional CFC propellant. Under the terms of the agreement, we have obtained exclusive United States rights to the QVAR® product as well as a non-exclusive worldwide license to certain 3M patents covering HFA formulations of various asthma drugs. In addition, in 2007, we can exercise an option to obtain ownership of the United States QVAR® trademark, as well as related patents and the New Drug Application, also known as an NDA. QVAR® is currently a registered trademark of 3M through its subsidiary, Riker Laboratories, Inc. 3M manufactures the QVAR® product for us under a long-term contract.

     In October 2003, we purchased 3M’s branded respiratory products business in Europe, which included QVAR® and Airomir® in Autohaler® and standard metered dose inhalers and over 200 marketing and sales representatives in nine European countries.

New Proprietary and Branded Products Under Development

     We are committed to the cost-effective development of proprietary pharmaceuticals directed primarily towards indications we believe have relatively large patient populations or for which we believe limited or inadequate treatments are available. We seek to accelerate product development and commercialization by in-licensing compounds, especially after clinical testing has begun, and by developing new dosage forms of existing products or new therapeutic indications for existing products. We intend to emphasize the development of drug products in the neurologic, oncology and respiratory fields and have a variety of proprietary pharmaceuticals in varying stages of development.

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     Inhalation Products. In light of international agreements calling for the eventual phase-out of CFC, we have developed CFC-free inhalation aerosol products, including CFC-free beclomethasone and albuterol, using HFA propellants. We are also developing several of our products using dry powder formulations. Beclomethasone and albuterol are two of the most widely prescribed products for bronchial asthma.

     We received approval to market CFC-free beclomethasone in Ireland and France in 1997 in our standard metered-dose inhaler and our breath-operated inhaler, the first such approvals for any company anywhere in the world. We have received approval to market CFC-free beclomethasone in our standard metered-dose inhaler in numerous countries, including Argentina, Belgium, Chile, the Czech Republic, Finland, Hong Kong, Italy, Japan, Germany, Mexico, Peru, Portugal, Spain and Venezuela. We have received approval to market CFC-free beclomethasone in our breath-operated inhaler in numerous countries, including Argentina, Belgium, Chile, the Czech Republic, Luxembourg, Mexico, Peru, Poland, Portugal and Spain. We received approval in September 2004 to market QVAR® in our breath-operated inhaler in the United Kingdom.

     In April 2000, we received approval to market CFC-free albuterol in the United Kingdom in our standard metered-dose inhaler and our Easi-Breathe™ inhaler. In October 2001, these approvals were used as the basis for obtaining approvals of these two products in other countries, including Argentina, Belgium, the Czech Republic, Denmark, Germany, Ireland, Luxembourg, Mexico, Norway, Peru and Spain. We have also received approval for CFC-free albuterol in our Easi-Breathe™ inhaler in numerous countries, including Holland, Hong Kong and Poland. In October 2004, we received approval to market CFC-free albuterol in our standard metered-dose inhaler in the United States. The NDA in the United States for CFC-free albuterol in our breath-operated inhaler received an approvable letter in 2004 and continues under review.

     We have also developed a multi-dose dry powder inhaler, which uses no propellant and is believed to have superior dosing accuracy than competing models. In 2001, we received approval to market formoterol in our multi-dose dry powder inhaler in Denmark and in 2003, we received approval to market albuterol in our multi-dose dry powder inhaler in the United Kingdom. We have also received approval to market budesonide in our multi-dose dry powder inhaler in the Czech Republic, Denmark, Estonia, Hungary and the Ukraine. We have completed Phase I clinical trials in the United States with etiprednol dicloacetate, an inhaled soft corticosteroid, in our multi-dose dry powder inhaler. A Phase II clinical trial with etiprednol dicloacetate was commenced in September 2004 for the treatment of bronchial asthma.

     We are continuing to develop our breath-operated inhaler for use with various compounds. During 2003, we completed Phase III clinical trials for CFC-free albuterol in our breath-operated inhaler and an NDA was submitted for this product in August 2003. The NDA is presently under review. Phase III clinical trials for QVAR® in our breath-operated inhaler were initiated in 2004 in patients with bronchial asthma.

     Xorane™. Presently, paclitaxel, which is one of the leading anti-cancer drugs in the world, is marketed only in injectable form. We are currently marketing paclitaxel injection in the United States under the name Onxolâ and in other countries under the name Paxene®. We are developing an oral formulation of paclitaxel that we believe may provide significant advantages over the injectable dosage form in terms of patient convenience and reduced side effects. We believe that our patented new system will allow patients to obtain effective doses of paclitaxel through oral administration and that this patented system can be applied to other chemotherapeutic agents that are not currently orally available. We have completed Phase II clinical trials with patients with recurrent breast cancer, advanced lung cancer, and advanced stomach cancer.

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     TP-38. In pre-clinical trials of our epidermal growth factor (EGF) receptor-targeted gliobastoma therapy, our lead compound, TP-38, was found to be highly specific and toxic to brain cancer cells. In November 2004, positive results were reported for TP-38 in a Phase II multi-center clinical trial in patients with recurrent glioblastoma. We have initiated an expanded Phase II clinical trial involving centers in the United States and Europe. We are initiating a Phase I/II pediatric clinical trial in patients with brain tumors.

     Talampanel. In February 2001, we acquired the rights to develop and market the AMPA receptor antagonist, talampanel, from Eli Lilly & Co. Talampanel was initially discovered at the IVAX Drug Research Institute in Budapest, Hungary. In Phase II studies conducted by Eli Lilly, talampanel was shown to reduce the incidence of seizures in patients with epilepsy, and we are continuing Phase II clinical trials in epilepsy patients. In July 2003, we commenced Phase II clinical trials with patients with recurrent malignant brain tumors in a trial sponsored by the National Cancer Institute and in 2005, we are planning to commence Phase II clinical trials with patients with newly diagnosed glioblastoma. We are planning additional studies using this compound to treat multiple sclerosis and other neurological diseases.

     Asthma and Inflammatory Diseases. We have developed a corticosteroid that is rapidly converted to an inactive form after absorption, which reduces the likelihood of side effects normally associated with these types of drugs. Initial applications of etiprednol dicloacetate include possible treatments for bronchial asthma, allergic rhinitis and inflammatory diseases of the large intestine. Etiprednol dicloacetate has successfully completed Phase I clinical trials for safety for oral administration.

     Phase I clinical trials with etiprednol dicloacetate in our patented multi-dose inhaler for the indication of bronchial asthma were completed in 2004 and in September 2004, we initiated a Phase II clinical trial.

     In addition, in August 2003, we acquired the worldwide rights, exclusive of Japan and certain Asian countries, for loteprednol etabonate for allergic rhinitis. We are now conducting a Phase II study with loteprednol etabonate in children with allergic rhinitis.

Brand Equivalent Pharmaceutical Products

     Another important part of our pharmaceutical business is the broad line of brand equivalent pharmaceutical products, both prescription and over-the-counter, that our subsidiaries market as brand equivalent substitutes or under a brand name. Brand equivalent drugs are therapeutically equivalent to their brand name counterparts, but are generally sold at lower prices and as alternatives to the brand name products. In order to remain successful in the brand equivalent pharmaceutical business, we are working to develop new formulations and seeking to obtain marketing authorizations which should enable us to be the first or among the first to launch brand equivalent pharmaceutical products on the market.

     In the United States, our subsidiary, IVAX Pharmaceuticals, Inc. (IPI) manufactures and markets approximately 73 brand equivalent prescription drugs in capsule or tablet forms in an aggregate of approximately 169 dosage strengths. We also distribute in the United States approximately 168 additional brand equivalent prescription and over-the-counter drugs and vitamin supplements, in various dosage forms, dosage strengths and package sizes. Our domestic brand equivalent drug distribution network encompasses most trade classes of the pharmaceutical market, including wholesalers, retail drug chains, retail pharmacies, mail order companies, managed care organizations, hospital groups, nursing home providers and government agencies.

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     In the United Kingdom, we are a leading provider of brand equivalent pharmaceutical products. We market approximately 402 brand equivalent prescription drugs, about half of which we manufacture, in various dosage forms and dosage strengths, constituting an aggregate of approximately 143 molecules. We market such products to wholesalers, retail pharmacies, hospitals, physicians and government agencies. In addition, we manufacture and market various “blow-fill-seal” pharmaceutical products, such as solutions for injection or irrigation, and unit-dose vials for nebulization to treat respiratory disorders.

     Brand equivalent products (but not including branded generic products) represented 66% of our revenues in 2004, 62% in 2003 and 56% in 2002.

New Brand Equivalent Products Under Development

     In evaluating which brand equivalent pharmaceutical product development projects to undertake, we consider whether the new product, once developed, will complement our other products in the same therapeutic family, or will otherwise assist in making our product line more complete.

     During 2004, we received final United States Food and Drug Administration (FDA) approval of 11 Abbreviated New Drug Applications (ANDAs) for 10 molecules, tentative FDA approval of 3 ANDAs for 3 molecules, approval of 13 Abridged Marketing Authorization Applications or AMAAs (the European equivalent of an ANDA) for 4 molecules in the United Kingdom, and approval of 78 AMAAs for 34 molecules in the other European Union (EU) countries.

     As of January 1, 2005, we had ANDAs or its foreign equivalent pending as follows:

Acquisitions

     The acquisition of strategic and complementary businesses has been a significant component of the expansion of our pharmaceutical business. Some of our recent acquisitions are described below.

     Pending Acquisition of PSI Holdings, Inc. On February 15, 2005, we entered into a stock purchase agreement pursuant to which we agreed to purchase all of the capital stock of PSI Holdings, Inc., the holding company for Phoenix Scientific, Inc., a manufacturer of generic veterinary pharmaceutical formulations headquartered in St. Joseph, Missouri. The sale is subject to the expiration of applicable Hart Scott Rodino waiting periods and other customary closing conditions. The parties expect to close the transaction in the second quarter of 2005.

     Polfa Kutno. In December 2004, through a private purchase and two tender offers (the second of which ended in January 2005), we acquired 99.25% of the outstanding shares of Kutnowskie Zaklady Farmaceutyczne “POLFA” S.A., or Polfa Kutno, a leading Polish pharmaceutical company. Polfa Kutno manufactures and sells a number of prescription drugs, such as Ceclor® and Metformax®. In addition to the antibiotics and diabetes sectors, Polfa Kutno’s prescription drugs cover central nervous system disorders, osteoporosis and the urology segment. Polfa Kutno is also very active in the over-the-counter (OTC) drug area, including such products as the children’s multivitamin Vibovit® and the pain relievers Bestpirin® and Aescin.

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     Laboratorio Chile S.A. Through two tender offers, the second of which ended in August 2001, we acquired 99.9% of the outstanding shares of Laboratorio Chile S.A. Laboratorio Chile was at the time of purchase and remains the largest Chilean pharmaceutical company in terms of revenue. Through its Argentine subsidiary, Laboratorio Chile was among the major pharmaceutical companies in Argentina. Laboratorio Chile manufactures, markets and sells a broad line of more than 700 branded and brand equivalent products in Chile, Argentina and Peru. Its main products are to treat respiratory and infectious diseases, but it also has strong franchises with cardiovascular, neurological and gynecological products.

     Laboratorios Fustery, S.A. de C.V. In February 2001, we acquired Laboratorios Fustery, S.A. de C.V., which is based in Mexico City, Mexico. We subsequently changed its name to IVAX Pharmaceuticals Mexico, S.A. de C.V. IVAX Pharmaceuticals Mexico manufactures, markets and distributes a broad range of prescription pharmaceutical products and is a leading manufacturer of antibiotics and injectable products in Mexico. IVAX Pharmaceuticals Mexico’s therapeutic areas of primary emphasis are antibiotics, anti-inflammatories, analgesics, hormone replacement therapy and gastrointestinal products. IVAX Pharmaceuticals Mexico employs approximately 200 medical representatives to promote its products.

     Laboratorios Elmor, S.A. In June 2000, we acquired Laboratorios Elmor, S.A., which is based in Caracas, Venezuela. Elmor manufactures, markets and distributes a broad range of pharmaceutical products in Venezuela. At the time of purchase, Elmor was the largest Venezuelan pharmaceutical company in terms of units sold, and one of the fastest growing pharmaceutical companies in Venezuela.

Collaborative Agreements

     We also seek to enter into collaborative alliances which we believe will allow us to exploit our drug discovery and development capabilities or provide us with valuable intellectual property and technologies. Some of these collaborative alliances are described below.

     Grupo Ferrer. In October 2004, we entered into a licensing agreement with Grupo Ferrer, an international pharmaceutical company headquartered in Barcelona, Spain, for the final development of citicoline, an oral neuroprotective therapy for the treatment of strokes.

     Nippon Shinyaku. In October 2004, we entered into a licensing agreement with Nippon Shinyaku to develop and market HMN-214, a polo-like kinase inhibitor that targets pancreatic, prostate and a number of other cancers.

     Mayne Group Limited. In February 2004, we entered into an agreement with Mayne Group Limited for the marketing and distribution of our injectable paclitaxel product, Paxene®, in the European nations of Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Sweden and the United Kingdom.

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     EIS Eczacibasi IIac Sanayi ve Ticaret A.S. In May 2003, we entered into an exclusive marketing authorization and supply agreement with EIS Eczacibasi IIac Sanayi ve Ticaret A.S. for 21 generic products in 15 Central and Eastern European countries.

     Laboratory of Molecular Biology of the National Cancer Institute. In January 2003, we entered into a collaboration agreement with the Laboratory of Molecular Biology of the National Cancer Institute to develop a recombinant immunotoxin designed to treat HIV infection by selectively destroying HIV infected cells.

     Serono, S.A. In October 2002, we entered into an exclusive worldwide product development and license agreement with Ares Trading, S.A., an affiliate of Serono, S.A., for the development and commercialization of an oral formulation of IVAX’ Cladribine for the treatment of multiple sclerosis. Cladribine is an immunosuppressive agent that has demonstrated encouraging results in Phase II and Phase III studies.

Licensing

     We have obtained licenses to technology and compounds for the development of new pharmaceutical products from various inventors, universities and the United States government. For example, we are working with compounds licensed from The National Institutes of Health to develop a potential new treatment for gliobastoma. In addition, we license pharmaceutical products from third parties from time to time. We will continue to seek new licenses from third parties, including pharmaceutical companies.

     We also grant licenses to other pharmaceutical companies relating to technologies or compounds under development and, in some cases, finished products.

Other Business

Diagnostics

     In March 2001, our diagnostics group merged with b2bstores.com forming IVAX Diagnostics, Inc., a publicly traded company that trades on the American Stock Exchange under the symbol “IVD” and is listed on the Boston Stock Exchange. We own approximately 74% of the equity of IVAX Diagnostics.

     IVAX Diagnostics, Inc. is the parent corporation of three wholly owned operating subsidiaries: Diamedix Corporation in Miami, Florida, ImmunoVision, Inc. in Springdale, Arkansas, and Delta Biologicals, S.r.l. near Rome, Italy. Through these subsidiaries, IVAX Diagnostics develops, manufactures, and markets diagnostic test kits, or assays, and automated systems that are used to aid in the detection of disease markers primarily in the areas of autoimmune and infectious diseases. These tests, which are designed to aid in the identification of the causes of illness and disease, assist physicians in selecting appropriate patient treatment. Most of IVAX Diagnostics’ tests are based on Enzyme Linked ImmunoSorbent Assay (ELISA) technology, a clinical technology used worldwide. In addition to its line of diagnostic kits, IVAX Diagnostics also designs and manufactures laboratory instruments that perform the tests and provide fast and accurate results, while reducing labor costs. IVAX Diagnostics’ existing instruments include the MagoÒ Plus and AptusÒ. IVAX Diagnostics has also developed a new proprietary instrument system, the PARSECÔ System, which it expects will receive regulatory approval. The PARSEC System is designed in a modular and scalable format that should enable customers to utilize not only ELISA-based kits, but also other methods such as chemiluminescent-based assays in the future. The design of this new system is expected to give customers the ability to “customize” the configuration of the PARSEC System to the testing and work flow requirements of their particular laboratories. IVAX Diagnostics markets its existing products to clinical reference laboratories, hospital

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laboratories, research institutions and other commercial entities in the United States and in Italy through its direct sales force and through independent distributors in other major markets throughout the world.

Patents and Proprietary Rights

     Because of the length of time and expense associated with bringing new products through development and regulatory approval to the marketplace, the pharmaceutical industry has traditionally placed considerable importance on obtaining patent and trade secret protection for significant new technologies, products and processes. We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications whenever possible to protect our products, technologies, inventions and improvements that we consider important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

     We hold approximately 1,490 United States and foreign patents and have filed several hundred United States and foreign patent applications. In addition, we have exclusively licensed several additional United States and foreign patents and patent applications. Our success depends, in part, on our ability to obtain and enforce United States and foreign patent protection for our products, to preserve our trade secrets and proprietary rights and to operate without infringing on the proprietary rights of third parties or having third parties circumvent our rights.

Government Regulation

     Our pharmaceutical and diagnostic operations are subject to extensive regulation by governmental authorities in the United States and other countries with respect to the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products. We devote significant time, effort and expense to addressing the extensive government regulations applicable to our business. In general, the trend is towards more stringent regulation.

     In the United States, the FDA requires extensive testing of new pharmaceutical products to demonstrate that such products are both safe and effective in treating the indications for which FDA approval is sought. Testing in humans may not be commenced until after the FDA grants an Investigational New Drug exemption. An NDA must be submitted to the FDA for new drugs that have not been previously approved by the FDA and for new combinations of, and new indications and new delivery methods for, previously approved drugs. Three phases of clinical trials must be successfully completed before an NDA is approved. Phase I clinical trials involve the administration of the drug to a small number of healthy subjects to determine safety, tolerance, absorption and metabolism characteristics. Phase II clinical trials involve the administration of the drug to a limited number of patients for a specific disease to determine dose response, efficacy and safety. Phase III clinical trials involve the study of the drug to gain confirmatory evidence of efficacy and safety from a wide base of investigators and patients. In the case of a drug that has been previously approved by the FDA, an abbreviated approval process is available for its brand equivalent. For such drugs an ANDA may be submitted to the FDA for approval. For an ANDA to be approved, among other requirements, the drug must be shown to be bioequivalent to the previously approved drug or must be granted a waiver by the FDA of such requirement. The NDA and ANDA development and approval processes generally take a number of years and involve the expenditure of substantial resources. Even so, the time and resources devoted to seeking regulatory approval for new products will not necessarily result in product approvals or earnings.

     The NDA applicant, owner of a new drug, is required to list with the FDA all patents which cover the approved drug and its approved uses. A company filing an ANDA and seeking approval to market a product before expiration of all listed patents must certify that such patents are invalid or will not be

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infringed by the manufacture, use or sale of the applicant’s product, and must notify the patent owner and the owner of the approved drug of its filing. If the approved drug owner sues the ANDA filer for patent infringement within 45 days after it receives such notice, then the FDA will not grant final approval of the ANDA until the earlier of 30 months from the date the approved drug owner receives such notice or the date when a court determines that the applicable patents are either invalid or would not be infringed by the applicant’s product. As a result, brand equivalent drug manufacturers, including us, are often involved in lengthy, expensive patent litigation against brand name drug companies that have considerably greater resources and that are typically inclined to actively pursue patent litigation in an effort to protect their franchises.

     On an ongoing basis, the FDA reviews the safety and efficacy of marketed pharmaceutical products and products considered medical devices and monitors labeling, advertising and other matters related to the promotion of such products. The FDA may cause a recall or withdraw product approvals if regulatory standards are not maintained or if safety or efficacy concerns arise with respect to such products. As a result of recent developments concerning products, such as cox-2 inhibitors and anti-depressants, certain members of the United States Congress and interest groups in the private sector have renewed calls for a far-reaching investigation of the FDA’s product approval processes. We cannot predict what impact, if any, these developments may have on us or our business. The FDA also regulates the facilities and procedures used to manufacture pharmaceutical and diagnostic products in the United States or for sale in the United States. Such facilities must be registered with the FDA and all products made in such facilities must be manufactured in accordance with “good manufacturing practices” established by the FDA. Compliance with good manufacturing practices regulations requires the dedication of substantial resources and requires significant costs. The FDA periodically inspects our manufacturing facilities and procedures to assure compliance. The FDA approval to manufacture a drug is site-specific. In the event an approved manufacturing facility for a particular drug becomes inoperable, obtaining the required FDA approval to manufacture such drug at a different manufacturing site could result in production delays, which could adversely affect our business and results of operations. In addition, in connection with its review of our applications for new products, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems and procedures comply with good manufacturing practices and other FDA regulations. Among other things, the FDA may withhold approval of NDAs, ANDAs or other product applications of a facility if deficiencies are found at that facility. Vendors that supply us with finished products or components that we use to manufacture, package or label products are subject to similar regulation and periodic inspections.

     Following such inspections, the FDA may issue notices on Form 483 and warning letters that could cause us to modify certain activities identified during the inspection. A Form 483 notice is generally issued at the conclusion of an FDA inspection and lists conditions the FDA investigators believe may violate good manufacturing practices or other FDA regulations. Failure to comply with FDA or other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs, ANDAs or other product applications, enforcement actions, injunctions and criminal prosecution. Under certain circumstances the FDA also has the authority to revoke previously granted drug approvals.

     The evolving and complex nature of regulatory requirements, the broad authority and discretion of the FDA and the severely high level of regulatory oversight result in a continuing possibility that we may be adversely affected by regulatory actions despite our efforts to maintain compliance with regulatory requirements.

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     In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes.

     The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical and device manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

     Federal false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment.

     Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition and results of operations.

     In connection with our activities outside the United States, we are also subject to regulatory requirements governing the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products, which requirements vary from country to country. Whether or not FDA approval has been obtained for a product, approval of the product by comparable regulatory authorities of foreign countries must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country, and the time required for approval may be longer or shorter than that required in the United States. No assurance can be given that clinical studies conducted outside of any country will be accepted by such country, and the approval of any pharmaceutical or diagnostic product in one country does not assure that such product will be approved in another country.

     The federal and state governments in the United States, as well as many foreign governments, including the United Kingdom, from time to time explore ways to reduce medical care costs through health care reform. These efforts have resulted in, among other things, government policies that encourage the use of brand equivalent drugs rather than brand name drugs to reduce drug reimbursement costs. Virtually every state in the United States has a brand equivalent substitution law which permits the dispensing pharmacist to substitute a brand equivalent drug for the prescribed brand name product. The debate to reform the United States’ health care system is expected to be protracted and intense. Due to uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation, we cannot predict what impact any reform proposal ultimately adopted may have on the pharmaceutical or diagnostic industries or on our business or operating results.

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Competition

     The pharmaceutical market is highly competitive and includes many established companies, some of whom possess significantly greater resources than us. Some of our major competitors are:

	•	Astra Zeneca
	•	Aventis Pharmaceuticals
	•	Boehringer Ingelheim
	•	Bristol-Myers Squibb
	•	Forest Laboratories
	•	GlaxoSmithKline
	•	Eli Lilly
	•	Mylan Pharmaceuticals
	•	Novartis Pharmaceuticals
	•	Pfizer Inc.
	•	Sandoz
	•	Schering-Plough
	•	Teva Pharmaceuticals
	•	Watson Pharmaceuticals

     Our competitors may be able to develop products and processes competitive with or superior to our own for many reasons, including that they may have:

•

significantly greater financial resources;

•

larger research and development and marketing staffs;

•

larger production facilities; or

•

extensive experience in preclinical testing and human clinical trials.

     The pharmaceutical market is undergoing, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technological advances are made. We intend to compete in the pharmaceutical market by developing or licensing pharmaceutical products that are either patented or proprietary and which are primarily for indications having relatively large patient populations or for which we believe limited or inadequate treatments are available, and, with respect to brand equivalent pharmaceuticals, by developing therapeutic equivalents to previously patented products which we expect to have less intensive competition. Developments by others could make our pharmaceutical products or technologies obsolete or uncompetitive.

     In addition to product development, other competitive factors in the pharmaceutical industry include product quality, price, customer service, and reputation. Price is a key competitive factor in the brand equivalent pharmaceutical business. To compete effectively on the basis of price and remain profitable, a brand equivalent drug manufacturer must manufacture its products in a cost-effective manner.

     Revenues and gross profit derived from brand equivalent pharmaceutical products tend to follow a pattern based on regulatory and competitive factors unique to the brand equivalent pharmaceutical industry. As patents for brand name products and related exclusivity periods mandated by regulatory authorities expire, the first brand equivalent manufacturer to apply for regulatory approval for generic equivalents of such products may be entitled to a 180-day period of marketing exclusivity under the Hatch-Waxman Act. During this exclusivity period, the FDA cannot approve any other generic equivalent. If we are not the first brand equivalent applicant, our brand equivalent product will be kept off the market during the 180-day exclusivity period for the first brand equivalent commercial launch of

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the product. The first brand equivalent product on the market is usually able to achieve relatively high revenues and gross profit. As other brand equivalent manufacturers receive regulatory approvals and enter the market, prices typically decline, and in some cases dramatically. Accordingly, the level of revenues and gross profit attributable to brand equivalent products that we develop and manufacture is dependent, in part, on:

	•	our ability to maintain a pipeline of products in development;
	•	our ability to develop and rapidly introduce new products;
	•	the timing of regulatory approval of such products;
	•	the number and timing of regulatory approvals of competing products;
	•	our ability to manufacture such products efficiently; and
	•	our ability to market such products effectively.

     Because of the regulatory and competitive factors discussed above, our revenues and results of operations historically have fluctuated from period to period. We expect this fluctuation to continue as long as a significant part of our revenues are generated from sales of brand equivalent pharmaceuticals.

     In addition to competition from other brand equivalent drug manufacturers, we face competition from brand name companies as they increasingly sell their products into the brand equivalent market directly by establishing, acquiring or forming licensing or business arrangements with brand equivalent pharmaceutical companies. No regulatory approvals are required for a brand name manufacturer to sell directly or through a third party to the brand equivalent market, nor do such manufacturers face any other significant barriers to entry into such market.

     In addition, many large drug companies are increasingly pursuing strategies to prevent or delay the introduction of brand equivalent competition. These strategies include:

	•	seeking to establish regulatory obstacles to the ability of brand equivalent product manufacturers to demonstrate that there is no significant difference in the rate and extent to which the active ingredient in the brand equivalent product becomes available at the site of drug action as compared to the brand name counterpart;
	•	instituting legal actions based on process or other patents that allegedly are infringed by the brand equivalent products that automatically delay approval of brand equivalent products because the approval of the brand equivalent product requires certifications that the brand name drug’s patents are invalid or would not be infringed by the brand equivalent;
	•	obtaining approvals of patented drugs for a rare disease or condition and, as a result, obtaining seven years of exclusivity for that indication;
	•	obtaining extensions of patent exclusivity by conducting additional clinical trials of brand name drugs using children;
	•	persuading the FDA to withdraw the approvals of brand name drugs, the patents for which are about to expire, so that the brand name company can substitute a new patented product; and
	•	instituting legislative efforts in various states to limit the substitution of brand equivalent versions of certain types of branded pharmaceuticals.

     Additionally, in the United States, some companies have lobbied Congress for amendments to the Hatch-Waxman legislation which could give them additional advantages over brand equivalent competitors such as us. For example, although the life of a drug company’s drug patent is extended for a period equal to the time that it takes the FDA to approve the drug, some companies have proposed eliminating the maximum five-year period for those patent extensions and extending the patent life by a full year for each year spent in clinical trials, rather than the one-half year that is currently allowed. If proposals like these become effective, our entry into the United States market and our ability to generate revenues associated with these brand equivalent products will be delayed.

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     Under the Federal Food, Drug, and Cosmetic Act, an additional six months of market exclusivity in the United States may be added for indications of new or currently marketed drugs, if the FDA requests and the applicant completes agreed upon pediatric studies. Brand name companies are utilizing this provision to increase their period of market exclusivity.

     A significant amount of our United States brand equivalent pharmaceutical sales are made to a relatively small number of drug wholesalers and retail drug chains, which represent an essential part of the distribution chain of brand equivalent pharmaceutical products in the United States. Drug wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation, which has resulted in our customers gaining more purchasing leverage and consequently increasing the pricing pressures facing our United States brand equivalent pharmaceutical business. Further consolidation among our customers may result in even greater pricing pressures and correspondingly reduce our market share, volumes and the gross margins of this business.

     Other competitive factors affecting our business include the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions, which are able to seek price discounts on pharmaceutical products, and the reimbursement policies of third party payors, such as insurance companies, Medicare and Medicaid. As the influence of these entities continues to grow, we may continue to face increased pricing pressure on the products we market.

Backlog Orders

     The dollar amount of backlog orders for IVAX Pharmaceuticals was $12.7 million as of January 30, 2005, compared to $9.5 million as of January 30, 2004, and for IVAX Pharmaceuticals UK it was $3.2 million as of January 30, 2005, compared to $1.1 million as of January 30, 2004. We expect to fill all of our backlog orders during our current fiscal year.

Raw Materials

     We believe that raw materials needed for our business are generally readily available from multiple sources. Certain raw materials and components used in the manufacture of our products are, however, available from limited sources, and in some cases, a single approved source. A problem with the availability of raw materials could cause production or other delays, and, in the case of products for which only one approved raw material supplier exists, could result in a material loss of sales, with consequent adverse effects on our business. Additionally, in some cases we have listed only one supplier in applications with the FDA. Because raw material sources for pharmaceutical products must generally be approved by regulatory authorities, changes in raw material suppliers or the designation of a new supplier may result in production delays, higher raw material costs and loss of sales and customers. We obtain a significant portion of our raw materials from foreign suppliers, and our arrangements with such suppliers are subject to FDA, customs and other government clearances, duties and regulation by the countries of origin.

Returns

     Based on industry practice in the United States, brand equivalent manufacturers, including us, have liberal return policies and have been willing to give customers post-sale inventory allowances. Under these arrangements, the manufacturers give customers credits on the manufacturer’s brand equivalent products which the customers hold in inventory after decreases in the market prices of the brand equivalent products.

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Like our competitors, we also give credits for charge-backs to wholesale customers that have contracts with us for their sales to hospitals, group purchasing organizations, pharmacies or other retail customers.

Seasonality

     While certain of our individual products may have a degree of seasonality, there are no significant seasonal aspects to our business, except that sales of pharmaceutical products indicated for colds and flu symptoms are higher during the fourth quarter as customers supplement inventories in anticipation of the cold and flu season. In addition, revenues that are contingent upon licensees achieving certain sales targets during the year tend to be higher in the second half of the year.

Environmental Matters

     We are engaged in a continuing program to comply with federal, state and local environmental laws and regulations. While it is impossible to accurately predict the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not presently expected to have, a material adverse effect on our earnings or competitive position. See “Item 3. Legal Proceedings” for a description of an environmental proceeding involving one of our subsidiaries.

Employees

     As of December 31, 2004, we had approximately 10,100 employees worldwide.

Available Information

     Our Internet website is: www.ivax.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with or furnished to the Securities and Exchange Commission. Information contained in our website is not part of this report. Reports we file with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Risk Factors

     You should carefully consider the risks described below. These and other risks could materially and adversely affect our business, operating results or financial condition. The risks described below are not the only risks that we face. Additional risks not presently known to us or other factors that we do not presently perceive to present significant risks to us at this time may also impair our operations. You should also refer to the other information contained or incorporated by reference in this report.

Risks Relating to Our Company

We depend on our development, manufacture and marketing of new products for our future success.

     Our future success is largely dependent upon our ability to develop, manufacture and market commercially successful new pharmaceutical products and brand equivalent versions of pharmaceutical

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products that do not infringe any valid patents. Generally, the commercial marketing of pharmaceutical products depends upon:

	•	continually developing and testing products;
	•	proving that new products are safe and effective in clinical trials;
	•	proving that there is no significant difference in the rate and extent to which the active ingredient in the brand equivalent product becomes available at the site of drug action as compared to the brand name version; and
	•	receiving requisite regulatory approval for all new products.

     Delays in the development, manufacture and marketing of new products will impact our results of operations. Each of the steps in the development, manufacture and marketing of our products, as well as the process taken as a whole, involves significant periods of time and expense. We cannot be sure that:

	•	any of our products presently under development, if and when fully developed and tested, will perform as we expect;
	•	we will obtain necessary regulatory approvals in a timely manner, if at all; or
	•	we can successfully and profitably produce and market any of our products.

Future inability to obtain components and raw materials or products could seriously affect our operations.

     Some components and materials used in our manufactured products, and some products sold by us, are currently available only from one or a limited number of domestic or foreign suppliers. Additionally, in some cases we have listed only one supplier in our applications with the FDA and foreign governmental authorities. This includes products that have historically accounted for a significant portion of our revenues, including paclitaxel. In the event an existing supplier becomes unavailable or loses its regulatory status as an approved source, we will attempt to locate a qualified alternative; however, we may be unable to obtain the required components, raw materials, or products on a timely basis or at commercially reasonable prices. In addition, from time to time, certain of our outside suppliers have experienced regulatory or supply-related difficulties that have adversely impacted their ability to deliver products to us, causing supply delays or interruptions of supply. To the extent such difficulties cannot be resolved within a reasonable time, and at a reasonable cost, or we are required to qualify a new supplier, our revenues, profit margins and market share for the affected product could decrease, as well as delay our development and sales and marketing efforts.

     Our arrangements with foreign suppliers are subject to certain additional risks, including the availability of government clearances, export duties, political instability, currency fluctuations and restrictions on the transfer of funds. Arrangements with international raw material suppliers are subject to, among other things, FDA regulation, various import duties and required government clearances. Acts of governments outside the United States may affect the price or availability of raw materials needed for the development or manufacture of our products. In addition, recent changes in patent laws in jurisdictions outside the United States may make it increasingly difficult to obtain raw materials for research and development prior to the expirations of the applicable United States or foreign patents.

A relatively small group of products and customers may represent a significant portion of our net revenues or net earnings from time to time. If the volume or pricing of any of these products declines or we lose customers, it could have a material adverse effect on our business, financial condition and results of operations.

     Sales of a limited number of our products often represent a significant portion of our net revenues or net earnings. This has been particularly relevant when a product has enjoyed a period of generic marketing exclusivity under the Hatch-Waxman Act as the first ANDA to be filed containing a paragraph iv

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certification for the listed patent. If the volume or pricing of our largest selling products declines in the future, our business, financial condition and results of operations could be materially adversely affected.

     A significant portion of our net revenues are derived from sales to a limited number of foreign and domestic customers. Any significant reduction or loss of business with one or several of these customers could have a material adverse effect on our business, financial condition and results of operations. Further, some distributors of our products have been reported to have experienced financial difficulties. Any economic difficulties faced by significant customers could have a material adverse effect on our business, financial condition and results of operations.

We depend on our patents and proprietary rights and cannot be certain of their confidentiality and protection.

     Our success with our proprietary products depends, in large part, on our ability to protect our current and future technologies and products and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have numerous patents covering our technologies. We have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. The United States Patent and Trademark Office does not publish patent applications or make information about pending applications available to the public until it issues the patent. Since publication of discoveries in the scientific or patent literature tends to follow actual discovery by several months, we cannot be certain that we were the first to file patent applications on our discoveries. We cannot be sure that we will receive patents for any of our patent applications or that any existing or future patents that we receive or license will provide competitive advantages for our products. We also cannot be sure that competitors will not challenge, invalidate or void the application of any existing or future patents that we receive or license. In addition, patent rights may not prevent our competitors from developing, using or selling products that are similar or functionally equivalent to our products.

     We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation. We use confidentiality agreements with licensees, suppliers, employees and consultants to protect our trade secrets, unpatented proprietary know-how and continuing technological innovation. We cannot assure you that these parties will not breach their agreements with us. We also cannot be certain that we will have adequate remedies for any breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, we cannot be sure that our trade secrets and proprietary technology will not otherwise become known or that our competitors will not independently develop our trade secrets and proprietary technology. We also cannot be sure, if we do not receive patents for products arising from research, that we will be able to maintain the confidentiality of information relating to our products.

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products or result in claims for substantial damages.

     The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. We may have to defend against charges that we violated patents or proprietary rights of third parties. This is especially true for the sale of the brand equivalent version of products on which the patent covering the branded product is expiring, an area where infringement litigation is prevalent. Our defense against charges that we infringed third party patents or proprietary rights could require us to incur substantial expense and to divert significant effort of our technical and management personnel. If we infringe on the rights of others, we could lose our right to develop or make some products or could be required to pay monetary damages or royalties to license proprietary rights from third parties.

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     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 a number of our products.

     The outcome of patent litigation is difficult to predict because of the uncertainties inherent in litigation. Our results of operations, financial condition and cash flows could be adversely affected by a delay in obtaining FDA approval to market our products as a result of patent litigation, a delay in obtaining judicial decisions in such litigation, the expense of litigation whether or not we are ultimately successful, the diversion of the attention of management and our technical personnel as a result of the litigation, or an adverse outcome in such litigation. Litigation could prevent us from selling affected products, result in substantial damages or result in the payment of a substantial settlement amount.

     Moreover, we often encounter substantial delays in obtaining judicial decisions in connection with patent litigation. During such delays, additional competition may arise, the brand product may be offered as a licensed generic or an OTC product, other brand products may be introduced and promoted to prescribers instead of or in addition to the brand product, 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 occur that could delay brand equivalent competition or lessen our economic opportunity for our product.

     Because we could invest a significant amount of time and expense in the development of our brand equivalent pharmaceutical products only to be subject to significant additional delays and changes in the economic prospects for our product, we may consider seeking to commercialize our product prior to final resolution of the pending litigation. The risk involved in marketing products prior to final resolution of the litigation 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 and not by the profits earned by the infringer. Because of the discount pricing typically involved with brand equivalent pharmaceutical products, patented brand products generally realize a significantly higher profit margin than brand equivalent pharmaceutical 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 owner to settle patent litigation on terms that could allow our products to be marketed upon the settlement of such litigation. However, in order to realize 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.

We may not be able to use raw materials purchased or inventories of products made in advance of final approvals or satisfactory resolution of patent litigation.

     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(s) may not be approved for marketing by the FDA on a timely basis or ever, that the results of related litigation may not be satisfactory or that we may not be able to find alternative uses for such materials or inventory. If any of these events 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. As of December 31, 2004, we had approximately $33.2 million of

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inventories, primarily raw materials, related to certain products pending final approval and/or satisfactory resolution of litigation.

Our net revenues and profits will be negatively impacted if we are unable to replace or renew license fees, royalties and development service fees as the existing related agreements expire or are terminated.

     As part of our ongoing business strategy we enter into collaborative alliances and license arrangements, which permit us to reduce our development costs and often involve the receipt of an up-front payment, payment of fees upon completion of certain development milestones and also provide for royalties based upon sales of the products after successful development. We have received significant payments in the past from these arrangements and expect that payments from these arrangements will continue to be an important part of our business. Our future net revenues and profits will depend and will fluctuate from period to period, in part, based upon:

•

our ability to continue to enter into collaborative alliances and license agreements, which provide for up-front payments, milestone payments and royalties;

•

our ability to replace or renew license fees, royalties and development service fees as the existing related agreements expire or are terminated; and

•

our ability to achieve the milestones specified in our license and development agreements.

If we are unsuccessful in our collaborations or licensing arrangements our operating results could suffer.

     We have made investments in certain collaborations and licensing arrangements and may use these and other methods to develop or commercialize products in the future. These arrangements typically involve other pharmaceutical companies as partners that may be competitors of ours in certain markets. In many instances, we will not control these collaborations or the commercial exploitation of the licensed products, and cannot assure you that these ventures will be profitable.

Our research and development expenditures will negatively impact our earnings in the short term.

     We spent approximately $141.6 million during 2004 on our research and development efforts. This amount represents a significant increase in the amounts we allocated to research and development in prior periods. We may in the future increase the amounts we spend on research and development. As a result, our research and development expenditures may have an adverse impact on our earnings in the short term. Further, we cannot be sure that our research and development expenditures will, in the long term, result in the discovery or development of commercially successful products.

Disruption of production at our principal manufacturing facility could have a material adverse effect on our business, financial condition and results of operations.

     Although we have other facilities, a significant amount of our brand equivalent products are produced at our largest manufacturing facility in Puerto Rico. A significant disruption at that facility, even on a short-term basis, could impair our ability to produce and ship products on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

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Our acquisitions may reduce our earnings, be difficult for us to combine into our operations or require us to obtain additional financing.

     In the ordinary course of our business we evaluate potential business acquisition opportunities, some of which may be material. We seek acquisitions which will provide new product and market opportunities, benefit from and maximize our existing assets, and add critical mass. Acquisitions may

     expose us to additional risks and may have a material adverse effect on our results of operations. Any
acquisitions we make may:

	•	fail to accomplish our strategic objectives;
	•	not be successfully combined with our operations;
	•	not perform as expected; and
	•	expose us to cross-border risks.

     Although we generally seek acquisitions that we believe will be accretive to our per share earnings, based on current acquisition prices in the pharmaceutical industry, our acquisitions could initially reduce our per share earnings and add significant amortization expense of intangible assets. Our acquisition strategy may require us to obtain additional debt or equity financing, resulting in additional leverage, or increased debt obligations as compared to equity, and dilution of ownership. We may not be able to finance acquisitions on terms satisfactory to us.

We may be unable to manage our growth.

     Over the past five years, our businesses and product offerings have grown substantially. This growth and expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. To manage our growth, we must continue to (i) expand our operational, customer support and financial control systems and (ii) hire, train and retain qualified personnel. We cannot assure you that we will be able to adequately manage our growth. If we are unable to manage our growth effectively, our business, results of operations and financial condition could be materially adversely affected.

A number of internal and external factors have caused and may continue to cause the m