SEPRACOR INC /DE/ - 10-Q Quarterly Report

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 ý No o

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

The number of shares outstanding of the registrant's class of Common Stock as of May 2, 2003 was: 84,359,488 shares.

The accompanying notes are an integral part of the consolidated financial statements

The accompanying consolidated interim financial statements are unaudited and have been prepared on a basis substantially consistent with the audited financial statements. Certain information and footnote disclosures normally included in Sepracor's annual financial statements have been condensed or omitted. The year-end consolidated condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. The consolidated interim financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended March 31, 2003 and 2002. Certain prior amounts have been reclassified to conform with current year presentation.

The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its wholly-owned subsidiaries, including Sepracor Canada Limited. Sepracor also has an investment in BioSphere Medical, Inc. ("BioSphere"), which it records under the equity method. Prior to July 3, 2001, BioSphere was a majority owned consolidated subsidiary of Sepracor.

The consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year. These consolidated interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2002, which are contained in Sepracor's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to revenue recognition, accounts receivable, inventories, investments and intangible assets. Management bases these estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company's adoption of SFAS No. 146, effective January 1, 2003, has had no material impact on the financial statements through March 31, 2003.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" which addresses financial accounting and reporting for the recording of expenses for the fair value of stock options. SFAS No. 148 provides alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based employee compensation. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this statement are effective for fiscal years ending after December 15, 2002. While the Company has not elected to adopt

fair value accounting for its stock-based compensation, it has complied with the new disclosure requirements under SFAS No. 148 and provided interim disclosure on the effects of stock-based compensation in this report.

Also during 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees and clarifies that at the time a company issues a guarantee, the Company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company currently is not aware of any claims or losses under FIN 45 and therefore has no liabilities recorded for guarantees at March 31, 2003. Therefore, the adoption of FIN 45 has not had a material impact on the Company's financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51" ("FIN 46"). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE. This new model for consolidation applies to an entity for which either: (a) the equity investors (if any) do not have a controlling financial interest; or (b) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Company is required to apply FIN 46 to all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the Company is required to apply FIN 46 on July 1, 2003. The Company does not expect FIN 46 will have a material effect on its financial statements.

Basic earnings (loss) per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based upon the weighted average number of common shares outstanding during the period plus the additional weighted average common equivalent shares during the period. Common equivalent shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. Common equivalent shares result from the assumed conversion of preferred stock and convertible subordinated debentures and notes and the assumed exercise of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock options using the treasury stock method.

For the three months ended March 31, 2003 and 2002, basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding during the period because the effect of common stock equivalents would be anti-dilutive. Certain securities were not included in the computation of diluted earnings per share for the three months ended March 31,

2003 and 2002 because they would have an anti-dilutive effect due to net losses for such periods. These securities include the following:

(in thousands, except price per share data)		March 31, 2003			March 31, 2002
Number of options			12,348			12,387
Price range per share		$	2.50 to $87.50		$	2.50 to $125.44

Shares of common stock for issuance upon conversion of convertible subordinated debt:

(in thousands)	March 31, 2003		March 31, 2002
7% convertible subordinated debentures due 2005		1,792		4,131
5% convertible subordinated debentures due 2007		4,763		4,763
5.75% convertible subordinated notes due 2006		7,166		7,750

	$	13,721	$	16,644

The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations, in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under FASB SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

	Three Months Ended March 31,
(in thousands, except per share data)	Three Months Ended March 31,
(in thousands, except per share data)	2003			2002
Net loss attributable to common stockholders	$	(29,759	)	$	(114,805	)
Total stock-based employee compensation expense determined under fair value based method for all awards		(14,403	)		(14,076	)

Pro forma net loss	$	(44,162	)	$	(128,881	)
Amounts per common share:
Basic and diluted—as reported	$	(0.35	)	$	(1.45	)
Basic and diluted—pro forma	$	(0.52	)	$	(1.63	)

The fair value of stock options and common shares issued pursuant to the Company's stock option and stock purchase plans at the date of grant were estimated using the Black-Scholes model with the following weighted-average assumptions:

	Three Months Ended March 31,
	2003		2002
Expected life (years)	6.0		6.0
Interest rate	3.3	%	4.0	%
Volatility	.90		.90

(in thousands)	March 31, 2003		December 31, 2002
Raw materials	$	1,273	$	1,828
Work in progress		2,453		1,509
Finished goods		4,147		4,623

	$	7,873	$	7,960

The following schedule details the carrying value of patents and intangible assets as of March 31, 2003 and December 31, 2002:

(in thousands)		March 31, 2003			December 31, 2002
Gross patents and intangible assets		$	42,050		$	42,050
Accumulated amortization
	Patents and intangible assets		(15,820	)		(14,933	)

Total patents and intangible assets		$	26,230		$	27,117

Amortization expense was $2.1 million and $2.5 million, including amortization expense of $1.2 million and $1.6 million related to deferred finance costs for the three month periods ended March 31, 2003 and 2002, respectively. Deferred finance costs are classified as other assets on the balance sheet. Current estimated amortization expense, including amortization of deferred finance costs, is expected to be $6.4 million, $8.5 million, $8.5 million, $7.7 million and $3.9 million for the remainder of 2003 and for the years ended December 31, 2004, 2005, 2006 and 2007, respectively.

(in thousands)	March 31, 2003		December 31, 2002
7% convertible subordinated debentures due 2005	$	111,870	$	111,870
5% convertible subordinated debentures due 2007		440,000		440,000
5.75% convertible subordinated notes due 2006		430,000		430,000

	$	981,870	$	981,870

Total comprehensive income (loss) is comprised of net (loss), net currency translation adjustments and net unrealized gain (loss) on available-for-sale securities.

		Three Months Ended
(in thousands)		March 31, 2003			March 31, 2002
Comprehensive income (loss):
	Net loss	$	(29,759	)	$	(114,805	)
	Cumulative translation adjustment		(9	)		(34	)
	Unrealized gain(loss) on available-for-sale securities		16			(4,018	)

Total comprehensive income (loss)		$	(29,752	)	$	(118,857	)

BioSphere was a consolidated subsidiary of Sepracor from 1994 through July 2, 2001. Sepracor no longer consolidates the results of BioSphere and now records its investment in BioSphere under the equity method, effective July 3, 2001. At March 31, 2003, Sepracor's ownership of BioSphere was approximately 24.4% and Sepracor recorded its equity investment at approximately $4,315,000. Sepracor has recorded $625,000 as its share of BioSphere losses for the three months ended March 31, 2003.

Since November 15, 2002, eight purported class action lawsuits have been filed in the United States District Court for the District of Massachusetts against Sepracor and several of its current and former officers and directors. The complaints were filed allegedly on behalf of persons who purchased Sepracor's common stock and/or debt securities during different time periods, beginning on various dates, the earliest of which is May 17, 1999, and all ending on March 6, 2002. The complaints are similar and allege violations of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder by the Securities and Exchange Commission. Primarily the complaints allege that the defendants disseminated to the investing public false and misleading statements relating to the testing, safety and likelihood of approval of SOLTARA, the Company's nonsedating antihistamine drug candidate. On April 11, 2003, two consolidated amended complaints were filed, one on behalf of the purchasers of Sepracor's common stock, the other on behalf of the purchasers of Sepracor's debt securities. The consolidated amended complaints reiterate the allegations contained in the previously

filed complaints and define the alleged class periods as May 17, 1999 through March 6, 2002. Sepracor intends to file a motion to dismiss both consolidated amended complaints.

The Company enters into standard indemnification agreements in its ordinary course of business under which it indemnifies and holds harmless certain customers (drug wholesalers) against claims, liabilities, and losses brought by a third party to the extent that the claims arise out of (a) injury or death to person or property caused by defect in our product, (b) negligence in the manufacture or distribution of the product or (c) a material breach by Sepracor. The Company currently is not aware of any claims or losses related to these agreements and therefore has no liabilities recorded for these guarantees at March 31, 2003. If claims or losses were incurred, the Company has insurance policies covering product liabilities, which would mitigate any such losses.

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

This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Sepracor's actual results could differ significantly from the results discussed in such forward-looking statements. See "Factors Affecting Future Operating Results" below.

Sepracor is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical compounds. Sepracor's drug development program has yielded an extensive portfolio of pharmaceutical compounds that are focused on the treatment of respiratory, urology and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

The consolidated financial statements include the accounts of Sepracor Inc. ("Sepracor" or the "Company") and its wholly- owned subsidiaries, including Sepracor Canada Limited. Sepracor also has an investment in BioSphere Medical, Inc. ("BioSphere"), which it records under the equity method. Prior to July 3, 2001, BioSphere was a majority-owned consolidated subsidiary of Sepracor.

On January 31, 2003, Sepracor submitted a New Drug Application (an "NDA") to the United States Food and Drug Administration (the "FDA") seeking clearance to market ESTORRA brand eszopiclone 2mg and 3mg tablets for the treatment of transient and chronic insomnia. On April 2, 2003, Sepracor announced that the FDA accepted for filing the NDA for ESTORRA. If the FDA approves the NDA for ESTORRA, Sepracor expects to expand its primary care sales force to market ESTORRA to primary care physicians and psychiatrists, the principal prescribers of sleep medications. On April 17, 2003, Sepracor announced that it had been notified by the FDA that the Prescription Drug User Fee Act for ESTORRA is November 30, 2003. This is the expected date by which the FDA will have completed its review and will act by making a decision on a drug application.

In June 2002, Sepracor initiated a stock option exchange program for its employees, excluding members of the board of directors and officers, and filed a Schedule TO-I relating to such stock option exchange program with the Securities and Exchange Commission. Under the terms of this program, Sepracor agreed to grant to eligible employees six months and one day after Sepracor's acceptance of surrendered stock options a stock option to purchase one share of Sepracor common stock for every one share for which a surrendered stock option was exercisable. On July 17, 2002, Sepracor accepted for exchange stock options, held by certain employees of the Company, to purchase an aggregate of 4,268,542 shares of Sepracor common stock. On January 21, 2003, Sepracor issued new stock options to purchase an aggregate of 4,066,940 shares of common stock at an exercise price of $12.93, which was the closing price of Sepracor's common stock on January 21, 2003.

The Company identified critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2002. These critical accounting policies relate to revenue recognition, royalty revenue recognition, rebate and return reserves, patents, intangibles and other assets, accounts receivable and bad debt, induced conversion of debt and inventory write-downs. These policies require the Company to make estimates in the preparation of its financial statements as of a given date. Because of the uncertainty inherent in these matters, actual results could differ from the estimates used in applying the critical accounting policies. Within the context of these critical accounting policies, the Company is not currently aware of any reasonably likely events or circumstances that would result in

materially different amounts being reported. Additionally, no changes to these critical policies have taken place in the three-month period ended March 31, 2003.

Product revenues were $72,156,000 and $46,777,000 for the three months ended March 31, 2003 and 2002, respectively, an increase of approximately 54%. The increase for the three-month period ended March 31, 2003 as compared with the same period in 2002 is due primarily to an increase in unit volume sales of XOPENEX of approximately 47%. Additionally the net selling price per unit increased by approximately 6% as a result of two gross unit price increases, aggregating approximately 14%, offset by increased sales rebates and allowances which are accounted for as a reduction to product sales. The increase in XOPENEX unit volume is due to market share increases which can be attributed to increased demand for XOPENEX as a result of the release of positive Phase IV clinical data to the medical community, positive experiences reported by patients and physicians, targeted marketing to high volume prescribers and an increased number of sales representatives.

Royalties and other revenues were $12,350,000 and $10,071,000 for the three months ended March 31, 2003 and 2002, respectively, an increase of approximately 23%. The increase for the three months ended March 31, 2003 as compared with the same period in 2002 is due primarily to increased royalties earned on sales of CLARINEX under an agreement with Schering-Plough Corporation. The increase in royalties resulted from an increase in the volume of sales of CLARINEX which was launched in January 2002. The increase in royalties and other revenues is due to a lesser extent to increased royalties earned, particularly in Japan, under a royalty agreement with Aventis. Under this agreement, Sepracor receives royalties on U.S. and non-U.S. sales of ALLEGRA® in countries where Sepracor holds issued patents.

Cost of product sold, as a percentage of product sales, was approximately 10% and 12% for the three months ended March 31, 2003 and 2002, respectively. The decrease for the three months ended March 31, 2003 as compared with the same period in 2002 was primarily due to lower manufacturing costs in relation to the number of units produced and also due to a higher average selling price per unit of XOPENEX.

Research and development expenses were $53,183,000 and $61,521,000 for the three months ended March 31, 2003 and 2002, respectively, a decrease of approximately 14%. The decrease for the three months ended March 31, 2003 as compared with the same period in 2002 is partially due to a decrease in spending on ESTORRA brand eszopiclone for which an NDA was submitted in January 2003 and also due to decreases in spending on programs for (S)-oxybutynin and SOLTARA brand tecastemizole. The decrease in spending in these programs was partially offset by increases in spending on the XOPENEX metered-dose inhaler (MDI) and (R,R)-formoterol programs.

Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an Investigational New Drug Application ("IND"), which, if successful, allows opportunity for clinical study of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs in clinical development are in the Phase III clinical trials as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. As further discussed below, Sepracor currently has three product candidates in Phase III, one NDA submitted in January 2003 and currently under FDA review and one NDA recently reviewed by the FDA and subject to a "not approvable" letter. The successful development of the Company's product candidates is highly uncertain. An estimation of product completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The lengthy process of seeking FDA approvals, and the subsequent compliance with

applicable statutes and regulations, require the expenditure of substantial resources. Any failure by the Company to obtain, or delay in obtaining, regulatory approvals could materially adversely affect the Company's business. The Company cannot assure you that any approval required by the FDA will be obtained on a timely basis, if at all.

For additional discussion of the risks and uncertainties associated with completing development of potential product candidates, see "Factors Affecting Future Operating Results".

Below is a summary of Sepracor's product candidates and the related stages of development for each product candidate in clinical development. The "Estimate of Completion of Phase" column contains forward-looking statements regarding timing of completion of product development phases. Completion of product development, if successful, culminates with the submission of an NDA to the FDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. The table is sorted by highest to lowest spending amounts for the three months ended March 31, 2003, and the five product candidates listed accounted for approximately 81% of the Company's direct project research and development spending during this period.

Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
XOPENEX MDI	Respiratory—Asthma	Phase III	2003
(R,R)-Formoterol	Respiratory—COPD	Phase III	2004
SOLTARA (tecastemizole)	Respiratory—Allergies	NDA	2004	*
(S)-Oxybutynin	Urology—Incontinence	Phase III	2005
ESTORRA (eszopiclone)	Insomnia	NDA	2003	**

Selling, marketing and distribution expenses were $35,681,000 and $43,328,000 for the three months ended March 31, 2003 and 2002, respectively, a decrease of approximately 18%. The decrease for the three months ended March 31, 2003 as compared with the same period in 2002 is primarily due to significant decreases in recruiting costs in 2003. In the first quarter of 2002, Sepracor's direct sales force was expanded by approximately 225 people resulting in significant recruiting costs. Marketing, advertising and promotional costs also decreased materially in the three months ended March 31, 2003 as compared to the same period in 2002. The costs in the 2002 period related to XOPENEX and also to the anticipated launch and commercialization of SOLTARA, for which the Company received a "not approvable" letter from the FDA in March 2002.

Interest income was $1,931,000 for the three months ended March 31, 2003 as compared to $5,134,000 for the three months ended March 31, 2002. The decrease for the three months ended March 31, 2003 as compared to March 31, 2002, is due primarily to lower average cash and short and long-term investment balances available for investment and a slight decrease in the interest earned on investments in 2003.

Interest expense was $13,657,000 for the three months ended March 31, 2003 as compared to $18,215,000 for the three months ended March 31, 2002. The decrease for the three months ended March 31, 2003 is due to lower outstanding average balances on all convertible debentures, particularly on the 7% debentures due 2005. The average outstanding balance on the 7% debentures in the first

quarter of 2003 was $111,870,000 as compared to the average outstanding balance in the first quarter of 2002 of approximately $299,000,000. This decrease in the outstanding balance on the 7% debentures comprises approximately $3,300,000 of the decrease in interest expense for the three months ended March 31, 2003 as compared to the same period in 2002.

Debt conversion expense was $0 for the three months ended March 31, 2003 as compared to $40,956,000 for the three months ended March 31, 2002. During March 2002, Sepracor exchanged approximately $97,000,000 of its convertible subordinated debt in privately negotiated transactions, for approximately 3,541,000 shares of its common stock. The debt conversion expense represents the inducement costs of the fair market value of the 2,068,977 shares of Sepracor common stock issued as a conversion inducement to the holders.

Equity in investee (losses) were ($625,000) and ($612,000) for the three months ended March 31, 2003 and 2002, respectively. The loss for the three-month period ended March 31, 2003 and March 31, 2002, represents the Company's portion of BioSphere losses.

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Delaware (State or Other Jurisdiction of Incorporation or Organization)		22-2536587 (IRS Employer Identification No.)
84 Waterford Drive Marlborough, Massachusetts (Address of Principal Executive Offices)		01752 (Zip Code)
Registrant's telephone number, including area code: (508) 481-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value (Title of class)

Part I—Financial Information
Item 1.	Consolidated Condensed Financial Statements
	Consolidated Condensed Balance Sheets as of March 31, 2003 and December 31, 2002 (Unaudited)	1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	2
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	3
	Notes to Consolidated Interim Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
Part II—Other Information
Item 1.	Legal Proceedings	27
Item 6.	Exhibits and Reports on Form 8-K	27
	Signatures	28
	Certifications	29
	Exhibit Index	31

	March 31, 2003			December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	342,949		$	375,438
Restricted cash		1,500			1,500
Short-term investments		137,056			126,556
Accounts receivable, net		21,548			21,654
Inventories		7,873			7,960
Other assets		17,274			16,860

Total current assets		528,200			549,968
Long-term investments		52,834			52,940
Property and equipment, net		71,104			72,522
Investment in affiliate		4,315			4,940
Patents and intangible assets, net		26,230			27,117
Other assets		18,404			19,626

Total assets	$	701,087		$	727,113

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	12,305		$	4,889
Accrued expenses		111,274			116,112
Notes payable and current portion of capital lease obligation and long-term debt		890			1,010
Other current liabilities		15,809			14,430

Total current liabilities		140,278			136,441
Long-term debt and capital lease obligation		819			982
Convertible subordinated debt		981,870			981,870

Total liabilities		1,122,967			1,119,293
Stockholders' equity (deficit):
Preferred stock $1.00 par value, 1,000 shares authorized, none outstanding at March 31, 2003 and December 31, 2002, respectively		—			—
Common stock, $.10 par value, 240,000 and 240,000 shares authorized; 84,329 and 84,356 shares issued and outstanding, at March 31, 2003 and December 31, 2002, respectively		8,433			8,436
Additional paid-in capital		776,742			776,704
Unearned compensation, net		(35	)		(52	)
Accumulated deficit		(1,223,651	)		(1,193,892	)
Accumulated other comprehensive income		16,631			16,624

Total stockholders' equity (deficit)		(421,880	)		(392,180	)

Total liabilities and stockholders' equity (deficit)	$	701,087		$	727,113

			Three Months Ended
			March 31, 2003			March 31, 2002
Revenues:
	Product sales		$	72,156		$	46,777
	Royalties and other			12,350			10,071

		Total revenues		84,506			56,848
Costs and expenses:
	Cost of product sold			6,949			5,681
	Cost of royalties and other			256			126
	Research and development			53,183			61,521
	Selling, marketing and distribution			35,681			43,328
	General and administrative and patent costs			5,842			6,176

		Total costs and expenses		101,911			116,832

	Loss from operations			(17,405	)		(59,984	)
Other income (expense):
	Interest income			1,931			5,134
	Interest expense			(13,657	)		(18,215	)
	Debt conversion expense			—			(40,956	)
	Equity in investee (losses)			(625	)		(612	)
	Other income (expense), net			(3	)		(172	)

	Net loss		$	(29,759	)	$	(114,805	)

	Basic and diluted net loss per common share		$	(0.35	)	$	(1.45	)
Shares used in computing basic and diluted net loss per common share:
	Basic and diluted			84,350			79,295

		Three Months Ended
		March 31, 2003			March 31, 2002
Cash flows from operating activities:
	Net loss	$	(29,759	)	$	(114,805	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization		4,726			4,583
	Provision for bad debt					151
	Equity in investee (gains) losses		625			612
	Debt conversion expense					40,956
Changes in operating assets and liabilities:
	Accounts receivable		106			1,763
	Inventories		94			1,464
	Other current assets		(416	)		(3,450	)
	Accounts payable		7,408			(14,942	)
	Accrued expenses		(4,843	)		6,040
	Other current liabilities		1,380			(1	)

	Net cash used in operating activities		(20,679	)		(77,629	)

Cash flows from investing activities:
	Purchases of short and long-term investments		(87,982	)		(67,988	)
	Sales and maturities of short and long-term investments		77,604			96,943
	Additions to property and equipment		(1,211	)		(10,682	)

	Net cash provided by (used in) investing activities		(11,589	)		18,273

Cash flows from financing activities:
	Net proceeds from issuance of common stock		35			1,665
	Costs associated with sale of 5% convertible subordinated debentures		—			(328	)
	Repayments of long-term debt and capital leases		(258	)		(267	)

	Net cash provided by (used in) financing activities		(223	)		1,070

	Effect of exchange rate changes on cash and cash equivalents		2			(34	)

	Net increase (decrease) in cash and cash equivalents		(32,489	)		(58,320	)
	Cash and cash equivalents at beginning of period	$	375,438		$	715,082

	Cash and cash equivalents at end of period	$	342,949		$	656,762

Non cash activities:
	Conversion of convertible subordinated debt to shares of common stock		—		$	97,000
	Interest due on convertible subordinated debt converted into shares of common stock		—		$	1,694
	Additions to capital leases		—		$	843