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

FORM 10-Q

For the transition period from                             to                              

Commission File No. 000-30123

FIRST HORIZON PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code): (770) 442-9707

        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

        As of July 31, 2003, there were 34,955,268 shares of the Registrant's Common Stock outstanding.

FIRST HORIZON PHARMACEUTICAL CORPORATION
FORM 10-Q
INDEX

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

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

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FIRST HORIZON PHARMACEUTICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(unaudited)

1.

Basis of Presentation

        The accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) which management considers necessary for fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. Certain footnote disclosures normally included in financial statements prepared according to generally accepted accounting principles in the United States of America have been condensed or omitted from these interim financial statements as permitted by the rules and regulations of the Securities and Exchange Commission. Interim results are not necessarily indicative of results for the full year. The interim results should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 000-30123).

2.

New Accounting Pronouncements

        In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent disclosure in both annual and interim financial statements. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company applies Accounting Principles Board Opinion ("APB") No. 25 and related interpretations in accounting for its stock-based compensation plans and, effective December 15, 2002, adopted the disclosure provisions of SFAS No. 148.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin 51." The primary objectives of FIN No. 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. Additionally, FIN No. 46 requires additional disclosures for any Company with any interest in a VIE regarding the nature, purpose, size, and activities of the VIE and the Company's maximum exposure to loss as a result of its involvement with the VIE. The interpretation is effective immediately for any VIEs created after January 31, 2003 and for VIEs in which the Company obtains an interest after that date. The adoption of this interpretation did not have a material impact on the Company's financial condition or results of operations.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. This statement is effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on the Company's financial condition or results of operations.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes how an issuer classifies and

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measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company's financial condition or results of operations.

3.

Stock Options

        The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for all stock options issued to employees. Accordingly, the Company records compensation expense for any stock option grants with exercise prices lower than fair value, recognized ratably over the vesting period.

        Had compensation costs for the Company's options been determined using the Black Scholes option-pricing models prescribed by SFAS No. 123,"Accounting for Stock Based Compensation," the Company's pro forma net income (loss) per common share would have been reported as follows (in thousands except per share data):

        The weighted average fair value per share of options granted during the six months ended June 30, 2003 and 2002 is estimated at $3.19 and $18.31, respectively. The value of options is estimated on the date of the grant using the following weighted average assumptions:

        The Black-Scholes option valuation model was not developed for use in valuing employee stock options. Instead, this model was developed for use in estimating the fair value of traded options, which have no vesting restrictions, and are fully transferable, which differ significantly from the Company's stock option awards. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected survival rates of the options.

4.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year financial statement presentation. As a result of SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," a previously reported extraordinary loss on debt extinguishment of $0.9 million net of taxes for the second quarter of 2002

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has been reclassified to interest expense and to income tax benefit. To effect this reclassification, interest expense for the quarter and six months ended June 30, 2002 has been increased by $1.4 million and the income tax benefit has been increased by $0.5 million.

5.

Inventories

        Inventories consist of purchased pharmaceutical products and are stated at the lower of cost or market. Cost is determined using the first-in, first-out method, and market is considered to be net realizable value. Inventories consist of finished product and bulk product awaiting processing and packaging into finished product. The Company revised its revenues forecast in the second quarter of 2003. As a result of the Company's revised forecast, at June 30, 2003, the Company had an allowance for excess and obsolete inventory of $4.6 million compared to $2.8 million at December 31, 2002. Inventories at June 30, 2003 and December 31, 2002 consisted of (in thousands):

6.

Samples

        Samples primarily consist of product samples used in the sales and marketing efforts of the Company's products. Samples are expensed upon distribution, as a selling expense. As a result of the Company's revised forecast, at June 30, 2003, the Company had an ending balance in its allowance for excess and obsolete sample inventory of $0.5 million compared to $0.0 million at December 31, 2002. Sample inventories at June 30, 2003 and December 31, 2002 were $1.8 and $2.3 million, respectively.

7.

Accrued Expenses

        Accrued expenses at June 30, 2003 and December 31, 2002 consist of the following (in thousands):

        Product returns

        In September 2002, the Company launched Tanafed DP and Tanafed DMX, line extensions to the Company's Tanafed Suspension and Tanafed DM products. These line extensions were launched in response to increasing competition by knock off products to Tanafed Suspension and Tanafed DM. Due to the launch of Tanafed DP and Tanafed DMX, the Company expected increased returns of Tanafed Suspension, as prescriptions were expected to be filled with the line extensions. The Company estimated returns of approximately $3.8 million and provided for this amount in September 2002. The Company decided to withdraw Tanafed Suspension in April 2003 which was earlier than planned. The Company also decided to withdraw Tanafed DM in April 2003. As a result, the Company estimated that it would incur an additional $3.4 million in returns of Tanafed Suspension and Tanafed DM and provided for this amount in the results of operations for the quarter ended March 31, 2003 as a deduction from revenue. For the quarter ended March 31, 2003, the Company also provided for an

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additional $0.6 million for projected shipping cost related to the withdrawal of Tanafed Suspension and Tanafed DM recorded as a selling expense.

        Assumed liabilities—product acquisitions

        In connection with the acquisition of rights for Robinul, Ponstel, Cognex, Prenate, Furadantin, and Sular the Company assumed certain liabilities for returns of product shipped by the seller prior to the acquisition date. At the acquisition date, the Company estimated the amount of the assumed liabilities based on actual sales return data from the seller and included that amount in the allocation of the total purchase price. The Company periodically reviews the estimated liability. Generally, no adjustment is made to the reserve until two or three years subsequent to the acquisition due to the lag time between when a product is sold and when it is returned. During the quarter and six month periods ended June 30, 2003, the Company determined that the established reserves for Prenate and Cognex were in excess of the currently expected returns. As a result of the revised estimate, the Company reduced the liability and increased net revenues by $0.5 million and $1.0 million for the quarter and six months ended June 30, 2003, respectively.

8.

Earnings Per Share

        Below is the calculation of basic and diluted net income (loss) per share (in thousands except per share data):

        For the quarter and six months ended June 30, 2003, there were 312,256 and 432,928 potential common shares outstanding that were excluded from the diluted net (loss) per share calculation because their effect would have been anti-dilutive.

9.

Impairment Charge

        In the second quarter of 2003, the Company revised its revenue forecast for all of its products. The Company also evaluated the remaining estimated useful lives of its intangible assets and as a result changed the remaining estimated useful life of its Cognex intangible assets from 20 years to 10 years. An analysis of the projected undiscounted cash flows for all intangibles was performed as required by SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets".    The analysis of the projected undiscounted cash flows for Cognex indicated that the carrying value of the asset was not recoverable over the revised remaining useful life of the asset. The Company estimated the fair market value of the Cognex assets using (1) a market multiple methodology, (2) a comparable transaction methodology and (3) a discounted cash flow methodology. Based on the estimated fair market value, it was determined that the carrying value of the Cognex licensing rights was in excess of the fair value, and an impairment charge of $4.2 million was recorded for the second quarter of 2003. As a result of the impairment charge taken and the revised estimated useful life of Cognex, amortization expense will decrease by approximately $0.2 million per year beginning in the third quarter of 2003.

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10.

Intangible Assets

        The following table reflects the components of intangible assets as of June 30, 2003 (in thousands):