INVERNESS MEDICAL INNOVATIONS INC - 10-K Annual Report

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

INVERNESS MEDICAL INNOVATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.001 per share par value		American Stock Exchange

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No ý

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant based on the closing price of the registrant's stock on the American Stock Exchange on June 30, 2003 (the last business day of the registrant's most recently completed second fiscal quarter) was $249,917,109. For this computation, the registrant has excluded the market value of all shares of common stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the registrant.

As of March 12, 2004, the registrant had 20,094,405 shares of common stock, par value $0.001 per share, outstanding.

Portions of the registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or prior to April 29, 2004 are incorporated by reference into Part III of this Form 10-K.

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by forward-looking words such as "may," "could," "should," "would," "intend," "will," "expect," "anticipate," "believe," "estimate," "continue" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition or state other "forward-looking" information. There may be events in the future that we are not able to predict accurately or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. We caution investors that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those we discuss in this report. There are a number of important factors that could cause our actual results to differ materially from those projected by such forward-looking statements. These factors include, but are not limited to, the risk factors detailed in this report and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission. You should carefully review the factors discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors Affecting Future Results" and "Special Statement Regarding Forward-Looking Statements" beginning on pages 47 and 62, respectively, in this report and should not place undue reliance on our forward-looking statements. These forward-looking statements were based on information, plans and estimates at the date of this report. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Unless the context requires otherwise, references in this annual report on Form 10-K to "we," "us," "our," or "our company" refer to Inverness Medical Innovations, Inc. and its subsidiaries, and their respective predecessor entities for the applicable periods, considered as a single enterprise.

We have registered, applied to register or are using the following trademarks: Clearblue®, Clearblue Easy®, Fact plus®, Accu-Clear^TM, ClearPlan®, ClearPlan Easy®, Persona®, Ferro-Sequels^TM, Stresstabs®, Protegra®, Posture®, SoyCare^TM, ALLBEE®, Z-BEC®, Clearview®, Wampole®, SureStep^TM, Osteomark®, TestPack^TM, Signify®, SmartCare®, Isolator^TM, InstaCheck®, InstaCup®, InstaStick®, CheckCup®, ImmunoComb^TM, DoubleCheck^TM and ImmunoGold^TM.

The following are trademarks of parties other than us: Abbott TestPack®, Abbott TestPack plus®, e.p.t®, Labotech®, Personal LAB^TM, Athena Multi-Lyte^TM, Micro Trak^TM, Triomega®, Pronova Biocare® and Walgreens®.

We are a leading global developer, manufacturer and marketer of in vitro diagnostic products for the over-the-counter pregnancy and fertility/ovulation test market and the professional rapid diagnostic test market. Our business is organized into two reportable segments, consumer products and professional diagnostics. Through our consumer products segment, we hold a leadership position in the worldwide over-the-counter pregnancy and fertility/ovulation test market. We sell our pregnancy and fertility/ovulation test products in the premium branded sector, the value branded sector and the private label sector. In addition, we manufacture and market a variety of vitamins and nutritional supplements under our brands and those of private label retailers primarily in the U.S. consumer market. Through our professional diagnostics segment, we develop, manufacture and market an extensive array of innovative rapid diagnostic test products and other in vitro diagnostic tests to medical professionals and laboratories for detection of infectious diseases, drugs of abuse and pregnancy. Today, we are a leader in the worldwide professional rapid diagnostic test market. We have grown our consumer products and professional diagnostics segments by leveraging our strong intellectual property

portfolio and making selected strategic acquisitions. Our consumer and professional diagnostic products are sold in approximately 90 countries through our direct sales force and an extensive network of independent global distributors.

Our consumer products segment primarily targets the women's health market through home pregnancy detection tests and home fertility/ovulation prediction tests. In this market, we offer premium branded products, including Clearblue, value branded products, including Accu-Clear, and private label products. Our Clearblue branded pregnancy test was the first one-step pregnancy test and currently holds a leadership position globally. We also recently launched our new digital pregnancy test, Clearblue Easy Digital, which was the first consumer pregnancy test to display test results in words, and our Clearblue Easy Fertility Monitor remains the only hormone-based reusable monitoring device available for home use to assist women attempting to conceive. Additionally, we have entered into two separate supply arrangements with Pfizer pursuant to which we agreed to supply Pfizer with a digital version of its e.p.t pregnancy tests on a non-exclusive basis beginning in December 2003 and the non-digital version of its premium branded e.p.t pregnancy tests beginning in June 2004 and continuing for five years. We sell our premium and value branded products over-the-counter through drugstores, groceries and mass merchandisers, and we sell our private label products to major retailers such as Walgreens, CVS, RiteAid and Boots. As a part of our consumer products segment, we also market a wide variety of vitamins and nutritional supplements through retail drug stores, mass merchandisers, groceries and warehouse clubs primarily within the United States.

Our professional diagnostics segment consists of diagnostic test products designed to assist medical professionals in both preventative and interventional medicine. We offer our customers an extensive array of rapid diagnostic test products, which address the need for quick, accurate results at the point-of-care. We also offer products in a variety of other platforms, including enzyme linked immunosorbent assay (ELISA, tests), the AtheNA Multi-Lyte ANA Test System, indirect fluorescent antibody and microbiology assay tests and serology diagnostic products. Our products test for infectious diseases, including tests for Epstein-Barr virus, strep throat, herpes simplex virus, measles and mumps; pregnancy; autoimmune disease; bone resorption, to assist in managing osteoporosis; and drugs of abuse. Through our direct sales force and distributor relationships, we have access to the major customers in the professional diagnostic test market, including hospitals, reference labs, physicians' offices and other point-of-care settings.

Inverness Medical Innovations, Inc. is a Delaware corporation. Our principal executive offices are located at 51 Sawyer Road, Suite 200, Waltham, Massachusetts 02453 and our telephone number is (781) 647-3900. Our common stock is listed on the American Stock Exchange under the symbol "IMA."

Our web site is www.invmed.com and we make available through this site, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. These reports may be accessed through our website's company information page.

On February 10, 2004, we completed the sale of $150 million of 8³/4% senior subordinated notes due 2012 in a private placement to qualified institutional buyers. Interest on the senior subordinated notes is payable semi-annually in arrears on each February 15 and August 15, commencing on August 15, 2004. The senior subordinated notes are unsecured and are subordinated to all of our existing and future senior debt, including our guarantee of all borrowings under our senior credit

facility. The senior subordinated notes are guaranteed by all of our domestic subsidiaries that are guarantors or borrowers under our senior credit facility. The indenture governing the senior subordinated notes contains covenants that restrict our ability to, among other things, incur additional indebtedness, pay dividends, redeem stock, make investments, sell assets, incur liens and consolidate, merge or sell all or substantially all of our assets. We have agreed to file a registration statement that will enable the holders of the senior subordinated notes to exchange the privately placed notes for publicly registered notes with substantially identical terms.

We used $134.5 million of the proceeds to repay all of our outstanding term indebtedness, as well as to fully pay down the revolving credit facilities under our senior credit facility, and to fully repay our outstanding 9% subordinated promissory notes, including prepayment penalties. The net proceeds of approximately $11.4 million will be used for general corporate purposes, as well as to pay additional expenses related to the sale of the senior subordinated notes. We also retained access to up to $50 million in available credit under the revolving credit facilities that were repaid.

Our major reportable segments are consumer products and professional diagnostics. Our consumer products are further divisible into consumer diagnostics, which includes our home pregnancy detection and fertility/ovulation prediction tests, and vitamins and nutritional supplements. We further categorize our sales by major geographic areas of the world. Below are discussions of each of our reportable segments. Financial information about our reportable segments is provided in Note 15 of the "Notes to Consolidated Financial Statements," which are included elsewhere in this report.

Consumer Diagnostics. Our current consumer diagnostic products target the worldwide over-the-counter pregnancy and fertility/ovulation test market. There are numerous pregnancy self-tests on the market, which are typically urine-based tests and provide results in less than five minutes. These tests represent a safe, easy and effective method for women to manage their reproductive health at home. Fertility/ovulation prediction tests inform women of the best time to conceive a baby by detecting the surge of the luteinizing hormone, which precedes ovulation. Fertility/ovulation prediction tests are generally easy to use and urine-based fertility/ovulation prediction tests have become widely accepted for home use by professional fertility care providers and the general public. Urine-based fertility/ovulation tests consist of disposable stick tests, which are similar to pregnancy tests, and fertility monitoring devices, such as our Clearblue Easy Fertility Monitor, which is the only commercially available reusable monitoring device which measures estrogen levels as well as the luteinizing hormone. There are also saliva-based fertility/ovulation tests on the market which are lower cost alternatives to urine-based tests, but generally are not as easy to interpret and do not provide notification of ovulation as early as urine-based tests can.

Vitamins and Nutritional Supplements. According to Nutrition Business Journal estimates, total mass merchandise retail sales of vitamins and nutritional supplements in the United States during 2002 were approximately $6 billion. Most growth in the industry is attributed to new products that generate attention in the marketplace. Well-established market segments, where competition is greater and media commentary less frequent, are generally stable. Slow overall growth in the industry has resulted in retailers reducing shelf space for nutritional supplements and has forced many under-performing items out of distribution, including several broad product lines. Sales growth of private label products has generally outpaced the overall industry growth, as retailers continue to add to the number of private label nutritional products on their shelves.

The professional diagnostics market consists of products designed to assist medical professionals in both preventative and interventional medicine. These products provide for qualitative or quantitative analysis of a patient's body fluids or tissue for evidence of a specific medical condition or disease state or to measure response to therapy. Today, we are a leader in the worldwide professional rapid diagnostic test market, which we define to include only the professional point-of-care pregnancy, infectious disease and drugs of abuse test markets. This market consists primarily of small and medium- sized, non-centralized laboratories and testing locations such as physician office laboratories, small blood banks, specialist mobile clinics and some rapid-response laboratories in larger medical centers. We distinguish the professional point-of-care rapid diagnostic test market from clinical diagnostic markets that consist of large, centralized laboratories that offer a wide range of highly-automated laboratory services in hospital or related settings.

We believe that the demand for infectious disease diagnostic products is growing faster than demand in many other segments of the non-laboratory, or point-of-care, immunoassay market due to the increasing incidence of certain diseases or groups of diseases, including lyme disease, viral hepatitis, acquired immunodeficiency syndrome, respiratory syncytial virus (RSV) and tuberculosis, as well as HIV, chlamydia and other sexually transmitted diseases. In general, we believe that the ability to deliver faster, accurate results at reasonable prices drives demand for professional diagnostic products. This means that while there is certainly growing demand for faster, more efficient automated equipment from large hospitals and major reference testing laboratories, there is also growing demand by point-of-care facilities and smaller laboratories for fast, high-quality, inexpensive, self-contained diagnostic kits. As the speed and accuracy of such products improve, we believe that these products will play an increasingly important role in achieving early diagnosis, timely intervention and therapy-monitoring outside of acute medicine environments.

Consumer Diagnostics. Through our consumer products business, we develop, manufacture and market home pregnancy and fertility/ovulation prediction tests. We offer premium branded products, value branded products and private label products. Our Clearblue home pregnancy and fertility/ovulation prediction tests are global leaders in terms of both sales and technology and our Clearblue Easy Fertility Monitor is the only hormone-based reusable monitoring device available for home use to assist women attempting to conceive. Our Accu-Clear branded pregnancy and fertility/ovulation prediction products are marketed to value-oriented consumers in the United States. We also recently acquired Fact plus, another leading brand pregnancy test from Abbott Laboratories, We are also a major U.S. supplier of private label home pregnancy detection and fertility/ovulation prediction products. We have supply arrangements with Pfizer pursuant to which we agreed to supply Pfizer with a digital version of its e.p.t pregnancy tests on a non-exclusive basis beginning in December 2003 and the non-digital version of its premium branded e.p.t pregnancy tests beginning in June 2004 and continuing for five years. We also sell Persona, a diagnostic monitoring device that provides for a natural method of contraception by allowing the user to monitor her menstrual cycle, in foreign countries, primarily in Germany and the United Kingdom.

Vitamins and Nutritional Supplements. We market a wide variety of vitamins and nutritional supplements through retail drug stores, mass merchandisers, groceries and warehouse clubs primarily within the United States. Inverness Medical Nutritionals Group, or IMN, is a national supplier of private label vitamin and nutritional products for major drug and food chains and also manufactures bulk vitamins, minerals and nutritional supplements under contract for unaffiliated brand name distributors. IMN also manufactures an assortment of vitamin, mineral and nutritional supplement products for sale under Inverness Medical brand names.

Our Inverness Medical branded nutritional products are high quality products sold at moderate prices through national and regional drug stores, groceries and mass merchandisers. These branded products include Stresstabs, a B-complex vitamin with added antioxidants; Ferro-Sequels, a time-release iron supplement; Protegra, an antioxidant vitamin and mineral supplement; Posture-D, a calcium supplement; SoyCare, a soy supplement for menopause; ALLBEE, a line of B-complex vitamins; and Z-BEC, a zinc supplement with B-complex vitamins and added antioxidants. We also market these branded products under the SmartCare program, which assists consumers in matching their health concerns to the appropriate supplement products that we sell. SmartCare provides a means of linking our various nutritional supplement products, allowing for greater efficiencies in advertising, promotion and merchandising. We have recently entered into agreements to serve as the exclusive U.S. manufacturer and distributor of Triomega, an omega-3 dietary supplement owned by Pronova Biocare. We introduced Triomega, a leading brand in Europe, to the U.S. market in December 2003.

We develop and market a broad range of diagnostic tests that are sold to professional diagnostic users. In the United States, our professional diagnostic products are sold under our Wampole, SureStep, Signify and Clearview labels and we also distribute products on behalf of third parties. Outside of the United States, we market our Clearview, SureStep and TestPack products, as well as several proprietary platforms of products manufactured by our subsidiary Orgenics, Ltd., located in Yavne, Israel. Our professional diagnostic products include:

Consumer Diagnostic Products. We market and sell our consumer diagnostic products under our own brand names as well as under store brands. Our customers include retail drug stores, drug wholesalers, groceries and mass merchandisers in North America, Europe and Japan. Our Clearblue brand pregnancy detection and fertility/ovulation prediction tests, which are marketed under the name Clearblue Easy in the United States, is a leading brand both in the United States and globally. Our Clearblue products are marketed as premium products and compete intensively with other premium brand name products. Persona is also marketed as a premium product in Europe. Marketing of premium branded products focuses on brand awareness as well as feature and performance differentiation. We achieve this through television and print advertising. Our Fact plus and Accu-Clear brand products compete primarily based on price and are not heavily advertised. Our consumer diagnostic products are marketed in the United States, the United Kingdom and in Germany using our own sales managers and a network of sales representatives. In other areas of the world, including Japan, Canada, Australia and the rest of Europe, our Clearblue products are sold though distribution contracts with large consumer diagnostics companies. Private label and contract manufacturing arrangements accounted for 19% of our consumer diagnostics business' net product sales for 2003. Our five largest customers during the fiscal year ended December 31, 2003, based on net product sales, were Walgreen Co., Boots Company, CVS Corporation, Laboratoires Polive and RiteAid.

Vitamins and Nutritional Supplements. We primarily market and sell our vitamins and nutritional supplements in the United States through private label arrangements with retail drug stores, groceries, mass merchandisers and warehouse clubs who sell our products under their store brands. We also sell a variety of branded products, most of which we own but certain of which we distribute for third parties, to the retail drug stores, groceries and mass merchandisers. To a lesser extent we provide contract manufacturing services to third parties. Our two largest customers during 2003, based on net product sales, were Walgreens and Costco. Our rights to the trademarks Stresstabs, Ferro-Sequels, Posture-D, Protegra, ALLBEE and Z-BEC are limited to use in North America, but we are not restricted from marketing the formulations sold under those brand names under other brand names outside of North America.

In the United States, we distribute our professional diagnostic products to hospitals, reference laboratories, physician's offices and other point-of-care settings through our extensive sales and distribution network. For the fiscal year ended December 31, 2003, the five largest customers of our U.S. professional diagnostics business were Cardinal Health, Fisher Scientific, Laboratory Corporation of America, PSS World Medical and Quest Diagnostics.

In Germany, we also sell our Clearview products using our own sales force. Otherwise, we sell our Clearview products outside the United States through third party distributors. We also sell a C.difficile test and a Listeria test product that we manufacture at our Bedford facility to an unaffiliated company who markets the products under its own brands. That arrangement prohibits us from selling these tests directly or to other resellers with the exception that we sell the C.difficile test in the United States. Five countries, the United States, Germany, the United Kingdom, Japan and China, represent a majority of our sales of Clearview products.

We have also entered into a distribution arrangement with Abbott Laboratories in connection with our acquisition of the Abbott rapid diagnostics product lines. Under this arrangement, Abbott has also agreed to serve for two years from September 30, 2003 as our U.S. distributor for the Signify product line, except to physician office laboratories currently served by PSS World Medical, Inc., and, to the extent reintroduced in the United States, the TestPack product line. Outside the United States, Abbott

will distribute the TestPack and Signify product lines for us for up to eighteen months from September 30, 2003.

Our Orgenics products are sold through sales offices, the largest of which are in Israel, France and Brazil, which market those products to smaller laboratories, blood banks, physicians' offices and other patient point-of-care sites in approximately 90 countries, principally in Europe, Latin America, Africa and Asia.

Many of our professional diagnostic products are manufactured by third parties and, in some cases, our distribution rights are limited to the United States. Our Orgenics products, one of our Clearview products and our TestPack products, are not approved for sale, and are not sold, in the United States.

Consumer Diagnostic Products. We manufacture nearly all of our disposable consumer diagnostic products at our facilities in Bedford, England, Galway, Ireland and San Diego, California. These facilities employ modern production techniques to produce consistent, high-quality components and each is ISO certified and registered with the United States Food and Drug Administration, the FDA. We use our Bedford facility to manufacture the diagnostic test portion of our new digital pregnancy test, Clearblue Easy Digital, and the digital e.p.t pregnancy test for Pfizer, and we anticipate using this facility to manufacture the non-digital e.p.t pregnancy test for Pfizer in connection with our five-year supply arrangement with Pfizer for this product that begins in June 2004. Our Fact plus pregnancy tests intended for distribution outside of the United States are currently manufactured by Abbott Laboratories under a transitional arrangement entered into in connection with our recent acquisition of the Abbott rapid diagnostics product lines. A significant portion of our products produced and assembled at our Galway plant is subsequently packaged by third parties under contract in the United States. We purchase the electronic portion of our digital pregnancy tests, our Clearblue Easy Fertility Monitor and Persona to our specifications from third party suppliers in Europe and China. Because most components of our consumer diagnostic products are produced to our specifications, some of our suppliers are single source suppliers with few, if any, alternative sources immediately available.

We are currently using the Bedford facility pursuant to an agreement with Unilever entered into in connection with our acquisition of the Unipath business in 2001. For more information regarding our use of the Bedford facility and the risks associated with our arrangement to use this facility see "Certain Factors Affecting Future Results—We could experience significant manufacturing delays, disruptions to our ongoing research and development and increased production costs if Unilever is unable to successfully assign or sublease to us the lease for the multi-purpose facility that we currently use in Bedford, England."

Vitamins and Nutritional Supplements. We manufacture substantially all of our vitamin and nutritional products at IMN's facilities in Freehold and Irvington, New Jersey. The facility located in Freehold, New Jersey is equipped with large-volume blending, tableting and coating equipment, packaging equipment, including "cartoning," "stretch carding" and "blister carding" equipment, and testing and quality control laboratories. IMN internally manufactures substantially all of its softgel requirements at the Irvington facility. Our Freehold facility manufactures in full compliance with GMP standards recently proposed by the FDA for the dietary supplement industry. Our Irvington facility manufactures to GMP standards applicable to drug makers and is registered with both the United States Drug Enforcement Agency, or the DEA, and the FDA.

Approximately 57% of the professional diagnostic products that we sell, based on net product sales for the fiscal year ended December 31, 2003, were manufactured by third parties. We manufacture the products we acquired through our acquisition of Applied Biotech, Inc., or ABI, as well as certain of the Abbott rapid diagnostics product lines, at our facilities in San Diego, California. Certain of the remaining Abbott rapid diagnostics product lines, namely the TestPack products, will be manufactured by Abbott under a transitional arrangement until we can transition manufacturing of these products to our own facilities. Most of the Signify products acquired from Abbott are currently manufactured by a third party, with the remainder manufactured by ABI. Our Clearview diagnostic products are manufactured at our facility in Bedford, England, which is described above, and our Orgenics products are manufactured in Yavne, Israel. A portion of our Osteomark products are manufactured at our Galway facility and we are in the process of transferring the manufacturing of the remaining products from our facilities in Seattle to a third-party manufacturer. The Bedford, Galway, Yavne and San Diego manufacturing facilities are ISO certified.

A significant portion our budget for research and development currently is allocated to the development of products targeting new markets that are new to us, including products for osteoporosis and cardiovascular disease management. The remainder of our research and development efforts is focused on enhanced features for our lines of consumer and professional diagnostic products. Most of our research and development activities are carried out at our corporate research and development center in Bedford, England, but we also conduct research and development at our facilities in Galway, San Diego, Yavne and Farum, Denmark. We may, from time to time, supplement our internal research and development efforts with third parties' efforts either through co-development or licensing arrangements, or through product or technology acquisitions. In connection with co-development or licensing activities that we may enter into in the future, we may provide financial development assistance to these parties and may also utilize our own research and development resources to design certain portions of such products.

Our business relies heavily on our foreign operations. Three of our seven current manufacturing facilities are outside the United States, including our primary consumer diagnostic manufacturing facilities in Bedford, England and Galway, Ireland. Approximately 36% of our net revenues were generated from outside of the United States during 2003. Our Clearblue products, pregnancy tests in particular, have historically been much stronger brands outside the United States, with 75% of our net product sales of Clearblue products coming from outside the United States during 2003. Persona is sold exclusively outside of the United States, and our Orgenics professional diagnostic products have always been sold exclusively outside of the United States. In addition, our newly acquired TestPack product line is sold exclusively outside the United States.

We have existing competitors, as well as a number of potential new competitors, who have greater name recognition, and significantly greater financial, technical and marketing resources than we do. These strengths may allow them to devote greater resources than we can to the development, marketing and sales of products. These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies and make more attractive offers to existing and potential employees, customers and clients.

We expect that industry forces will impact us and our competitors. Our competitors will likely strive to improve their product offerings and price competitiveness. We also expect our competitors to develop new strategic relationships with providers, referral sources and payors, which could result in increased competition. The introduction of new and enhanced services, acquisitions and industry consolidation, and the development of strategic relationships by our competitors could cause a decline in sales or loss of market acceptance of our products, intensify price competition or make our products less attractive. We cannot assure you that we will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on our business, financial condition and results of operations.

Consumer Diagnostic Products. Competition in the pregnancy detection and fertility/ovulation prediction market is intense. Our competitors in the United States, and worldwide, are numerous and include, among others, large medical and consumer products companies as well as numerous private label manufacturers. Our competitors for the sale of pregnancy test products worldwide include Armkel, Pfizer, Acon Laboratories, Omega Pharma, Princeton BioMeditech, Arax and Syntron Bioresearch, although we have recently entered into two separate supply arrangements with Pfizer pursuant to which we agreed to supply Pfizer with a digital version of its e.p.t pregnancy tests on a non-exclusive basis beginning in December 2003 and the non-digital version of its premium branded e.p.t pregnancy tests beginning in June 2004 and continuing for five years.. Our competitors for the sale of fertility/ovulation prediction tests include Armkel, Princeton BioMeditech, Syntron and Quidel. Competition among branded consumer diagnostic products is based on brand recognition and price. Products sold under well-established or "premium" brand names can demand higher prices and maintain high market shares due to brand loyalty. Our Clearblue brand qualifies as a premium brand worldwide with respect to both pregnancy tests and fertility/ovulation prediction products. Our Clearblue pregnancy tests are market leaders outside of the United States, and our Clearblue fertility/ovulation prediction products are market leaders both in the United States and globally. Our Fact plus and Accu-Clear branded consumer products compete based on price and do not attempt to compete based on brand recognition. For private label manufacturers, competition is based primarily on the delivery of products at lower prices that have substantially the same features and performance as brand name products. The Clearblue Fertility Monitor and Persona are unique products and their competitors or markets are not easily defined.

Certain of our competitors have substantially greater financial, production, marketing and distribution resources than we do. However, we believe that we can continue to compete effectively in the consumer diagnostics market based on our research and development capabilities, advanced manufacturing expertise, diversified product positioning, global market presence and established wholesale and retail distribution networks.

Vitamins and Nutritional Supplements. The market for private label vitamins and nutritional supplements is extremely price sensitive, with quality, customer service and marketing support also being important. Many of the companies that mass market branded vitamins and nutritionals, including NBTY, Pharmavite, Leiner Health Products, and Bayer, also sell to private label customers and constitute our major competitors for private label business. In addition, there are several companies, such as Perrigo and Contract Pharmacal, that compete only in the private label business.

In the branded nutritional supplements industry, competition is based upon brand name recognition, price, quality, customer service and marketing support. There are many companies, both small and large, selling vitamin products to retailers. A number of these companies, particularly manufacturers of nationally advertised brand name products, are substantially larger than we are and have greater financial resources. Among the major competitors of our branded products that are sold

through groceries and other mass retailers are NBTY, Wyeth, Pharmavite, Leiner Health Products and GlaxoSmithKline.

In the rapid membrane market, our main competitors are Becton Dickinson, Quidel and Beckman Coulter. Some competitors in this market, such as Becton Dickinson are large companies with greater resources than we have. Other competitors in some product segments are small but aggressive companies such as Syntron Bioresearch, Princeton BioMeditech, VEDA.LAB and Trinity Biotech. Some automated immunoassay systems can be considered competitors when labor shortages force laboratories to automate or when the costs of such systems are lower. Such systems are provided by Abbott, Bayer, Roche Diagnostics, Beckman Coulter and other large diagnostic companies. In the infectious disease area, new technologies utilizing amplification techniques for analyzing molecular DNA gene sequences from companies such as Abbott, Roche and Gen-Probe are making in-roads into this market. Competition in this market is intense and is primarily based on price, breadth of line and distribution capabilities.

Our competitors in the ELISA diagnostics market include large corporations, such as Abbott Laboratories and Diagnostic Products Corporation, which manufacture state-of-the-art automated immunoassay systems and a wide array of diagnostic products designed for processing on those systems. These entities benefit from economies of scale and have the resources to design and manufacture state-of-the-art automated equipment. Other competitors in this market, DiaSorin and Diamedics, in particular, are more similar in size to us and compete based on quality and service. In the United States and Canada, we focus on matching the instrumentation and product testing requirements of our customers by offering a wide selection of diagnostic products and test equipment. Our ImmunoComb product line, which consists of manual tests sold to small laboratories and point-of-care locations, competes against automated ELISA systems based on price.

The markets for our serology and our IFA and microbiology products are mature, and competition is based primarily on price and customer service. Our main competitors in serology and microbiology testing include Med-Ox Diagnostics, Biokit and Quidel. Our main competitors in IFA testing are Bio-Rad Laboratories, INOVA Diagnostics, Immuno Concepts, The Binding Site and DiaSorin. However, products in these categories also compete to a large extent against rapid membrane and ELISA products, which are often easier to perform and read and can be more precise.

The medical products industry, including the diagnostic testing industry, places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, on our abilities to obtain enforceable patent protection for our products, to preserve our trade secrets and to avoid or neutralize threats from the proprietary rights of third parties. We have already built a strong intellectual property portfolio in the area of lateral flow immunoassays, the technology which underlies many rapid diagnostic test formats including most one step home pregnancy and fertility/ovulation tests. By the judicious use of acquisition and strategic licensing we have obtained rights to the major patent families in this area of technology. We believe that these intellectual property rights give us a distinct advantage over our competitors and underpin our continuing success in this area.

In addition to providing us with the rights we need to the lateral flow technology underlying so many of our current products, our intellectual property portfolio also includes an increasing number of other patents, patent applications and licensed patents protecting our vision of the technologies and products of the future. We cannot, however, guarantee our success or timeliness in obtaining future patents or licensed patents or as to the breadth or degree of protection that such patents might afford

us. As evidenced in the area of lateral flow immunoassays, the patent position of medical products and diagnostic testing firms is often highly complex and requires resolution of significant legal and factual questions. We endeavor to secure commercially relevant patent and other protection for our technology in a timely manner in meaningful jurisdictions. There are, however, a number of factors that affect our activities and over which we do not have control, such as the workload at the individual patent offices and the policies applied by the patent offices during examination. Consequently, we cannot guarantee that patents will be issued on our technology or, if issued, will be of sufficient breadth so as to prevent competition from third parties.

The medical products industry, including the diagnostic testing industry, historically has been characterized by extensive litigation regarding patents, licenses and other intellectual property rights. We believe that our recent successes in enforcing our intellectual property rights in the United States and abroad demonstrate our resolve in enforcing our intellectual property rights, the strength of our intellectual property portfolio and the competitive advantage that we have in this area. We have incurred substantial costs both in asserting infringement claims against others and in defending ourselves against patent infringement claims, and we expect to incur substantial litigation costs as we continue to aggressively protect our technology and defend our proprietary rights. We currently have approximately fifteen suits pending against parties whom we believe manufacture or sell products that infringe our patents. To determine the priority of inventions, we may also have to participate in interference proceedings declared by the U.S. Patent and Trademark Office or foreign patent and trademark authorities, which could also result in substantial costs to us. If the outcome of any such litigation is adverse to us, our business could be materially adversely affected.

In addition, we sometimes obtain licenses to patents or other proprietary rights of third parties to manufacture and market our products. We cannot assure you that licenses required under any such patents or proprietary rights would be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we may encounter delays in product market introductions while we attempt to design around such patents or other rights, or we may be unable to develop, manufacture or sell such products in certain countries, or at all.

We also seek to protect our proprietary technology, including technology that may not be patented or patentable, in part through confidentiality agreements and, if applicable, inventors' rights agreements with collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our trade secrets will not otherwise be disclosed to, or discovered by, competitors or potential competitors. Moreover, we may from time to time conduct research through academic advisors and collaborators who are prohibited by their academic institutions from entering into confidentiality or inventors' rights agreements. In such circumstances, our ability to protect our proprietary developments may be limited.

Finally, we believe that certain of our trademarks are valuable assets that are important to the marketing of our products. Substantially all of these trademarks have been registered with the United States Patent and Trademark Office or internationally, as appropriate. We cannot assure you, however, that registrations will afford us adequate protection and will not be challenged as unenforceable or invalid, or will not be infringed. In addition, we could incur substantial costs in defending suits brought against us or in prosecuting suits in which we assert rights under such registrations.

Our research, development and clinical programs, as well as our manufacturing and marketing operations, are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Most of our self-test products require governmental approvals for commercialization. Future products may require pre-clinical and clinical trials. Manufacturing and marketing of many of our products are subject to the rigorous testing and approval process of the FDA

and corresponding foreign regulatory authorities. The marketing of our consumer diagnostic products is also subject to regulation by the U.S. Federal Trade Commission, or the FTC. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. In addition, we may encounter delays or rejection as a result of changes in, or additions to, regulatory policies for device marketing authorization during the period of product development and regulatory review. Delays in obtaining such approvals could adversely affect our marketing of products developed and our ability to generate commercial product revenues.

In addition, we are required to meet regulatory requirements in countries outside the United States, which can change rapidly with relatively short notice, resulting in our products being banned in certain countries and an associated loss of revenues and income. Foreign regulatory agencies can also introduce test format changes which, if we do not quickly address, can result in restrictions on sales of our products. Such changes are not uncommon due to advances in basic research.

The manufacturing, processing, formulation, packaging, labeling and advertising of our nutritional supplements are subject to regulation by one or more federal agencies, including the FDA, the U.S. Drug Enforcement Administration, or DEA, the FTC and the Consumer Product Safety Commission. These activities are also regulated by various agencies of the states, localities and foreign countries in which our nutritional supplements are now sold or may be sold in the future. In particular, the FDA regulates the safety, manufacturing, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, as well as food additives, over-the-counter and prescription drugs and cosmetics. The Good Manufacturing Practices promulgated by the FDA are different for nutritional supplement, drug and device products. In addition, the FTC has jurisdiction along with the FDA to regulate the promotion and advertising of dietary supplements, over-the-counter drugs, cosmetics and foods.

The testing, manufacturing and marketing of consumer and professional diagnostic devices entail an inherent risk of product liability claims. In addition, the marketing of our vitamins and nutritional supplements may subject us to various product liability claims, including, among others, claims that our products have inadequate warnings concerning side effects and interactions with other substances. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. There can be no assurance that existing insurance can be renewed at a cost and level of coverage comparable to that presently in effect, if at all. In the event that we are held liable for a claim, against which we are not indemnified or for damages exceeding the limits of our insurance coverage, such liability could have a material adverse effect on our business, financial condition and results of operations.

As of March 1, 2004, we had a total of 1,435 full-time employees, of which 641 employees are located in the United States. In addition, we utilize the services of a number of consultants specializing in research and development in our targeted markets, regulatory compliance, strategic planning, marketing and legal matters.

Our principal corporate administrative office, together with the administrative office for most of our United States operations, are housed in approximately 20,600 square feet of leased space located at 51 Sawyer Road, Waltham, Massachusetts at a monthly rent of approximately $43,000. Our lease of this facility has a term of five years and expires on May 31, 2008.

Our European operations are currently administered from a 150,000 square foot facility located in Bedford, England. The Bedford facility is also currently providing the manufacturing for our Clearblue

and Clearview products, as well as for the pregnancy test products that we manufacture for Pfizer. It also serves as our primary research and development center. This facility contains fully automated assembly equipment, and state-of-the-art research laboratories, with capacity to support potential future expansion. We are currently using the Bedford facility pursuant to an agreement with Unilever entered into in connection with our acquisition of the Unipath business. Unilever currently leases this facility from a third party landlord. Pursuant to Unilever's lease, Unilever is not permitted to assign the lease to us or sublet the Bedford facility to us without obtaining the prior written consent of the landlord (which consent may not be unreasonably withheld). The landlord has indicated that it will not consent to an assignment of the lease to us, and we, Unilever and the landlord are therefore currently negotiating the terms of a sublease. The terms of our acquisition of the Unipath business in 2001 obligate Unilever to use its best efforts to obtain the landlord's consent to assignment or a sublease and, if necessary, to pursue the assignment or sublease through the courts. Unilever has also agreed to permit us to use the Bedford facility until such time as the lease is assigned to us or the facility is subleased to us by Unilever for the remaining term of the lease, which expires on December 11, 2021. Under the terms of this agreement, we are required to pay all amounts owed under the lease and otherwise comply with the terms of the lease. The annual rent for the Bedford facility is currently £1.46 million (approximately, $2.6 million) and is upwardly adjustable every five years, with the next adjustment to take place in September 2006. If Unilever is unable to successfully assign the lease to us or otherwise enable us to realize the benefit of its lease of the Bedford facility, we may be forced to renegotiate a lease of this facility on substantially less favorable terms, seek alternative, more costly means of producing our products or suffer other adverse effects to our business.

We also have manufacturing operations in Freehold, New Jersey, Irvington, New Jersey, San Diego, California, Seattle, Washington, Galway, Ireland and Yavne, Israel. We own a 160,000 square foot manufacturing facility in Freehold, New Jersey and lease a 35,000 square foot facility in Irvington, New Jersey. The Irvington lease has a current term of 5 years expiring on December 31, 2006, with an option to extend for an additional 5 years, and the monthly rent is currently approximately $18,100. The New Jersey facilities manufacture our vitamin and nutritional supplement products that we sell to private label customers, to third parties in bulk and under our own brands. ABI currently manufactures its professional diagnostic products, as well as Fact plus for sale in the United States, out of a 40,000 square foot leased facility in San Diego, California. This lease expires on November 30, 2004, and we have options to extend the lease for two consecutive five-year periods. Monthly rent for the San Diego facility is approximately $36,700.

We currently manufacture a portion of our Ostex products in Galway, Ireland. The remainder of these products are currently manufactured in a facility that we lease in Seattle, Washington, although we expect that during the first half of 2004 we will move the manufacturing of these products to a third party manufacturer. Our lease of the first Seattle facility, which consists of approximately 6,800 square feet of manufacturing space and approximately 24,500 square feet of office and laboratory space, expires on October 1, 2005. Our current monthly rent for this facility of approximately $43,300 is partially offset by monthly rental income of approximately $12,400 from several subleases of portions of the office and laboratory space. We also have a second manufacturing facility in Seattle that we are no longer using which carries monthly rent of approximately $9,000 and is the subject of a ten year lease expiring September 30, 2010. Our facility in Galway, Ireland consists of a 40,000 square foot space. We own half of the Galway facility and lease the other half from a private developer under a lease that expires in 2026. The Galway facility also houses the manufacturing of our Accu-Clear brands and most of our private label pregnancy detection and fertility/ovulation prediction test products, as well as some research and development. Annual lease payments for our Galway facility are approximately $230,000.

We also house the development, manufacturing, administrative and marketing operations related to our Orgenics professional diagnostic products in a leased facility of approximately 10,000 square feet in Yavne, Israel. The lease for this facility expires in 2008, and carries rent of approximately $15,000 per

month. The facility includes a number of specialized features and equipment, including environmentally controlled areas, customized production equipment, and computerized systems for purchasing, inventory management and materials tracking.

We also have leases or other arrangements for administrative offices, lab space and warehouses in New Jersey (Freehold, Springfield, Irvington and Princeton), California (San Diego), Denmark (Farum), Belgium (Sint-Niklaas), Germany (Cologne) and Sweden (Lund), and our Orgenics products are sold through small sales offices in France, Brazil and several other countries. We believe that our facilities, along with certain third party manufacturing, packaging and distribution arrangements that we utilize, are adequate to support the operations of our businesses in the foreseeable future. We have insurance coverage for the properties and equipment that we own or lease.

We previously had several lawsuits pending against Pfizer Inc. and certain other parties, including Princeton BioMeditech, or PBM, in the United States District Court for the District of New Jersey alleging, among other things, that pregnancy tests manufactured or sold by the defendants infringe patents owned by us. In early June 2003, we settled our litigation against Pfizer. However, our claims against PBM, a co-defendant in one of the infringement suits against Pfizer and the subject of two other related infringement suits initiated by us, remain active. PBM has brought several counterclaims against us. The counterclaims allege, among other things, that we have breached various obligations to PBM arising out of a joint venture with us. We believe that we have strong defenses to all of the counterclaims and we are defending them vigorously.

In February 2004, Quidel Corporation was served in Germany with a suit that our subsidiary, Inverness Medical Switzerland, GmbH (IMS), had filed in January 2004 seeking damages and injunction for infringement of certain of our patents. In response, on February 20, 2004, Quidel named us and our subsidiaries IMS and ABI as defendants in a suit filed by Quidel in the United States District Court for the Southern District of California. Quidel alleges that we are infringing U.S. Patent No. 4,943,522, a patent that issued in 1990 titled "Lateral Flow, Non-Bibulous Membrane Assay Protocols." Quidel also asked the Court for a declaratory finding that Quidel does not infringe certain patents owned by IMS and certain other patents owned by co-defendant Armkel LLC, collectively the "Patents," and that the Patents are invalid and/or unenforceable. Quidel seeks injunctive relief and damages, and has indicated its intent to file a motion for preliminary injunction, the scope of which has not been disclosed. In early March, 2004, we filed an answer claiming that Quidel's claims are without merit and a counterclaim seeking damages and injunctive relief for Quidel's infringement of the Patents. We also filed a separate action against Quidel in the same court alleging infringement of certain other patents and seeking injunctive relief and damages. We intend to vigorously defend the Quidel claims and vigorously prosecute the infringement counterclaims and separate claims to enforce our own intellectual property rights.

Because of the nature of our business, we may be subject at any particular time to consumer product claims or various other lawsuits arising in the ordinary course of our business, including employment matters, and expect that this will continue to be the case in the future. Such lawsuits generally seek damages, sometimes in substantial amounts, for personal injuries or other commercial or employment claims. An adverse ruling in such a lawsuit could have a material adverse effect on our sales, operations or financial performance. In addition, we aggressively defend our patent and other

intellectual property rights. This often involves bringing infringement or other commercial claims against third parties. We have approximately 15 lawsuits pending around the world against competitors whom we believe to be selling products that infringe our propriety rights, including a suit against Acon Laboratories. These suits can be expensive and result in counterclaims challenging the validity of our patents and other rights.

We have discussed in prior periodic reports an action in London by approximately 65 consumers claiming defects in Unipath's Persona contraceptive device, negligence and breach of contract, all allegedly leading to unwanted pregnancies by the claimants in or prior to 1998. Because this case is insured, in the aggregate, by Unilever's product liability insurance up to 50 million British pounds sterling or more, depending on when the events giving rise to the consumers' suit occurred, we do not believe that an adverse ruling against us would have a material adverse impact on our sales, operations or financial performance and we do not consider this to be a material legal proceeding.

In October 2003, in connection with an informal inquiry received from the SEC's Division of Enforcement, we met with two representatives of the SEC's Boston office to respond to questions regarding the resignation of Ernst & Young LLP, our former auditor, and certain of the accounting and financial matters that we discussed with the SEC during the second quarter of 2003 after filing our Current Report on Form 8-K, event date April 11, 2003, to disclose Ernst & Young's resignation. We responded fully to the staff's request for information. On January 28, 2004, in connection with its ongoing informal investigation, we received a request from the staff of the SEC for some additional factual information as a follow-up to our prior response. We have responded fully to this request for additional information. We cannot predict whether the SEC will seek additional information or what the outcome of the informal investigation will be.

No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2003.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the American Stock Exchange (AMEX) under the symbol "IMA." The following table sets forth the high and low closing sale prices of our common stock on AMEX for each quarter during fiscal 2003 and fiscal 2002.

		High		Low
Fiscal 2003
	Fourth Quarter	$	27.50	$	20.50
	Third Quarter	$	25.68	$	19.10
	Second Quarter	$	20.75	$	15.25
	First Quarter	$	20.14	$	13.40
Fiscal 2002
	Fourth Quarter	$	15.35	$	8.00
	Third Quarter	$	18.90	$	9.49
	Second Quarter	$	28.21	$	17.45
	First Quarter	$	25.41	$	18.00

On March 12, 2004, there were 504 holders of record of our common stock. The closing price of our common stock on March 12, 2004 was $20.75.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings to support our growth strategy and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. In addition, restrictive covenants under our senior credit facility and the indenture governing the terms of the senior subordinated notes currently prohibit the payment of cash or stock dividends.

On November 18, 2003, we issued 93,214 shares of unregistered common stock to NKT Holding A/S as partial consideration for the acquisition by our subsidiary, Inverness Medical Switzerland GmbH, of the entire share capital of Scandinavian Micro Biodevices A/S. No underwriters or underwriting discounts or commissions were involved. There was no public offering in connection with our sale to NKT Holdings and we believe that the transaction was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof, based on the private nature of the transaction, because we understand NKT Holdings to be an accredited investor and because NKT Holdings acquired the securities for investment purposes and not with a view to the distribution thereof.

On December 11, 2003, we issued 230,000 shares of common stock upon conversion of 115,000 shares of our series A redeemable convertible preferred stock pursuant to an exemption afforded by Section 3(a)(9) of the Securities Act of 1933, as amended.

The following tables provide selected consolidated financial data of our company as of and for each of the years in the five-year period ended December 31, 2003 and should be read in conjunction with our consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K.

The selected consolidated financial data as of and for each of the years in the three-year period ended December 31, 2003 have been derived from our consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K. The information as of and for the years ended December 31, 2003 and 2002 included in our consolidated financial statements was audited by BDO Seidman, LLP, independent auditors, while the information for the year ended December 31, 2001 included in our consolidated financial statements was audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data as of December 31, 2001, 2000 and 1999 and for the years ended December 31, 2000 and 1999 have been derived from our audited consolidated financial statements not included herein, which were audited by Arthur Andersen LLP.

On November 21, 2001, our company was split-off as an independent public company as part of a split-off and merger transaction whereby Johnson & Johnson acquired our former parent company, Inverness Medical Technology, Inc., or IMT. As part of the split-off and merger, we acquired all rights to IMT's women's health, nutritional supplement and professional diagnostics businesses, as well as certain intellectual property. Because we had not historically been operated or accounted for as a stand-alone business, the financial results for the periods prior to the split-off on November 21, 2001, presented below in the selected consolidated financial data, are derived from consolidated financial statements of our businesses, which have been carved out of IMT's financial statements in accordance with the requirements of accounting principles generally accepted in the United States of America, or GAAP. Because the financial results for the periods prior to the split-off have been carved out of IMT's past financial statements, they may not reflect what our results of operations and financial position would have been had we been a separate stand-alone entity during those periods or be indicative of our future performance. In addition, the acquisitions of the Unipath business in December 2001, IVC Industries, Inc. (now operating as Inverness Medical Nutritionals Group, or IMN) in March 2002, Wampole Laboratories in September 2002, Ostex International, Inc. in June 2003, ABI in August 2003 and the Abbott rapid diagnostics product lines in September 2003 materially affected the comparability of the selected consolidated financial data. For a discussion of certain factors that materially affect the comparability of the selected consolidated financial data or cause the data reflected herein not to be indicative of our future results of operations or financial condition, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Factors Affecting Future Results."

Delaware		04-3565120
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
51 Sawyer Road, Suite 200, Waltham, Massachusetts		02453
(Address of principal executive offices)		(Zip Code)

			2003			2002(2)			2001			2000			1999
			(in thousands, except per share data)
Statement of Operations Data:
Net product sales			$	286,689		$	201,641		$	47,268		$	49,728		$	49,087
License revenue				9,728			6,405			—			—			—

	Net revenue			296,417			208,046			47,268			49,728			49,087
Cost of sales				168,120			115,600			26,662			26,796			28,348

	Gross profit			128,297			92,446			20,606			22,932			20,739

Operating expenses:
	Purchased in-process research and development			—			—			6,980			—			—
	Research and development			24,280			14,471			1,810			1,360			1,395
	Sales and marketing			51,705			39,544			8,018			7,540			8,056
	General and administrative			35,452			28,066			11,702			7,048			7,214
	Charge related to asset impairment			—			12,682			—			—			—
	Stock-based compensation			447			10,625			10,441			—			—

		Total operating expenses		111,884			105,388			38,951			15,948			16,665

	Operating income (loss)			16,413			(12,942	)		(18,345	)		6,984			4,074
Interest expense and other expenses, net				(3,270	)		(3,362	)		(4,310	)		(2,423	)		(2,710	)

	Income (loss) from continuing operations before income taxes			13,143			(16,304	)		(22,655	)		4,561			1,364
Provision for income taxes				1,169			2,683			2,134			1,781			1,007

	Income (loss) from continuing operations		$	11,974		$	(18,987	)	$	(24,789	)	$	2,780		$	357

Income (loss) from continuing operations available to common stockholders(1):
	Basic(1)		$	11,016		$	(30,935	)	$	(24,789	)	$	2,780		$	357

	Diluted(1)		$	11,196		$	(30,935	)	$	(24,789	)	$	2,780		$	357

Income (loss) from continuing operations per common share(1):
	Basic(1)		$	0.70		$	(3.11	)	$	(3.89	)	$	0.59		$	0.11