SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 24, 2002
(October 24, 2002)
ENDO PHARMACEUTICALS HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 39040 13-4022871
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(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
100 Painters Drive
Chadds Ford, Pennsylvania 19317
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(Address of principal executive offices) (Zip Code)
(610) 558-9800
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit Number Description
99.1 Press Release of Endo Pharmaceuticals Holdings Inc.
dated October 24, 2002
Item 9. Regulation FD Disclosure.
On October 24, 2002, the Registrant issued a press release, a copy of
which is filed herewith as Exhibit 99.1 and is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
ENDO PHARMACEUTICALS HOLDINGS INC.
(Registrant)
By: /s/ CAROL A. AMMON
------------------------------------
Name: Carol A. Ammon
Title: Chairman & Chief Executive
Officer
Dated: October 24, 2002
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
99.1 Press Release of Endo Pharmaceuticals Holdings Inc.
dated October 24, 2002
Exhibit 99.1
[ENDO LOGO]
For Immediate Release CONTACTS:
Bill Newbould
Endo Pharmaceuticals
(610) 558-9800
Endo Pharmaceuticals Reports Third Quarter Results
- Net Sales Up 67% -
- Consolidated EBITDA Nearly Double the Year-Ago Quarter -
- Company Increases Guidance for 2002 -
CHADDS FORD, Pa., Oct. 24, 2002 -- Endo Pharmaceuticals Holdings Inc. (Nasdaq:
ENDP; ENDPW), a market leader in pain management, today reported its financial
results for the third quarter and nine months ended September 30, 2002.
Net sales grew by 67% to $110.6 million in the third quarter of 2002 compared
with $66.3 million for the same period in 2001. For the 2002 third quarter,
Endo reported a net loss of $18.3 million, or $0.18 per diluted share, versus
a net loss of $33.0 million, or $0.37 per diluted share, in the year-ago third
quarter. Excluding the impact of certain charges, net income for the 2002
third quarter was $25.3 million, or $0.25 per diluted share. This compares
with net income of $9.1 million, or $0.10 per diluted share, in 2001.
Consolidated EBITDA for the three months ended September 30, 2002 was $49.3
million, a 100% increase from $24.7 million in the year-ago third quarter.
According to Carol A. Ammon, chairman and chief executive officer, these
strong quarterly operating results are due primarily to continued growth in
the company's branded and generic products. "We continue to benefit from the
broad uptake of the two new strengths of Percocet(R) introduced in late 2001
and the growth in sales of Lidoderm(R) as more physicians and patients become
aware of its therapeutic utility," she said. She added that the growth in
generic net product sales was again led by Endo's extended-release morphine
sulfate. "Given our strong operating results, we are revising our guidance for
2002 net sales from $350 million to $380 million, and for consolidated EBITDA
from $125 million to $145 million," Ammon said. "Of course, there can be no
assurance of the company achieving these numbers."
Ammon continued, "While we look forward to receiving the results of the second
and third clinical trials relating to our development product MorphiDex(R) in
the fourth quarter of 2002, the company currently believes that it is highly
unlikely that MorphiDex(R) will be approved prior to either December 31, 2002
or March 31, 2003." As a result:
o The warrants held by Endo Pharma LLC (an affiliate of Kelso & Company
in which certain members of management have an interest) will become
exercisable on December 31, 2002 into 29,720,177 shares of company
common stock, thereby increasing Endo Pharma LLC's ownership of the
company from approximately 68.5% to approximately 75.6%;
o During the 2002 third quarter, the company recorded a non-cash
compensation charge of $40.4 million for the probable vesting of the
outstanding Class C3 stock options granted under the Endo Pharma LLC
1997 Stock Option Plans. Neither the vesting nor the exercise of
these stock options will result, however, in the issuance of
additional shares of company common stock because these stock options
are exercisable only into shares of company common stock that are
held by Endo Pharma LLC. Accordingly, these stock options will not
dilute the public shareholders;
o The Endo Pharma LLC 2000 Supplemental Stock Option Plans will become
effective on January 1, 2003, resulting in the issuance of
approximately 10.7 million stock options to certain employees and
members of management on such date, approximately 9.2 million of
which will be vested upon their issuance resulting in a significant
non-cash compensation charge to the company. These stock options will
not result, however, in the issuance of additional shares of company
common stock because these stock options are exercisable only into
shares of company common stock that are held by Endo Pharma LLC.
Accordingly, these stock options will not dilute the public
shareholders. The weighted average exercise price of these options is
$2.42 per share; and
o If MorphiDex(R) is not approved prior to March 31, 2003, the Class A
Transferable Warrants (Nasdaq: ENDPW) and Class B Non-Transferable
Warrants will expire and have no economic value.
Year-to-Date Results
For the year to date, net sales were $285.5 million in 2002 compared with
$173.5 million in 2001, an increase of 65%. Net income was $9.1 million, or
$0.09 per diluted share, in 2002 versus a net loss of $44.5 million, or $0.50
per diluted share, in 2001. Excluding certain charges, net income was $52.8
million, or $0.52 per diluted share, for the nine months ended September 30,
2002. Excluding certain charges, net income for the nine months ended
September 30, 2001 was $17.1 million, or $0.19 per diluted share. Consolidated
EBITDA was $110.2 million for the first nine months of 2002 versus $55.9
million year to date in 2001.
Supplemental Financial Information
The following table presents a reconciliation of operating loss as determined
by GAAP to Consolidated EBITDA the three months ended September 30, 2002 and
September 30, 2001:
(Unaudited)
Three Months Ended
September 30,
-------------
2002 2001
---- ----
(in thousands)
GAAP operating loss $(21,375) $(31,475)
Depreciation and amortization 692 12,394
Non-cash manufacturing charges 5,611 6,539
Non-cash compensation charges 40,406 37,253
Purchased in-process R&D 13,334 -
Manufacturing transfer fee 9,000 -
Non-recurring manufacturing transfer costs 1,625 -
--------- ---------
Consolidated EBITDA $ 49,293 $ 24,711
========= =========
The following table presents a reconciliation of operating income (loss) as
determined by GAAP to Consolidated EBITDA the nine months ended September 30,
2002 and September 30, 2001:
(Unaudited)
Nine Months Ended
September 30
------------
2002 2001
---- ----
(in thousands)
GAAP operating income (loss) $ 25,698 $(35,546)
Depreciation and amortization 2,168 37,170
Non-cash manufacturing charges 16,692 17,010
Non-cash compensation charges 40,406 37,253
Purchased in-process R&D 13,334 -
Manufacturing transfer fee 9,000 -
Non-recurring manufacturing transfer costs 2,926 -
-------- --------
Consolidated EBITDA $110,224 $ 55,887
======== ========
Each of the 2002 and 2001 third quarters included certain charges, as follows:
o $40.4 million in 2002 and $37.3 million in 2001 for non-cash
compensation charges related to the vesting of non-dilutive stock
options;
o $13.3 million in 2002 for purchased in-process research and
development charges (based on our preliminary estimate) related to
the previously announced acquisition of BML Pharmaceuticals Inc.;
o $9.0 million in 2002 for a previously disclosed manufacturing
transfer fee to Bristol-Myers Squibb Pharma Company as consideration
for transferring the majority of Endo's manufacturing from BMS to
Novartis Consumer Health, Inc., and;
o $11.7 million for the amortization of goodwill and workforce-in-place
in the third quarter of 2001.
Excluding these charges, net income was $25.3 million, or $0.25 per diluted
share, for the three months ended September 30, 2002 compared with $9.1
million, or $0.10 per diluted share, in the same period of 2001. A
reconciliation of net income (loss) is as follows:
(Unaudited)
Three Months Ended
September 30
(in thousands)
--------------
2002 2001
---- ----
GAAP (loss) income before income tax benefit $(22,406) $(34,161)
Add back: Goodwill amortization - 10,225
Add back: Amortization of workforce-in-place - 1,487
Add back: Non-cash compensation charges 40,406 37,253
Add back: Purchased in-process R&D 13,334 -
Add back: Manufacturing transfer fee 9,000 -
-------- --------
Adjusted income before income tax 40,334 14,804
Pro forma income tax 15,045 5,670
-------- --------
Adjusted net income $ 25,289 $ 9,134
======== ========
Diluted weighted average shares outstanding 102,118 89,139
Diluted earnings per share $.25 $.10
Excluding the amortization of goodwill and workforce-in-place recorded in the
nine months ended September 30, 2001, the non-cash compensation charges
related to the probable vesting of non-dilutive stock options recorded in the
nine months ended September 30, 2002, the non-cash compensation charges
related to the vesting of non-dilutive stock options recorded in the nine
months ended September 30, 2001, purchased in-process research and development
recorded in connection with the BML acquisition in the nine months ended
September 30, 2002 and the manufacturing transfer fee recorded in the nine
months ended September 30, 2002, the company recorded net income in the nine
months ended September 30, 2002 of $52.8 million, or $.52 per diluted share,
compared with net income in the comparable 2001 period of $17.1 million, or
$0.19 per diluted share. A reconciliation of net income (loss) is as follows:
(Unaudited)
Nine Months Ended
September 30,
(in thousands)
--------------
2002 2001
---- ----
GAAP income (loss) before income tax benefit $21,396 $(44,675)
Add back: Goodwill amortization - 30,675
Add back: Amortization of workforce-in-place - 4,461
Add back: Non-cash compensation charges 40,406 37,253
Add back: Purchased in-process R&D 13,334 -
Add back: Manufacturing transfer fee 9,000 -
------- -------
Adjusted income before income tax 84,136 27,714
Pro forma income tax 31,383 10,614
------- -------
Adjusted net income $52,753 $17,100
======= =======
Diluted weighted average shares outstanding 102,245 89,139
Diluted earnings per share $.52 $.19
Product Review
Percocet(R). Net sales of Percocet(R) were $36.6 million for the three months
ended September 30, 2002, a gain of 123% from $16.4 million in the same period
of 2001. For the nine months, net sales were $100.7 million in 2002 versus
$72.8 million in 2001, a 38% increase. "This growth is due to continuing
market acceptance of Percocet's(R) most recent formulations, 7.5/325 and
10/325, which provide effective pain management at a reduced dose of
acetaminophen," Ammon noted.
Lidoderm(R). For the third quarter of 2002, net sales of Lidoderm(R) grew to
$24.1 million from $16.3 million in the 2001 third quarter, and rose to $59.9
million for the nine months in 2002 versus $26.9 million in the same period a
year ago. "These strong sales in the 2002 third quarter are also a reflection
of the efforts of our specialty sales force, which we brought in-house
effective July 1 primarily to promote Lidoderm(R)," added Ammon.
Other branded products. Combined net sales of all other branded products were
$6.0 million and $15.7 million for the quarter and year to date in 2002
compared with $8.1 million and $16.7 million in the respective periods of
2001.
Generic products. Net sales from generic products, led by growth in morphine
sulfate extended-release tablets and Endocet(R), were $43.8 million in the
third quarter, up 72% from $25.5 million in the year-ago quarter, and
increased to $109.2 million for the nine months, a 91% increase from $57.1
million for the nine months ended September 30, 2001.
As previously announced, Endo exercised its option to convert its specialty
sales force comprised of 70 sales representatives as well as their management
to Endo employees from the contract sales organization Ventiv Health US Sales
Inc., effective July 1, 2002. Endo continues to contract with Ventiv for the
remainder of its sales force, which is composed of 160 pharmaceutical sales
representatives as well as their management.
Note to Investors
Endo will conduct a conference call with financial analysts to discuss this
news release today at 11:00 a.m. ET. Investors and other interested parties
may access the conference call by dialing (800) 305-2862 (domestic) or (706)
634-1979 (international). Please dial in 10 minutes prior to the scheduled
start time. A replay of the call will be available from 2:00 p.m. ET today
until 12:00 a.m. ET on November 1, 2002 by dialing (800) 642-1687 (domestic)
or (706) 645-9291 (international), passcode 6341185.
A simultaneous webcast of the call for interested investors and others may be
accessed by visiting www.endo.com. In addition, a replay of the webcast will
be available until November 4, 2002. The replay can be accessed by clicking on
"Events" in the Investor Relations section of the web site.
About Endo
Endo Pharmaceuticals Holdings Inc. is a fully integrated specialty
pharmaceutical company with market leadership in pain management products.
Through its Endo Pharmaceuticals Inc. subsidiary, the company researches,
develops, produces and markets a broad product offering of both branded and
generic pharmaceuticals, meeting the needs of healthcare professionals and
consumers alike. More information, including this and past press releases of
Endo Pharmaceuticals Holdings Inc., is available online at www.endo.com.
Forward Looking Statements
This press release contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, that are based on management's beliefs and
assumptions, current expectations, estimates and projections. Statements that
are not historical facts, including statements which are preceded by, followed
by, or that include, the words "believes," "anticipates," "plans," "expects"
or similar expressions and statements. Endo's estimated or anticipated future
results, product performance or other non-historical facts are forward-looking
and reflect Endo's current perspective on existing trends and information.
Many of the factors that will determine the Company's future results are
beyond the ability of the Company to control or predict. These statements are
subject to risks and uncertainties and, therefore, actual results may differ
materially from those expressed or implied by these forward-looking
statements. The reader should not rely on any forward-looking statement. The
Company undertakes no obligations to update any forward-looking statements
whether as a result of new information, future events or otherwise. Several
important factors, in addition to the specific factors discussed in connection
with these forward-looking statements individually, could affect the future
results of the Endo and could cause those results to differ materially from
those expressed in the forward-looking statements contained herein. Important
factors that may affect future results include, but are not limited to: market
acceptance of the Company's products and the impact of competitive products
and pricing; dependence on sole source suppliers; the success of the Company's
product development activities and the timeliness with which regulatory
authorizations and product launches may be achieved; successful compliance
with extensive, costly, complex and evolving governmental regulations and
restrictions; the availability on commercially reasonable terms of raw
materials and other third party manufactured products; exposure to product
liability and other lawsuits and contingencies; dependence on third party
suppliers, distributors and collaboration partners; the ability to timely and
cost effectively integrate acquisitions; uncertainty associated with
pre-clinical studies and clinical trials and regulatory approval; uncertainty
of market acceptance of new products; the difficulty of predicting FDA
approvals; risks with respect to technology and product development; the
effect of competing products and prices; uncertainties regarding intellectual
property protection; uncertainties as to the outcome of litigation; changes in
operating results; impact of competitive products and pricing; product
development; changes in laws and regulations; customer demand; possible future
litigation; availability of future financing and reimbursement policies of
government and private health insurers and others; and other risks and
uncertainties detailed in Endo's Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on September 9, 2000, as amended.
Readers should evaluate any statement in light of these important factors.
(Tables Attached)
The following table presents Endo's unaudited net sales for the three months
and nine months ended September 30, 2002 and September 30, 2001:
Endo Pharmaceuticals Holdings Inc.
Net Sales (unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
2002 2001 2002 2001
---- ---- ---- ----
Percocet(R) $36,585 $16,430 $100,663 $72,831
Lidoderm(R) 24,080 16,268 59,916 26,933
Other Brands 6,048 8,087 15,669 16,678
------ ------ ------- ------
Total Brands $66,713 $40,785 $176,248 $116,442
Total Generics $43,841 $25,483 $109,234 $57,065
------- ------- -------- --------
Total Net Sales $110,554 $66,268 $285,482 $173,507
======== ======= ======== ========
The following table presents Endo's consolidated statements of operations for
the three months and nine months ended September 30, 2002 and September 30,
2001:
Endo Pharmaceuticals Holdings Inc.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
NET SALES $110,554 $ 66,268 $285,482 $ 173,507
COST OF SALES 24,392 20,622 71,088 54,303
-------- -------- -------- --------
GROSS PROFIT 86,162 45,646 214,394 119,204
COSTS AND EXPENSES:
Selling, general and administrative 28,753 19,588 79,898 54,931
Research and development 15,352 7,886 43,890 25,396
Depreciation and amortization 692 12,394 2,168 37,170
Compensation related to stock options - primarily 40,406 37,253 40,406 37,253
selling, general and administrative
Purchased in-process research and 13,334 - 13,334 -
development
Manufacturing transfer fee 9,000 - 9,000 -
-------- -------- -------- --------
OPERATING (LOSS) INCOME (21,375) (31,475) 25,698 (35,546)
INTEREST EXPENSE, Net 1,031 2,686 4,302 9,129
-------- -------- -------- --------
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) (22,406) (34,161) 21,396 (44,675)
INCOME TAX (BENEFIT) (4,098) (1,168) 12,327 (175)
-------- -------- -------- --------
NET (LOSS) INCOME $(18,308) $(32,993) $9,069 $(44,500)
======== ======== ======== ========
NET (LOSS) INCOME PER SHARE:
Basic $(.18) $(.37) $.09 $ (.50)
Diluted $(.18) $(.37) $.09 $ (.50)
NET (LOSS) INCOME
Pro Forma to Exclude Amortization of
Goodwill and Workforce-in-Place $(18,308) $(13,868) $9,069 $(5,886)
-------- -------- -------- --------
NET (LOSS) INCOME PER SHARE
Pro Forma to Exclude Amortization of Goodwill and
Workforce-in-Place:
Basic $(.18) $ (.16) $.09 $ (.07)
Diluted $(.18) $ (.16) $.09 $ (.07)
WEIGHTED AVERAGE SHARES:
Basic 102,064 89,139 102,064 89,139
Diluted 102,064 89,139 102,245 89,139
The following table presents the Endo's unaudited condensed consolidated
balance sheet data at September 30, 2002 and December 31, 2001:
Endo Pharmaceuticals Holdings Inc.
Condensed Consolidated Balance Sheet Data (unaudited)
(in thousands)
September 30 December 31
2002 2001
---- ----
ASSETS
Cash and cash equivalents $36,545 $95,357
Accounts receivable, net 111,203 85,329
Inventory 33,259 27,766
Other current assets 47,189 32,473
-------- --------
Total current assets 228,196 240,925
Property and equipment, net 10,477 9,883
Goodwill 181,079 182,318
Other Intangibles, net 11,940 12,495
Deferred income taxes 24,678 23,420
Restricted cash - 150
Other assets 1,665 1,804
-------- --------
TOTAL ASSETS $458,035 $470,995
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt - $91,259
Other current liabilities $119,934 84,407
-------- --------
Total current liabilities 119,934 175,666
Long-term debt, less current portion - -
Other liabilities 231 207
Total stockholders' equity 337,870 295,122
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $458,035 $470,995
======== ========
The following table presents condensed consolidated cash flow data for the
nine months ended September 30, 2002 and September 30, 2001:
Endo Pharmaceuticals Holdings Inc.
Condensed Consolidated Cash Flow Data (unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
---- ----
Net cash provided by operating activities $83,214 $67,982
Net cash used in investing activities (16,411) (4,928)
Net cash used in financing activities (125,615) (32,941)
-------- --------
Net (decrease) increase in cash and cash equivalents $(58,812) $30,113
Cash and cash equivalents, beginning of period $95,357 $59,196
-------- --------
Cash and cash equivalents, end of period $36,545 $89,309
======== ========
Effective January 1, 2002, Endo adopted the new goodwill accounting standards
and will no longer amortize goodwill and workforce-in-place. The pro forma
effect of the adoption of these new accounting standards, including the pro
forma effect on income taxes for the three months ended September 30, 2002 and
September 30, 2001, is as follows:
(Unaudited)
Three Months Ended
September 30,
-------------
2002 2001
---- ----
(in thousands, except per share
data)
Reported net (loss) income $(18,308) $(32,993)
Add back: Goodwill amortization - 10,225
Add back: Amortization of workforce-in-place - 1,487
Add back: Pro forma income tax benefit - 7,413
-------- --------
Adjusted net (loss) income $(18,308) $(13,868)
======== ========
Basic earnings (loss) per share:
Reported net (loss) income $(.18) $(.37)
Add back: Goodwill amortization - .11
Add back: Amortization of workforce-in-place - .02
Add back: Pro forma income tax benefit - .08
------ -----
Adjusted net (loss) income $(.18) $(.16)
===== =====
Diluted earnings (loss) per share:
Reported net (loss) income $(.18) $(.37)
Add back: Goodwill amortization - .11
Add back: Amortization of workforce-in-place - .02
Add back: Pro forma income tax benefit - .08
------ -----
Adjusted net (loss) income $(.18) $(.16)
===== =====
Effective January 1, 2002, Endo adopted the new goodwill accounting standards
and will no longer amortize goodwill and workforce-in-place. The pro forma
effect of the adoption of these new accounting standards, including the pro
forma effect on income taxes for the nine months ended September 30, 2002 and
September 30, 2001, is as follows:
(Unaudited)
Nine Months Ended
September 30,
-------------
2002 2001
---- ----
(in thousands, except per share
data)
Reported net income (loss) $9,069 $(44,500)
Add back: Goodwill amortization - 30,675
Add back: Amortization of workforce-in-place - 4,461
Add back: Pro forma income tax benefit - 3,478
------- -------
Adjusted net income (loss) $9,069 $(5,886)
======= =======
Basic earnings (loss) per share:
Reported net income (loss) $.09 $(.50)
Add back: Goodwill amortization - .34
Add back: Amortization of workforce-in-place - .05
Add back: Pro forma income tax benefit - .04
---- -----
Adjusted net income (loss) $.09 $(.07)
==== =====
Diluted earnings (loss) per share:
Reported net income (loss) $.09 $(.50)
Add back: Goodwill amortization - .34
Add back: Amortization of workforce-in-place - .05
Add back: Pro forma income tax benefit - .04
----- ------
Adjusted net income (loss) $.09 $(.07)
===== ======
Definition of Consolidated EBITDA: Endo's amended and restated credit facility
defines Consolidated EBITDA as consolidated net income for the applicable
period plus, without duplication and to the extent deducted from revenues in
determining consolidated net income for that period, the sum of (a) the
aggregate amount of consolidated cash interest expense for the period, (b) the
aggregate amount of letter of credit fees paid during the period, (c) the
aggregate amount of income tax expense for the period, (d) all amounts
attributable to depreciation and amortization for the period, (e) all
extraordinary and non-recurring charges during the period (provided that the
amount of charges added to consolidated net income pursuant to this clause (e)
that are incurred in connection with any transfer of manufacturing operations
shall not exceed $10 million during any fiscal year of Endo or $20 million in
the aggregate) and (f) all other non-cash charges during the period; and
minus, without duplication and to the extent added to revenues in determining
consolidated net income for such period, the sum of (i) all extraordinary
gains during the period and (ii) all other non-cash gains during such period,
all as determined on a consolidated basis with respect to Endo and its
subsidiaries in accordance with generally accepted accounting principles.
Operating Income (Loss) to Consolidated EBITDA Reconciling Items:
Non-cash manufacturing charges reflect the present value of non-interest
bearing promissory notes issued annually to Bristol-Myers Squibb Pharma
Company ("BMS") (formerly the DuPont Pharmaceuticals Company) over the initial
five-year term of the manufacturing and supply agreement with BMS.
Compensation related to stock options is the non-cash charge resulting from
the vesting of stock options pursuant to the Endo Pharma LLC stock option
plans. Stock options granted pursuant to the Endo Pharma LLC stock option
plans vest if our common stock reaches certain defined thresholds. These
options are exercisable for shares currently held by Endo Pharma LLC, and
their exercise will not dilute the ownership of other holders of our common
stock. Manufacturing transfer fee is the one-time payment made to BMS in the
third quarter of 2002 which permitted Endo to transfer up to 100% of any Endo
product out of any BMS facility at any time and for BMS's assistance to Endo
in the transfer. Non-recurring manufacturing transfer costs represent the
costs incurred to transfer certain products from BMS to alternative
manufacturers. Endo anticipates incurring these manufacturing transfer costs
during 2002 and 2003.
- XXX -