<PAGE>
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
 
                                           REGISTRATION STATEMENT NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------

                                   DEY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                   <C>                                   <C>
            DELAWARE                                2834                           94-2463696
(STATE OR OTHER JURISDICTION OF         (PRIMARY STANDARD INDUSTRIAL            (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)         CLASSIFICATION CODE NUMBER)          IDENTIFICATION NUMBER)
</TABLE>

                            ------------------------

    2751 NAPA VALLEY CORPORATE DRIVE, NAPA, CALIFORNIA 94558, (877) 666-1534
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                            ------------------------

                                CHARLES A. RICE
                                PAMELA R. MARRS
                                   DEY, INC.
                        2751 NAPA VALLEY CORPORATE DRIVE
                             NAPA, CALIFORNIA 94558
                                 (877) 666-1534
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)

                            ------------------------
 
                                with copies to:
 
EDWIN S. MATTHEWS, JR., ESQ.                 ROBERT M. CHILSTROM, ESQ.
   JEFFREY E. COHEN, ESQ.             SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
      COUDERT BROTHERS                            919 THIRD AVENUE
1114 AVENUE OF THE AMERICAS                      NEW YORK, NY 10022
     NEW YORK, NY 11036                            (212) 735-3000
       (212) 626-4400
 
                            ------------------------
 
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective

                            ------------------------
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
 
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
                                                 ------------------------
 
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
                           ------------------------
 
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
                           ------------------------
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                            ------------------------

                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<CAPTION>
                                                               PROPOSED
                                                           MAXIMUM OFFERING         PROPOSED
          TITLE OF EACH CLASS              AMOUNT TO BE        PRICE PER       MAXIMUM AGGREGATE        AMOUNT OF
     OF SECURITIES TO BE REGISTERED        REGISTERED(1)       SHARE(2)        OFFERING PRICE(2)    REGISTRATION FEE
<S>                                        <C>             <C>                 <C>                  <C>
Common Stock............................    16,215,000                            $230,000,000           $67,850
</TABLE>
 
(1) Includes up to 2,115,000 shares of Common Stock which the Underwriters may
    require the Company to sell solely to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the amount of registration
    fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
                            ------------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

                  SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
                               14,100,000 SHARES
 
                                DEY, INC. [LOGO]
 
                                  COMMON STOCK
 
     All of the 14,100,000 shares of Common Stock offered hereby are being sold
by Dey, Inc. ('Dey' or the 'Company'). As a result of such sale, after this
offering (the 'Offering'), Lipha Americas, Inc., which currently owns 100% of
the outstanding shares of the Company's Common Stock, will own approximately 84%
of the outstanding shares of Common Stock. Lipha Americas, Inc. is a
wholly-owned subsidiary of Merck-Lipha S.A., which is a 99.53% owned French
subsidiary of Merck KGaA, Darmstadt, Germany. Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $      and
$      per share. See 'Underwriting' for information relating to determination
of the initial public offering price. The Company has applied for listing on the
New York Stock Exchange (the 'NYSE') of its Common Stock under the symbol 'DYY.'

                            ------------------------
 
      SEE 'RISK FACTORS' COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
   MATERIAL RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

                            ------------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
     SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
      PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
             REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
                                                                              UNDERWRITING
                                                      PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                                       PUBLIC                COMMISSIONS(1)              COMPANY(2)
<S>                                           <C>                       <C>                       <C>
Per Share...................................             $                         $                         $
Total(3)....................................             $                         $                         $
</TABLE>
 
(1) The Company has agreed to indemnify the Underwriters against certain
    liabilities, including liabilities under the Securities Act of 1933, as
    amended.
 
(2) Before deducting expenses of the Company estimated at $        .
 
(3) The Company has granted to the Underwriters a 30-day option to purchase up
    to 2,115,000 additional shares of Common Stock, on the same terms and
    conditions as set forth above, to cover over-allotments, if any. If all such
    shares are purchased by the Underwriters, the total Price to Public will be
    $       , the total Underwriting Discounts and Commissions will be $
    and the total Proceeds to Company will be $       . See 'Underwriting.'

                            ------------------------
 
     The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about             , 1998, at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
 
BEAR, STEARNS & CO. INC.
                       HAMBRECHT & QUIST
                                           J.P. MORGAN & CO.
                                                                LEHMAN BROTHERS
 
               The date of this Prospectus is             , 1998.
<PAGE>


DEY   
[LOGO]                         [PRODUCT CATALOG]

     Series of pictures showing families, couples and children interspersed with
pictures of, clockwise from top, one unit dose vial of albuterol sulfate
inhalation solution, one multi-dose bottle of albuterol sulfate inhalation
solution concentrate, one unit dose vial of cromolyn sodium inhalation
solution and one canister of albuterol inhalation aerosol and one shelf carton
and representative vials of ipratropium bromide inhalation solution.

                                   * * * *

     Child inhaling from prototype unit of dry powder inhaler being developed 
by the Company.
 
                            ------------------------
 
     CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING
TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE 'UNDERWRITING.'

                            ------------------------
 
     All information contained in the 'Prospectus Summary' and in 'Business'
concerning the definition and size of the various U.S. product markets in which
Dey participates is based on figures published by IMS for 1997. Data audited and
reported by IMS does not include sales to all markets in which Dey competes;
most notably, with respect to Dey's products, IMS does not audit and report
sales to the home health care market and the mail order market. Prospective
investors are, accordingly, urged to review such market data reported by IMS
with caution, and should recognize that the market share of any particular
product marketed by Dey may be overstated or understated when comparing such
product's actual sales solely with the market data reported by IMS. Information
contained herein in 'Business' concerning the incidence of certain respiratory
diseases among the overall U.S. population is based on a variety of published
sources; the Company believes such information is widely accepted among
specialists in the treatment of such diseases and is reliable.

                            ------------------------
 
     Unless otherwise referred to or the context otherwise requires, references
to the 'Company' or 'Dey' shall mean Dey, Inc. and its subsidiaries, 'Merck
KGaA' shall mean Merck KGaA, of Darmstadt, Germany, a Kommanditgesellschaft auf
Aktien (not affiliated with Merck & Co., Inc., Whitehouse Station, New Jersey,
U.S.A.), 'Lipha Americas' shall mean Lipha Americas, Inc., 'Merck-Lipha' shall
mean Merck-Lipha S.A. (see 'Principal Stockholders') and 'Lipha' shall mean
Lipha S.A.

                            ------------------------
 
     Dey-Pak(Registered), EasiVent(Trademark), Mucosil(Trademark),
Accuvent(Trademark) and DuoNeb(Trademark) are trademarks of Dey. With respect to
the products sold by Dey under license, EpiPen(Registered) and
Astech(Registered) are registered trademarks of EM Industries, Inc., a
wholly-owned subsidiary of Merck KGaA; ACE(Registered) is a registered trademark
of Diemolding Corporation; and Curosurf(Registered) is a registered trademark of
Chiesi Farmaceutici, S.p.A.
 
                                       2
<PAGE>
                               PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus, including the information under 'Risk
Factors.' Except as otherwise noted, all information in this Prospectus (i)
assumes the filing by the Company of an Amended and Restated Certificate of
Incorporation, pursuant to which the Company is authorized to issue up to
140,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Preferred Stock, par value $1.00 per share, (ii) is adjusted to give
effect to a 72,885 for 1 split of the Common Stock and (iii) assumes no exercise
of the Underwriters' over-allotment option. This Prospectus may contain, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under 'Risk Factors,' as well as those discussed elsewhere in
this Prospectus. See 'Special Note Regarding Forward-Looking Statements.'
 
                                  THE COMPANY
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as chronic obstructive pulmonary disease ('COPD') and
asthma) and respiratory-related allergies (such as anaphylaxis and rhinitis).
Dey is particularly strong in the development and high-volume manufacture of
sterile, unit dose inhalation solution products. The U.S. market in 1997 for
inhalation therapy prescription pharmaceutical products was estimated by IMS to
have been approximately $3.4 billion, consisting of nebulizer inhalation
solutions ($0.4 billion), metered dose inhalers ($1.7 billion), intranasal
products ($0.9 billion) and other inhalation therapy products ($0.4 billion).
Dey had net sales of $220 million in 1997.
 
     Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
 
     Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
New Drug Applications ('NDAs') and two Abbreviated New Drug Applications
('ANDAs') before the U.S. Food and Drug Administration (the 'FDA'). These
include two NDAs for sterile, unit dose inhalation solution products for the
treatment of asthma and COPD, one NDA for a patented product for the treatment
of infant respiratory distress syndrome ('IRDS') and two ANDAs for mechanical
pump nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
 
     Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, health maintenance
organizations ('HMOs') and home health care organizations, as well as directly
to physicians, including allergists, pulmonologists and pediatricians. Dey
currently employs approximately 100 people in marketing and sales, and expects
that number to increase significantly as new products are launched. Dey
distributes its products throughout the United States from two locations: its
manufacturing and distribution facility in Napa, California and its distribution
center in Allen, Texas.
 
     The key elements of Dey's strategy are as follows: (i) to focus on products
for the treatment of respiratory diseases; (ii) to enhance its leadership
position in the market for sterile, unit dose inhalation solution products;
(iii) to develop additional and novel drug delivery technologies for use in the
treatment of respiratory diseases; (iv) to aggressively expand its product line
through the development, in-licensing and acquisition of new products; and (v)
to leverage its existing strengths in the marketing, distribution and sale of
products for respiratory diseases.
 
     Dey was formed in 1977 and initially established a successful business
manufacturing and marketing sterile, unit dose bronchodilators for inhalation,
packaged in plastic vials, and unit dose sodium chloride solutions. In 1988, Dey
was acquired by a subsidiary of Lipha, which is headquartered in Lyon, France.
In 1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Stockholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha.
 
     The Company's principal executive offices are located at 2751 Napa Valley
Corporate Drive, Napa, California 94558, and its telephone number is (877)
666-1534.
 
                                       3
<PAGE>
 
                                  THE OFFERING
 
<TABLE>
<S>                                         <C>
Common Stock offered hereby...............  14,100,000 shares (1)

Common Stock to be outstanding after the
  Offering................................  86,985,000 shares (1)(2)

Use of proceeds...........................  The Company intends to use the net proceeds of the Offering to repay
                                            indebtedness of the Company to an affiliate. See 'Use of Proceeds'
                                            and 'Certain Transactions.'
New York Stock Exchange symbol............  DYY
</TABLE>
 
------------------------
(1) Does not include up to 2,115,000 shares of Common Stock that may be sold by
    the Company pursuant to the Underwriters' over-allotment option. See
    'Underwriting.'
 
(2) Does not include 900,000 shares of Common Stock issuable upon exercise of
    stock options granted under an incentive plan expected to be adopted by the
    Company prior to the Offering. See 'Management--Employee Plans.'
 
                                       4
<PAGE>
                       SUMMARY HISTORICAL FINANCIAL DATA
 
     The following summary financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' and the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS
                                                 YEAR ENDED DECEMBER 31,                              ENDED MARCH 31,
                           -------------------------------------------------------------------   -------------------------
                              1993          1994          1995          1996          1997          1997          1998
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                                   (In millions, except share and per share data)
<S>                        <C>           <C>           <C>           <C>           <C>           <C>           <C>
CONSOLIDATED STATEMENT OF
  INCOME DATA:
  Net sales...............      $ 90.1        $116.3        $136.7        $166.5        $219.8        $ 52.3        $ 71.1
  Cost of sales...........        23.3          30.9          39.0          64.3          77.2          16.0          25.6
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Gross profit............        66.8          85.4          97.7         102.2         142.6          36.3          45.5
  Operating expenses......        16.0          23.3          32.4          42.9          53.1           9.8          12.4
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Income from operations..        50.8          62.1          65.3          59.3          89.5          26.5          33.1
  Interest and other
    income, net...........         2.5          (9.3)          0.7           1.5           1.7           0.3           0.4
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Income before taxes.....        53.3          52.8          66.0          60.8          91.2          26.8          33.5
  Income taxes............       (24.2)        (21.8)        (27.1)        (25.0)        (37.2)        (10.9)        (13.6)
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Net income..............      $ 29.1        $ 31.0        $ 38.9        $ 35.8        $ 54.0        $ 15.9        $ 19.9
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Net income per share
    (basic)...............      $ 0.40        $ 0.43        $ 0.53        $ 0.49        $ 0.74        $ 0.22        $ 0.27
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Weighted average common
    shares outstanding....  72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
Pro forma net income per
  share (basic)...........
                                                                                   -----------                 -----------
                                                                                   -----------                 -----------
Pro forma weighted average
  common shares used to
  compute pro forma net
  income per share........
                                                                                   -----------                 -----------
                                                                                   -----------                 -----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                       AT MARCH 31, 1998
                                                                         ----------------------------------------------
                                                                                                          PRO FORMA
                                                                         ACTUAL      PRO FORMA(1)     AS ADJUSTED(1)(2)
                                                                         -------    --------------    -----------------
                                                                                         (In millions)
<S>                                                                      <C>        <C>               <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents...........................................   $  38.2        $ 38.2             $
  Working capital (deficit)...........................................      44.0        (215.2)
  Total assets........................................................     202.6         202.6
  Total debt (due to affiliates)......................................      22.0          22.0
  Total stockholders' equity (deficit)................................     130.0        (129.2)
</TABLE>
 
------------------------
(1) After giving effect to all dividends to Lipha Americas declared or expected
    to be declared subsequent to March 31, 1998, in the aggregate amount of
    $259,250,000. See 'Certain Transactions.'
(2) Adjusted to give effect to the sale by the Company of the 14,100,000 shares
    of Common Stock offered hereby at an assumed public offering price of $
    per share (the mid-point of the price range) and, after deduction of
    underwriting discounts and commissions and estimated expenses of the
    Offering, and the application of the net proceeds of the Offering to the
    repayment of indebtedness of the Company to an affiliate anticipated to be
    incurred in connection with the payment of certain dividends to Lipha
    Americas referred to in note (1) above. See 'Use of Proceeds' and 'Certain
    Transactions.'
 
                                       5
<PAGE>
                                  RISK FACTORS
 
     Prospective purchasers of the Common Stock offered hereby should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
 
DEPENDENCE ON SALES OF KEY PRODUCTS
 
     During 1997, the Company derived approximately 75% of its revenues from
sales of three sterile, unit dose inhalation solution products, albuterol
sulfate (38%), ipratropium bromide (23%) and cromolyn sodium (14%) (the 'Key
Products'). See 'Business--Dey's Current Products.' Accordingly, any factor
adversely affecting the sale of any of the Key Products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Each of the Key Products is a generic version of a prescription drug
with respect to which patent protection has lapsed. The Company does not have
exclusive rights to market any of such products. Each of the Key Products could
be rendered obsolete or uneconomical or could otherwise be adversely affected by
numerous factors, including the development of new competitive pharmaceuticals
to treat the conditions addressed by the Key Products, technological advances,
manufacturing or supply interruptions, marketing or pricing actions by one or
more of the Company's competitors, changes in the prescribing practices of
physicians, changes in third party reimbursement practices, product liability
claims, product recalls or other factors.
 
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND APPROVALS
 
     Dey's future results of operations will depend, to a significant extent,
upon its ability to successfully develop and obtain regulatory approvals for new
products. See 'Business--Products in Development.' There can be no assurance
that the Company will successfully develop and obtain approvals for any new
products. The failure of Dey to develop and obtain approvals for new products on
a timely basis, or to market such products on a commercially viable basis, would
have a material adverse effect on its business, financial condition and results
of operations.
 
     The Company has a variety of products under development, on its own and
through third parties under contract, including line extensions of existing
products, reformulations of existing products and new products. Prior to
marketing, all of the Company's products under development must undergo rigorous
testing, followed by the filing by the Company of an ANDA or an NDA with the FDA
and extensive review by the FDA. In order to file an NDA, which is required for
new dosages of existing products, for new delivery systems for existing products
and for new products, the FDA requires extensive preclinical and clinical
testing for safety and efficacy. In order to file an ANDA, which can be filed
for generic versions of brand name prescription drugs that are no longer covered
by patents or whose marketing exclusivity has expired, the Company must present
data demonstrating that the generic drug formulation is bioequivalent to a
previously approved branded drug. In both cases, the FDA has the authority to
determine what testing procedures are appropriate for a particular product and,
in some instances, has not published or otherwise identified guidelines as to
the appropriate procedures. The required product testing can take a number of
years and require the expenditure of substantial resources, and there can be no
assurance that such testing of any product under development will result in a
commercially viable product. The results of initial trials are not necessarily
predictive of the results of later trials, and in many cases products suffer
significant setbacks in later trials, despite promising earlier results.
Further, the Company may decide to modify a product in testing, which could
materially extend the test period and increase the development costs of the
product in question. There can be no assurance that even after such time and
expenditures, regulatory approval by the FDA will be obtained for any products
developed by the Company. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA review. Any regulatory approval may impose limitations on the indicated use
for the product. Further, even if such regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. In addition, the regulatory requirements applicable to
any product may be modified, perhaps extensively, in the future.
 
     The Company regularly reevaluates its product development efforts. On the
basis of these reevaluations, the Company has in the past, and may in the
future, abandon development or commercialization efforts for particular
 
                                       6
<PAGE>
products. There can be no assurance that the Company, following any such
reevaluation, will continue its effort to develop any product or technology.
 
COMPETITION IN THE PHARMACEUTICAL INDUSTRY; UNCERTAINTY OF MARKET ACCEPTANCE;
RAPIDITY OF TECHNOLOGICAL CHANGE
 
     The manufacture and sale of pharmaceutical products is highly competitive.
Many of Dey's competitors are large, well-known pharmaceutical, chemical and
health care companies which have greater financial, sales, marketing, regulatory
and scientific resources than Dey. Additionally, many of the Company's current
and potential competitors have strong research and development capabilities that
may allow such competitors to develop new or improved products that may compete
with Dey's current and future products.
 
     The generic drug industry is intensely competitive and includes large brand
name and multi-source pharmaceutical companies. Because generic drugs do not
have patent protection or any other market exclusivity, competitors of the
Company may introduce competing generic products, which may be sold at lower
prices or with more aggressive marketing. Conversely, as Dey continues to
introduce branded drugs into its product portfolio, it will face competition
from manufacturers of generic drugs which may claim to offer equivalent
therapeutic benefits at a lower price. The aggressive pricing activities of the
Company's generic competitors could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     Dey's success in commercializing any product will depend on the acceptance
of such product by physicians and patients. Unanticipated side effects, product
liability claims or product recalls or, more generally, unfavorable publicity
concerning any of the Company's products or those of its competitors in the same
therapeutic field could have an adverse effect on its ability to maintain or
obtain regulatory approvals, to achieve acceptance by prescribing physicians,
managed care providers or patients, and to commercialize its products, any of
which could have a material adverse effect on Dey's business, financial
condition and results of operations.
 
     The pharmaceutical industry is characterized by rapid technological change.
The Company's products, branded or generic, could be rendered obsolete or
uneconomical by the development of new pharmaceuticals or devices to treat the
conditions addressed by its products or as a result of either technological
advances affecting the cost of production or marketing or pricing action by one
or more of its competitors. In addition, the development of any new product by
the Company could affect the demand for the current products of the Company if
such new product has the same or similar indications as one or more of the
Company's current products.
 
     See 'Business--Competition.'
 
RISK OF PRODUCT LIABILITY AND PRODUCT RECALLS
 
     The development, manufacture, sale and use of the Company's products
involve an inherent risk of product liability claims. Product liability
insurance for this type of risk is expensive and difficult to obtain in the
United States. Although to date no material product liability claims have been
asserted against the Company, there can be no assurance that such claims will
not be asserted against the Company in the future. If any product liability
claims are asserted, the Company could incur significant expenses in defending
against any such claims and, if any such claims were validated, the Company may
not have sufficient resources or insurance coverage to satisfy the claims. More
generally, any product liability claims against the Company or against any of
its competitors in the same therapeutic field, if perceived to be valid, could
have a material adverse effect on the Company's business, financial condition or
results of operations.
 
     Product recalls may be issued at the discretion of the Company, its
suppliers, the FDA, the Federal Trade Commission or other government agencies
having regulatory authority for product sales and may occur due to disputed
labeling claims, manufacturing issues, quality defects or other reasons. In the
past year the Company has assisted Meridian Medical Technologies, Inc.
('Meridian'), the owner and manufacturer of the line of epinephrine autoinjector
products marketed by the Company, in two separate product recall actions. In
October 1997, Meridian and Dey agreed to voluntarily withdraw from the market
all batches of EpiEZPen(Registered)and EpiEZPen(Registered) Jr. These products,
activated by depressing a button on the autoinjector, were found to have a
defect which resulted in premature discharge of the solution contents. In May
1998, Meridian and Dey agreed to
 
                                       7
<PAGE>
voluntarily recall all production batches of EpiPen(Registered) and
EpiPen(Registered) Jr., pressure-activated autoinjectors, due to a potential for
subpotency. The manufacturing process for these products has been modified, and
products to replace the recalled units are now available. In both of these
recalls, Meridian is required to compensate Dey for costs associated with
replacement products and administrative costs, but not for lost profits. Any
adverse reaction arising (or alleged to have arisen) in connection with products
subject to these or any other recalls could give rise to product liability
claims and the risks attendant thereto described in the preceding paragraph.
 
UNCERTAINTY OF ENFORCEABILITY OF PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
 
     The Company relies, and anticipates that it will rely in the future, on
patent protection for certain products the Company currently markets or may seek
to market in the future. There can be no assurance that any patent issued to, or
licensed by, the Company will provide protection that has commercial
significance. There can be no assurance that challenges will not be initiated
against the validity or enforceability of any such patent or, if initiated, that
such challenges will not be successful. The cost of litigation, and the
commitment of management's time to uphold the validity and prevent infringement
of patents, can be substantial. Moreover, there can be no assurance that the
products and technologies the Company currently markets, or may seek to market
in the future, will not infringe patents or other rights owned by others. In the
event of an adverse outcome of any dispute with respect to patent or other
rights, the Company may be required to license such disputed rights or to cease
using such disputed rights. There can be no assurance that a license would be
available on terms acceptable to the Company, or at all. The invalidation,
circumvention or unenforceability of any of the patents upon which the Company
relies or may rely in the future, or the infringement or alleged infringement by
such patents of the intellectual property rights of third parties, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company relies, and expects to continue to rely, upon unpatented
proprietary know-how and trade secrets in the development and manufacture of
many of its principal products. The Company's policy is to require its key
scientific and management personnel to enter into confidentiality agreements
with the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets or unpatented
proprietary know-how in the event of any unauthorized use or disclosure of such
know-how. In addition, there can be no assurance that others will not obtain
access to or independently develop similar or equivalent trade secrets or
know-how.
 
     The Company believes that trademark protection is an important factor in
establishing product recognition. The inability of the Company to protect its
trademarks from infringement and the resulting impairment to any goodwill which
may have developed in such trademarks, or the Company's inability to use one or
more of its trademarks because of successful third-party claims, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     See 'Business--Intellectual Property.'
 
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
 
     The Company's ability to market its new and existing products is dependent
in part on the extent to which appropriate reimbursement for the products and
related treatment are obtained from health care payors, including government
authorities, private health insurers and other organizations, such as HMOs and
managed care organizations. Third-party payors are increasingly challenging
pricing of pharmaceutical products and/or seeking pharmacoeconomic data to
justify formulary acceptance and reimbursement practices. The growth of
organizations such as HMOs and managed care organizations and legislative
proposals to reform health care and government insurance programs could
significantly influence the purchase of pharmaceutical products, resulting in
lower prices and/or a reduction in demand for Dey's products. Such cost
containment measures and health care reform could affect Dey's ability to sell
its products and may have a material adverse effect on Dey's business, financial
condition and results of operations.
 
     Significant uncertainty exists regarding the reimbursement status of
pharmaceutical products. There can be no assurance that reimbursement will be
available for any of the Company's products, that any reimbursement granted will
be maintained or that limits on reimbursement available from third-party payors
will not reduce the demand for, or negatively affect the price of, the Company's
products. The unavailability or inadequacy of third-
 
                                       8
<PAGE>
party reimbursement for its products would have a material adverse effect on
Dey's business, financial condition and results of operations.
 
     A number of pharmaceutical companies, including Dey, have received federal
subpoenas in connection with an ongoing investigation of the reporting of
'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is unable to predict what relief, if any, any
federal or state authority may seek as a result of this investigation.
 
     The Company is unable to predict whether additional legislation or
regulation affecting the health care industry or third-party coverage and
reimbursement will be enacted in the future, or what effect such legislation or
regulation would have on its business.
 
     Many of the Company's current products are generic versions of existing
prescription drugs. These products are subject to intense competition,
particularly with respect to market prices and especially where multiple
competitors offer the same or similar products. Over recent years, Dey has been
successful in maintaining and even augmenting its overall gross margin through
the timely introduction of newer products which have higher margins relative to
its older products. The Company is now developing and seeking FDA approval for
branded products which, if successfully introduced, are anticipated to yield
even higher margins. There can be no assurance that, in the future, the
introduction of new products will offset any decline in margins of more mature
products, in which case overall gross margins may decline. Any such decline in
overall gross margins could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
FLUCTUATIONS IN QUARTERLY EARNINGS
 
     The Company may experience periodic fluctuations in quarterly earnings as a
result of a variety of factors, including, but not limited to, the timing of the
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or by its
competitors, the seasonal severity of respiratory diseases, which generally are
more pervasive during the first and fourth quarters of the calendar year, the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
 
     The Company's results of operations on a quarterly financial basis may
fluctuate, perhaps significantly, as a result of the above or other factors. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
 
UNCERTAINTY WITH RESPECT TO IN-LICENSING AND ACQUISITIONS
 
     Certain of Dey's products and technologies under development have been
licensed from third parties. The failure of the Company to meet its obligations
under one or more of these agreements could result in the termination of the
Company's rights under such agreements. Further, there can be no assurance Dey
will be able to continue to identify and negotiate attractive licensing
arrangements with third parties.
 
     Dey may also pursue acquisitions of products or companies that could
complement or expand its business. However, there can be no assurance that Dey
will be able to identify appropriate acquisition candidates in the future. If an
acquisition candidate is identified, there can be no assurance that the Company
will be able to successfully negotiate the terms of any such acquisition,
finance such acquisition or integrate such acquisition into its existing
business and product lines. Furthermore, the negotiation of potential
acquisitions could cause diversion of management's time and resources, and
require significant resources to consummate. If Dey consummates one or more
significant acquisitions through the issuance of shares of Common Stock, Dey's
stockholders could suffer significant dilution of their ownership interests in
Dey.

RELIANCE ON THIRD PARTIES AND MAJOR CUSTOMERS
 
     The Company relies on third parties for the manufacture of certain of its
products, for the supply of raw materials, for shipping and for contract
research activities.
 
     There can be no assurance that third party manufacturers will be able to
provide the Company with adequate supplies of products in a timely fashion, or
at all, which could result in the Company's inability to fill orders from
 
                                       9
<PAGE>
customers and the loss of sales and income. The Company also faces the risk that
upon expiration of the term of any third party manufacturing agreement it may
not be able to renew or extend the agreement with the third party manufacturer,
to obtain an alternative manufacturing source from other third parties or
develop internal manufacturing capabilities on commercially viable terms, if at
all. In such circumstances the Company may be unable to continue to market such
products as planned and could be required to abandon or divest itself of a
product line on terms which would materially adversely affect the Company's
business, financial condition and results of operations.
 
     Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company. Although the Company has not experienced
any material interruption of supply to date, failure of an FDA-approved
single-source supplier to deliver sufficient quantities of such raw materials on
a timely basis or the failure of the FDA to approve second-source suppliers in a
timely fashion could materially and adversely affect the Company's business,
financial condition and results of operations.
 
     Dey plans to rely entirely on arrangements with independent shipping
companies for the delivery of raw materials from suppliers and for the delivery
of its products to its distribution facility in Allen, Texas and to
distributors. The termination of the Company's arrangements with one or more of
these independent shipping companies, or the failure or inability of one or more
of these independent shipping companies to deliver raw materials from suppliers
or products to distributors could have a material adverse effect on Dey's
business, financial condition or results of operations. For instance, an
employee work stoppage or slow-down at one or more of these independent shipping
companies could materially impair that shipping company's ability to perform the
services required by the Company. There can be no assurance that the services of
any of these independent shipping companies will continue to be available to Dey
on terms as favorable as those currently available or that these companies will
choose to, or be able to, perform shipping services for Dey.
 
     Dey currently utilizes, and plans for the foreseeable future to continue to
utilize, contract research companies for a variety of services in connection
with developing and gaining FDA approval for its new products. These services
may include, but are not limited to, the design of clinical protocols,
identification of clinical investigators to coordinate and monitor clinical
trials, compilation and review of clinical study reports and preparation of
clinical data for submission to the FDA. There can be no assurance that the
services of any of these companies will continue to be available to Dey or will
be made available to Dey on terms which are as favorable as those currently
available. The inability of the Company to continue to contract out such
services on commercially reasonable terms could materially adversely affect the
Company's business, financial condition and results of operations.
 
     The Company markets its products through a variety of distribution channels
common to the industry. Due to consolidation in recent years, a few large
distributors now control a significant share of this market. In 1997, McKesson,
Bergen Brunswig and Cardinal Health, which are the leading pharmaceutical
wholesalers in the United States, accounted for approximately 12%, 12% and 11%,
respectively, of the Company's net sales. Further consolidation among, or any
financial difficulties of, these large distributors could, among other things,
result in the combination or elimination of warehouses which could result in
product returns to the Company, cause a reduction in inventory levels or
otherwise reduce purchases of the Company's products. Any such consolidation of,
or financial difficulties of, the Company's major distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations. See 'Business--Marketing and Sales.'

RISKS OF BUSINESS INTERRUPTION
 
     The Company relies on its own manufacturing capabilities in Napa,
California for the majority of its current and future products. This single
manufacturing site is subject to potential atmospheric and geologic
catastrophes, including earthquakes, as well as fires, explosions, floods, or
other catastrophes which could cause significant interruptions in the Company's
ability to produce and market products manufactured at such site. The Company
has business interruption insurance for this type of risk and other business
interruption events; however, there is no assurance that such insurance will be
sufficient to prevent the Company from incurring significant expenses in 
 
                                       10
<PAGE>
dealing with such an event or that such an event will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
 
     Certain of the Company's research and development activities involve the
use of a variety of chemicals which are subject to federal, state and local laws
and regulations governing the use, storage, handling and proper disposal of
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by federal, state and local laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any liability could exceed the resources of the
Company.
 
UNCERTAINTY OF MANAGING GROWTH; UNCERTAINTY OF FUTURE CAPITAL NEEDS AND
ADDITIONAL FUNDING
 
     The Company has recently experienced a period of significant expansion of
its operations that has placed a significant strain upon its management, systems
and resources. The Company's business strategy includes the development of new
products and the potential acquisitions of products and businesses. The
development of new products will require the commitment of substantial
additional resources and management time and attention to conduct research,
preclinical and clinical trials, to augment quality control, regulatory and
administrative capabilities, to increase manufacturing capacity and to manage an
increasing number of employees. Failure to manage growth effectively would have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
     The future capital requirements of the Company will depend on many factors,
including the pace and magnitude of its research and development programs for
new products, the time and costs involved in obtaining regulatory approvals and
the cost of augmenting manufacturing capacity and the Company's sales force. The
Company believes that its available cash, cash generated from operations and, as
necessary, borrowings under its credit facility with Merck KGaA (see 'Certain
Transactions'), will be adequate to satisfy its anticipated working capital and
other capital requirements for the foreseeable future. Should the Company
require additional funding, there can be no assurance that additional financing
will be available on acceptable terms or at all. Any inability to obtain
additional financing, if required, would have a material adverse effect on the
Company's business, financial conditions and results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations'; 'Business--Strategy'; and 'Business--Products in Development.'
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's continued success depends, in part, upon retaining key
management and technical personnel, as well as the Company's ability to continue
to attract and retain additional highly qualified personnel. The Company faces
intense competition for personnel from other companies, government entities and
other organizations. Although the Company intends to maintain Employment
Agreements with certain of its key employees, there can be no assurance that Dey
will be successful in retaining its current personnel, nor can there by any
assurance that Dey will be successful in hiring or retaining qualified personnel
in the future. The loss of key personnel, or the inability to attract and retain
highly qualified employees in the future, could have a material adverse effect
on Dey's business, financial condition and results of operations. See
'Management.'
 
CONTROL BY AND RELATIONSHIP WITH MERCK KGAA AND MERCK-LIPHA
 
     Upon completion of the Offering, Merck KGaA will control approximately 84%
of the outstanding Common Stock of the Company (or approximately 82% if the
Underwriters' over-allotment option is exercised in full). Merck KGaA's control
will be through its subsidiaries, including Merck-Lipha. As a result, Merck KGaA
will have sufficient voting power to elect the entire Board of Directors of the
Company, control the direction and policies of the Company (including
acquisitions, mergers and consolidations) and prevent or cause a change in
control of the Company. The continuing beneficial ownership by Merck KGaA and
Merck-Lipha of the Company's Common Stock, or the service of certain persons as
directors of both the Company and Merck KGaA, Merck-Lipha, Lipha or Lipha
Americas, could create conflicts of interest with respect to decisions that
could have different implications for the Company and Merck KGaA and such other
companies, including potential acquisitions of businesses, the development and
marketing of products, the issuance by the Company of additional securities
(thereby diluting Merck KGaA's and Merck-Lipha's beneficial ownership of the
Company's 
 
                                       11
<PAGE>
capital stock), the election of new or additional directors, the payment of
dividends by the Company and other matters. Under Delaware corporate law,
officers and directors of the Company owe fiduciary duties to the Company and
its stockholders. However, the Company has not instituted any formal plan or
arrangement to address potential conflicts of interest that may arise among the
Company, Merck KGaA and their affiliates. See 'Principal Stockholders.'
 
     The Company is party to various agreements with Merck KGaA and its
subsidiaries (including Lipha) that were entered into prior to the Offering.
While these agreements were not negotiated on an arm's length basis, the Company
believes that these agreements are no less favorable to the Company than would
be the case if the Company had been dealing with such other party at arm's
length. See 'Certain Transactions.'
 
ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made for listing the Common Stock on the
NYSE, there can be no assurance that an active trading market will develop or be
sustained after the Offering or that purchasers of Common Stock will be able to
resell their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the Underwriters and may not be indicative of
the prices that may prevail in the public market. Furthermore, the market price
of the Common Stock may be volatile. Factors such as announcements of
fluctuations in the Company's or its competitors' operating results, changes in
government regulations or health care policies and market conditions in general
could have a significant impact on the future price of the Common Stock. In
particular, with the current uncertainty about health care policy, reimbursement
and coverage in the United States, there has recently been significant
volatility in the market price and trading volume of securities of
pharmaceutical and other health care companies unrelated to the performance of
such companies. See 'Underwriting.'
 
MARKET RISKS OF SHARES ELIGIBLE FOR FUTURE SALE
 
     Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the prevailing market price of the Common Stock.
Of the 86,985,000 shares of Common Stock outstanding upon completion of the
Offering (not including up to 2,115,000 shares of Common Stock that may be sold
by the Company pursuant to the Underwriters' over-allotment option), the
14,100,000 shares offered hereby (16,215,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for such shares which may be acquired by an 'affiliate' of the Company.
The remaining 72,885,000 issued and outstanding shares will be beneficially
owned by Merck KGaA. The Company and Merck KGaA have agreed that the Company
will not, and Merck KGaA will cause Lipha Americas not to, directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge or otherwise dispose of or encumber and, in the case of Lipha
Americas, otherwise create a put equivalent position in any shares of Common
Stock (or any securities convertible into or exercisable or exchangeable for
shares of Common Stock) for a period of 180 days from the date of this
Prospectus without the prior written consent of Bear, Stearns & Co. Inc. No
prediction can be made as to the effect, if any, future sales of Common Stock or
the availability of such shares for future sale, will have on the market price
of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales may occur, could adversely affect the then prevailing market prices
for the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See 'Shares Eligible for
Future Sale.'

IMMEDIATE AND SUBSTANTIAL DILUTION
 
     Purchasers of the shares offered hereby will experience an immediate and
substantial dilution in net tangible book value of $       per share ($
per share assuming the Underwriters' over-allotment option is exercised in
full). See 'Dilution.'
 
YEAR 2000 COMPLIANCE
 
     The Company recognizes the need to ensure that its operations will not be
adversely affected by Year 2000 hardware and software issues. Dey uses a number
of computer systems, including applications used in sales, finance,
manufacturing, warehouse and inventory management and various administrative
functions. The 
 
                                       12
<PAGE>
Company has reviewed all of its computer systems to ensure they will be able to
appropriately interpret calendar year 2000 and subsequent years and expects to
implement the systems and programming changes necessary to address Year 2000
issues on an enterprise-wide basis and is currently reviewing the costs of such
actions. Expenditures required to make the Company Year 2000 compliant will be
expensed as incurred and are not currently expected by management to be material
to the Company's consolidated financial position or results of operations. No
assurance can be given, however, that all of the Company's systems will be Year
2000 compliant or that the Company will not be adversely affected by compliance
costs or the impact of any failure by the Company to achieve full Year 2000
compliance. The Company will seek to confirm with its customers and vendors
their Year 2000 compliance status. However, the Company could be adversely
affected by the failure of one or more of its customers or suppliers to become
fully Year 2000 compliant. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance.'
 
CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER AND BY-LAW PROVISIONS
 
     Certain provisions of the Company's Certificate of Incorporation and
By-laws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Certain of these provisions allow the Company to issue preferred
stock without any vote or further action by the stockholders, limit the ability
of stockholders to call a special meeting of stockholders, require advance
notice for director nominations by stockholders and submission of other
proposals for consideration at stockholder meetings and provide for a staggered
Board of Directors. Certain provisions of Delaware law, including Section 203 of
the Delaware General Corporation Law (the 'DGCL'), which limits business
combinations of the Company with interested stockholders, could have similar
effects. Also, the Company's Certificate of Incorporation provides that the
Company may not issue more than an aggregate of 90,000,000 shares of Common
Stock without first receiving the consent in writing of any person who, directly
or indirectly, owns over fifty percent of the Company's outstanding Common
Stock. The possible issuance of preferred stock, the limits placed on the
ability of stockholders to call a meeting at which directors could be replaced,
the advance notice requirements for director nominations and stockholder
proposals, the length of time required to replace sufficient members of a
staggered Board of Directors to take control of the Company and the provisions
of Delaware law and the limitations on issuing further shares of Common Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company, including, without limitation, discouraging a proxy contest or
making more difficult the acquisition of a substantial block of the Company's
Common Stock. See '--Control by and Relationship with Merck KGaA and
Merck-Lipha.'
 
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     A substantial number of statements contained in this Prospectus, including
without limitation, statements containing the words 'believes,' 'anticipates,'
'expects,' and 'intends' and words of similar import, may constitute
'forward-looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Dey, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the captions 'Risk Factors,' 'Business,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Prospectus Summary,' as well as elsewhere in this Prospectus.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
 
                                       13
<PAGE>
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be $            million ($
million if the Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $     per share (the mid-point of the price
range) and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
 
     The Company expects to use all of the net proceeds to repay indebtedness of
the Company to an affiliate anticipated to be incurred in connection with the
payment of certain dividends declared by the Company and payable to Lipha
Americas. See 'Certain Transactions.'
 
                                DIVIDEND POLICY
 
     Except as described elsewhere in this Prospectus relating to dividends to
be paid to Lipha Americas (see 'Certain Transactions'), the Company does not
anticipate paying dividends in the foreseeable future. Payments of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs and plans for
expansion. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
 
                                       14
<PAGE>
                                 CAPITALIZATION
 
     The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, and (ii) such capitalization pro forma as
adjusted, after giving effect to (A) all dividends to Lipha Americas declared or
expected to be declared subsequent to March 31, 1998, in the aggregate amount of
$259,250,000, and (B) the sale by the Company of the 14,100,000 shares of Common
Stock offered hereby at an assumed public offering price of $     per share (the
mid-point of the price range) and, after deduction of underwriting discounts and
commissions and estimated expenses of the Offering, the application of the net
proceeds of the Offering to the repayment of indebtedness of the Company to an
affiliate anticipated to be incurred in connection with the payment of certain
of the dividends to Lipha Americas referred to above. See 'Use of Proceeds' and
'Certain Transactions.' This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                  MARCH 31, 1998
                                                                                               --------------------
                                                                                                         PRO FORMA
                                                                                                             AS
                                                                                               ACTUAL     ADJUSTED
                                                                                               ------    ----------
                                                                                                  (IN MILLIONS)
<S>                                                                                            <C>       <C>
Cash and cash equivalents...................................................................   $ 38.2     $
                                                                                               ------    ----------
                                                                                               ------    ----------
Long-term debt:
  Long-term related party debt(1)...........................................................   $ 22.0     $
                                                                                               ------    ----------
Stockholders' equity:
  Preferred Stock $1.00 par value; 10,000,000 shares authorized; none issued and
     outstanding, actual and pro forma as adjusted..........................................       --
  Common Stock, $.01 par value; 140,000,000 shares authorized, 72,885,000 shares issued and
     outstanding, actual; 86,985,000
     shares issued and outstanding, pro forma as adjusted...................................      0.7
  Additional paid-in capital................................................................     57.1
  Retained earnings.........................................................................     72.2
                                                                                               ------    ----------
     Total stockholders' equity.............................................................   $130.0     $
                                                                                               ------    ----------
       Total capitalization.................................................................   $152.0     $
                                                                                               ------    ----------
                                                                                               ------    ----------
</TABLE>
 
------------------
(1) Note, dated July 31, 1997, issued to Lipha Americas in the amount of
    $22,000,000. See 'Certain Transactions.'
 
                                       15
<PAGE>
                                    DILUTION
 
     After giving effect to certain dividends to Lipha Americas declared or
expected to be declared by the Company subsequent to March 31, 1998, the pro
forma net tangible book value (deficit) of the Company at March 31, 1998 was
($               ), or ($     ) per share. Net tangible book value (deficit) per
share represents the amount of total tangible assets of the Company less total
liabilities divided by the number of shares of Common Stock outstanding upon the
completion of the Offering. After giving effect to the sale by the Company of
the 14,100,000 shares of Common Stock offered hereby and the use of proceeds
therefrom at an assumed public offering price of $     per share (the mid-point
of the price range), less estimated offering expenses and underwriting discounts
and commissions, the pro forma net tangible book value of the Common Stock as of
March 31, 1998 would have been approximately $        million or $     per share
of Common Stock. This represents an immediate increase in pro forma net tangible
book value per share of $     to existing holders and an immediate dilution in
pro forma net tangible book value of $     per share to new investors purchasing
shares in the Offering.
 
     The following table illustrates the per share dilution as of March 31,
1998:
 
<TABLE>
<S>                                                                                        <C>      <C>
Assumed public offering price per share.................................................   $        $
  Net tangible book value (deficit) per share as of March 31, 1998......................
  Increase in net tangible book value per share attributable to new investors...........
                                                                                           -----
Pro forma net tangible book value (deficit) per share after the Offering................
                                                                                                    -----
Dilution per share to new investors(1)..................................................            $
                                                                                                    -----
                                                                                                    -----
</TABLE>
 
     The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in the Offering (after giving effect to the 72,885 for 1 stock
split and before deduction of underwriting discounts and commissions and
estimated expenses of the Offering):
 
<TABLE>
<CAPTION>
                                       SHARES PURCHASED           TOTAL CONSIDERATION
                                   -------------------------    -----------------------    AVERAGE PRICE
                                      NUMBER        PERCENT       AMOUNT       PERCENT       PER SHARE
                                   ------------    ---------    ----------    ---------    -------------
<S>                                <C>             <C>          <C>           <C>          <C>
Existing stockholders...........     72,885,000       83.8%     $                    %         $
New investors...................     14,100,000       16.2%     $                    %         $
                                   ------------    ---------    ----------    ---------
Total...........................     86,985,000(2)   100.0%     $               100.0%
                                   ------------    ---------    ----------    ---------
                                   ------------    ---------    ----------    ---------
</TABLE>
 
------------------
 
(1) If the Underwriters' over-allotment option is exercised in full, dilution
    per share to new investors would be $     .
 
(2) Excludes 900,000 shares of Common Stock reserved for issuance of options
    which may be granted under the Company's 1998 Incentive Plan. See
    'Management.'
 
                                       16
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The selected consolidated financial data presented below with respect to
the consolidated statement of income data, other data, and consolidated balance
sheet data for, and as of the end of, each of the years in the three-year period
ended December 31, 1997 are derived from the consolidated financial statements
of Dey, Inc. and subsidiaries, which financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1996 and 1997 and for each
of the years in the three-year period ended December 31, 1997, and the report
thereon, are included elsewhere in the Prospectus. The selected consolidated
financial data presented below with respect to the consolidated statement of
income data, other data, and consolidated balance sheet data for, and as of the
end of, each of the years in the two-year period ended December 31, 1994 are
derived from the Company's unaudited consolidated financial statements. The
selected consolidated statement of income data, and other data, presented below
for the three-month periods ended March 31, 1997 and 1998, and the consolidated
balance sheet data as of March 31, 1998 are derived from the unaudited
consolidated financial statements of Dey, Inc. and subsidiaries included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for the
periods presented. The operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1998 or for any subsequent period. The data
set forth below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Company's
consolidated financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
                                                                                                                     THREE
                                                                                                                     MONTHS
                                                                                                                     ENDED
                                                                                                                     MARCH
                                                                     YEARS ENDED DECEMBER 31,                         31,
                                                    ----------------------------------------------------------       ------
                                                     1993         1994         1995         1996         1997         1997
                                                    ------       ------       ------       ------       ------       ------
                                                                (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                 <C>          <C>          <C>          <C>          <C>          <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.....................................      $ 90.1       $116.3       $136.7       $166.5       $219.8       $ 52.3
Cost of sales.................................        23.3         30.9         39.0         64.3         77.2         16.0
                                                ----------   ----------   ----------   ----------   ----------   ----------
Gross profit..................................        66.8         85.4         97.7        102.2        142.6         36.3
Selling, marketing and distribution...........         7.7          9.5         11.4         14.0         21.7          3.9
General and administrative expenses...........         5.9          6.6          8.5          9.6         11.3          2.4
Research and development......................         2.4          7.2         12.5         19.3         20.1          3.5
                                                ----------   ----------   ----------   ----------   ----------   ----------
Income from operations........................        50.8         62.1         65.3         59.3         89.5         26.5
Interest and other income, net................         2.5         (9.3)         0.7          1.5          1.7          0.3
                                                ----------   ----------   ----------   ----------   ----------   ----------
Income before taxes...........................        53.3         52.8         66.0         60.8         91.2         26.8
Income taxes..................................       (24.2)       (21.8)       (27.1)       (25.0)       (37.2)       (10.9)
                                                ----------   ----------   ----------   ----------   ----------   ----------
Net Income....................................      $ 29.1       $ 31.0       $ 38.9       $ 35.8       $ 54.0       $ 15.9
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
Net income per share (basic)..................      $ 0.40       $ 0.43       $ 0.53       $ 0.49       $ 0.74       $ 0.22
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
Weighted average common shares outstanding....  72,885,000   72,885,000   72,885,000   72,885,000   72,885,000   72,885,000
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ---------- 
Pro forma net income per share (basic)........
                                                                                                    ----------
                                                                                                    ----------
Pro forma weighted average common shares used
  to compute pro forma net income per share...
                                                                                                    ----------
                                                                                                    ----------
OTHER DATA:
Cash dividends per share......................      $ 0.13       $ 0.40       $ 0.43       $ 0.53       $ 0.34       $ 0.09
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
 
<CAPTION>
                                                     THREE
                                                     MONTHS
                                                     ENDED
                                                     MARCH
                                                      31, 
                                                    ------
                                                     1998
                                                    ------
 
<S>                                                     <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.....................................      $ 71.1
Cost of sales.................................        25.6
                                                ----------
Gross profit..................................        45.5
Selling, marketing and distribution...........         6.9
General and administrative expenses...........         3.0
Research and development......................         2.5
                                                ----------
Income from operations........................        33.1
Interest and other income, net................         0.4
                                                ----------
Income before taxes...........................        33.5
Income taxes..................................       (13.6)
                                                ----------
Net Income....................................      $ 19.9
                                                ----------
                                                ----------
Net income per share (basic)..................      $ 0.27
                                                ----------
                                                ----------
Weighted average common shares outstanding....  72,885,000
                                                ----------
                                                ----------
Pro forma net income per share (basic)........
                                                ----------
                                                ----------
Pro forma weighted average common shares used
  to compute pro forma net income per share...
                                                ----------
                                                ----------
OTHER DATA:
Cash dividends per share......................      $ 0.19
                                                ----------
                                                ----------
</TABLE>

<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,                      AT MARCH 31, 1998
                                              ---------------------------------------------    -----------------------
                                              1993      1994      1995      1996      1997     ACTUAL     PRO FORMA(1)
                                              -----    ------    ------    ------    ------    -------    ------------
                                                        (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                           <C>      <C>       <C>       <C>       <C>       <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................   $25.4    $  3.3    $  5.3    $  5.7    $ 18.6    $ 38.2       $   38.2
Working capital (deficit)..................    32.8      27.8      31.3      17.3      38.7      44.0         (215.2)
Total assets...............................    98.0     125.9     142.7     144.9     189.0     202.6          202.6
Total debt (due to affiliates).............      --      22.0      22.0      22.0      22.0      22.0           22.0
Total liabilities..........................     9.9      35.7      44.6      49.9      65.0      72.6          331.9
Total stockholders' equity (deficit).......    88.1      90.2      98.1      95.0     124.0     130.0         (129.2)
 
<CAPTION>
                                             AT MARCH 31, 1998
                                             -----------------
                                                 PRO FORMA
                                             AS ADJUSTED(1)(2)
                                             -----------------
<S>                                           <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................        $
Working capital (deficit)..................
Total assets...............................
Total debt (due to affiliates).............
Total liabilities..........................
Total stockholders' equity (deficit).......
</TABLE>
 
------------------------
(1)   After giving effect to all dividends to Lipha Americas declared or 
      expected to be declared subsequent to March 31, 1998, in the 
      aggregate amount of $259,250,000. See 'Certain Transactions.'
(2)   Adjusted to give effect to the sale by the Company of the 14,100,000
      shares of Common Stock offered hereby at an assumed public offering
      price of $    per share (the mid-point of the price range) and, after
      deduction of underwriting discounts and commissions and estimated 
      expenses of the Offering, and the application of the net proceeds of
      the Offering to the repayment of indebtedness of the Company to an
      affiliate anticipated to be incurred in connection with the payment of
      certain dividends to Lipha Americas referred to in note (1) above. See
      'Use of Proceeds' and 'Certain Transactions.'
 
                                       17
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto contained
elsewhere in this Prospectus. The following discussion may contain certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. See 'Special Note Regarding Forward-Looking Statements.'
 
OVERVIEW
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products.
 
     During the period from 1992 to 1997, the Company experienced significant
growth, with net sales increasing from $50 million in 1992 to $220 million in
1997. The increase in net sales was primarily due to the introduction of three
sterile, unit dose inhalation solution products: albuterol sulfate in 1992,
cromolyn sodium in 1994, and ipratropium bromide in 1997. In addition, Dey has
maintained annual gross margins of between 61.4% and 74.2% through the
introduction of new products and by capturing large market shares during such
period.
 
     The Company's resources are now directed toward branded and patented
products. This strategy requires a significant investment in research and
development. The Company has invested heavily in research and development
projects, including 1997 research and development spending of $20 million; the
Company plans to continue to invest significant amounts in research and
development. The Company has also begun to enhance its sales and marketing
infrastructure to support this strategy. In July 1997, a new clinical sales
force was established in connection with the acquisition of the exclusive
marketing rights for EpiPen(Registered) brand products. At the current time,
this sales force is dedicated primarily to the sale of EpiPen(Registered) brand
products, but the Company plans to expand this group to support new branded and
patented products.
 
     The Company's net sales and net income may vary significantly from period
to period, as well as in comparison to corresponding prior periods, as a result
of a variety of factors, including but not limited to, the timing of
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or its
competitors, the seasonal severity of respiratory diseases (which generally are
more pervasive during the first and fourth quarters of the calendar year), the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
 
                                       18
<PAGE>
     The following table sets forth, for the periods represented, the percentage
of net sales and percentage changes by certain line items in the Company's
Consolidated Statement of Income:
 
<TABLE>
<CAPTION>
                                                                                   PERCENTAGE OF NET SALES
                                                                          -----------------------------------------
                                                                                                      THREE MONTHS
                                                                                YEARS ENDED              ENDED
                                                                               DECEMBER 31,            MARCH 31,
                                                                          -----------------------    --------------
                                                                          1995     1996     1997     1997     1998
                                                                          -----    -----    -----    -----    -----
<S>                                                                       <C>      <C>      <C>      <C>      <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales..............................................................   100.0%   100.0%   100.0%   100.0%   100.0%
Cost of sales..........................................................    28.5     38.6     35.1     30.5     36.0
                                                                          -----    -----    -----    -----    -----
Gross profit...........................................................    71.5     61.4     64.9     69.5     64.0
Selling, marketing and distribution....................................     8.3      8.4      9.9      7.5      9.6
General and administrative expenses....................................     6.3      5.8      5.1      4.5      4.3
Research and development...............................................     9.2     11.6      9.1      6.8      3.5
                                                                          -----    -----    -----    -----    -----
Income from operations.................................................    47.7     35.6     40.8     50.7     46.6
Interest and other income, net.........................................     0.5      0.9      0.7      0.5      0.5
                                                                          -----    -----    -----    -----    -----
Income before taxes....................................................    48.2     36.5     41.5     51.2     47.1
Income taxes...........................................................   (19.8)   (15.0)   (16.9)   (20.8)   (19.1)
                                                                          -----    -----    -----    -----    -----
Net income.............................................................    28.4%    21.5%    24.6%    30.4%    28.0%
                                                                          -----    -----    -----    -----    -----
                                                                          -----    -----    -----    -----    -----
</TABLE>
 
     The following table summarizes the Company's operating results by quarter
for 1996 and 1997 and the first quarter of 1998:
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                   -----------------------------------------------------------------------------------------------
                                                                              DECEMBER
                                    MARCH 31,     JUNE 30,      SEPTEMBER        31,        MARCH 31,     JUNE 30,      SEPTEMBER
                                      1996          1996        30, 1996        1996          1997          1997        30, 1997
                                   -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                                           (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                <C>           <C>           <C>           <C>           <C>           <C>           <C>
Net sales........................      $45.4        $44.0          $37.1         $40.0     $    52.3     $    51.6         $57.6
Cost of sales....................      16.4          15.1          15.5           17.3          16.0          14.9          22.2
                                      -----         -----         -----          -----         -----         -----         -----
Gross profit.....................      29.0          28.9          21.6           22.7          36.3          36.7          35.4
Selling, marketing and
 distributon.....................       3.6           4.0           2.5            3.9           3.9           4.1           5.8
General & administrative
 expenses........................       2.2           2.3           2.7            2.4           2.4           2.6           2.7
Research and development.........       2.2           5.1           4.2            7.8           3.5           5.0           3.6
                                      -----         -----         -----          -----         -----         -----         -----
Income from operations...........      21.0          17.5          12.2            8.6          26.5          25.0          23.3
Interest and other income, net...       0.3           0.3           0.2            0.7           0.3           0.3           0.6
                                      -----         -----         -----          -----         -----         -----         -----
Income before taxes..............      21.3          17.8          12.4            9.3          26.8          25.3          23.9
Income taxes.....................      (8.7)         (7.3)         (5.1)          (3.9)        (10.9)        (10.3)         (9.7)
                                      -----         -----         -----          -----         -----         -----         -----
Net Income.......................     $12.6         $10.5         $ 7.3          $ 5.4       $  15.9       $  15.0         $14.2
                                      -----         -----         -----          -----         -----         -----         -----
                                      -----         -----         -----          -----         -----         -----         -----
Net income per share (basic).....     $0.17         $0.14         $0.10          $0.07       $  0.22       $  0.21         $0.19
                                      -----         -----         -----          -----         -----         -----         -----
                                      -----         -----         -----          -----         -----         -----         -----
 Weighted average common shares
 outstanding.....................  72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000
                                   ----------    ----------    ----------    ----------    ----------    ----------    ---------- 
                                   ----------    ----------    ----------    ----------    ----------    ----------    ---------- 
<CAPTION>
                                      THREE MONTHS ENDED
                                   -------------------------
                                    DECEMBER
                                       31,        MARCH 31,
                                      1997          1998
                                   -----------   -----------
 
<S>                                <C>           <C>
Net sales........................      $58.3     $    71.1
Cost of sales....................      24.1           25.6
                                      -----          -----
Gross profit.....................      34.2           45.5
Selling, marketing and
 distributon.....................       7.9            6.9
General & administrative
 expenses........................       3.6            3.0
Research and development.........       8.0            2.5
                                      -----          -----
Income from operations...........      14.7           33.1
Interest and other income, net...       0.5            0.4
                                      -----          -----
Income before taxes..............      15.2           33.5
Income taxes.....................      (6.3)         (13.6)
                                      -----          -----
Net Income.......................     $ 8.9        $  19.9
                                      -----          -----
                                      -----          -----
Net income per share (basic).....     $0.12        $  0.27
                                      -----          -----
                                      -----          -----
Weighted average common shares
 outstanding.....................  72,885,000    72,885,000
                                   ----------    ----------
                                   ----------    ----------
</TABLE>
 
                                       19
<PAGE>
RESULTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
 
     Net sales increased by 35.9%, from $52.3 million in the first quarter of
1997 to $71.1 million in the first quarter of 1998. The increase resulted
primarily from an increase in net sales of ipratropium bromide inhalation
solution which totaled $25.1 million during the first quarter of 1998, compared
to $10.8 million during the first quarter of 1997 when the product was
originally introduced. The first three months of 1998 also include $5.8 million
in net sales of EpiPen(Registered) and other new products which were not
introduced into the Company's product line until July 1997.
 
     Gross profit increased by 25.0%, from $36.3 million to $45.5 million. Gross
profit as a percentage of net sales decreased from 69.5% to 64.0%. The decline
in gross profit percentage was the net effect of the following factors. Several
of the Company's unit dose inhalation solution products experienced a decline in
gross profit margins. In addition, third party manufactured products with lower
gross profit margins than with self-manufactured products were added to the
product mix in the second half of 1997. Partially offsetting these factors were
increased net sales of ipratropium bromide inhalation solution which, as a new
product, had a relatively high gross profit margin.
 
     Selling, marketing and distribution expenses increased by 74.1%, from $3.9
million to $6.9 million. As a percentage of net sales, selling, marketing and
distribution expenses increased from 7.5% to 9.6%. This increase was primarily
due to an expanded sales force and related advertising expenses incurred to
introduce new products such as EpiPen(Registered) and tablets for the treatment
of hypothyroidism. Effective as of August 1, 1998, the Company expects to
transfer its hypothyroid product line to an affiliated company and, thereafter,
sales and related costs of such product line will no longer be reflected in the
results of operations of the Company.
 
     General and administrative expenses increased by 28.6%, from $2.4 million
to $3.0 million. As a percentage of net sales, general and administrative
expenses were 4.3% and 4.5% for the three months ended March 31, 1998 and 1997,
respectively.
 
     Research and development expenses decreased by 29.8%, from $3.5 million to
$2.5 million. The net decrease was a result of two NDA development projects
moving out of the costly clinical trial phase of development in early 1998. The
Company anticipates increased levels of research and development spending in
future quarters in order to support planned product development projects.
 
     Income from operations increased by 24.7%, from $26.5 million to $33.1
million, as a result of the above factors.
 
     Income taxes increased by 24.5%, from $10.9 million to $13.6 million. The
effective tax rate was 40.6% and 40.5% for the three months ended March 31, 1997
and 1998, respectively.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
 
     Net sales increased by 32.0%, from $166.5 million to $219.8 million. The
increase resulted primarily from the introduction of ipratropium bromide
inhalation solution in 1997, which generated $50.7 million in net sales, and the
acquisition of exclusive marketing rights for EpiPen(Registered) products, which
produced $19.2 million in net sales during 1997. This increase was partially
offset by a $15.1 million decrease in net sales of cromolyn sodium inhalation
solution due to a declining market and increased price competition.
 
     Gross profit increased by 39.5%, from $102.2 million to $142.6 million.
Gross profit as a percentage of net sales increased from 61.4% to 64.9% due to
the introduction of ipratropium bromide inhalation solution and due to an
improved gross profit margin on albuterol MDI.
 
     Selling, marketing and distribution expenses increased by 54.6%, from $14.0
million to $21.7 million. This increase was primarily attributable to increased
personnel and advertising costs associated with the addition of new products.
Advertising expenses and additional sales force required to market
EpiPen(Registered)and other new products in 1997 totaled approximately $1.9
million. The Company's line of hypothyroid products gave rise to additional
selling, marketing and distribution expenses totaling $1.8 million with minimal
related revenues.
 
                                       20
<PAGE>
     General and administrative expenses increased by 18.1%, from $9.6 million
to $11.3 million, due primarily to increased costs related to the continued
growth of the Company. As a percentage of net sales, general and administrative
expenses decreased from 5.8% to 5.1%.
 
     Research and development expenses increased by 4.1%, from $19.3 million to
$20.1 million. As a percentage of net sales, research and development decreased
from 11.6% to 9.1%.
 
     Income from operations increased by 50.9%, from $59.3 million to $89.5
million, as a result of the above factors.
 
     Income taxes increased by 48.6%, from $25.0 million to $37.2 million. The
effective tax rate was 41.1% and 40.8% for 1996 and 1997, respectively.
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
 
     Net sales increased by 21.8%, from $136.7 million to $166.5 million. The
increase resulted primarily from $14.0 million in net sales due to the
introduction of albuterol MDI, a $9.8 million increase in net sales of cromolyn
sodium inhalation solution and a $5.0 million increase in albuterol sulfate
inhalation solution net sales.
 
     Gross profit increased by 4.6%, from $97.7 million to $102.2 million. Gross
profit as a percentage of net sales decreased from 71.5% to 61.4%. The decrease
in gross profit percentage resulted primarily from the loss on albuterol MDI
products partially offset by a high gross margin on cromolyn sodium inhalation
solution. Because of the albuterol MDI losses, during 1996, the Company
renegotiated the supply agreements on terms more favorable to the Company.
Excluding albuterol MDI products, the 1996 gross profit percentage would have
been 69.3%, compared to 71.5% in 1995.
 
     Selling, marketing and distribution expenses increased by 23.5%, from $11.4
million to $14.0 million. As a percentage of net sales, selling, marketing and
distribution expenses were 8.4% and 8.3% in 1996 and 1995, respectively.
 
     General and administrative expenses increased by 12.0%, from $8.5 million
to $9.6 million, resulting primarily from increased costs related to the
continued growth of the Company. As a percentage of net sales, general and
administrative expenses decreased from 6.3% to 5.8%.
 
     Research and development expenses increased by 53.7%, from $12.5 million to
$19.3 million. This increase was primarily attributable to increased spending on
clinical trials.
 
     Income from operations decreased by 9.0%, from $65.2 million to $59.3
million, as a result of the above factors.
 
     Income taxes decreased by 7.6%, from $27.1 million to $25.0 million. The
effective tax rate was 41.0% and 41.1% for 1995 and 1996, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At March 31, 1998, the Company's working capital totaled $44.0 million,
compared to $38.7 million, $17.3 million and $31.3 million at December 31, 1997,
1996 and 1995, respectively. Cash and cash equivalents were $38.2 million at
March 31, 1998, compared to $18.6 million, $5.7 million and $5.3 million at
December 31, 1997, 1996 and 1995, respectively.
 
     The Company's primary source of cash has been from operating activities.
Net cash provided by operating activities during the three months ended March
31, 1998 totaled $28.5 million, consisting primarily of net income of $19.9
million and an increase in income taxes payable of $13.3 million. Net cash
provided by operating activities during 1997 was $56.0 million compared to $51.3
million and $48.4 million in 1996 and 1995, respectively. The increase in cash
provided by operating activities in 1997 was primarily the result of a
significant increase in net income, offset somewhat by increases in receivables
and inventory levels.
 
     During the three month period ended March 31, 1998, research and
development expenses totaled $2.5 million, compared to $3.5 million during the
three month period ended March 31, 1997. During 1997, research and development
expenses totaled $20.1 million, compared to $19.3 million and $12.5 million in
1996 and 1995, respectively. The Company plans to spend substantial amounts of
capital over the next several years to continue the research and development of
pharmaceutical products.
 
     The Company's primary uses of cash from operations to date have been for
the payment of dividends and the funding of expansion of manufacturing and other
facilities.
 
                                       21
<PAGE>
     During the three month period ended March 31, 1998, the Company paid cash
dividends to Lipha Americas, the Company's sole stockholder, totaling $13.9
million. During 1997, 1996 and 1995, the Company paid cash dividends to Lipha
Americas totaling $25.0 million, $38.9 million and $31.0 million, respectively.
On June 26, 1998, the Company declared a dividend of $24.45 million to Lipha
Americas, of which $24.43 million was paid on June 30, 1998. On June 30, 1998,
the Company declared a dividend of $4.9 million to Lipha Americas payable on
August 14, 1998 and on July 21, 1998, the Company declared a dividend of $225
million to Lipha Americas payable on August 14, 1998. The Company intends to
declare a further dividend of $4.9 million to Lipha Americas prior to September
30, 1998. Apart from the above, the Company does not anticipate declaring
additional dividends in the foreseeable future. See 'Dividend Policy' and
'Certain Transactions.'
 
     The Company invested $2.8 million in property, plant and equipment during
the three month period ended March 31, 1998, compared to $16.1 million, $18.0
million and $10.4 million in 1997, 1996 and 1995, respectively. The Company's
future capital expenditure plans include investing approximately $73.0 million
during the period 1998 through 2001 to expand its manufacturing facilities and
technologies.
 
     The Company expects that its available cash, cash generated from operations
and, as necessary, borrowing under its credit facility with its parent, Merck
KGaA (see 'Certain Transactions'), will be adequate to satisfy its anticipated
working capital and other capital requirements through the foreseeable future.
However, in the event the Company's capital and other expenditures exceed
internally generated funds, it may be necessary to raise funds through
additional external or related party borrowings or the issuance of debt or
additional equity securities. There can be no assurance, in such case, that
adequate funds, whether through the financial markets or from other sources,
will be available on terms acceptable to the Company or at all.
 
NEW ACCOUNTING STANDARD
 
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
 
YEAR 2000 COMPLIANCE
 
     The Company is reviewing its internal computer systems to ensure these
systems are adequately able to address the issues expected to arise in
connection with the Year 2000. These issues include the possibility that
software which does not have the capacity to recognize four digits in a date
field may no longer function properly when use of that date becomes necessary.
 
     The Company expects to implement the systems and programming changes
necessary to address Year 2000 issues on an enterprise-wide basis and is
currently reviewing the costs of such actions. The Company expects such
modifications to its internal systems will be made on a timely basis, and
presently believes that, with modifications to existing software or converting
to new software, the Year 2000 issue will not pose significant operational
problems for the Company's computer systems; however, there can be no assurance
there will not be a delay in, or increased costs associated with, the
implementation of such changes, and the Company's inability to implement such
changes could have an adverse effect on future results of operations.
 
     The Company has not fully determined the extent to which it may be impacted
by third parties' systems, which may not be Year 2000-compliant. The Year 2000
computer issue creates risk for the Company from third parties with whom the
Company deals on financial transactions worldwide. While the Company has begun
efforts to seek reassurance from its suppliers and service providers, there can
be no assurance that the systems of other companies that the Company deals with
or on which the Company's systems rely will be timely converted, or that any
such failure to convert by another company could not have an adverse effect on
the Company.
 
                                       22
<PAGE>
                                    BUSINESS
 
OVERVIEW
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products. The U.S. market in 1997 for inhalation therapy prescription
pharmaceutical products was estimated by IMS to have been approximately $3.4
billion, consisting of nebulizer inhalation solutions ($0.4 billion), metered
dose inhalers ($1.7 billion), intranasal products ($0.9 billion) and other
inhalation therapy products ($0.4 billion). Dey had net sales of $220 million in
1997.
 
     Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
 
     Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
NDAs and two ANDAs before the FDA. These include two NDAs for sterile, unit dose
inhalation solution products for the treatment of asthma and COPD, one NDA for a
patented product for the treatment of IRDS and two ANDAs for mechanical pump
nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
 
     Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, HMOs and home health care
organizations, as well as directly to physicians, including allergists,
pulmonologists and pediatricians. Dey currently employs approximately 100 people
in marketing and sales, and expects that number to increase significantly as new
products are launched. Dey distributes its products throughout the United States
from two locations: its manufacturing and distribution facility in Napa,
California and its distribution center in Allen, Texas.
 
INDUSTRY
 
     Dey focuses on the segments of the pharmaceutical industry relating to
respiratory diseases, such as COPD, asthma, IRDS and cystic fibrosis, and
respiratory-related allergies, such as anaphylactic reactions and rhinitis.
 
  Respiratory Diseases
 
     Chronic Obstructive Pulmonary Disease.  Chronic bronchitis and emphysema
constitute the majority of COPD cases. The primary risk factor for the
development of COPD is cigarette smoking. In COPD, airflow limitation is chronic
due to the irreversible nature of the damage caused by the disease. COPD affects
about 5% of the U.S. population (12-15 million people) and is the fourth leading
cause of death in the United States. The number of COPD cases is expected to
increase through the end of the century as the population ages and as the number
of smokers increases in the critical ages associated with COPD (65-84 years).
Ipratropium bromide is increasingly the preferred first line method of treatment
for COPD and has replaced albuterol sulfate as the preferred treatment in recent
years. However, there are numerous new products in development for the treatment
of COPD, including new chemical entities, new corticosteroid compounds,
long-acting bronchodilators and biotechnology products. Dey is developing a
combination product for the treatment of COPD.
 
                                       23
<PAGE>
     Asthma.  Asthma is a chronic inflammatory disorder of the airways. Airway
inflammation contributes to airway hyperresponsiveness, airflow limitation,
respiratory symptoms and disease chronicity. Asthma affects nearly 15 million
people in the United States, including almost 5 million patients under 18 years
of age. The prevalence and severity of asthma have increased over the past two
decades, and the disease was responsible for more than 5,500 deaths in the
United States in 1996. The goals of asthma therapy are directed toward achieving
normal pulmonary function and preventing exacerbations. Currently, the leading
pharmaceutical therapies for asthma in the United States are short-acting
bronchodilators (principally albuterol sulfate) for relief of acute symptoms,
inhaled anti-inflammatory agents including corticosteroids, and long-acting
bronchodilators such as salmeterol. Leukotriene antagonist compounds have been
introduced recently in the U.S., but at the present time these do not replace
the need for short-acting bronchodilators or corticosteroids. It is too soon to
predict what part these newer compounds will play in the overall asthma market.
A chiral form of albuterol sulfate may be available on the U.S. market soon and
reportedly may give rise to reduced side effects as compared to the existing
albuterol sulfate compound. Dey is seeking to expand its coverage of the asthma
market by developing new formulations of the bronchodilator albuterol sulfate
and of corticosteroids, as well as novel delivery systems for a variety of drug
products.
 
     Infant Respiratory Distress Syndrome.  IRDS results from a deficiency in
pulmonary surfactant and is a major cause of acute morbidity and mortality in
infants born at less than 30 weeks gestation. IRDS may also cause long term
respiratory and neurological problems. It affects about 50,000 premature infants
born in the United States each year. Treatment consists of supplemental oxygen,
mechanical ventilation and replacement of lung surfactant. Lung surfactants are
expected to remain the preferred treatment for IRDS in infants. The majority of
lung surfactants currently used in the United States are bovine-derived, while
in Europe the porcine-derived surfactant, Curosurf(Registered), is the market
leader. Dey has the exclusive marketing rights for Curosurf(Registered) in the
United States and Canada.
 
     Cystic Fibrosis.  Cystic fibrosis is an obstructive airway disorder that
affected approximately 30,000 people in the United States in 1997, with
approximately 1,000 new cases diagnosed each year. Current treatment is aimed at
symptom management, including reducing airway obstruction and inflammation,
controlling airway infection and improving nutritional status. Medications for
cystic fibrosis includes mucolytics (including acetylcysteine) and antibiotics.
There are numerous new products in development to treat cystic fibrosis. Among
these are gene therapy treatments which are believed to be several years away
from approval.
 
  Respiratory Allergies
 
     Anaphylaxis.  Anaphylaxis is an acute, systemic allergic reaction with a
variety of manifestations, from a mild reaction which affects only the skin, to
the most severe reaction, affecting many organ systems in the body. A full
anaphylactic attack is a medical emergency and is potentially life-threatening.
During an anaphylactic attack, the immune system mounts a series of chemical
reactions leading to symptoms such as swelling, particularly in the throat and
airways, as well as a sudden drop in blood pressure. Medications are the primary
cause of anaphylactic reactions, with more than 2,000 deaths each year in the
United States attributed to such reactions. Other common triggers of anaphylaxis
include insect stings, latex allergy and food allergies. It is estimated that up
to 4% of the U.S. population suffer from insect sting anaphylaxis, up to 6% of
the U.S. population are latex sensitive and up to 1.5% of U.S. adults and 5% of
U.S. children under 3 years of age experience food-related anaphylaxis.
Injectable epinephrine is recognized as the first line treatment for
anaphylaxis. Patients at risk are recommended to carry epinephrine on their
person, for use immediately to reverse symptoms when an attack occurs. The
EpiPen(Registered) line of products, which are marketed exclusively by the
Company and its licensees, are the only epinephrine products currently on the
U.S. market available in autoinjector form. Epinephrine is also available in the
United States in pre-filled syringes and in multi-dose vials.
 
     Allergic Rhinitis.  Allergic rhinitis can be perennial (caused by dust,
mold or animal allergens) or seasonal (caused by pollen). Exposure to allergens
(seasonal or perennial) causes the release of histamines and other chemical
mediators, which in turn causes rhinitis, the inflammation of the mucous
membrane lining the nasal passages. The resulting inflammation causes
congestion, a runny nose, sneezing and itching. In 1994, there were 26.1 million
cases of hay fever or allergic rhinitis reported. Pharmaceutical treatments for
allergic rhinitis include antihistamines, nasally-administered corticosteroids
and non-steroidal anti-inflammatory agents. Numerous new products have been
launched over recent years including combinations of oral antihistamines and
decongestants, 
 
                                       24
<PAGE>
new longer-acting corticosteroids and other products. In addition,
over-the-counter non-prescription products are widely used to treat this
disease. Dey is developing several products for use with its mechanical pump
delivery system, including novel formulations of corticosteroids to treat the
underlying inflammation.
 
  Inhalation Drugs and Delivery Systems
 
     In respiratory therapy for lung and airway diseases, drugs are administered
through inhalation, orally in capsule, tablet or liquid form or through
intravenous injection. The primary method of delivering pharmaceuticals to
patients with lung or airway diseases is through inhalation. The advantages of
inhalation therapy include delivery of the medication directly to the desired
site and a rapid onset of effect. The U.S. retail market for inhalation
pharmaceuticals used in the treatment of respiratory diseases was estimated by
IMS to be approximately $2.8 billion in 1997. The U.S. hospital market for such
inhalation pharmaceuticals was estimated by IMS to be approximately $612 million
during such period.
 
     There are four distinct categories of inhalation delivery systems
available:
 
     Metered dose inhalers ('MDIs'), which consist of pressurized canisters
containing drug and propellant, represent the most common method of delivering
inhaled medications due to convenience. MDIs rely on pressurized gas which
aerosolizes a drug through a metering valve which dispenses a specified amount
of drug. MDIs are small, portable and convenient and can be breath-activated.
However, the pressurized gas propellant used in most MDIs relies on the use of
chlorofluorocarbons ('CFCs'). The use of CFCs is expected to be substantially
phased out in the United States and prohibited as a propellent worldwide in the
coming years under international agreements that address concerns about ozone
destructive characteristics of CFC propellants. Accordingly, new propellants are
being developed as substitutes for CFCs. In 1997, the total U.S. market for
pharmaceuticals delivered by MDIs was estimated by IMS to be approximately $1.7
billion.
 
     Nebulization devices (using unit dose and multi-dose inhalation solutions)
are used to deliver aerosolized medication by compressing air to make vapor or
mist. Inhalation pharmaceuticals for nebulizers are packaged either in
multi-dose containers, from which each dose must be measured by bulb dropper and
transferred to the nebulizer, or unit doses, in which each dose is separately
packaged and can be poured directly into the nebulizer. Unit doses are
consistently accurate and more convenient than the multi-dose measuring process.
Nebulizers are popular with patients who have difficulty using MDIs because of
the coordination required to inhale and activate the MDI simultaneously. In
1997, the total U.S. market for pharmaceuticals delivered using nebulizers was
estimated by IMS to be approximately $400 million, with multi-dose solutions
accounting for approximately $52 million and unit dose solutions accounting for
approximately $348 million.
 
     Dry powder inhalers ('DPIs') are the newest inhalation delivery systems and
are being developed as alternatives to MDIs. DPIs deliver inhalation
pharmaceuticals in dry powder form and do not use environmentally harmful
propellants. In 1997, the total U.S. market for inhalation pharmaceuticals
delivered using DPIs was estimated by IMS to be approximately $9.0 million. This
delivery system is expected to grow in popularity as more DPI devices are
approved by the FDA as efficacious and cost effective alternatives to MDIs.
 
     Intranasal delivery systems are used to treat allergic rhinitis which is
primarily treated by delivering nasal corticosteroids, through either
pressurized or mechanical pump nasal sprays or by taking oral antihistamines and
decongestant drugs. In 1997, the total U.S. market for nasal sprays was
estimated by IMS to be approximately $885 million.
 
  Other Trends in Respiratory Care
 
     Current trends in the segments of the respiratory disease markets in which
Dey competes include the following two FDA proposals. In 1997, the FDA proposed
that all inhalation solutions marketed in the United States be sterile, as
opposed to preserved, which means that the markets for Dey's sterile, unit dose
inhalation solutions could expand if such proposal becomes law. Also in 1997,
the FDA proposed eliminating CFC propellants in MDIs and nasal sprays. Companies
are developing various products, including DPIs, to replace CFC propelled MDIs
and companies are increasingly developing nasal spray products that utilize
mechanical pump nasal spray delivery technology.
 
                                       25
<PAGE>
STRATEGY
 
     Dey's objective is to be a specialty pharmaceutical company focused on
respiratory diseases. The key elements of Dey's strategy to achieve this
objective are as follows:
 
     o  Focus on products for respiratory diseases.  The Company intends to
        continue its focus on developing, manufacturing and marketing
        prescription drugs for the treatment of respiratory diseases and
        allergies and the marketing of associated medical devices. The Company
        believes that this area of the pharmaceutical market constitutes an
        attractive and growing niche market. Through continued specialization
        and by continuing to refine its capabilities in research, development,
        manufacturing and marketing, the Company believes it can enhance its
        already strong market position.
 
     o  Enhance leadership of sterile, unit dose market.  The Company believes
        it is one of the leading U.S. manufacturers of sterile, unit dose
        inhalation products, which it manufactures at its facility in Napa,
        California using advanced aseptic form-fill-seal technology. The Company
        believes that sterile, unit dose inhalation products, because of their
        attractiveness in hospitals and other settings as a result of their
        decreased risk of contamination and dosage errors, will continue to have
        a prominent role in the specialty market for respiratory prescription
        drugs. The Company believes that each of its Key Products occupies a
        number one or two market share position in the U.S. Dey is actively
        engaged in developing new sterile, unit dose inhalation products.
 
     o  Develop additional and novel drug delivery technologies for use in the
        treatment of respiratory diseases. Following its success in respiratory
        care products based on sterile, unit dose technology, Dey has developed,
        and is continuing to invest significantly in, mechanical pump nasal
        spray and dry powder inhaler technologies as delivery systems for
        respiratory care drugs. Nasal spray technology capitalizes on the
        Company's strengths in the development of liquid and suspension
        formulations and provides a logical extension to its respiratory care
        product line. Dey believes that dry powder inhaler delivery systems will
        potentially replace a substantial portion of the market for MDI aerosols
        for existing as well as new compounds. Dey is currently developing a dry
        powder inhaler delivery system for use with a series of important
        respiratory drugs.
 
     o  Aggressively expand product line.  The Company intends to develop,
        in-license and acquire new products that treat respiratory diseases,
        represent unique market opportunities, offer some form of market
        protection (including patent rights, marketing exclusivity or orphan
        drug designation) and/or complement Dey's existing product lines.
 
     o  Leverage existing strengths in respiratory marketing, distribution and
        sales.  The Company has a comprehensive distribution and marketing
        network in its market niches. The Company intends to capitalize on its
        strong reputation with hospitals, physicians, pharmacists and
        distributors to expand its customer base and to introduce new products.
        Dey currently employs approximately 100 people in marketing and sales
        and expects that number to increase significantly as new products are
        launched.
 
                                       26
<PAGE>
DEY'S CURRENT PRODUCTS
 
     All information set forth below concerning the definition and size of the
various U.S. product markets in which Dey participates is based on figures
published by IMS for 1997. Data audited and reported by IMS does not include
sales to all markets in which Dey competes; most notably, with respect to Dey's
products, IMS does not audit and report sales to the home health care market and
the mail order market. Prospective investors are, accordingly, urged to review
such market data reported by IMS with caution, and should recognize that the
market share of any particular product marketed by Dey may be overstated or
understated when comparing such product's actual sales solely with the market
data reported by IMS.
 
     The table below provides information on significant products currently
marketed by Dey:
 
<TABLE>
<CAPTION>
                                                                                           1997 NET SALES
PRODUCT               DOSAGE FORM                                 PRINCIPAL INDICATIONS    (IN MILLIONS)
--------------------  -----------------------------------------   ----------------------   --------------
<S>                   <C>                                         <C>                      <C>
Albuterol sulfate     Unit dose inhalation solution               Asthma                       $ 82.7
                      CFC propelled inhalation aerosol            Asthma                       $ 12.7
                      Inhalation solution concentrate             Asthma                       $  7.0
Ipratropium bromide   Unit dose inhalation solution               COPD                         $ 50.7(1)
Cromolyn sodium       Unit dose inhalation solution               Asthma                       $ 30.8
EpiPen(Registered)    Autoinjector                                Anaphylaxis                  $ 19.2(2)
brand epinephrine
Dey-Pak(Registered)   Unit dose inhalation solutions              Nebulization diluents        $  8.3
sodium chloride
Acetylcysteine        Vial solution                               Cystic fibrosis              $  4.3
(Mucosil(Trademark))
Metaproterenol        Unit dose inhalation solution               Asthma                       $  2.6
sulfate
</TABLE>
 
------------------
(1) 1997 net sales represents sales commencing in February 1997 when the product
    was introduced by Dey.
 
(2) 1997 net sales represents sales commencing in July 1997 when Dey acquired
    the exclusive right to market this product.
 
     Albuterol Sulfate.  This product is a beta-adrenergic bronchodilator
indicated for relief of bronchospasm in patients with asthma. It is classified
as a quick-relief rescue medication. It works on the sympathetic pathway and
stimulates adrenergic receptors which result in relaxation of bronchial smooth
muscle. In 1997, the total U.S. market for all forms of albuterol sulfate
inhalation products to treat respiratory diseases was estimated by IMS to be
$549.7 million. Dey markets three separate albuterol sulfate products:
 
     o  Sterile, unit dose inhalation solution.  The FDA approved Dey's ANDA for
        this product in 1992. IMS reported that the U.S. albuterol sulfate unit
        dose market was approximately $119.2 million in 1997.
 
     o  MDI aerosol.  This product is an MDI form of albuterol that uses CFC
        propellant and is manufactured for the Company by Glaxo Wellcome, the
        manufacturer of the brand version of the product. IMS reported that the
        U.S. albuterol sulfate MDI market was approximately $381.2 million in
        1997.
 
     o  Inhalation solution concentrate.  This product is a multi-dose
        concentrate form of albuterol. It is also manufactured for the Company
        by Glaxo Wellcome. IMS reported that the U.S. market for albuterol
        sulfate inhalation solution concentrate was approximately $49.3 million
        in 1997.
 
     Ipratropium bromide sterile, unit dose inhalation solution.  This product
is an anticholinergic bronchodilator indicated as maintenance treatment for
bronchospasm associated with COPD. It works on the parasympathetic pathway and
blocks the bronchoconstrictive effects of acetylcholine primarily in the large
airways. Ipratropium is used as first-line therapy in COPD and is often
co-prescribed with albuterol because the combined therapy produces greater
improvements in lung function than either ipratropium or albuterol alone. 
 
                                       27
<PAGE>
This product is manufactured by Dey using aseptic form-fill-seal technology.
Dey's ANDA for this product was approved by the FDA in early 1997. IMS reported
that the U.S. ipratropium unit dose market was approximately $129.2 million in
1997.
 
     Cromolyn sodium sterile, unit dose inhalation solution.  This product is a
nonsteroidal, inhaled anti-inflammatory agent. It is a prophylactic agent
indicated for the management of bronchial asthma and exercise-induced
bronchospasm. Cromolyn is considered first line therapy in mild persistent
asthma and is frequently prescribed for children. The FDA approved Dey's ANDA
for this product in 1994. IMS reported that the U.S. cromolyn sodium unit dose
market was approximately $69.2 million in 1997.
 
     EpiPen(Registered) brand epinephrine autoinjectors.  In July 1997, Dey
acquired the exclusive rights to market the EpiPen(Registered) brand of products
from EM Industries, Inc. (a wholly-owned subsidiary of Merck KGaA). See 'Certain
Transactions.' The EpiPen(Registered) and EpiPen(Registered) Jr. brands of
epinephrine autoinjector, for self-administration of epinephrine in the event of
an anaphylactic reaction, are manufactured for the Company by Meridian. These
are currently the only epinephrine autoinjectors in the U.S. market, and
EpiPen(Registered) Jr. is the only epinephrine product in the United States
specifically for use by pediatric patients. Their automatic function is of great
importance during an anaphylactic attack, making them, the Company believes, the
leading products in the category. IMS reports the total U.S. market for
self-administered epinephrine injectors in 1997 to be approximately $41.2
million. See 'Risk Factors--Potential Product Liability; Risk of Product Recall'
and '--Competition.'
 
     Sodium chloride sterile, unit dose solutions.  Marketed under the brand
name Dey-Pak(Registered), Dey's sterile sodium chloride solutions are available
in a wide variety of concentrations and sizes, providing clinicians with
treatment flexibility. Sterile, unit dose sodium chloride solutions are used for
diluting concentrated inhalation solutions in nebulization therapy and in
tracheal care for patients who need periodic tracheal suctioning and cleaning.
Dey currently manufactures 3% and 10% sodium chloride solutions and the
remaining line of Dey-Pak(Registered) products of 0.9% and 0.45% sodium chloride
solutions and sterile water are manufactured for Dey by Automatic Liquid
Packaging, Inc. IMS reported that the total U.S. market for unit dose sodium
chloride inhalation solutions was approximately $7.1 million in 1997.
 
     Mucosil(Trademark) acetylcysteine inhalation solutions.  This product is a
mucolytic agent indicated as adjuvant therapy to break down mucous in patients
with chronic bronchopulmonary disease, pulmonary complication or cystic
fibrosis. It is also indicated for use as an antidote to acetaminophen
poisoning. The FDA approved Dey's initial ANDA for this product in 1985.
Mucosil(Trademark) is manufactured by Bayer for Dey and is marketed in 4ml, 10ml
and 30ml bottles in 10% and 20% concentrations and in 100ml bottles in 20%
concentration only. IMS reported that the U.S. acetylcysteine solutions market
was approximately $12.8 million in 1997.
 
     Metaproterenol sulfate sterile, unit dose inhalation solution.  This
product is a bronchodilator for use in bronchial asthma and for reversible
bronchospasm which may occur in association with bronchitis and asthma. This
product is similar to albuterol sulfate but has declined in use due to
replacement by newer products. IMS reported that the U.S. market for
metraproterenol sulfate inhalation solution was approximately $6.9 million in
1997.
 
     Other products.  Dey's other products, which complement its respiratory
product line, but contributed less than 0.6% to the Company's 1997 net sales,
include the following: the Astech(Registered) Peak Flow Meter, for which Dey
acquired the exclusive rights to market in July 1997 and which is used by asthma
patients to monitor lung function as part of an overall asthma management plan;
the ACE(Registered) Holding Chamber, a device for use with MDIs, permitting
better patient compliance when using pressurized MDI canisters for drug
delivery; and the EasiVent(Trademark) Holding Chamber introduced by Dey in May
1998 as an alternative to the ACE(Registered) Holding Chamber in the
non-hospital market.
 
PRODUCTS IN DEVELOPMENT
 
     The Company's approach to product development has permitted it to grow
rapidly while self-funding its research and development expenses through cash
generated from operations. The Company now has in development a variety of
products which require regulatory approval through different pathways,
including:

(i) generic products which do not require bioequivalency testing in connection
with seeking approval from the FDA through the ANDA process; (ii) generic
products which do require bioequivalency testing in connection with seeking
approval from the FDA through the ANDA process; (iii) products consisting of new
dosages, new 
 
                                       28
<PAGE>
formulations or combinations of currently marketed pharmaceutical ingredients,
which must be approved by the FDA through the NDA process but which may not
require certain preclinical data because the effects of the active ingredients
are well known and documented; and (iv) products which consist of new
formulations and/or new chemical entities which have never before been marketed,
which must be approved by the FDA through the NDA process.
 
     The Company is currently developing products in three dosage forms:
 
     Sterile, unit dose inhalation products.  Utilizing its core technology, the
Company has four sterile, unit dose inhalation solution products in various
stages of development. One of these products is subject to the ANDA approval
process. The remaining three products are subject to the NDA approval process.
Two of these NDA submissions were filed with the FDA in 1998. The other NDA
product in development utilizes patented formulations from LDS Technologies,
Inc., licensed exclusively to Dey.
 
     Mechanical pump nasal sprays.  The Company has five products in development
using mechanical pump nasal spray technology. Four products are subject to the
ANDA process, two of which are the subject of ANDAs filed with the FDA and two
of which are in development. One product will be subject to the NDA process and
uses the patented formulations of LDS Technologies, Inc., licensed exclusively
to Dey.
 
     Dry powder inhalers.  The Company is developing a series of products using
a proprietary dry powder inhaler delivery system being licensed from its
affiliate, Lipha. The first proposed product, albuterol sulfate, is scheduled to
begin pivotal clinical trials late in 1998 or early 1999. All DPI products will
be subject to the NDA approval process.
 
     Dey conducts its own formulation and product development work on new
products and may also fund such work by others on its behalf. All animal and
human studies are performed through other entities under contract with Dey. The
Company's research and development costs have increased from approximately $2
million in 1992 to approximately $20 million in 1997. The Company believes that
the amount it spends on research and development will continue to grow
significantly over the next several years.
 
                                       29
<PAGE>
     The table below lists and describes material products Dey currently has in
development and the status of each such product:
 
<TABLE>
<CAPTION>
PRODUCT                     DOSAGE FORM            PRINCIPAL INDICATIONS     STATUS
------------------------    -------------------    ---------------------     ---------------------------------
<S>                         <C>                    <C>                       <C>
Accuvent(Trademark)         Sterile, unit dose     Pediatric Asthma          NDA filed
                            inhalation
                            solutions
DuoNeb(Trademark)           Sterile, unit dose     COPD                      NDA filed
                            inhalation solution
Albuterol Mini-             Sterile, unit dose     Asthma                    Pre-ANDA filing
Dose(Trademark)             inhalation solution
LDS Technologies, Inc.      Sterile, unit dose     Asthma and COPD           In development
Product No.1                inhalation solution
Corticosteroid              Nasal spray            Rhinitis                  ANDA filed
suspension No.1
Nasal solution No.1         Nasal spray            Rhinitis                  ANDA filed
Nasal solution No.2         Nasal spray            Rhinitis                  Pre-ANDA filing
Corticosteroid              Nasal spray            Rhinitis                  In development
suspension No.2
Corticosteroid solution,    Nasal spray            Rhinitis                  In development
LDS formulation
Albuterol sulfate No.1      Dry powder inhaler     Asthma                    Pivotal clinical trial
                                                                             scheduled
Corticosteroid No.1         Dry powder inhaler     Asthma                    In development
Combination                 Dry powder inhaler     Asthma and COPD           In development
Curosurf(Registered)        Sterile vial           IRDS                      NDA filed
</TABLE>
 
  Sterile, unit dose inhalation solution products
 
     Using its expertise in sterile, unit dose solutions, Dey is developing
novel and proprietary formulations of certain products that will be manufactured
using aseptic form-fill-seal manufacturing technology. Pending completion of
development and NDA approval from the FDA, these products will be marketed by
Dey as branded drugs. Dey believes that the market for pharmaceuticals in
sterile, unit dose inhalation solution products could increase if FDA proposals
for such products to be sterile, as opposed to preserved, become law.
 
o  Accuvent(Trademark).  These products are new dosages of albuterol sulfate
   solution indicated for the prevention and relief of bronchospasms in patients
   with asthma and acute attacks of bronchial spasm in pediatric patients aged
   two and above. Three clinical studies have been conducted with respect to
   these products, including a pivotal study in over 300 pediatric patients. Dey
   filed an NDA for these products with the FDA in 1998.
 
o  DuoNeb(Trademark).  This product is a combination sterile, unit dose solution
   of albuterol sulfate and ipratropium bromide in premixed form. It is
   indicated for the prevention and relief of bronchospasm in patients with COPD
   who require more than one bronchodilator. Two clinical studies have been
   conducted in relation to this product, including a pivotal study in over 800
   patients. Dey filed an NDA for this product with the FDA in 1998.
 
o  Albuterol Mini-Dose(Trademark).  Dey is developing a new dosage of albuterol
   sulfate inhalation solution as an extension of the Company's existing
   albuterol sulfate product line. The product will be manufactured by a third
   party under the technical direction of Dey. Dey anticipates that it will file
   an ANDA for this product in 1999.
 
o  New products using formulations from LDS Technologies, Inc.  In 1997, Dey
   entered into an exclusive license agreement with LDS Technologies, Inc., the
   owner of certain patented formulation technology for difficult-to-solubilize
   drugs. Dey is currently developing a number of sterile, unit dose inhalation
   solutions  
                                       30
<PAGE>
   and one nasal spray using this technology. The principal indications for 
   these products will be the treatment of asthma, COPD and rhinitis. Under
   the terms of the license agreement, Dey will have worldwide rights to
   manufacture and market any such products developed by Dey and also to
   sublicense third parties to manufacture and market such products outside
   the United States. Dey expects that extensive animal toxicology studies,
   human dose response studies and large safety and efficacy studies will be
   required prior to any NDA submissions to the FDA.
 
  Nasal spray products
 
     As part of its respiratory strategy, the Company has recognized and
targeted a niche market for mechanical pump nasal spray products for the
treatment of rhinitis in allergy patients. Although many existing nasal spray
products on the market are not protected by patents, there are presently no
competitive generic equivalents being marketed. Dey now has the technology to
manufacture nasal sprays in suspension and solution formulations and currently
has several nasal spray products in development, including the following:
 
     o  Corticosteroid suspension No. 1.  This product contains a
        corticosteroid, which is an anti-inflammatory indicated for the
        treatment of seasonal, perennial and allergic rhinitis and is a generic
        version of a branded nasal spray currently on the U.S. market. Dey filed
        an ANDA for this product with the FDA in 1996; however, the FDA has yet
        to produce guidelines on what requirements must be met to determine
        bioequivalency for nasal sprays for the treatment of rhinitis.
 
     o  Nasal solution No. 1.  This product is an anti-inflammatory indicated
        for the treatment of seasonal, perennial and allergic rhinitis and is a
        generic version of a currently marketed product. Dey filed an ANDA for
        this product with the FDA in 1996. As a nasal spray solution,
        bioequivalency studies will not be required for Dey to obtain FDA
        approval for this product pursuant to its ANDA.
 
     o  Nasal solution No. 2.  This product is indicated to treat rhinitis and
        is a generic version of a currently marketed product. Dey anticipates
        that it will file an ANDA for this product with the FDA in late 1998. As
        a nasal spray solution, bioequivalency studies will not be required for
        Dey to obtain FDA approval for this product pursuant to its ANDA.
 
     o  Corticosteroid suspension No. 2.  This product contains a corticosteroid
        which is an anti-inflammatory agent indicated for the treatment of
        seasonal, perennial and allergic rhinitis and is a generic version of a
        currently marketed product. Dey is currently developing the formulation
        of this product in preparation for bioequivalency studies.
 
     o  Corticosteroid solution, LDS formulation.  This product is a solution of
        an existing corticosteroid being developed using the patented
        formulations licensed from LDS Technologies, Inc. The product is
        indicated for the treatment of seasonal, perennial and allergic
        rhinitis. Dey has not yet filed an IND application to begin clinical
        trials for this product. This product will be the subject of an NDA
        because the formulation has not been marketed previously.
 
  Dry powder inhaler products
 
     Dey believes that MDIs that rely on CFC propellants will be phased out in
the United States, and worldwide, because of the international agreements
concerning the elimination of CFC propellants. Accordingly, the Company has
elected not to develop drugs delivered by CFC propelled MDIs and instead has
focused on the development of DPI technology, which the Company believes will
capture a significant portion of the market for respiratory drugs administered
by inhalation.
 
     In conjunction with Lipha, the Company is engaged in a development project
for a DPI to deliver drugs to the bronchial tubes and lungs (the 'Dey/Lipha
DPI'). Lipha owns the patent rights on which the Dey/Lipha DPI is based; Dey and
Lipha are currently negotiating a license agreement whereby Dey would have an
exclusive license from Lipha to use such patent rights in the United States and
Canada to develop and market respiratory and broncho-pulmonary prescription
drugs for humans. Dey would also have the right to sublicense its rights under
the exclusive license. Two U.S. patents have been registered and two additional
patent applications have been filed in the United States relating to the
Dey/Lipha DPI. Patent applications have also been filed in Canada. It is
contemplated that additional patent applications may be filed.
 
                                       31
<PAGE>
     The Dey/Lipha DPI consists of a patented drug-carrier with multiple,
pre-measured individual doses, hermetically sealed and protected from the
environment. This device opens each individual dose compartment and delivers the
dose through inspiratory force created by the patient (breath-actuated on
demand). The Company expects the Dey/Lipha DPI to be compatible with nearly all
current bronchodilators, corticosteroids and non-steroidal anti-inflammatories
used in respiratory therapy. Dey believes that the Dey/Lipha DPI will have
certain advantages over MDIs and other DPIs currently being marketed or that are
under development, including the following:
 
     o  Convenience of operation.  The Dey/Lipha DPI is designed to deliver
        drugs to the bronchial tubes and lungs without the need for patient
        coordination between inhalation and activation of the drug delivery
        device. In contrast, MDIs require patient coordination to simultaneously
        activate the MDI and inhale.
 
     o  Accurate and consistent dosing.  The Dey/Lipha DPI is designed to
        deliver accurate and consistent drug doses over a wide range of
        inspiratory flow rates.
 
     o  Familiarity of design.  The Dey/Lipha DPI is similar to the size and
        shape of traditional MDIs for familiarity to patients, physicians and
        pharmacists.
 
     o  Dose-counting.  The Dey/Lipha DPI has an integral dose-counting
        mechanism which displays the quantity of remaining doses in the unit and
        indicates to the patients when it is time to get their prescriptions
        refilled.
 
     o  Disposability.  The Dey/Lipha DPI is disposable, which eliminates the
        time and risk associated with maintenance, reloading and cleaning to
        avoid contamination and any build-up of medication.
 
     Dey plans to develop a number of drug products for use in the Dey/Lipha DPI
that the Company intends to manufacture at its facility in Napa, California and
market itself or with others. These new products under development include the
following:
 
     o  Albuterol sulfate.  This is a product for relief of bronchoconstriction
        associated with asthma. The Company contemplates that numerous clinical
        studies for this product, including dose-ranging studies in adults and
        in children as well as safety and efficacy studies in adults and
        children, will be required for FDA approval of this product via the NDA
        process. Pivotal studies are scheduled to begin in late 1998 or early
        1999.
 
     o  Corticosteroids (multiple products).  As first-line therapy in asthma,
        these products would treat asthma with an anti-inflammatory agent
        delivered using the Dey/Lipha DPI. FDA guidelines will require a
        clinical study program over a 52-week period for each of these products.
 
     o  Combination products.  The Company believes combination therapy will
        play an important role in the future treatment of asthma, COPD and other
        respiratory diseases and has dedicated a portion of its development
        program to selected combination formulations. The Company has one such
        product in the formulation stage. However, because of the complexities
        associated with clinical studies of combination products, it is expected
        the filing of an NDA for a first product developed by Dey would not
        occur for at least several years.
 
  Other
 
     Curosurf(Registered).  In 1994, Dey obtained an exclusive license to market
Curosurf(Registered) in the United States and Canada from Chiesi Farmaceutici,
S.p.A., of Parma, Italy. Curosurf(Registered) is a porcine-derived lung
surfactant and is the leading lung surfactant on the European market indicated
for the prevention and cure of IRDS. Under the terms of the license agreement,
Dey submitted an NDA for Curosurf(Registered) to the FDA in 1996.
Curosurf(Registered) will be manufactured for Dey by Chiesi Farmaceutici, S.p.A.
at its facility in Italy.
 
MARKETING AND SALES
 
     The Company believes that its marketing and sales capabilities are among
its core competencies. Dey markets its products by emphasizing the advantages of
its unit dose and other products over competitive products. These product
features are communicated through advertising and promotion and through its
support of consumer advocacy groups. The Company believes that its marketing
expertise and the personal relationships of its sales force in the respiratory
marketplace are essential to the Company's business. By marketing a range of
respiratory care products to its audience, Dey has established its identity as a
specialty respiratory company.
 
                                       32
<PAGE>
     The Company's track record of successes has demonstrated that it can sell
its products across a broad range of distribution channels. Dey currently
employs 13 people in marketing and 91 in sales and expects this number to
increase to over 250 in total marketing and sales staff in the next several
years. It is anticipated that most of the planned growth in marketing and sales
staff will come in the clinical specialty sales group, which the Company intends
to expand to over 130 field representatives as new branded products are approved
by the FDA. Substantially all of the Company's sales are in the United States.
 
     Dey's specialty sales organization is structured to maximize coverage at
all levels of its target audience in the distribution and physician marketplace.
The Company focuses its marketing efforts on three target markets:
institutional/retail, managed care and clinical sales. The Company believes it
has developed a competitive advantage by focusing sales coverage at multiple
levels in the U.S. distribution chain as well as targeting specialty prescribers
such as allergists, pediatricians and pulmonologists. Following is a brief
description of each of Dey's three selling groups:
 
  Institutional/Retail Sales Group
 
     Dey's institutional/retail sales group has 44 representatives marketing its
respiratory products to hospital, retail and long term care accounts through
direct field contact and telephone account sales. This group markets Dey's
products to respiratory, pharmacy and emergency room departments of the hospital
market and small regional buying groups in the retail market.
 
     There are approximately 5,400 hospitals in the United States, nearly all of
which are regularly serviced by Dey through direct coverage by its sales force.
The Company believes that it has secured a strong position in the institutional
market through direct contact and contracting of all hospital group purchasing
organizations. This position in turn materially assists the Company in its
relationships with hospital pharmacists and respiratory therapists.
 
  Managed Care Sales Group
 
     Dey has dedicated six specialists to service its products directly to the
larger managed care organizations and HMOs throughout the United States. The
Company believes it is focusing on those accounts which represent the majority
of the potential for its current products. In addition, this group is
responsible for coverage of larger national chain pharmacies, home health care
and wholesaler accounts such as Walgreens, CVS, McKesson, Rite-Aid and Apria.
 
     Dey has built strong name recognition through this distribution system
because of its success with respiratory drugs and sodium chloride solutions. The
Company believes that this strong name recognition will enhance Dey's ability to
market its new products successfully in the future through the same network.
 
  Clinical Specialty Sales Group
 
     Dey's clinical specialty sales group consists of 33 sales persons, who
became employees of Dey in July 1997 when Dey acquired the rights to market the
EpiPen(Registered), Astech(Registered) peak flow meter and
ACE(Registered)/EasiVent(Trademark) holding chamber line of products. The
clinical specialty sales group is trained to promote the EpiPen(Registered),
Astech(Registered) peak flow meter and ACE(Registered)/EasiVent(Trademark)
holding chamber line of products to a physician base that includes allergists,
pulmonologists and pediatricians. The Company believes these relatively small
groups of physicians write a significant portion of respiratory prescriptions
for its current product line. The Company believes that marketing directly to
physicians creates prescriptions for Dey's products throughout its distribution
network.
 
     The clinical specialty sales group has an established reputation with
allergists, and Dey believes it has built strong name recognition with its
EpiPen(Registered) product line. The Company believes that this reputation,
together with the expansion of this selling force to pulmonologists and
pediatricians in anticipation of future new product approvals, will enhance
Dey's ability to market new products in the future. It is anticipated that this
sales group will be the platform sales force for new products in development
which are going through or will go through the NDA approval process. The Company
anticipates that this sales group will be increased to at least 130 positions
over the next several years.
 
                                       33
<PAGE>
MANUFACTURING
 
     The Company's principal manufacturing facility is located in Napa,
California, where in 1997 it manufactured approximately 76% (in dollar volume)
of the products that it marketed. See '--Properties.' The Napa facility is
constructed on a 25 acre plot owned by Dey and is registered with and licensed
by various regulatory authorities and complies with current Good Manufacturing
Practices ('cGMP') requirements prescribed by the FDA. The Napa facility
includes highly automated state-of-the-art equipment for manufacturing of
sterile pharmaceutical products, as well as associated laboratory testing
equipment and systems. The Company operates its manufacturing facility 24 hours
a day, 7 days a week.
 
     Dey believes it is a high-quality, low-cost provider of sterile, unit dose
inhalation solutions. The manufacture of high volumes of any sterile
pharmaceutical product requires state-of-the-art facility, equipment and testing
controls as well as expertise. Many of Dey's employees have extensive experience
in a variety of pharmaceutical companies and manufacturing applications for
sterile products. The Company believes that its Quality Control, Quality
Assurance and Regulatory Affairs systems are among the best in the industry for
the control and compliance of all operations with applicable compendia,
regulatory guidelines and the laws governing prescription drug development,
manufacture and marketing.
 
     Company-wide training and re-training programs are designed to ensure
compliance with procedures and regulations with particular emphasis on cGMP, FDA
guidelines, Occupational Safety and Health Act ('OSHA') and internal Company
policies.
 
GOVERNMENT REGULATION
 
     The FDA regulates the development, testing, formulation, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, marketing,
advertising and promotion of the Company's products. Product development and
approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources.
 
     To obtain NDA approval for a drug, the FDA requires each of the following
steps and possibly others to be conducted: (i) preclinical testing (laboratory
and possibly animal tests), (ii) the submission to the FDA of an Investigational
New Drug ('IND') Application, which must become effective before human clinical
trials may commence, (iii) adequate and well-controlled human clinical trials to
establish safety and efficacy, (iv) the submission to the FDA of an NDA and (v)
FDA approval of the NDA prior to any commercial sale or shipment.
 
     Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and stability of the
product and its formulation. The results of the preclinical tests are submitted
to the FDA as part of an IND Application and, unless the FDA objects, the IND
Application will become effective 30 days following its receipt by the FDA, and
the product is then permitted to be tested in humans.
 
     Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA (as part of the IND Application) that
detail the objectives of the study, the parameters used to monitor safety and
the efficacy criteria evaluated. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ('IRB') at the institution
at which the study is conducted. The IRB considers, among other things, the
design of the study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution.
 
     Clinical trials for new products are typically conducted in three
sequential phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a limited patient
population to determine the initial efficacy of the pharmaceutical for specific
targeted indications, to determine dosage tolerance and optimal dosage and to
identify possible adverse side effect and safety risks. Once a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.
 
                                       34
<PAGE>
     The results of the preclinical and clinical trials and all manufacturing,
chemistry, quality control and test methods data are submitted to the FDA in the
form of an NDA for marketing approval. FDA approval can take several months to
several years, or approval may be denied. The approval process can be affected
by a number of factors, including the severity of the side effects and the risks
and benefits demonstrated in clinical trials. Additional animal studies or
clinical trials may be requested during the FDA review process and may delay
marketing approval. After FDA approval for the initial indication, further
clinical trials are necessary to gain approval for the use of the product for
any additional indications. The FDA may also require post-marketing testing and
surveillance to monitor for adverse effects, which can involve significant
additional expense.
 
     ANDA approval is required for most drug products that are duplicates or
generic versions of 'original' drug products that have already been the subject
of FDA review and approval. The applicant is generally required to demonstrate
that its version is properly manufactured and labeled, is bioequivalent to the
original product and is stable after manufacture. ANDA approvals typically take
up to two years to obtain from the date of the initial application, although the
time required varies greatly depending upon the particular drug product and
dosage form involved. Furthermore, there can be no assurance that the FDA will
approve a particular ANDA at all, or that the FDA will agree that an ANDA is a
suitable vehicle through which to secure approval rather than an NDA, which
requires the conduct of lengthy clinical trials prior to submission.
 
     In the case of medical devices, often all that is required by the FDA to
approve a medical device is that a notification submission be filed prior to
marketing, demonstrating that the device is substantially equivalent to other
products already on the market. In other cases, involving more complex medical
devices of a type with which the Company is not currently involved, a premarket
approval application for a particular medical device, demonstrating that it is
both safe and effective for its intended uses, would have to be reviewed and
approved by the FDA prior to marketing. Typically, products which do not require
premarket approval take at least 60 days to receive FDA review and marketing
clearance.
 
     In addition to obtaining FDA approval for each product, each domestic drug
and device manufacturing facility must be registered with and approved by the
FDA. Dey's manufacturing facilities are subject to biennial (or more frequent)
inspections by the FDA and inspections by other jurisdictions and must comply
with cGMP for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP, and other
requirements, and are subject to periodic inspection by the FDA or by regulatory
authorities in such countries under reciprocal agreements with the FDA. The
Company has no foreign manufacturing facilities, but it does rely on foreign
manufacturers for the supply of certain products.
 
     For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on the Company. See 'Risk Factors--Uncertainty of
New Product Development and Approvals.'
 
     In addition to regulations enforced by the FDA, the manufacturing and
marketing of the Company's products are also subject to regulation under OSHA,
the Environmental Protection Act and other federal, state and local regulations.
 
COMPETITION
 
     The pharmaceutical market is highly competitive, and the Company is
required to compete with a number of substantially larger companies that have
greater financial, sales, marketing, regulatory and scientific resources. The
Company believes that the principal factors on which it competes are marketing
ability, product development capability, product quality, product manufacturing,
price and customer service. However, there can be no assurance that new product
developments by others will not render the Company's products uncompetitive or
obsolete. Certain hospitals, pharmacies and other groups seeking to control
costs through the formation of purchasing cooperatives have entered or may enter
into multi-year agreements with a single manufacturer. There can be no assurance
that the Company can successfully bid to become such a single source
manufacturer or can continue to offer its products at prices attractive to these
important customers. In addition, competitors may be able to complete the
regulatory processes for new products sooner than, and may begin to market their
products in advance of, the Company. There can be no assurance that the Company
will be able to develop successfully and introduce new products in order to
maintain its competitive position.
 
                                       35
<PAGE>
     In the U.S. inhalation solution product markets for the treatment of
respiratory disease, the Company directly competes with several other companies
which are currently engaged in developing, marketing and selling inhalation
solution products. For example, in the U.S. albuterol sulfate solutions market,
the Company's principal competitors are Glaxo Wellcome with its
Ventolin(Registered) brand solutions and Schering-Plough with its
Proventil(Registered) brand solutions and the generic versions thereof marketed
by Schering-Plough's Warrick division; in the U.S. ipratropium bromide
inhalation solution market, the Company's principal competitor is Boehringer
Ingelheim with its Atrovent(Registered) brand solution and the generic version
thereof marketed by Boehringer Ingelheim's Roxane division; in the U.S. cromolyn
sodium inhalation solution market, the Company's principal competitor is
Rhone-Poulenc Rorer with its Intal(Registered) brand solution and the generic
version thereof marketed by Rhone-Poulenc Rorer's Arcola division; in the U.S.
market for sterile sodium chloride solutions, the Company's principal competitor
is Automatic Liquid Packaging, Inc.; in the U.S. market for acetylcysteine
solutions, the Company's principal competitor is Bristol-Myers Squibb with its
Mucomyst(Registered) brand solutions and the generic versions thereof marketed
by Bristol-Myers Squibb's Apothecon division; and in the U.S. market for
metaproterenol sulfate inhalation solutions, the Company's principal competitor
is Boehringer Ingelheim with its Alupent(Registered) brand solutions and the
generic versions thereof marketed by Boehringer Ingelheim's Roxane division.
 
     In the market for anaphylactic reaction products, the Company's principal
competitor is Bayer. However, Bayer's competitive product is a pre-filled
syringe containing epinephrine, while Dey's EpiPen(Registered) brand products
are the only epinephrine autoinjectors currently on the U.S. market. The Company
is aware of one other company that is developing an epinephrine autoinjector,
which may be a future competitor to Dey's products if it receives FDA approval.
 
     Dey is aware of other companies in the United States which are attempting
to develop generic versions of mechanical pump nasal spray products. Currently
there are no such generic products marketed for the treatment of rhinitis. Dey
believes its products may be among the first such generic products approved for
the U.S. market. The major branded products available in the United States
include the following: Glaxo Wellcome's Beconase(Registered) AQ
(beclomethasone); Schering-Plough's Vancenase(Registered) AQ DS (beclomethasone
double-strength); Glaxo Wellcome's Flonase(Registered) (fluticasone);
Rhone-Poulenc-Rorer's Nasacort(Registered) AQ (triamcinolone); and Boehringer
Ingelheim's Atrovent(Registered) (ipratropium).
 
     The Company is aware of at least 10 companies worldwide currently involved
in the development, marketing or sales of DPIs for the treatment of respiratory
diseases. There are two types of DPIs currently in commercial use worldwide,
individual dose DPIs and multiple dose DPIs. In the United States, individual
dose DPIs currently marketed include the Spinhaler(Registered) (marketed by
Rhone-Poulenc-Rorer). The Turbuhaler(Registered), a multiple dose DPI marketed
in the United States and worldwide by Astra, is considered the current industry
standard. Dey anticipates that the Dey/Lipha DPI will be highly competitive with
the DPIs on the market now as well as those it is aware of in development.
 
LITIGATION
 
     The Company is not a party to any material litigation.
 
EMPLOYEES
 
     As of March 31, 1998, the Company employed 663 persons, of whom 15 were in
research and development; 104 in sales and marketing (excluding 25 people
involved in the sale and marketing of the Company's hypothyroid product line,
which the Company anticipates transferring to an affiliate as of August 1,
1998); 429 in manufacturing; 40 in distribution; and 50 in general and
administrative positions. The Company considers its employee relations to be
good.
 
PROPERTIES
 
     The principal corporate office and manufacturing facilities of the Company
are in Napa, California. These facilities currently include a total of
approximately 267,900 square feet. In 1997, the Company initiated construction
of an additional 68,800 square feet of manufacturing and laboratory space which
will be dedicated to products employing mechanical pump nasal sprays and the
Dey/Lipha DPI. This expansion, which is scheduled for completion early in 1999,
will increase the total size of the Napa facility to approximately 336,700
square feet. Upon completion, the total facility will comprise approximately
103,600 square feet of office space, 125,400 
 
                                       36
<PAGE>
square feet of manufacturing space, 16,300 square feet of laboratory space and
91,400 square feet of warehouse space. These facilities are owned by the
Company. See '--Manufacturing.'
 
     The Company has a distribution facility in Allen, Texas. This facility has
109,800 square feet of warehouse space and 14,200 square feet of office space.
This facility is leased under an agreement expiring in 2003 with provisions for
renewals.
 
INTELLECTUAL PROPERTY
 
     The Company holds licenses from third parties for certain patents, patent
applications and technology utilized in some of its products and products in
development. The generic, sterile, unit dose inhalation solution products
currently manufactured by the Company are not protected by patents.
 
     The branded products sold by Dey are sold under a variety of trademarks.
While the Company believes that it has valid proprietary interests in all
currently used trademarks, only Dey-Pak(Registered) is registered with the
United States government as a trademark in the name of the Company. However, Dey
has filed applications with the United States government to register the
trademarks EasiVent(Trademark), Accuvent(Trademark) and DuoNeb(Trademark). The
Company in-licenses the trademarks EpiPen(Registered), Astech(Registered),
ACE(Registered) and Curosurf(Registered).
 
     The Company also relies upon trade secrets, unpatented proprietary know-how
and continuing technological innovation to develop its competitive position. The
Company enters into confidentiality agreements with certain of its employees
pursuant to which such employees agree to assign to the Company any inventions
relating to the Company's business made by them while in the Company's employ.
See 'Risk Factors--Uncertainty of Enforceability of Patents, Proprietary Rights
and Trademarks.'
 
COMPANY STRUCTURE
 
     Dey, Inc. has two subsidiaries that were formed in 1993. Dey Limited
Partner, Inc. is a Delaware corporation and is wholly-owned by Dey, Inc. Dey,
L.P. is a Delaware limited partnership in which Dey, Inc. is the general partner
with a 1% partnership interest and Dey Limited Partner, Inc. is a limited
partner with a 99% partnership interest. All of Dey's business is conducted, and
all of Dey's assets are held, by Dey, L.P.
 
COMPANY HISTORY
 
     In 1977, Dey Laboratories, Inc. was incorporated as a California
corporation and established a successful business manufacturing and marketing
sterile, unit dose bronchodilators for inhalation, packaged in plastic vials,
and unit dose sodium chloride solution.
 
     In 1988, Dey Laboratories, Inc. was acquired by Lipha Pharmaceuticals,
Inc., a wholly-owned subsidiary of Lipha. Lipha Pharmaceuticals, Inc. was
incorporated as a Delaware corporation in 1987. In 1988, Dey Laboratories, Inc.
and Lipha Pharmaceuticals, Inc. were merged with the surviving entity being
Lipha Pharmaceuticals, Inc., whose name was changed to Dey Laboratories, Inc. In
1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Shareholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha. In June 1998, the name of Dey Laboratories, Inc. was
changed to Dey, Inc.
 
     In 1998, Lipha transferred all of its shares in Lipha Americas to
Merck-Lipha, a 99.53% owned subsidiary of Merck KGaA.
 
                                       37
<PAGE>
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
     The executive officers and directors of the Company, and their ages as of
July 15, 1998, are as follows:
 
<TABLE>
<CAPTION>
NAME                          AGE    POSITION
---------------------------   -----  ------------------------------------------------------------------
<S>                           <C>    <C>
Charles A. Rice............    47    Director, President and Chief Executive Officer
Pamela R. Marrs............    44    Director, Executive Vice President and Chief Financial Officer
Robert F. Mozak............    57    Executive Vice President, Sales & Marketing
Gary L. Michaud............    50    Executive Vice President of Operations
Bernhard Scheuble..........    44    Director
Jean-Noel Treilles.........    53    Director
Peter A. Wriede............    54    Director
</TABLE>
 
     Charles A. Rice has been a director of the Company since January 1990 and
has been President and Chief Executive Officer of Dey since August 1992. Prior
to that, he served as Chief Operating Officer of Dey from 1991 to 1992, as Vice
President of Operations from 1988 to 1991 and as Vice President of Quality
Assurance from 1987 to 1988. Prior to joining Dey, Mr. Rice worked for
Kendal-McGaw (formerly American-McGaw) in a variety of corporate and local
quality assurance and quality control positions.
 
     Pamela R. Marrs has been a director of the Company since July 1998 and has
been Executive Vice President and Chief Financial Officer since February 1997.
Prior to that, she was Vice President of Finance and Chief Financial Officer
from 1989 to 1997. Prior to joining Dey, Ms. Marrs worked for Ernst & Young as a
Senior Manager.
 
     Robert F. Mozak has been Executive Vice President, Sales and Marketing
since February 1997. Prior to that, he served as Vice President, Sales and
Marketing of Dey from 1989 to 1996. Prior to joining Dey, from 1971 to 1989, Mr.
Mozak worked for 3M Company and held various executive positions, including
Director, Group Business Development (Healthcare Group), General Business Unit
Manager (Personal Care Products Division) and Director, Sales and Marketing
(Personal Care Products Division).
 
     Gary L. Michaud has been Executive Vice President of Operations since July
1998. Prior to that, he was Vice President of Operations of Dey from 1993 to
1997, Director of Manufacturing from 1991 to 1993 and Director of Engineering
from 1988 to 1991. Prior to joining Dey, Mr. Michaud worked for Baxter in a
variety of engineering positions.
 
     Prof. Dr. Bernhard Scheuble has been a director of Dey since July 1998.
Prof. Dr. Scheuble is President and Chief Executive Officer of the
Pharmaceutical Division of Merck KGaA and a General Partner and Member of the
Executive Board of Merck KGaA and E. Merck. Prior to that, he was Deputy Member
of the Executive Board of Merck KGaA in 1997, Senior Vice President and Head of
the Ethical Pharmaceutical Division from 1996 to 1997, Vice President, Pharma
International Business from 1995 to 1996 and General Manager, Liquid Crystals
Unit, from 1993 to 1994. Prof. Dr. Scheuble is a member of the Board of
Directors of Pharmaceutical Resources, Inc., an affiliate of Merck KGaA.
 
     Jean-Noel Treilles has been a director of the Company since June 1991. Mr.
Treilles has been Chairman, President and CEO of Merck-Lipha S.A. and of Lipha
S.A. (formerly Laboratoires Albert Rolland), both French pharmaceutical
companies, since 1993. He has been a Director of Lipha Americas since 1991 and
Chairman and CEO of Lipha Americas since 1993.
 
     Dr. Peter A. Wriede has been a director of the Company since July 1998. He
is presently President and CEO of EM Industries, Inc., an affiliate of Merck
KGaA, as well as the Regional Manager, North America for Merck KGaA. From 1994
to 1998 Dr. Wriede held the position of Divisional Director and Vice President
for Merck KGaA in charge of the worldwide pigments and cosmetics division and,
from 1987 to 1994, he was Group Vice President in charge of the specialty
chemicals division of EM Industries, Inc.
 
                                       38
<PAGE>
BOARD COMMITTEES
 
     The Board of Directors has two standing committees, a Compensation
Committee and an Audit Committee, each of which was formed in             .
 
     Audit Committee.  The Audit Committee will meet with the Company's
independent public accountants to discuss the scope and results of their
examination of the books and records of the Company. It will also meet with the
independent public accountants to discuss the adequacy of the Company's
accounting and control systems. The Committee will review the audit schedule and
consider any issues raised by any member of the Committee, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. The Audit
Committee consists of Messrs.            (Chairman),            and            .
 
     Compensation Committee.  The Compensation Committee will establish overall
employee compensation policies and recommend major compensation programs to the
Board. The committee will also administer the Company's incentive plan (see
'Employee Plans') and will review and approve compensation of directors and
corporate officers, including bonus compensation and stock option and other
stock awards. The Compensation Committee consists of Messrs.            ,
           and            .
 
DIRECTOR COMPENSATION
 
     Outside directors will receive a meeting fee of $3,000 for each meeting of
the Board attended and a meeting fee of $1,000 for each meeting attended as a
member of a Board committee at a time other than at a regular Board meeting.
 
EXECUTIVE OFFICER COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
     The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and the four other most highly compensated
executive officers (the 'Named Officers') by the Company or its subsidiaries
during 1997:
 
<TABLE>
<CAPTION>
                                            ANNUAL COMPENSATION                          LONG-TERM COMPENSATION AWARDS
                              ------------------------------------------------    --------------------------------------------
                                                                                    PAYOUTS
                                                                                  (PAYMENT OF
NAME AND                                                        OTHER ANNUAL      VESTED PRIOR                    ALL OTHER
PRINCIPAL POSITION            YEAR    SALARY($)    BONUS($)    COMPENSATION($)    AWARDS) ($)     AWARDS($)    COMPENSATION($)
---------------------------   ----    ---------    --------    ---------------    ------------    ---------    ---------------
<S>                           <C>     <C>          <C>         <C>                <C>             <C>          <C>
Charles Rice
  President and CEO........   1997     244,583      165,632         10,250(2)           --            --             127
Alan Kaplan
  Vice President of
  Research and
  Development(1)...........   1997     188,102       91,000        202,732(3)           --            --             245
Robert Mozak
  Executive Vice President
  of Sales and Marketing...   1997     174,316       91,000         10,250(2)           --            --             224
Pamela Marrs
  Executive Vice President
  and CFO..................   1997     163,750       91,000         10,250(2)           --            --              47
Gary Michaud
  Vice President of
  Operations...............   1997     149,460       91,000         10,250(2)           --            --              72
</TABLE>
                                                        (Footnotes on next page)
 
                                       39
<PAGE>
(Footnotes from previous page)

------------------
(1) Dr. Kaplan resigned in February 1998. Since resigning, Dr. Kaplan has served
as a consultant to Dey in a research and development capacity.
 
(2) Represents car allowance.
 
(3) Represents $10,250 car allowance and $192,482 in relocation compensation.
 
EMPLOYEE PLANS
 
     Lipha Americas Employees' Retirement Plan. The Lipha Americas Employees'
Retirement Plan (the 'Retirement Plan') is a defined benefit plan for the
benefit of eligible employees, including employees of the Company. A
participant's normal retirement benefit is equal to 32% of the participant's
average pay up to the participant's covered compensation level plus 45% of such
pay above the participant's covered compensation level, provided the participant
has completed 20 years of service upon reaching his or her normal retirement
date. The Retirement Plan defines normal retirement date as the later of age 65
or 5 years of participation. A participant may receive an actuarially reduced
benefit once he or she attains age 55 and has completed 10 years of service. If
a participant retires after his or her normal retirement date, his or her
benefit is computed under the Retirement Plan's pension formula based on the
participant's covered compensation, average pay and service as determined on the
participant's actual retirement date. The Retirement Plan provides that a
participant is not vested prior to his or her completion of 3 years of service,
at which time the benefit becomes 20% vested. The participant continues to vest
at a rate of 20% per year, becoming fully vested after the seventh year of
service. If a participant is discharged or resigns before qualifying for
retirement or disability benefits, he or she will be entitled to a vested
benefit equal to a percentage of his or her accrued pension benefit, payable as
of the first day of the month following his or her normal retirement date,
provided he or she has completed 3 full years of service. Benefits may also be
payable upon the death of a participant who has earned a vested percentage of
his or her accrued pension. Amounts contributed under the Retirement Plan are
invested and distributed by the plan's trustee, currently State Street Bank and
Trust Company. The normal form of distribution for a single participant under
the Retirement Plan is a pension payable for life. In the event of the
participant's death before he or she receives 120 monthly payments, the same
income will be payable to the participant's beneficiary for the balance of the
120 month period. If the participant is married and has a spouse living when he
or she retires, the participant's retirement income will automatically be
adjusted and paid under the joint and 50% survivor option with the participant's
spouse as the beneficiary, although a participant may also elect the joint and
100% survivor option. A participant may also elect to waive the payment of
retirement income to his or her spouse under the joint and survivor options by
naming a beneficiary other than his or her spouse or by electing one of the
alternative optional forms of payment available under the Retirement Plan. The
Company made a contribution to the Retirement Plan in 1997 in the amount of
$549,000.
 
     Lipha Americas Savings and Investment Plan.  The Lipha Americas Savings and
Investment Plan (the '401(k) Plan') is a defined contribution plan maintained by
Lipha Pharmaceuticals, Inc. for the benefit of its eligible employees and the
employees of its affiliates, including the Company. Employees eligible to
participate may elect to contribute, on a before-tax basis, an amount not to
exceed 10% of their compensation, up to statutorily prescribed limits, to the
401(k) Plan as a savings contribution. The Company currently matches 50% of the
pre-tax contributions made by a participant, up to 6% of the participant's
compensation. The Company's contribution to the 401(k) Plan for the 1997 year
was $300,000. A participant's interest in his or her pre-tax contributions,
after-tax contributions and rollover contributions to the 401(k) Plan are 100%
vested when contributed to the plan. A participant's interest in the Company's
matching contributions generally vests at the rate of 25% per year commencing
after the participant's completion of one year of service with the Company or
with certain affiliates of the Company.
 
     1998 Incentive Plan. The Company will adopt, effective as of the date of
the Offering and subject to the approval of shareholders of the Company, the
Dey, Inc. 1998 Incentive Plan (the 'Incentive Plan') for the benefit of eligible
employees of the Company and its subsidiaries. Employees (including officers
and, if not members of the Compensation Committee appointed to administer the
Incentive Plan, directors) of the Company and its subsidiaries will be selected
to participate in the Incentive Plan by the Compensation Committee of the 
 
                                       40
<PAGE>
Board of Directors of the Company. Under the Incentive Plan, participants may be
awarded stock options, stock appreciation rights, restricted shares, stock units
and performance awards payable in cash or property.

     Subject to the terms of the Incentive Plan, the Compensation Committee has
the sole discretion to administer the plan, including the discretion to make
awards, and to determine the number of shares to be covered by an option, stock
appreciation right, restricted shares or restricted stock unit awards, the
exercise price with respect to options, the length of the restricted period with
respect to restricted shares, the performance goals to be achieved with respect
to performance awards and the form of payment thereof, vesting requirements and
other terms and conditions of the awards. The Incentive Plan provides that the
aggregate number of shares of the Company's Common Stock which will be available
under the Incentive Plan for award to participants will be 900,000. The number
of shares with respect to which awards may be granted to any participant during
any calendar year under the plan may not exceed            shares. The maximum
number of shares available for restricted stock awards under the plan is
           . In the event of any approved transaction, board change or control
purchase (each as defined in the plan), all outstanding awards held by
participants will vest fully, become immediately exercisable or payable or have
all restrictions removed, as applicable.
 
     The Compensation Committee is expected to grant, effective as of the date
of the Offering and with an exercise price equal to the initial public offering
price, option awards under the Incentive Plan to            , with respect to
       shares, to            , with respect to        shares, and to
           , with respect to        shares each, for a total option award to
executives with respect to                   shares. In addition, the
Compensation Committee is expected to grant, effective as of the date of the
Offering and with an exercise price equal to the initial public offering price,
option awards to managers with respect to approximately        shares.
 
                                       41
<PAGE>
                              CERTAIN TRANSACTIONS
 
FINANCIAL TRANSACTIONS WITH AFFILIATES
 
     On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to $220
million over a three year period (the 'Merck KGaA Credit Facility'). For this
Facility, the Company would pay Merck KGaA an establishment fee of $100,000 and
a commitment fee of 0.08% per annum on the undrawn balance. Amounts drawn on the
Facility would bear interest payable quarterly in arrears at an interest rate of
LIBOR plus 1% and would be repayable three years from the date of establishment
of the Facility.
 
     On June 26, 1998, the Company declared a dividend of $24,450,000 to Lipha
Americas and paid $24,426,544 of such amount to Lipha Americas on June 30, 1998.
On June 30, 1998, the Company declared a dividend of $4,900,000 to Lipha
Americas payable on August 14, 1998. On July 21, 1998, the Company declared a
dividend of $225,000,000 to Lipha Americas, payable on August 14, 1998. The
Company intends to draw down on the Merck KGaA Credit Facility in order
partially to fund the unpaid amount of the aforesaid dividends. The Company
intends to declare an additional dividend of approximately $4,900,000 to Lipha
Americas before September 30, 1998. The Company intends to apply the proceeds of
the Offering to pay certain of the indebtedness of the Company under the Merck
KGaA Credit Facility. See 'Use of Proceeds.'
 
     On June 24, 1998, the Company advanced Lipha Americas $1,200,000, which
advance bears interest at the applicable federal rate. The Company expects this
advance to be repaid prior to August 14, 1998.
 
     On December 17, 1997, the Company advanced Lipha Pharmaceuticals, Inc. (an
affiliate of Lipha Americas) $750,000, which advance bears interest at the
applicable federal short-term rate provided by the Internal Revenue Code for
loans between related taxpayers. On March 31, 1998 this interest rate was 5.29%.
The Company expects this advance to be repaid prior to August 14, 1998.
 
     On May 22, 1997, the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free, L.P. (an affiliate of Lipha
Americas) under a lease for 40,982 square feet of office and manufacturing space
in Houston, Texas occupied by Allergy Free, L.P. The total rental obligation of
Allergy Free, L.P. under such lease is $984,000. The lease expires on June 30,
2002.
 
     On July 2, 1996, the Company advanced Allergy Free, L.P. $7,000,000, which
advance bore interest at 5.88%. The advance was repaid on March 27, 1998. From
June 1997 through February 1998, the Company advanced working capital loans to
Allergy Free, L.P. totaling $1,550,000, which loans bore interest at the
applicable federal rate. These loans were repaid on March 27, 1998.
 
     On April 13, 1995, the Company advanced EM Industries, Inc. (an affiliate
of Merck KGaA) $18,000,000, which advance bears interest at the applicable
federal rate. EM Industries repaid $13,000,000 of the amount during 1996,
leaving a remaining balance of $5,000,000, which the Company expects to be
repaid prior to August 14, 1998.
 
     On July 26, 1994, Lipha Americas, the Company's sole stockholder, loaned
$22,000,000 to the Company. This loan is evidenced by a Note dated July 31, 1997
which is due and payable on July 31, 1999 and bears interest payable quarterly
in arrears at the applicable federal rate.
 
OTHER AGREEMENTS WITH AFFILIATES
 
     Prior to the consummation of the Offering, the Company intends to enter
into a license agreement with Lipha to obtain the exclusive right and license to
manufacture and sell the Dey/Lipha DPI, under Lipha's patent rights, in the
United States and Canada. The Company will undertake to pay Lipha a royalty of
up to 3% on net sales until the expiration of Lipha's patent rights. See
'Business--Products in Development.'
 
     The Company is currently, and after the Offering will be (so long as Lipha
Americas beneficially owns at least 80% of the total voting power and value of
the Company's outstanding Common Stock), included in Lipha Americas's
consolidated group for federal income tax purposes. Prior to the consummation of
the Offering, the Company intends to enter into a tax sharing agreement with
Lipha Americas which, among other things, would require the Company to bear the
federal, state, local and foreign income, franchise and similar taxes which
would
 
                                       42
<PAGE>
be payable, subject to certain adjustments, by the Company were it not
affiliated with Lipha Americas. As the parent company of its consolidated group,
Lipha Americas will have the exclusive authority to make most federal income tax
elections and tax filings for, and deal with tax controversies concerning, all
members of its consolidated group, including the Company. Moreover, each member
of a consolidated group is jointly and severally liable to the Internal Revenue
Service for the consolidated group's federal income tax liability (for any
period such member was a member of such group).
 
     The Company pays certain management fees to Lipha. Such fees totaled
$286,000 in 1995, $271,000 in 1996 and $173,000 in 1997. Prior to consummation
of the Offering, the Company intends to enter into a Management Services
Agreement with each of Lipha Americas, Allergy Free, L.P. and EM Pharma, Inc.,
pursuant to which the Company would provide certain accounting and
administrative services to such companies for a quarterly fee. All such
Management Services Agreements would be terminable by the Company on thirty
days' notice.
 
     The Company intends to sell its line of hypothyroid products to EM Pharma,
Inc. (an affiliate of Lipha Americas in process of formation) effective August
1, 1998, in consideration of the assumption by the purchaser of all liabilities
and contractual obligations associated with this product line.
 
     As of July 1, 1997, the Company purchased from EM Industries, Inc. all of
EM Industries, Inc.'s rights to distribute worldwide the EpiPen(Registered)
autoinjector, the Astech(Registered) Peak Flow Meter and the ACE(Registered)
Holding Chamber. The Company's rights to distribute the EpiPen(Registered)
autoinjector terminate on December 31, 2010. In consideration thereof, the
Company has agreed to pay EM Industries a royalty at the rate of 16.5% on net
sales of EpiPen(Registered), up to $31.5 million in any calendar year. The
Company has also agreed to pay a royalty of 7% of net sales of the
Astech(Registered) Peak Flow Meter. See 'Business--Dey's Current Products' and
'Business--Products in Development.'
 
     On December 19, 1995, the Company entered an agreement with Genpharm Inc.
and Alphapharm Parties Ltd. (affiliates of the Company) to co-develop a number
of pharmaceutical products which were to be marketed in the United States by the
Company. This agreement was terminated effective July 23, 1998.
 
     The Company currently participates in two group insurance programs with
other companies in the Merck KGaA group. The Company's properties are insured
against certain risks of property damage and business interruption under such
programs, for which the Company paid $242,000 in 1997. Risks of product
liability above $6,000,000 of the Company are covered under an umbrella policy
arranged by Lipha, for which the Company paid $446,000 in 1997.
 
                                       43
<PAGE>
                             PRINCIPAL STOCKHOLDERS
 
     Prior to the Offering, all 72,885,000 outstanding shares of Common Stock of
the Company will be owned by Lipha Americas. After the Offering, Lipha Americas
will continue to own such 72,885,000 shares of the Common Stock of the Company,
or approximately 84% of the Common Stock outstanding (or approximately 82% of
the Common Stock outstanding, if the Underwriters' over-allotment option is
exercised in full).
 
     Lipha Americas is a wholly-owned subsidiary of Merck-Lipha which, in turn,
is a 99.53%-owned subsidiary of Merck KGaA. Merck KGaA is a publicly traded
German pharmaceuticals, laboratory supplies and chemicals company. Merck KGaA is
controlled by E. Merck, a German partnership, which holds approximately 74% of
the shares of Merck KGaA.
 
     The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. See 'Underwriting.'
 
                                       44
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
     Pursuant to the Company's Certificate of Incorporation, the Company's
authorized capital stock consists of 140,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $1.00
per share (the 'Preferred Stock'), of which 72,885,000 shares of Common Stock
and no shares of Preferred Stock were outstanding immediately prior to the
Offering. Upon completion of the Offering, there will be 86,985,000 shares of
Common Stock outstanding (89,100,000 shares if the Underwriters' over-allotment
option is exercised in full). The Company's Certificate of Incorporation
provides that the Company may not issue more than an aggregate of 90,000,000
shares of Common Stock (including, without limitation, any shares of Common
Stock reserved and/or in respect of options, warrants or other rights or in
respect of any securities convertible into or exchangeable for Common Stock)
without first receiving the consent in writing of any person who, directly
and/or through any direct or indirect over fifty percent-owned subsidiary, owns
over fifty percent of the Company's outstanding Common Stock.
 
     The Certificate of Incorporation and By-laws contain certain provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in control of the Company.
 
     The following summary of certain provisions of the Company's capital stock
describes provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Certificate of Incorporation and the
By-laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.
 
COMMON STOCK
 
     Each holder of Common Stock is entitled to one vote for each share held on
all matters on which holders of Common Stock are entitled to vote and, except as
otherwise required by law and except for any voting rights applicable to any
outstanding series of Preferred Stock, the holders of Common Stock possess all
voting power held by stockholders of the Company. All holders of shares of
Common Stock, subject to any preferences that may be applicable to any
outstanding series of Preferred Stock, are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock would be entitled to share
ratably in the Company's assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of shares of Common Stock have no
preemptive or other subscription rights. In addition, there are no cumulative
voting rights with respect to the election of directors. The rights, preferences
and privileges of the holders of shares of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate in the future.
 
PREFERRED STOCK
 
     The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series, each of
such series to have such terms, rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as may be determined by the Board of Directors. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible financing, acquisitions and other corporate purposes, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Board of Directors has no present
plans to issue any shares of Preferred Stock. The Board of Directors will make
any determination to issue shares of Preferred Stock based on its judgment as to
the best interests of the Company and its stockholders.
 
                                       45
<PAGE>
CERTAIN CHARTER, BY-LAW AND DELAWARE LAW PROVISIONS
 
     Certain provisions of the DGCL and the Company's Certificate of
Incorporation and By-laws, summarized below, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
 
     Number of Directors; Staggered Board.  The Certificate of Incorporation
provides that there be between five and ten directors, the exact number of
directors to be determined from time to time by the Board of Directors. The
Certificate of Incorporation and By-laws divide the Board of Directors into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. Any vacancy on
the Board of Directors, including those created by an increase in the size of
the Board, may be filled by the vote of a majority of the directors in office,
even if less than a quorum. Any director elected to fill a vacancy will hold
office for a term coincident with the term of the class to which he or she was
elected which will not necessarily be the next annual stockholders' meeting.
Directors may be removed from office with or without cause by the affirmative
vote of the holders of more than fifty percent of the outstanding stock of the
Company then entitled to vote generally for the election of directors,
considered as one class. The provision of the Certificate of Incorporation
providing for a staggered Board could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the Board of
Directors until the fourth annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. This provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
 
     Special Stockholder Meetings.  The Certificate of Incorporation and By-laws
provide, subject to the rights of holders of any class or series of stock having
a preference as to dividends or upon liquidation, that special meetings of
stockholders may be called by the Board of Directors, the Chairman or the
President. Thus, stockholders, in their capacity as such, are not entitled to
call a special meeting of stockholders.
 
     Advance Notice Procedures.  The Certificate of Incorporation and By-laws
also establish a 30-day advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before a meeting of stockholders of the Company, stockholders may only consider
proposals or nominations brought before the meeting in accordance with this
procedure or by the Board of Directors. Although the Board of Directors has no
power to approve or disapprove stockholder nominations of candidates or
stockholder proposals regarding other business to be conducted at a
stockholders' meeting, the advance notice procedure may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures
are not followed or may discourage or deter a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company.
 
     Indemnification.  The Certificate of Incorporation provides that the
Company will indemnify, to the full extent authorized or permitted by the DGCL,
any person made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Company or by reason of the fact that such director or officer,
at the request of the Company, is or was serving any other corporation,
partnership, joint venture, trust or other enterprise as a director, officer,
employee or agent.
 
     Limitation of Liability.  The Certificate of Incorporation provides that no
director of the Company will be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such a
director, as a director, other than for: (i) any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) authorization of illegal dividends or (iv) any transaction from which
such director derived an improper personal benefit.
 
     Delaware Anti-Takeover Law.  The Company is subject to Section 203 of the
DGCL which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in a broad range of 'business combinations' with any
'interested stockholder' (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for a period of three years from the
date of the transaction in which the
 
                                       46
<PAGE>
person became an interested stockholder, unless: (i) prior to such date, the
Board of Directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
 
TRANSFER AGENT AND REGISTRAR
 
     The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust Company. Its telephone number is (212) 936-5100.
 
                                       47
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of the Offering, the Company will have 86,985,000 shares of
Common Stock outstanding. Of these shares, the 14,100,000 shares sold in the
Offering (16,215,000 shares, if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
'affiliate' of the Company as that term is defined in Rule 144 under the
Securities Act. Persons who may be deemed to be affiliates generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include directors and executive officers of
the Company. Shares purchased by affiliates of the Company may generally be sold
in compliance with the resale limitations of Rule 144.
 
     The 72,885,000 shares of Common Stock which continue to be held by Lipha
Americas upon completion of the Offering, will be 'restricted securities' within
the meaning of Rule 144 and may not be sold in the absence of registration under
the Securities Act or unless an exemption from registration is available,
including the exemptions contained in Rule 144 under the Securities Act.
 
     In general, under Rule 144, persons such as Lipha Americas who hold
restricted securities and who have beneficially owned restricted securities for
at least one year would be entitled to sell within any three-month period a
number of restricted securities that does not exceed the greater of 1% of the
then outstanding shares of Common Stock or the average weekly trading volume on
the NYSE during the four calendar weeks preceding such sale, provided that the
seller files a Form 144 with respect to such sale, that certain public
information concerning the Company is available and that the seller complies
with certain requirements concerning the manner of sale. A person who is deemed
to be an affiliate of the Company, including members of the Board of Directors
and executive officers of the Company, would also need to comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock that are not
restricted securities, unless such sale is registered under the Securities Act.
 
     Prior to consummation of the Offering, there has been no public market for
the Common Stock, and no prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, or the availability of such shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the then-prevailing market prices for the Common Stock.
 
                                       48
<PAGE>
                                  UNDERWRITING
 
     The Underwriters named below, represented by Bear, Stearns & Co. Inc.,
Hambrecht & Quist LLC, J.P. Morgan Securities Inc. and Lehman Brothers Inc. (the
'Representatives'), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the 'Underwriting Agreement') by and
among the Company, Merck KGaA and the Underwriters, to purchase from the Company
the aggregate number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                         NUMBER
UNDERWRITER                                                                                            OF SHARES
----------------------------------------------------------------------------------------------------   ----------
<S>                                                                                                    <C>
Bear, Stearns & Co. Inc.............................................................................
Hambrecht & Quist LLC...............................................................................
J.P. Morgan Securities Inc..........................................................................
Lehman Brothers Inc.................................................................................
                                                                                                       ----------
     Total..........................................................................................   14,100,000
                                                                                                       ----------
                                                                                                       ----------
</TABLE>
 
     The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
 
     The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $     per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $   per share to certain
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
 
     The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 2,115,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 14,100,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the initial public offering.
 
     The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
 
     The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority.
 
     The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc.
 
     Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be negotiated between the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price of the
Common Stock will be prevailing market and economic conditions, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
 
                                       49
<PAGE>
     In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the Underwriters
may stabilize or maintain the price of the Common Stock by bidding for or
purchasing shares of Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the Offering are reclaimed if shares of Common
Stock previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
NYSE or otherwise and, if commenced, may be discontinued at any time.
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon for the
Company by Coudert Brothers, New York, New York. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
 
                                    EXPERTS
 
     The consolidated financial statements and schedule of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a Registration Statement (File
No. 333-      ) under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules filed therewith. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus regarding the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
 
     As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish holders of the Common Stock with annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm. The Company also intends to furnish such
other reports from time to time as it may determine or as may be required by
law.
 
                                       50
<PAGE>
                                   DEY, INC.
                       CONSOLIDATED FINANCIAL STATEMENTS
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
 
<S>                                                                                                           <C>
Independent Auditors' Report...............................................................................    F-2
 
Consolidated Balance Sheets................................................................................    F-3
 
Consolidated Statements of Income..........................................................................    F-4
 
Consolidated Statements of Stockholder's Equity (Deficit)..................................................    F-5
 
Consolidated Statements of Cash Flows......................................................................    F-6
 
Notes to Consolidated Financial Statements.................................................................    F-7
</TABLE>
 
                                      F-1
<PAGE>
     When the filing of the Amended and Restated Certificate of Incorporation
and the stock split referred to in Note 11 of the Notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report, assuming that no other events will have occurred which
would affect the consolidated financial statements.
 
                                          KPMG PEAT MARWICK LLP
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors
Dey, Inc.:
 
We have audited the accompanying consolidated balance sheets of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholder's equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dey,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
 
San Francisco, California
January 16, 1998, except as to Note 11,
  which is as of            , 1998
 
                                      F-2
<PAGE>
                                   DEY, INC.
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,              MARCH 31, 1998
                                                                  --------------------    --------------------------
                                                                    1996        1997      HISTORICAL      PRO FORMA
                                                                  --------    --------    -----------    -----------
                                                                                          (UNAUDITED)    (UNAUDITED)
<S>                                                               <C>         <C>         <C>            <C>
                            ASSETS
Current assets:
  Cash and cash equivalents....................................   $  5,728    $ 18,615     $  38,189      $  38,189
  Accounts receivable, less allowances for doubtful accounts of
     $1,100, $983 and $1,058 for 1996, 1997 and 1998,
     respectively..............................................      9,497      17,354        23,932         23,932
  Inventories..................................................     10,680      21,445        15,529         15,529
  Prepaids and other assets....................................      1,058         701         1,181          1,181
  Related party notes receivable and advances..................     12,000      14,000         6,200          6,200
  Related party receivables....................................         27         402           429            429
  Deferred income taxes........................................      4,760       7,318         7,318          7,318
                                                                  --------    --------    -----------    -----------
Total current assets...........................................     43,750      79,835        92,778         92,778
 
Property, plant and equipment, net.............................     47,746      57,441        58,589         58,589
Goodwill, net..................................................     53,396      51,678        51,249         51,249
                                                                  --------    --------    -----------    -----------
Total assets...................................................   $144,892    $188,954     $ 202,616      $ 202,616
                                                                  --------    --------    -----------    -----------
                                                                  --------    --------    -----------    -----------
        LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.............................................   $  1,327    $    834     $   1,918      $   1,918
  Accrued liabilities..........................................     11,594      17,633        12,096         12,096
  Accrued Medicaid rebate......................................      2,001       3,759         4,189          4,189
  Accrued liabilities to related parties.......................      1,982       3,703         2,120          2,120
  Income taxes payable.........................................      9,582      15,166        28,421         28,421
  Dividends payable............................................         --          --            --        259,250
                                                                  --------    --------    -----------    -----------
Total current liabilities......................................     26,486      41,095        48,744        307,994
Deferred income taxes..........................................      1,440       1,871         1,871          1,871
Long-term related party debt...................................     22,000      22,000        22,000         22,000
                                                                  --------    --------    -----------    -----------
Total liabilities..............................................     49,926      64,966        72,615        331,865
                                                                  --------    --------    -----------    -----------
Commitments and contingencies
 
Stockholder's Equity (Deficit):
  Preferred Stock, $1 par value; 10,000,000 shares authorized;
     none issued and outstanding for 1996, 1997 and 1998,
     respectively..............................................
  Common stock, $0.01 par value; 140,000,000 shares authorized;
     72,885,000 issued and outstanding for 1996, 1997 and 1998,
     respectively..............................................        729         729           729            729
  Additional (negative) paid-in capital........................     57,094      57,094        57,094       (129,978)
  Retained earnings............................................     37,143      66,165        72,178             --
                                                                  --------    --------    -----------    -----------
Total stockholder's equity (deficit)...........................     94,966     123,988       130,001       (129,249)
                                                                  --------    --------    -----------    -----------
Total liabilities and stockholder's equity (deficit)...........   $144,892    $188,954     $ 202,616      $ 202,616
                                                                  --------    --------    -----------    -----------
                                                                  --------    --------    -----------    -----------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                      F-3
<PAGE>
                                   DEY, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,                MARCH 31,
                                               ----------------------------------      --------------------
                                                 1995         1996         1997         1997         1998
                                               --------     --------     --------      -------      -------
                                                                                           (UNAUDITED)
<S>                                            <C>          <C>          <C>           <C>          <C>
Net sales..................................    $136,685     $166,461     $219,810      $52,327      $71,112
Cost of sales..............................      38,999       64,255       77,204       15,955       25,631
                                               --------     --------     --------      -------      -------
     Gross profit..........................      97,686      102,206      142,606       36,372       45,481
Selling, marketing and distribution........      11,366       14,032       21,698        3,940        6,861
General and administrative expenses........       8,549        9,573       11,307        2,363        3,039
Research and development...................      12,535       19,266       20,056        3,537        2,484
                                               --------     --------     --------      -------      -------
     Income from operations................      65,236       59,335       89,545       26,532       33,097
Interest expense--related parties..........      (1,371)      (1,237)      (1,267)        (310)        (299)
Interest income--related parties...........         863          940          754          181          196
Interest income--other.....................         649          578        1,403          145          414
Other income, net..........................         543        1,164          747          263           66
                                               --------     --------     --------      -------      -------
     Income before taxes...................      65,920       60,780       91,182       26,811       33,474
Income taxes...............................     (27,055)     (24,999)     (37,160)     (10,896)     (13,561)
                                               --------     --------     --------      -------      -------
Net income.................................    $ 38,865     $ 35,781     $ 54,022      $15,915      $19,913
                                               --------     --------     --------      -------      -------
                                               --------     --------     --------      -------      -------
Net income per share (basic)...............    $   0.53     $   0.49     $   0.74      $  0.22      $  0.27
                                               --------     --------     --------      -------      -------
                                               --------     --------     --------      -------      -------
Weighted average common shares
  outstanding..............................  72,885,000   72,885,000   72,885,000   72,885,000   72,885,000
                                             ----------   ----------   ----------   ----------   ----------
                                             ----------   ----------   ----------   ----------   ----------
Pro forma net income per share (basic)
  (unaudited)..............................                              $                          $
                                                                         --------                   -------
                                                                         --------                   -------
Pro forma weighted average common shares
  used to compute net income per share
  (unaudited)..............................
                                                                         --------                   -------
                                                                         --------                   -------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                      F-4
<PAGE>
                                   DEY, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                             ADDITIONAL                    TOTAL
                                                         COMMON STOCK        (NEGATIVE)                STOCKHOLDER'S
                                                     --------------------     PAID-IN      RETAINED       EQUITY
                                                       SHARES      AMOUNT     CAPITAL      EARNINGS      (DEFICIT)
                                                     ----------    ------    ----------    --------    -------------
<S>                                                  <C>           <C>       <C>           <C>         <C>
Balance as of December 31, 1994...................   72,885,000     $729     $   57,094    $ 32,362      $  90,185
  Net income......................................           --       --             --      38,865         38,865
  Dividends paid (0.43 per share).................           --       --             --     (31,000)       (31,000)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1995...................   72,885,000      729         57,094      40,227         98,050
  Net income......................................           --       --             --      35,781         35,781
  Dividends paid (0.53 per share).................           --       --             --     (38,865)       (38,865)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1996...................   72,885,000      729         57,094      37,143         94,966
  Net income......................................           --       --             --      54,022         54,022
  Dividends paid (0.34 per share).................           --       --             --     (25,000)       (25,000)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1997...................   72,885,000      729         57,094      66,165        123,988
                                                     ----------    ------    ----------    --------    -------------
  Net income (unaudited)..........................           --       --             --      19,913         19,913
  Dividends paid (0.19 per share)(unaudited) .....           --       --             --     (13,900)       (13,900)
                                                     ----------    ------    ----------    --------    -------------
Balance as of March 31, 1998 (unaudited)..........   72,885,000     $729     $   57,094    $ 72,178      $ 130,001
                                                     ----------    ------    ----------    --------    -------------
                                                     ----------    ------    ----------    --------    -------------
Pro forma balance as of March 31, 1998
  (unaudited).....................................   72,885,000     $729     $ (129,978)   $     --      $(129,249)
                                                     ----------    ------    ----------    --------    -------------
                                                     ----------    ------    ----------    --------    -------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                      F-5
<PAGE>
                                   DEY, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                               THREE MONTHS ENDED
                                                              YEARS ENDED DECEMBER 31,             MARCH 31,
                                                          --------------------------------    --------------------
                                                            1995        1996        1997        1997        1998
                                                          --------    --------    --------    --------    --------
                                                                                                  (UNAUDITED)
<S>                                                       <C>         <C>         <C>         <C>         <C>
Cash flows from operating activities:
  Net income...........................................   $ 38,865    $ 35,781    $ 54,022    $ 15,915    $ 19,913
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization.....................      6,011       6,512       8,111       1,935       2,099
     Provision for excess and obsolete inventory.......          7         678        (599)       (126)        193
     Loss on sale of property, plant and equipment.....         47          25           6          --           4
     Deferred income taxes.............................     (1,203)       (436)     (2,127)         --          --
  Changes in operating assets and liabilities:
     Accounts receivable...............................     (2,458)      4,858      (7,857)    (10,031)     (6,578)
     Inventories.......................................       (872)     (3,540)    (10,166)     (1,157)      5,723
     Prepaids and other assets.........................       (209)         51         357      (1,217)       (480)
     Accounts payable..................................        105         174        (493)      1,958       1,084
     Accrued liabilities...............................        923       5,136       7,797      (2,224)     (5,107)
     Related party receivables.........................       (782)      2,561        (375)       (348)        (27)
     Accrued liabilities to related parties............      4,277      (3,645)      1,721      (1,038)     (1,583)
     Income taxes payable..............................      3,659       3,126       5,584      10,874      13,255
                                                          --------    --------    --------    --------    --------
Net cash provided by operating activities..............     48,370      51,281      55,981      14,541      28,496
                                                          --------    --------    --------    --------    --------
Cash flows from investing activities:
  Proceeds from related party notes receivable
     and advances......................................     46,200      14,525       1,000         250       8,550
  Issuance of related party notes receivable
     and advances......................................    (51,200)     (8,525)     (3,000)     (1,000)       (750)
  Purchase of property, plant and equipment............    (10,362)    (18,013)    (16,095)     (2,222)     (2,827)
  Proceeds from sale of property, plant equipment......          4          23           1          --           5
                                                          --------    --------    --------    --------    --------
Net cash provided by (used in) investing activities....    (15,358)    (11,990)    (18,094)     (2,972)      4,978
                                                          --------    --------    --------    --------    --------
Cash flows from financing activities:
  Dividends paid.......................................    (31,000)    (38,865)    (25,000)     (6,250)    (13,900)
                                                          --------    --------    --------    --------    --------
Net cash used in financing activities..................    (31,000)    (38,865)    (25,000)     (6,250)    (13,900)
                                                          --------    --------    --------    --------    --------
Net increase in cash and cash equivalents..............      2,012         426      12,887       5,319      19,574
Cash and cash equivalents at beginning of the period...      3,290       5,302       5,728       5,728      18,615
                                                          --------    --------    --------    --------    --------
Cash and cash equivalents at end of the period.........   $  5,302    $  5,728    $ 18,615    $ 11,047    $ 38,189
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
Supplemental cash flow disclosures:
  Cash paid during the year for:
     Interest paid to related parties..................   $  1,371    $  1,237    $  1,267    $    310    $    299
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
     Income taxes......................................   $ 24,600    $ 22,309    $ 33,703    $     22    $    306
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
                                      F-6
<PAGE>
                                   DEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 1. BUSINESS AND COMPANY STRUCTURE
 
     Dey, Inc. (the Company) is a Delaware corporation which manufactures and
markets pharmaceutical products through Dey, L.P. primarily in the U.S.
 
     Dey, Inc. is a wholly-owned subsidiary of Lipha Americas, Inc. (Lipha
Americas), which is a wholly-owned subsidiary of Merck-Lipha S.A., a French
corporation. Merck-Lipha S.A. is a 99.53% owned subsidiary of Merck KGaA (Merck
KGaA) of Germany.
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
Dey, Inc., its wholly-owned subsidiary Dey Limited Partner, Inc., and a
partnership, Dey, L.P.  Dey, Inc. has a 1% general partnership interest, and Dey
Limited Partner, Inc., has a 99% limited partnership interest, in Dey, L.P. All
significant intercompany balances and transactions have been eliminated in
consolidation.
 
  Cash and Cash Equivalents
 
     The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. Cash
equivalents consist primarily of commercial paper and are held to maturity.
 
  Inventories
 
     Inventories are recorded at the lower of cost or market using the first-in,
first-out method. Costs include material, labor, and applicable factory
overhead. Provision for potentially obsolete or slow moving inventory is made
based upon management's analysis of inventory levels and forecasted sales.
 
  Property, Plant and Equipment
 
     Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the respective estimated useful lives of the
assets, which range from three to thirty years. Leasehold improvements are
amortized over the shorter of the respective lease terms or the respective
estimated useful lives of the assets.
 
  Long-Lived Assets
 
     The Company accounts for long-lived assets under SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
In accordance with this standard, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment loss to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
 
                                      F-7
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  Goodwill
 
     The Company was acquired in January 1988. Goodwill represents the excess of
the purchase price over the fair value of the identifiable assets and
liabilities of the Company at the date of acquisition. Goodwill is being
amortized over 40 years.
 
  Fair Value of Instruments
 
     In management's opinion, financial assets and liabilities have carrying
values which approximate fair values due to their short-term nature and variable
interest rates.
 
  Concentration of Market, Credit and Suppliers Risk
 
     The Company has three product lines that accounted for 60%, 26% and 0% of
net sales in 1995, 53%, 28% and 0% of net sales in 1996, 38%, 14% and 23% of net
sales in 1997, respectively.
 
     The Company sells its products to a diverse group of pharmaceutical
distributors and retailers across broad geographic areas. Accounts receivable
from customers are uncollateralized. One of the Company's customers accounted
for 11% and 13% of net sales for the years ended December 31, 1995 and 1996,
respectively. The Company's top three customers accounted for 12%, 12% and 11%,
respectively, of net sales for the year ended December 31, 1997. The Company's
top two customers accounted for an aggregate of 24% and 25% of accounts
receivable as of December 31, 1996 and 1997.
 
     Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company.
 
     Concentration of credit risk principally consists of cash and cash
equivalents and accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectible accounts.
 
  Income Taxes
 
     The Company is included in the consolidated federal income tax return of
Lipha Americas. Income taxes in the Company's financial statements have been
determined on a separate-return basis.
 
     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
                                      F-8
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  Revenue Recognition
 
     The Company recognizes sales upon shipment of products to its customers.
Allowances for estimated discounts, chargebacks, rebates, and returns are
recognized in the same period as the related sales. Accounts receivable are
presented net of such allowances, which totaled $11,412,000 and $15,059,000 at
December 31, 1996 and 1997, respectively.
 
  New Accounting Standard
 
     In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
 
  Unaudited Interim Consolidated Financial Information
 
     The unaudited interim consolidated financial information as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 has been prepared on
the same basis as the audited consolidated financial statements and the
requirements of Regulation S-X. In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of this interim information.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
 
  Unaudited Pro Forma Consolidated Financial Data
 
     Subsequent to March 31, 1998, the Company has declared or intends to
declare dividends to Lipha Americas totaling $259,250,000, including a
$225,000,000 dividend declared on July 21, 1998 which is payable on August 14,
1998. The Company plans to partially fund payment of the aforementioned
dividends by utilizing a revolving credit facility of $220 million expected to
be provided by Merck KGaA.
 
     The information presented in the unaudited pro forma consolidated balance
sheet as of March 31, 1998 was prepared as if the aforementioned dividends were
declared as of March 31, 1998.
 
     The amount reported in the unaudited pro forma consolidated balance sheet
and statement of stockholder's equity (deficit) of negative paid-in capital of
$129,978,000 is the excess of the sum of all the aforementioned dividends which
amounted to $259,250,000 over the additional paid-in capital and retained
earnings as of March 31, 1998 which totaled $129,272,000.
 
     The pro forma net income per share amounts are calculated by dividing the
historical net income amounts by the sum of (1) the historical weighted average
common shares outstanding during the periods presented and (2) the number of
common shares issued to the public in connection with Company's initial public
offering which would generate sufficient net proceeds to pay the aforementioned
dividends subject to a maximum equal to the number of shares issued in the
offering.
 
                                      F-9
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 3. INVENTORIES
 
     Inventories consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
<S>                                                                      <C>        <C>        <C>
Raw materials.........................................................   $ 4,132    $ 4,219     $ 3,402
Work in process.......................................................     1,065      2,290       2,561
Finished goods........................................................     5,483     14,936       9,566
                                                                         -------    -------    ---------
                                                                         $10,680    $21,445     $15,529
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
</TABLE>
 
NOTE 4. PROPERTY AND EQUIPMENT, NET
 
     Property and equipment, net consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
<S>                                                                      <C>        <C>        <C>
Land..................................................................   $ 3,309    $ 3,309     $ 3,309
Equipment and machinery...............................................    42,075     48,511      51,891
Buildings and improvements............................................    17,946     18,805      19,645
Equipment deposits, construction in progress..........................     6,060     14,308      12,850
                                                                         -------    -------    ---------
                                                                          69,390     84,933      87,695
Less accumulated depreciation.........................................   (21,644)   (27,492)    (29,106)
                                                                         -------    -------    ---------
                                                                         $47,746    $57,441     $58,589
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
</TABLE>
 
NOTE 5. INTANGIBLE ASSETS, NET
 
     Intangible assets, net consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
<S>                                                                      <C>        <C>        <C>
Goodwill..............................................................   $66,185    $66,185     $66,185
Less accumulated amortization.........................................   (12,789)   (14,507)    (14,936)
                                                                         -------    -------    ---------
                                                                         $53,396    $51,678     $51,249
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
</TABLE>
 
NOTE 6. RELATED PARTY TRANSACTIONS
 
     Related party notes receivable and advances of $12,000,000, $14,000,000 and
$6,200,000 at December 31, 1996 and 1997 and March 31, 1998, respectively,
represents amounts due from affiliated companies. Related party receivables of
$27,000, $402,000 and $429,000, at December 31, 1996 and 1997 and March 31,
1998, respectively, represents amounts due from affiliated companies for accrued
interest on the aforementioned note receivables and costs incurred on behalf of
other affiliates. The amounts are due on demand.
 
     With the exception of the $7,000,000 related party note receivable, all
loans bear interest at the monthly applicable federal rate, which was 5.60%,
5.54% and 5.26% for the month ended December 31, 1996, 1997 and March 31, 1998,
respectively. The $7,000,000 related note party receivable is at a fixed rate of
5.88% for the years ended December 31, 1996 and 1997. This note was repaid on
March 27, 1998.
 
     The long-term related party debt of $22,000,000 at December 31, 1996, 1997
and March 31, 1998, respectively, represents a note payable to an affiliated
company, due on July 31, 1999, and bearing interest at the
 
                                      F-10
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 6. RELATED PARTY TRANSACTIONS--(CONTINUED)
quarterly applicable federal rate, which was 5.63%, 5.56% and 5.29% for the
quarters ended December 1996, 1997 and March 31, 1998, respectively.
 
     The Company's expenses include charges from affiliates for expenses
incurred on behalf of the Company. These expenses were $3,141,000, $2,425,000
and $4,785,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Approximately $2,500,000, $1,800,000 and $4,100,000 of those
expenses in 1995, 1996 and 1997, respectively, related to clinical trial
services performed in exchange for certain marketing rights in the U.S. of any
approved products developed pursuant to an agreement which the Company entered
into with Genpharm, Inc. and Alphapharm Parties Limited (the Genpharm
Agreement), affiliated companies, in 1995. The accrued liabilities to related
parties of $1,982,000 and $3,703,000 at December 31, 1996 and 1997,
respectively, primarily related to the aforementioned expenses. The accrued
liabilities to related parties of $2,120,000 at March 31, 1998 primarily relates
to the aforementioned expenses, and licensing fees due to an affiliate.
 
     The Company's expenses also include licensing fees due to an affiliate.
Effective July 1, 1997, the Company agreed to pay a royalty on a licensed
product of 16.5% of annual net sales up to $15.75 million for 1997 and up to
$31.5 million for 1998 through 2010. In the event the Company does not achieve
certain minimum net sales or gross margins on the licensed product, both parties
agree to negotiate in good faith to determine a new royalty percentage which
should be applicable. Minimum net sales and gross margins were achieved in 1997.
Total licensing fees relating to this agreement were $-0-, $-0- and $2,600,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
 
NOTE 7. INCOME TAXES
 
     Income tax expense (benefit) for the years ended December 31, 1995, 1996
and 1997, consisted of (in thousands):
 
<TABLE>
<CAPTION>
                                     1995                            1996                            1997
                         ----------------------------    ----------------------------    ----------------------------
                         CURRENT   DEFERRED    TOTAL     CURRENT   DEFERRED    TOTAL     CURRENT   DEFERRED    TOTAL
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
<S>                      <C>       <C>        <C>        <C>       <C>        <C>        <C>       <C>        <C>
Federal...............   $22,990   $ (1,071)  $21,919    $20,466   $   (208)  $20,258    $32,020   $ (1,907)  $30,113
State.................     5,268       (132)    5,136      4,969       (228)    4,741      7,267       (220)    7,047
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
                         $28,258   $ (1,203)  $27,055    $25,435   $   (436)  $24,999    $39,287   $ (2,127)  $37,160
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
</TABLE>
 
     The total income tax expense differed from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as a result
of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                          -----------------------------
                                                                           1995       1996       1997
                                                                          -------    -------    -------
<S>                                                                       <C>        <C>        <C>
Computed tax expense at federal statutory rate of 35%..................   $23,072    $21,273    $31,914
State taxes............................................................     3,338      3,081      4,581
Amortization of goodwill and other permanent differences...............       645        645        665
                                                                          -------    -------    -------
                                                                          $27,055    $24,999    $37,160
                                                                          -------    -------    -------
                                                                          -------    -------    -------
</TABLE>
 
                                      F-11
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 7. INCOME TAXES--(CONTINUED)
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                           ------------------
                                                                            1996       1997
                                                                           -------    -------
<S>                                                                        <C>        <C>
Deferred tax assets:
  Accounts receivable, principally due to allowance for doubtful
     accounts and chargebacks...........................................   $ 2,823    $ 4,380
  Inventories, principally due to reserves and additional costs
     capitalized for tax purposes.......................................       389        172
  Other accrued liabilities.............................................     1,548      2,766
                                                                           -------    -------
     Total gross deferred tax assets....................................     4,760      7,318
Deferred tax liabilities:
  Property, plant and equipment.........................................    (1,440)    (1,871)
                                                                           -------    -------
     Total gross deferred tax liabilities...............................    (1,440)    (1,871)
                                                                           -------    -------
     Net deferred tax asset.............................................   $ 3,320    $ 5,447
                                                                           -------    -------
                                                                           -------    -------
</TABLE>
 
NOTE 8. LEASES
 
     As part of its operations, the Company enters into various leasing
arrangements. The Company currently leases two facilities under noncancellable
operating leases.
 
     Aggregate rent expense was $247,000, $196,000 and $212,000 for the years
ending 1995, 1996 and 1997, respectively.
 
     The future minimum payments with an initial term in excess of one year, for
the years ending December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                                MINIMUM
                                                                RENTALS
                                                               ----------
<S>                                                            <C>
1998........................................................   $  495,000
1999........................................................      723,000
2000........................................................      695,000
2001........................................................      685,000
2002........................................................      685,000
Thereafter..................................................    1,763,000
                                                               ----------
                                                               $5,046,000
                                                               ----------
                                                               ----------
</TABLE>
 
NOTE 9. EMPLOYEE BENEFIT PLANS
 
     The Lipha Americas Employees' Retirement Plan is a defined benefit pension
plan for the benefit of eligible employees of Lipha Americas and its affiliates,
including the Company, who meet age and service requirements. Benefits are
generally based on average salary and years of service. Lipha Americas funds its
pension plans in accordance with federal laws and regulations. Plan assets are
invested primarily in cash and cash equivalents, government securities, stocks
and bonds.
 
     The Company recognizes as net pension expense, its allocated total
contributions for the period. With respect to this plan, the Company funded and
recorded expenses of $365,000, $410,000 and $549,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
 
                                      F-12
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
     In addition, the Company sponsors a contributory 401(k) savings and
investment plan in which employees meeting the minimum service requirements are
eligible to participate. Participants may contribute up to 10% of their basic
pay annually. Through September 1997, the Company contributed an amount of
33-1/3% of the participants' contribution up to 6% of the participants' base
annual pay. The Company contribution increased to 50% of the participants'
contribution up to 6% of the participants' base annual pay as of October 1,
1997. The Company's contribution to the plan was $119,000, $156,000 and $300,000
for the years ending December 31, 1995, 1996 and 1997, respectively.
 
NOTE 10. COMMITMENTS AND CONTINGENCIES
 
     In December 1996, the Company entered into a ten year agreement with a
pharmaceutical company whereby the Company was granted exclusive selling,
marketing, and distribution rights for a product in the United States, excluding
Puerto Rico and the Virgin Islands (the Territory). Under the terms of the
agreement, the Company is required to make minimum payments of forty percent
(40%) of the contribution margin resulting from sales of the Product within the
Territory. For purposes of this contract, contribution margin is defined as
sales less cost of sales, marketing, selling, distribution, clinical testing and
administrative expenses. Pursuant to the agreement, the Company made an initial
payment of $500,000 in 1996 and made a minimum payment of $500,000 in 1997 and
is required to make an additional $1,000,000 minimum payment each subsequent
calendar year during the term of the agreement. The agreement may be terminated
by the Company if for three consecutive calendar years, the annual contribution
margin is lower than $1,000,000.
 
     On May 22, 1997 the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free L.P., an affiliated company, under a
lease of office and manufacturing space in Houston, Texas occupied by Allergy
Free, L.P. The total rental obligation of Allergy Free, L.P. under such lease is
$984,000. The lease expires on June 30, 2002.
 
     Commitments for the expansion of the Napa facilities and purchase of
capital equipment over the next year are approximately $4,800,000 and
$10,198,000 as of December 31, 1997 and March 31, 1998.
 
     A number of pharmaceutical companies, including the Company, have received
federal subpoenas in connection with an ongoing investigation of the reporting
of 'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is not able to predict what relief, if any, any
federal or state authority may assert as a result of this investigation.
 
NOTE 11. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND STOCK SPLIT
 
     Prior to the effective date of the Company's initial public offering, the
Company plans to file an Amended and Restated Certificate of Incorporation,
pursuant to which the Company will be authorized to issue up to 140,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share, and to effect a 72,885 for 1 split
of the Common Stock. All common share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
the aforementioned amendments and stock split.
 
                                      F-13
<PAGE>
                                   DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)
 
  Initial Public Offering
 
     On July 23, 1998, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission to register
for sale shares of common stock in a proposed initial firm commitment
underwritten public offering of approximately 18% of the total outstanding
shares of the Company's common stock.
 
  Financing
 
     On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to
$220,000,000 over a three year period. For this facility, the Company would pay
Merck KGaA an establishment fee of $100,000 and a commitment fee of 0.8% per
annum on the undrawn balance. Amounts drawn on the facility would bear interest
payable quarterly in arrears at LIBOR plus 1% and would be repayable three years
from the date of establishment of the facility.
 
     Dividends
 
     Subsequent to March 31, 1998, the Company declared or intends to declare
dividends to Lipha Americas totaling $259,250,000, including a $225,000,000
dividend declared on July 21, 1998 which is payable on August 14, 1998. The
Company plans to partially fund payment of the aforementioned dividends by
utilizing a revolving credit facility of $220,000,000 to be provided by Merck
KGaA.
 
     1998 Incentive Plan
 
     The Company plans to adopt the 1998 Incentive Plan for the benefit of
eligible employees of the Company and its subsidiaries. Under the Incentive
Plan, participants may be awarded stock options, stock appreciation rights,
restricted shares, stock units and performance awards payable in cash or
property. The aggregate number of common shares available for award to
participants would be 900,000.
 
     Genpharm Agreement
 
     The Genpharm Agreement referred to in Note 6 has been terminated effective
July 23, 1998. As a result of the termination of this agreement, the Company is
no longer required to fund research and development related to this agreement
and no longer has rights to the products included in the agreement.
 
                                      F-14
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                        
     NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                     PAGE
                                                     ----
<S>                                                  <C>
Prospectus Summary.................................    3
Risk Factors.......................................    6
Special Note Regarding Forward-Looking
 Statements........................................   13
Use of Proceeds....................................   14
Dividend Policy....................................   14
Capitalization.....................................   15
Dilution...........................................   16
Selected Consolidated Financial Data...............   17
Management's Discussion and Analysis of
 Financial Condition and Results of
 Operations........................................   18
Business...........................................   24
Management.........................................   39
Certain Transactions...............................   43
Principal Stockholders.............................   45
Description of Capital Stock.......................   46
Shares Eligible for Future Sale....................   49
Underwriting.......................................   50
Legal Matters......................................   51
Experts............................................   51
Additional Information.............................   51
Index to Consolidated Financial Statements.........  F-1
</TABLE>
 
                            ------------------------
 
     UNTIL                 , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

 
                               14,100,000 SHARES


                                     [LOGO]

 
                                   DEY, INC.


                                  COMMON STOCK




                             ----------------------
                                   PROSPECTUS 
                             ----------------------



                            BEAR, STEARNS & CO. INC.

                               HAMBRECHT & QUIST

                               J.P. MORGAN & CO.

                                LEHMAN BROTHERS



                                                , 1998

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                    PART II.
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for                                   .
 
<TABLE>
<S>                                                                                           <C>
SEC registration fee.......................................................................   $     67,850
NASD filing fee............................................................................         23,500
New York Stock Exchange listing fee........................................................
Blue Sky fees and expenses.................................................................
Printing and engraving expenses............................................................
Legal fees and expenses....................................................................
Accounting fees and expenses...............................................................
Miscellaneous expenses.....................................................................
                                                                                              ------------
     TOTAL.................................................................................   $
                                                                                              ------------
                                                                                              ------------
</TABLE>
 
     All of such expenses are to be borne by the Company.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the DGCL authorizes, inter alia, a corporation generally to
indemnify any person ('indemnitee') who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation in a similar
position with another corporation or entity, against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. With respect to actions or suits by or in the right of the
corporation, however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorneys' fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that indemnification is appropriate. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) board of
directors by a majority voted of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs, that indemnification of the
indemnitee is proper because he has met the applicable standard of conduct.
Section 145 provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
 
     The Certificate of Incorporation provides that the registrant will
indemnify, to the full extent authorized or permitted by law, any person made,
or threatened to be made, a party or witness to any action, suit or proceeding,
whether civil or criminal or otherwise, by reason of the fact that he or she is
or was a director or officer of the registrant or by reason of the fact that
such director or officer, at the request of the registrant, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity.
 
     The Certificate of Incorporation also provides that no director of the
registrant will be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty by such a director as a
director other than for: (i) any breach of the director's duty of loyalty to the
registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
 
                                      II-1
<PAGE>
authorization of illegal dividends or (iv) any transaction from which such
director derived an improper personal benefit.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     The registrant has not issued any securities within the past three years.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits.
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.      DESCRIPTION
---------   -----------------------------------------------------------------------------------------------------------
<S>         <C>   <C>
     1.1     --   Underwriting Agreement*
     3.1     --   Amended and Restated Certificate of Incorporation of the Company*
     3.2     --   Amended and Restated By-laws of the Company*
     4.1     --   Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
     4.2     --   Credit facility dated                 between Merck KGaA and the Company*
     5.1     --   Opinion of Coudert Brothers*
    10.1     --   Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated as of May 26,
                  1998**
    10.2     --   License Agreement dated          , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
    10.3     --   Tax Sharing Agreement dated          , 1998 between the Company and Lipha Americas, Inc.*
    10.4     --   Management Services Agreement dated          , 1998 between the Company and Lipha Americas, Inc.*
    10.5     --   Management Services Agreement dated          , 1998 between the Company and Allergy Free L.P.*
    10.6     --   Management Services Agreement dated              , 1998 between the Company and EM Pharma, Inc.*
    10.7     --   Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
    10.8     --   Acquisition Agreement dated          , 1998 between Dey, L.P. and EM Pharma, Inc.*
    10.9     --   Dey, Inc. 1998 Incentive Plan*
    21.1     --   Subsidiaries of the Company
    23.1     --   Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
    23.2     --   Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
    24.1     --   Power of Attorney (contained on signature page)
    27.1     --   Financial Data Schedule
</TABLE>
 
------------------
 * To be filed by amendment
 
** Confidential material omitted and filed separately with the Commission
   pursuant to the Company's Application Requesting Confidential Treatment under
   Rule 406 under the Securities Act.
 
     (b) Financial Statements and Schedules.
 
          Schedule II     Valuation and Qualifying Accounts
 
ITEM 17. UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the
 
                                      II-2
<PAGE>
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance of Rule 430A and contained in a
     form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
     of this Registration Statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     Prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at the
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-3
<PAGE>
                                DEY LABORATORIES
                  SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                         ADDITIONS
                                                                  ------------------------
                                                   BALANCE AT     CHARGED TO                                  BALANCE AT
                                                  BEGINNING OF    COSTS AND     CHARGED TO                      END OF
                  DESCRIPTION                        PERIOD        EXPENSES     NET SALES      DEDUCTIONS       PERIOD
-----------------------------------------------   ------------    ----------    ----------    ------------    -----------
<S>                                               <C>             <C>           <C>           <C>             <C>
Year Ended 1995:
  Allowance for Doubtful Accounts..............         458           182              0            (108)           532
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................       3,463           200         37,638         (37,286)         4,015
                                                  ------------        ---       ----------    ------------    -----------
Year Ended 1996:
  Allowance for Doubtful Accounts..............         532           635              0             (67)         1,100
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................       4,015           (28)        55,224         (47,799)        11,412
                                                  ------------        ---       ----------    ------------    -----------
Year Ended 1997:
  Allowance for Doubtful Accounts..............       1,100           300              0            (417)           983
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................      11,412           489         62,452         (59,294)        15,059
                                                  ------------        ---       ----------    ------------    -----------
</TABLE>
<PAGE>
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NAPA, STATE OF
CALIFORNIA, ON JULY 24, 1998.
 
                                      DEY, INC.


                                      By:         /s/ CHARLES A. RICE
                                          -------------------------------------
                                                      Charles A. Rice
                                          President and Chief Executive Officer
 
                               POWER OF ATTORNEY
 
     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles A. Rice and Pamela R. Marrs, severally,
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to this Registration Statement and filed pursuant to Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
               SIGNATURES                                       TITLE                               DATE
-----------------------------------------  -----------------------------------------------   ------------------
 
<S>                                        <C>                                               <C>
           /s/ CHARLES A. RICE             President, Chief Executive Officer and Director        July 24, 1998
-----------------------------------------  (Principal Executive Officer)
             Charles A. Rice             
 
           /s/ PAMELA R. MARRS             Executive Vice President, Chief Financial              July 24, 1998
-----------------------------------------  Officer and Director (Principal Financial and
             Pamela R. Marrs               Accounting Officer)
 
          /s/ BERNHARD SCHEUBLE            Director                                               July 24, 1998
-----------------------------------------
            Bernhard Scheuble
 
         /s/ JEAN-NOEL TREILLES            Director                                               July 24, 1998
-----------------------------------------
           Jean-Noel Treilles
 
           /s/ PETER A. WRIEDE             Director                                               July 24, 1998
-----------------------------------------
             Peter A. Wriede
</TABLE>
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 EXHIBIT                                                                                                    SEQUENTIAL
  NUMBER     DESCRIPTION                                                                                     PAGE NO.
----------   --------------------------------------------------------------------------------------------   -----------
<S>          <C>   <C>                                                                                      <C>
    1.1       --   Underwriting Agreement*
    3.1       --   Amended and Restated Certificate of Incorporation of the Company*
    3.2       --   Amended and Restated By-laws of the Company*
    4.1       --   Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
    4.2       --   Credit facility dated                 between Merck KGaA and the Company*
    5.1       --   Opinion of Coudert Brothers*
   10.1       --   Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated
                   as of May 26, 1998**
   10.2       --   License Agreement dated          , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
   10.3       --   Tax Sharing Agreement dated          , 1998 between the Company and Lipha Americas,
                   Inc.*
   10.4       --   Management Services Agreement dated          , 1998 between the Company and Lipha
                   Americas, Inc.*
   10.5       --   Management Services Agreement dated          , 1998 between the Company and Allergy
                   Free L.P.*
   10.6       --   Management Services Agreement dated              , 1998 between the Company and EM
                   Pharma, Inc.*
   10.7       --   Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
   10.8       --   Acquisition Agreement dated          , 1998 between Dey, L.P. and EM Pharma, Inc.*
   10.9       --   Dey, Inc. 1998 Incentive Plan*
   21.1       --   Subsidiaries of the Company
   23.1       --   Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
   23.2       --   Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
   24.1       --   Power of Attorney (contained on signature page)
   27.1       --   Financial Data Schedule
</TABLE>
 
------------------
 * To be filed by amendment
 
** Confidential material omitted and filed separately with the Commission
   pursuant to the Company's Application Requesting Confidential Treatment under
   Rule 406 under the Securities Act.
[{"type": "S-1", "sequence": "1", "description": "REGISTRATION STATEMENT", "secsgml_size_bytes": 310860}]
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
 
                                           REGISTRATION STATEMENT NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                            ------------------------

                                   DEY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE                                2834                           94-2463696
(STATE OR OTHER JURISDICTION OF         (PRIMARY STANDARD INDUSTRIAL            (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)         CLASSIFICATION CODE NUMBER)          IDENTIFICATION NUMBER)
------------------------

    2751 NAPA VALLEY CORPORATE DRIVE, NAPA, CALIFORNIA 94558, (877) 666-1534
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                            ------------------------

                                CHARLES A. RICE
                                PAMELA R. MARRS
                                   DEY, INC.
                        2751 NAPA VALLEY CORPORATE DRIVE
                             NAPA, CALIFORNIA 94558
                                 (877) 666-1534
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)

                            ------------------------
 
                                with copies to:
 
EDWIN S. MATTHEWS, JR., ESQ.                 ROBERT M. CHILSTROM, ESQ.
   JEFFREY E. COHEN, ESQ.             SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
      COUDERT BROTHERS                            919 THIRD AVENUE
1114 AVENUE OF THE AMERICAS                      NEW YORK, NY 10022
     NEW YORK, NY 11036                            (212) 735-3000
       (212) 626-4400
 
                            ------------------------
 
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective

                            ------------------------
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
 
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
                                                 ------------------------
 
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
                           ------------------------
 
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
                           ------------------------
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                            ------------------------

                        CALCULATION OF REGISTRATION FEE
PROPOSED
                                                           MAXIMUM OFFERING         PROPOSED
          TITLE OF EACH CLASS              AMOUNT TO BE        PRICE PER       MAXIMUM AGGREGATE        AMOUNT OF
     OF SECURITIES TO BE REGISTERED        REGISTERED(1)       SHARE(2)        OFFERING PRICE(2)    REGISTRATION FEE
Common Stock............................    16,215,000                            $230,000,000           $67,850
(1) Includes up to 2,115,000 shares of Common Stock which the Underwriters may
    require the Company to sell solely to cover over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the amount of registration
    fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
                            ------------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

                  SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
                               14,100,000 SHARES
 
                                DEY, INC. [LOGO]
 
                                  COMMON STOCK
 
     All of the 14,100,000 shares of Common Stock offered hereby are being sold
by Dey, Inc. ('Dey' or the 'Company'). As a result of such sale, after this
offering (the 'Offering'), Lipha Americas, Inc., which currently owns 100% of
the outstanding shares of the Company's Common Stock, will own approximately 84%
of the outstanding shares of Common Stock. Lipha Americas, Inc. is a
wholly-owned subsidiary of Merck-Lipha S.A., which is a 99.53% owned French
subsidiary of Merck KGaA, Darmstadt, Germany. Prior to the Offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $      and
$      per share. See 'Underwriting' for information relating to determination
of the initial public offering price. The Company has applied for listing on the
New York Stock Exchange (the 'NYSE') of its Common Stock under the symbol 'DYY.'

                            ------------------------
 
      SEE 'RISK FACTORS' COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
   MATERIAL RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

                            ------------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
     SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
      PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
             REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING
                                                      PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                                       PUBLIC                COMMISSIONS(1)              COMPANY(2)
Per Share...................................             $                         $                         $
Total(3)....................................             $                         $                         $
(1) The Company has agreed to indemnify the Underwriters against certain
    liabilities, including liabilities under the Securities Act of 1933, as
    amended.
 
(2) Before deducting expenses of the Company estimated at $        .
 
(3) The Company has granted to the Underwriters a 30-day option to purchase up
    to 2,115,000 additional shares of Common Stock, on the same terms and
    conditions as set forth above, to cover over-allotments, if any. If all such
    shares are purchased by the Underwriters, the total Price to Public will be
    $       , the total Underwriting Discounts and Commissions will be $
    and the total Proceeds to Company will be $       . See 'Underwriting.'

                            ------------------------
 
     The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about             , 1998, at the
offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.
 
BEAR, STEARNS & CO. INC.
                       HAMBRECHT & QUIST
                                           J.P. MORGAN & CO.
                                                                LEHMAN BROTHERS
 
               The date of this Prospectus is             , 1998.
DEY   
[LOGO]                         [PRODUCT CATALOG]

     Series of pictures showing families, couples and children interspersed with
pictures of, clockwise from top, one unit dose vial of albuterol sulfate
inhalation solution, one multi-dose bottle of albuterol sulfate inhalation
solution concentrate, one unit dose vial of cromolyn sodium inhalation
solution and one canister of albuterol inhalation aerosol and one shelf carton
and representative vials of ipratropium bromide inhalation solution.

                                   * * * *

     Child inhaling from prototype unit of dry powder inhaler being developed 
by the Company.
 
                            ------------------------
 
     CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING
TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE 'UNDERWRITING.'

                            ------------------------
 
     All information contained in the 'Prospectus Summary' and in 'Business'
concerning the definition and size of the various U.S. product markets in which
Dey participates is based on figures published by IMS for 1997. Data audited and
reported by IMS does not include sales to all markets in which Dey competes;
most notably, with respect to Dey's products, IMS does not audit and report
sales to the home health care market and the mail order market. Prospective
investors are, accordingly, urged to review such market data reported by IMS
with caution, and should recognize that the market share of any particular
product marketed by Dey may be overstated or understated when comparing such
product's actual sales solely with the market data reported by IMS. Information
contained herein in 'Business' concerning the incidence of certain respiratory
diseases among the overall U.S. population is based on a variety of published
sources; the Company believes such information is widely accepted among
specialists in the treatment of such diseases and is reliable.

                            ------------------------
 
     Unless otherwise referred to or the context otherwise requires, references
to the 'Company' or 'Dey' shall mean Dey, Inc. and its subsidiaries, 'Merck
KGaA' shall mean Merck KGaA, of Darmstadt, Germany, a Kommanditgesellschaft auf
Aktien (not affiliated with Merck & Co., Inc., Whitehouse Station, New Jersey,
U.S.A.), 'Lipha Americas' shall mean Lipha Americas, Inc., 'Merck-Lipha' shall
mean Merck-Lipha S.A. (see 'Principal Stockholders') and 'Lipha' shall mean
Lipha S.A.

                            ------------------------
 
     Dey-Pak(Registered), EasiVent(Trademark), Mucosil(Trademark),
Accuvent(Trademark) and DuoNeb(Trademark) are trademarks of Dey. With respect to
the products sold by Dey under license, EpiPen(Registered) and
Astech(Registered) are registered trademarks of EM Industries, Inc., a
wholly-owned subsidiary of Merck KGaA; ACE(Registered) is a registered trademark
of Diemolding Corporation; and Curosurf(Registered) is a registered trademark of
Chiesi Farmaceutici, S.p.A.
 
                                       2
PROSPECTUS SUMMARY
 
     The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus, including the information under 'Risk
Factors.' Except as otherwise noted, all information in this Prospectus (i)
assumes the filing by the Company of an Amended and Restated Certificate of
Incorporation, pursuant to which the Company is authorized to issue up to
140,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Preferred Stock, par value $1.00 per share, (ii) is adjusted to give
effect to a 72,885 for 1 split of the Common Stock and (iii) assumes no exercise
of the Underwriters' over-allotment option. This Prospectus may contain, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results and the timing of certain
events could differ materially from those discussed in such forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under 'Risk Factors,' as well as those discussed elsewhere in
this Prospectus. See 'Special Note Regarding Forward-Looking Statements.'
 
                                  THE COMPANY
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as chronic obstructive pulmonary disease ('COPD') and
asthma) and respiratory-related allergies (such as anaphylaxis and rhinitis).
Dey is particularly strong in the development and high-volume manufacture of
sterile, unit dose inhalation solution products. The U.S. market in 1997 for
inhalation therapy prescription pharmaceutical products was estimated by IMS to
have been approximately $3.4 billion, consisting of nebulizer inhalation
solutions ($0.4 billion), metered dose inhalers ($1.7 billion), intranasal
products ($0.9 billion) and other inhalation therapy products ($0.4 billion).
Dey had net sales of $220 million in 1997.
 
     Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
 
     Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
New Drug Applications ('NDAs') and two Abbreviated New Drug Applications
('ANDAs') before the U.S. Food and Drug Administration (the 'FDA'). These
include two NDAs for sterile, unit dose inhalation solution products for the
treatment of asthma and COPD, one NDA for a patented product for the treatment
of infant respiratory distress syndrome ('IRDS') and two ANDAs for mechanical
pump nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
 
     Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, health maintenance
organizations ('HMOs') and home health care organizations, as well as directly
to physicians, including allergists, pulmonologists and pediatricians. Dey
currently employs approximately 100 people in marketing and sales, and expects
that number to increase significantly as new products are launched. Dey
distributes its products throughout the United States from two locations: its
manufacturing and distribution facility in Napa, California and its distribution
center in Allen, Texas.
 
     The key elements of Dey's strategy are as follows: (i) to focus on products
for the treatment of respiratory diseases; (ii) to enhance its leadership
position in the market for sterile, unit dose inhalation solution products;
(iii) to develop additional and novel drug delivery technologies for use in the
treatment of respiratory diseases; (iv) to aggressively expand its product line
through the development, in-licensing and acquisition of new products; and (v)
to leverage its existing strengths in the marketing, distribution and sale of
products for respiratory diseases.
 
     Dey was formed in 1977 and initially established a successful business
manufacturing and marketing sterile, unit dose bronchodilators for inhalation,
packaged in plastic vials, and unit dose sodium chloride solutions. In 1988, Dey
was acquired by a subsidiary of Lipha, which is headquartered in Lyon, France.
In 1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Stockholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha.
 
     The Company's principal executive offices are located at 2751 Napa Valley
Corporate Drive, Napa, California 94558, and its telephone number is (877)
666-1534.
 
                                       3
THE OFFERING
Common Stock offered hereby...............  14,100,000 shares (1)

Common Stock to be outstanding after the
  Offering................................  86,985,000 shares (1)(2)

Use of proceeds...........................  The Company intends to use the net proceeds of the Offering to repay
                                            indebtedness of the Company to an affiliate. See 'Use of Proceeds'
                                            and 'Certain Transactions.'
New York Stock Exchange symbol............  DYY
------------------------
(1) Does not include up to 2,115,000 shares of Common Stock that may be sold by
    the Company pursuant to the Underwriters' over-allotment option. See
    'Underwriting.'
 
(2) Does not include 900,000 shares of Common Stock issuable upon exercise of
    stock options granted under an incentive plan expected to be adopted by the
    Company prior to the Offering. See 'Management--Employee Plans.'
 
                                       4
SUMMARY HISTORICAL FINANCIAL DATA
 
     The following summary financial data should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' and the Company's Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.
THREE MONTHS
                                                 YEAR ENDED DECEMBER 31,                              ENDED MARCH 31,
                           -------------------------------------------------------------------   -------------------------
                              1993          1994          1995          1996          1997          1997          1998
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                                   (In millions, except share and per share data)
CONSOLIDATED STATEMENT OF
  INCOME DATA:
  Net sales...............      $ 90.1        $116.3        $136.7        $166.5        $219.8        $ 52.3        $ 71.1
  Cost of sales...........        23.3          30.9          39.0          64.3          77.2          16.0          25.6
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Gross profit............        66.8          85.4          97.7         102.2         142.6          36.3          45.5
  Operating expenses......        16.0          23.3          32.4          42.9          53.1           9.8          12.4
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Income from operations..        50.8          62.1          65.3          59.3          89.5          26.5          33.1
  Interest and other
    income, net...........         2.5          (9.3)          0.7           1.5           1.7           0.3           0.4
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Income before taxes.....        53.3          52.8          66.0          60.8          91.2          26.8          33.5
  Income taxes............       (24.2)        (21.8)        (27.1)        (25.0)        (37.2)        (10.9)        (13.6)
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Net income..............      $ 29.1        $ 31.0        $ 38.9        $ 35.8        $ 54.0        $ 15.9        $ 19.9
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Net income per share
    (basic)...............      $ 0.40        $ 0.43        $ 0.53        $ 0.49        $ 0.74        $ 0.22        $ 0.27
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
  Weighted average common
    shares outstanding....  72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
                           -----------   -----------   -----------   -----------   -----------   -----------   -----------
Pro forma net income per
  share (basic)...........
                                                                                   -----------                 -----------
                                                                                   -----------                 -----------
Pro forma weighted average
  common shares used to
  compute pro forma net
  income per share........
                                                                                   -----------                 -----------
                                                                                   -----------                 -----------
AT MARCH 31, 1998
                                                                         ----------------------------------------------
                                                                                                          PRO FORMA
                                                                         ACTUAL      PRO FORMA(1)     AS ADJUSTED(1)(2)
                                                                         -------    --------------    -----------------
                                                                                         (In millions)
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents...........................................   $  38.2        $ 38.2             $
  Working capital (deficit)...........................................      44.0        (215.2)
  Total assets........................................................     202.6         202.6
  Total debt (due to affiliates)......................................      22.0          22.0
  Total stockholders' equity (deficit)................................     130.0        (129.2)
------------------------
(1) After giving effect to all dividends to Lipha Americas declared or expected
    to be declared subsequent to March 31, 1998, in the aggregate amount of
    $259,250,000. See 'Certain Transactions.'
(2) Adjusted to give effect to the sale by the Company of the 14,100,000 shares
    of Common Stock offered hereby at an assumed public offering price of $
    per share (the mid-point of the price range) and, after deduction of
    underwriting discounts and commissions and estimated expenses of the
    Offering, and the application of the net proceeds of the Offering to the
    repayment of indebtedness of the Company to an affiliate anticipated to be
    incurred in connection with the payment of certain dividends to Lipha
    Americas referred to in note (1) above. See 'Use of Proceeds' and 'Certain
    Transactions.'
 
                                       5
RISK FACTORS
 
     Prospective purchasers of the Common Stock offered hereby should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
 
DEPENDENCE ON SALES OF KEY PRODUCTS
 
     During 1997, the Company derived approximately 75% of its revenues from
sales of three sterile, unit dose inhalation solution products, albuterol
sulfate (38%), ipratropium bromide (23%) and cromolyn sodium (14%) (the 'Key
Products'). See 'Business--Dey's Current Products.' Accordingly, any factor
adversely affecting the sale of any of the Key Products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Each of the Key Products is a generic version of a prescription drug
with respect to which patent protection has lapsed. The Company does not have
exclusive rights to market any of such products. Each of the Key Products could
be rendered obsolete or uneconomical or could otherwise be adversely affected by
numerous factors, including the development of new competitive pharmaceuticals
to treat the conditions addressed by the Key Products, technological advances,
manufacturing or supply interruptions, marketing or pricing actions by one or
more of the Company's competitors, changes in the prescribing practices of
physicians, changes in third party reimbursement practices, product liability
claims, product recalls or other factors.
 
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND APPROVALS
 
     Dey's future results of operations will depend, to a significant extent,
upon its ability to successfully develop and obtain regulatory approvals for new
products. See 'Business--Products in Development.' There can be no assurance
that the Company will successfully develop and obtain approvals for any new
products. The failure of Dey to develop and obtain approvals for new products on
a timely basis, or to market such products on a commercially viable basis, would
have a material adverse effect on its business, financial condition and results
of operations.
 
     The Company has a variety of products under development, on its own and
through third parties under contract, including line extensions of existing
products, reformulations of existing products and new products. Prior to
marketing, all of the Company's products under development must undergo rigorous
testing, followed by the filing by the Company of an ANDA or an NDA with the FDA
and extensive review by the FDA. In order to file an NDA, which is required for
new dosages of existing products, for new delivery systems for existing products
and for new products, the FDA requires extensive preclinical and clinical
testing for safety and efficacy. In order to file an ANDA, which can be filed
for generic versions of brand name prescription drugs that are no longer covered
by patents or whose marketing exclusivity has expired, the Company must present
data demonstrating that the generic drug formulation is bioequivalent to a
previously approved branded drug. In both cases, the FDA has the authority to
determine what testing procedures are appropriate for a particular product and,
in some instances, has not published or otherwise identified guidelines as to
the appropriate procedures. The required product testing can take a number of
years and require the expenditure of substantial resources, and there can be no
assurance that such testing of any product under development will result in a
commercially viable product. The results of initial trials are not necessarily
predictive of the results of later trials, and in many cases products suffer
significant setbacks in later trials, despite promising earlier results.
Further, the Company may decide to modify a product in testing, which could
materially extend the test period and increase the development costs of the
product in question. There can be no assurance that even after such time and
expenditures, regulatory approval by the FDA will be obtained for any products
developed by the Company. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA review. Any regulatory approval may impose limitations on the indicated use
for the product. Further, even if such regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. In addition, the regulatory requirements applicable to
any product may be modified, perhaps extensively, in the future.
 
     The Company regularly reevaluates its product development efforts. On the
basis of these reevaluations, the Company has in the past, and may in the
future, abandon development or commercialization efforts for particular
 
                                       6
products. There can be no assurance that the Company, following any such
reevaluation, will continue its effort to develop any product or technology.
 
COMPETITION IN THE PHARMACEUTICAL INDUSTRY; UNCERTAINTY OF MARKET ACCEPTANCE;
RAPIDITY OF TECHNOLOGICAL CHANGE
 
     The manufacture and sale of pharmaceutical products is highly competitive.
Many of Dey's competitors are large, well-known pharmaceutical, chemical and
health care companies which have greater financial, sales, marketing, regulatory
and scientific resources than Dey. Additionally, many of the Company's current
and potential competitors have strong research and development capabilities that
may allow such competitors to develop new or improved products that may compete
with Dey's current and future products.
 
     The generic drug industry is intensely competitive and includes large brand
name and multi-source pharmaceutical companies. Because generic drugs do not
have patent protection or any other market exclusivity, competitors of the
Company may introduce competing generic products, which may be sold at lower
prices or with more aggressive marketing. Conversely, as Dey continues to
introduce branded drugs into its product portfolio, it will face competition
from manufacturers of generic drugs which may claim to offer equivalent
therapeutic benefits at a lower price. The aggressive pricing activities of the
Company's generic competitors could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
     Dey's success in commercializing any product will depend on the acceptance
of such product by physicians and patients. Unanticipated side effects, product
liability claims or product recalls or, more generally, unfavorable publicity
concerning any of the Company's products or those of its competitors in the same
therapeutic field could have an adverse effect on its ability to maintain or
obtain regulatory approvals, to achieve acceptance by prescribing physicians,
managed care providers or patients, and to commercialize its products, any of
which could have a material adverse effect on Dey's business, financial
condition and results of operations.
 
     The pharmaceutical industry is characterized by rapid technological change.
The Company's products, branded or generic, could be rendered obsolete or
uneconomical by the development of new pharmaceuticals or devices to treat the
conditions addressed by its products or as a result of either technological
advances affecting the cost of production or marketing or pricing action by one
or more of its competitors. In addition, the development of any new product by
the Company could affect the demand for the current products of the Company if
such new product has the same or similar indications as one or more of the
Company's current products.
 
     See 'Business--Competition.'
 
RISK OF PRODUCT LIABILITY AND PRODUCT RECALLS
 
     The development, manufacture, sale and use of the Company's products
involve an inherent risk of product liability claims. Product liability
insurance for this type of risk is expensive and difficult to obtain in the
United States. Although to date no material product liability claims have been
asserted against the Company, there can be no assurance that such claims will
not be asserted against the Company in the future. If any product liability
claims are asserted, the Company could incur significant expenses in defending
against any such claims and, if any such claims were validated, the Company may
not have sufficient resources or insurance coverage to satisfy the claims. More
generally, any product liability claims against the Company or against any of
its competitors in the same therapeutic field, if perceived to be valid, could
have a material adverse effect on the Company's business, financial condition or
results of operations.
 
     Product recalls may be issued at the discretion of the Company, its
suppliers, the FDA, the Federal Trade Commission or other government agencies
having regulatory authority for product sales and may occur due to disputed
labeling claims, manufacturing issues, quality defects or other reasons. In the
past year the Company has assisted Meridian Medical Technologies, Inc.
('Meridian'), the owner and manufacturer of the line of epinephrine autoinjector
products marketed by the Company, in two separate product recall actions. In
October 1997, Meridian and Dey agreed to voluntarily withdraw from the market
all batches of EpiEZPen(Registered)and EpiEZPen(Registered) Jr. These products,
activated by depressing a button on the autoinjector, were found to have a
defect which resulted in premature discharge of the solution contents. In May
1998, Meridian and Dey agreed to
 
                                       7
voluntarily recall all production batches of EpiPen(Registered) and
EpiPen(Registered) Jr., pressure-activated autoinjectors, due to a potential for
subpotency. The manufacturing process for these products has been modified, and
products to replace the recalled units are now available. In both of these
recalls, Meridian is required to compensate Dey for costs associated with
replacement products and administrative costs, but not for lost profits. Any
adverse reaction arising (or alleged to have arisen) in connection with products
subject to these or any other recalls could give rise to product liability
claims and the risks attendant thereto described in the preceding paragraph.
 
UNCERTAINTY OF ENFORCEABILITY OF PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
 
     The Company relies, and anticipates that it will rely in the future, on
patent protection for certain products the Company currently markets or may seek
to market in the future. There can be no assurance that any patent issued to, or
licensed by, the Company will provide protection that has commercial
significance. There can be no assurance that challenges will not be initiated
against the validity or enforceability of any such patent or, if initiated, that
such challenges will not be successful. The cost of litigation, and the
commitment of management's time to uphold the validity and prevent infringement
of patents, can be substantial. Moreover, there can be no assurance that the
products and technologies the Company currently markets, or may seek to market
in the future, will not infringe patents or other rights owned by others. In the
event of an adverse outcome of any dispute with respect to patent or other
rights, the Company may be required to license such disputed rights or to cease
using such disputed rights. There can be no assurance that a license would be
available on terms acceptable to the Company, or at all. The invalidation,
circumvention or unenforceability of any of the patents upon which the Company
relies or may rely in the future, or the infringement or alleged infringement by
such patents of the intellectual property rights of third parties, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     The Company relies, and expects to continue to rely, upon unpatented
proprietary know-how and trade secrets in the development and manufacture of
many of its principal products. The Company's policy is to require its key
scientific and management personnel to enter into confidentiality agreements
with the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets or unpatented
proprietary know-how in the event of any unauthorized use or disclosure of such
know-how. In addition, there can be no assurance that others will not obtain
access to or independently develop similar or equivalent trade secrets or
know-how.
 
     The Company believes that trademark protection is an important factor in
establishing product recognition. The inability of the Company to protect its
trademarks from infringement and the resulting impairment to any goodwill which
may have developed in such trademarks, or the Company's inability to use one or
more of its trademarks because of successful third-party claims, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     See 'Business--Intellectual Property.'
 
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES
 
     The Company's ability to market its new and existing products is dependent
in part on the extent to which appropriate reimbursement for the products and
related treatment are obtained from health care payors, including government
authorities, private health insurers and other organizations, such as HMOs and
managed care organizations. Third-party payors are increasingly challenging
pricing of pharmaceutical products and/or seeking pharmacoeconomic data to
justify formulary acceptance and reimbursement practices. The growth of
organizations such as HMOs and managed care organizations and legislative
proposals to reform health care and government insurance programs could
significantly influence the purchase of pharmaceutical products, resulting in
lower prices and/or a reduction in demand for Dey's products. Such cost
containment measures and health care reform could affect Dey's ability to sell
its products and may have a material adverse effect on Dey's business, financial
condition and results of operations.
 
     Significant uncertainty exists regarding the reimbursement status of
pharmaceutical products. There can be no assurance that reimbursement will be
available for any of the Company's products, that any reimbursement granted will
be maintained or that limits on reimbursement available from third-party payors
will not reduce the demand for, or negatively affect the price of, the Company's
products. The unavailability or inadequacy of third-
 
                                       8
party reimbursement for its products would have a material adverse effect on
Dey's business, financial condition and results of operations.
 
     A number of pharmaceutical companies, including Dey, have received federal
subpoenas in connection with an ongoing investigation of the reporting of
'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is unable to predict what relief, if any, any
federal or state authority may seek as a result of this investigation.
 
     The Company is unable to predict whether additional legislation or
regulation affecting the health care industry or third-party coverage and
reimbursement will be enacted in the future, or what effect such legislation or
regulation would have on its business.
 
     Many of the Company's current products are generic versions of existing
prescription drugs. These products are subject to intense competition,
particularly with respect to market prices and especially where multiple
competitors offer the same or similar products. Over recent years, Dey has been
successful in maintaining and even augmenting its overall gross margin through
the timely introduction of newer products which have higher margins relative to
its older products. The Company is now developing and seeking FDA approval for
branded products which, if successfully introduced, are anticipated to yield
even higher margins. There can be no assurance that, in the future, the
introduction of new products will offset any decline in margins of more mature
products, in which case overall gross margins may decline. Any such decline in
overall gross margins could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
FLUCTUATIONS IN QUARTERLY EARNINGS
 
     The Company may experience periodic fluctuations in quarterly earnings as a
result of a variety of factors, including, but not limited to, the timing of the
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or by its
competitors, the seasonal severity of respiratory diseases, which generally are
more pervasive during the first and fourth quarters of the calendar year, the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
 
     The Company's results of operations on a quarterly financial basis may
fluctuate, perhaps significantly, as a result of the above or other factors. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
 
UNCERTAINTY WITH RESPECT TO IN-LICENSING AND ACQUISITIONS
 
     Certain of Dey's products and technologies under development have been
licensed from third parties. The failure of the Company to meet its obligations
under one or more of these agreements could result in the termination of the
Company's rights under such agreements. Further, there can be no assurance Dey
will be able to continue to identify and negotiate attractive licensing
arrangements with third parties.
 
     Dey may also pursue acquisitions of products or companies that could
complement or expand its business. However, there can be no assurance that Dey
will be able to identify appropriate acquisition candidates in the future. If an
acquisition candidate is identified, there can be no assurance that the Company
will be able to successfully negotiate the terms of any such acquisition,
finance such acquisition or integrate such acquisition into its existing
business and product lines. Furthermore, the negotiation of potential
acquisitions could cause diversion of management's time and resources, and
require significant resources to consummate. If Dey consummates one or more
significant acquisitions through the issuance of shares of Common Stock, Dey's
stockholders could suffer significant dilution of their ownership interests in
Dey.

RELIANCE ON THIRD PARTIES AND MAJOR CUSTOMERS
 
     The Company relies on third parties for the manufacture of certain of its
products, for the supply of raw materials, for shipping and for contract
research activities.
 
     There can be no assurance that third party manufacturers will be able to
provide the Company with adequate supplies of products in a timely fashion, or
at all, which could result in the Company's inability to fill orders from
 
                                       9
customers and the loss of sales and income. The Company also faces the risk that
upon expiration of the term of any third party manufacturing agreement it may
not be able to renew or extend the agreement with the third party manufacturer,
to obtain an alternative manufacturing source from other third parties or
develop internal manufacturing capabilities on commercially viable terms, if at
all. In such circumstances the Company may be unable to continue to market such
products as planned and could be required to abandon or divest itself of a
product line on terms which would materially adversely affect the Company's
business, financial condition and results of operations.
 
     Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company. Although the Company has not experienced
any material interruption of supply to date, failure of an FDA-approved
single-source supplier to deliver sufficient quantities of such raw materials on
a timely basis or the failure of the FDA to approve second-source suppliers in a
timely fashion could materially and adversely affect the Company's business,
financial condition and results of operations.
 
     Dey plans to rely entirely on arrangements with independent shipping
companies for the delivery of raw materials from suppliers and for the delivery
of its products to its distribution facility in Allen, Texas and to
distributors. The termination of the Company's arrangements with one or more of
these independent shipping companies, or the failure or inability of one or more
of these independent shipping companies to deliver raw materials from suppliers
or products to distributors could have a material adverse effect on Dey's
business, financial condition or results of operations. For instance, an
employee work stoppage or slow-down at one or more of these independent shipping
companies could materially impair that shipping company's ability to perform the
services required by the Company. There can be no assurance that the services of
any of these independent shipping companies will continue to be available to Dey
on terms as favorable as those currently available or that these companies will
choose to, or be able to, perform shipping services for Dey.
 
     Dey currently utilizes, and plans for the foreseeable future to continue to
utilize, contract research companies for a variety of services in connection
with developing and gaining FDA approval for its new products. These services
may include, but are not limited to, the design of clinical protocols,
identification of clinical investigators to coordinate and monitor clinical
trials, compilation and review of clinical study reports and preparation of
clinical data for submission to the FDA. There can be no assurance that the
services of any of these companies will continue to be available to Dey or will
be made available to Dey on terms which are as favorable as those currently
available. The inability of the Company to continue to contract out such
services on commercially reasonable terms could materially adversely affect the
Company's business, financial condition and results of operations.
 
     The Company markets its products through a variety of distribution channels
common to the industry. Due to consolidation in recent years, a few large
distributors now control a significant share of this market. In 1997, McKesson,
Bergen Brunswig and Cardinal Health, which are the leading pharmaceutical
wholesalers in the United States, accounted for approximately 12%, 12% and 11%,
respectively, of the Company's net sales. Further consolidation among, or any
financial difficulties of, these large distributors could, among other things,
result in the combination or elimination of warehouses which could result in
product returns to the Company, cause a reduction in inventory levels or
otherwise reduce purchases of the Company's products. Any such consolidation of,
or financial difficulties of, the Company's major distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations. See 'Business--Marketing and Sales.'

RISKS OF BUSINESS INTERRUPTION
 
     The Company relies on its own manufacturing capabilities in Napa,
California for the majority of its current and future products. This single
manufacturing site is subject to potential atmospheric and geologic
catastrophes, including earthquakes, as well as fires, explosions, floods, or
other catastrophes which could cause significant interruptions in the Company's
ability to produce and market products manufactured at such site. The Company
has business interruption insurance for this type of risk and other business
interruption events; however, there is no assurance that such insurance will be
sufficient to prevent the Company from incurring significant expenses in 
 
                                       10
dealing with such an event or that such an event will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
 
     Certain of the Company's research and development activities involve the
use of a variety of chemicals which are subject to federal, state and local laws
and regulations governing the use, storage, handling and proper disposal of
certain waste products. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by federal, state and local laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any liability could exceed the resources of the
Company.
 
UNCERTAINTY OF MANAGING GROWTH; UNCERTAINTY OF FUTURE CAPITAL NEEDS AND
ADDITIONAL FUNDING
 
     The Company has recently experienced a period of significant expansion of
its operations that has placed a significant strain upon its management, systems
and resources. The Company's business strategy includes the development of new
products and the potential acquisitions of products and businesses. The
development of new products will require the commitment of substantial
additional resources and management time and attention to conduct research,
preclinical and clinical trials, to augment quality control, regulatory and
administrative capabilities, to increase manufacturing capacity and to manage an
increasing number of employees. Failure to manage growth effectively would have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
     The future capital requirements of the Company will depend on many factors,
including the pace and magnitude of its research and development programs for
new products, the time and costs involved in obtaining regulatory approvals and
the cost of augmenting manufacturing capacity and the Company's sales force. The
Company believes that its available cash, cash generated from operations and, as
necessary, borrowings under its credit facility with Merck KGaA (see 'Certain
Transactions'), will be adequate to satisfy its anticipated working capital and
other capital requirements for the foreseeable future. Should the Company
require additional funding, there can be no assurance that additional financing
will be available on acceptable terms or at all. Any inability to obtain
additional financing, if required, would have a material adverse effect on the
Company's business, financial conditions and results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations'; 'Business--Strategy'; and 'Business--Products in Development.'
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's continued success depends, in part, upon retaining key
management and technical personnel, as well as the Company's ability to continue
to attract and retain additional highly qualified personnel. The Company faces
intense competition for personnel from other companies, government entities and
other organizations. Although the Company intends to maintain Employment
Agreements with certain of its key employees, there can be no assurance that Dey
will be successful in retaining its current personnel, nor can there by any
assurance that Dey will be successful in hiring or retaining qualified personnel
in the future. The loss of key personnel, or the inability to attract and retain
highly qualified employees in the future, could have a material adverse effect
on Dey's business, financial condition and results of operations. See
'Management.'
 
CONTROL BY AND RELATIONSHIP WITH MERCK KGAA AND MERCK-LIPHA
 
     Upon completion of the Offering, Merck KGaA will control approximately 84%
of the outstanding Common Stock of the Company (or approximately 82% if the
Underwriters' over-allotment option is exercised in full). Merck KGaA's control
will be through its subsidiaries, including Merck-Lipha. As a result, Merck KGaA
will have sufficient voting power to elect the entire Board of Directors of the
Company, control the direction and policies of the Company (including
acquisitions, mergers and consolidations) and prevent or cause a change in
control of the Company. The continuing beneficial ownership by Merck KGaA and
Merck-Lipha of the Company's Common Stock, or the service of certain persons as
directors of both the Company and Merck KGaA, Merck-Lipha, Lipha or Lipha
Americas, could create conflicts of interest with respect to decisions that
could have different implications for the Company and Merck KGaA and such other
companies, including potential acquisitions of businesses, the development and
marketing of products, the issuance by the Company of additional securities
(thereby diluting Merck KGaA's and Merck-Lipha's beneficial ownership of the
Company's 
 
                                       11
capital stock), the election of new or additional directors, the payment of
dividends by the Company and other matters. Under Delaware corporate law,
officers and directors of the Company owe fiduciary duties to the Company and
its stockholders. However, the Company has not instituted any formal plan or
arrangement to address potential conflicts of interest that may arise among the
Company, Merck KGaA and their affiliates. See 'Principal Stockholders.'
 
     The Company is party to various agreements with Merck KGaA and its
subsidiaries (including Lipha) that were entered into prior to the Offering.
While these agreements were not negotiated on an arm's length basis, the Company
believes that these agreements are no less favorable to the Company than would
be the case if the Company had been dealing with such other party at arm's
length. See 'Certain Transactions.'
 
ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made for listing the Common Stock on the
NYSE, there can be no assurance that an active trading market will develop or be
sustained after the Offering or that purchasers of Common Stock will be able to
resell their Common Stock at prices equal to or greater than the initial public
offering price. The initial public offering price will be determined by
negotiations among the Company and the Underwriters and may not be indicative of
the prices that may prevail in the public market. Furthermore, the market price
of the Common Stock may be volatile. Factors such as announcements of
fluctuations in the Company's or its competitors' operating results, changes in
government regulations or health care policies and market conditions in general
could have a significant impact on the future price of the Common Stock. In
particular, with the current uncertainty about health care policy, reimbursement
and coverage in the United States, there has recently been significant
volatility in the market price and trading volume of securities of
pharmaceutical and other health care companies unrelated to the performance of
such companies. See 'Underwriting.'
 
MARKET RISKS OF SHARES ELIGIBLE FOR FUTURE SALE
 
     Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the prevailing market price of the Common Stock.
Of the 86,985,000 shares of Common Stock outstanding upon completion of the
Offering (not including up to 2,115,000 shares of Common Stock that may be sold
by the Company pursuant to the Underwriters' over-allotment option), the
14,100,000 shares offered hereby (16,215,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for such shares which may be acquired by an 'affiliate' of the Company.
The remaining 72,885,000 issued and outstanding shares will be beneficially
owned by Merck KGaA. The Company and Merck KGaA have agreed that the Company
will not, and Merck KGaA will cause Lipha Americas not to, directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge or otherwise dispose of or encumber and, in the case of Lipha
Americas, otherwise create a put equivalent position in any shares of Common
Stock (or any securities convertible into or exercisable or exchangeable for
shares of Common Stock) for a period of 180 days from the date of this
Prospectus without the prior written consent of Bear, Stearns & Co. Inc. No
prediction can be made as to the effect, if any, future sales of Common Stock or
the availability of such shares for future sale, will have on the market price
of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of such shares in the public market, or the perception that
such sales may occur, could adversely affect the then prevailing market prices
for the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See 'Shares Eligible for
Future Sale.'

IMMEDIATE AND SUBSTANTIAL DILUTION
 
     Purchasers of the shares offered hereby will experience an immediate and
substantial dilution in net tangible book value of $       per share ($
per share assuming the Underwriters' over-allotment option is exercised in
full). See 'Dilution.'
 
YEAR 2000 COMPLIANCE
 
     The Company recognizes the need to ensure that its operations will not be
adversely affected by Year 2000 hardware and software issues. Dey uses a number
of computer systems, including applications used in sales, finance,
manufacturing, warehouse and inventory management and various administrative
functions. The 
 
                                       12
Company has reviewed all of its computer systems to ensure they will be able to
appropriately interpret calendar year 2000 and subsequent years and expects to
implement the systems and programming changes necessary to address Year 2000
issues on an enterprise-wide basis and is currently reviewing the costs of such
actions. Expenditures required to make the Company Year 2000 compliant will be
expensed as incurred and are not currently expected by management to be material
to the Company's consolidated financial position or results of operations. No
assurance can be given, however, that all of the Company's systems will be Year
2000 compliant or that the Company will not be adversely affected by compliance
costs or the impact of any failure by the Company to achieve full Year 2000
compliance. The Company will seek to confirm with its customers and vendors
their Year 2000 compliance status. However, the Company could be adversely
affected by the failure of one or more of its customers or suppliers to become
fully Year 2000 compliant. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance.'
 
CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER AND BY-LAW PROVISIONS
 
     Certain provisions of the Company's Certificate of Incorporation and
By-laws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Certain of these provisions allow the Company to issue preferred
stock without any vote or further action by the stockholders, limit the ability
of stockholders to call a special meeting of stockholders, require advance
notice for director nominations by stockholders and submission of other
proposals for consideration at stockholder meetings and provide for a staggered
Board of Directors. Certain provisions of Delaware law, including Section 203 of
the Delaware General Corporation Law (the 'DGCL'), which limits business
combinations of the Company with interested stockholders, could have similar
effects. Also, the Company's Certificate of Incorporation provides that the
Company may not issue more than an aggregate of 90,000,000 shares of Common
Stock without first receiving the consent in writing of any person who, directly
or indirectly, owns over fifty percent of the Company's outstanding Common
Stock. The possible issuance of preferred stock, the limits placed on the
ability of stockholders to call a meeting at which directors could be replaced,
the advance notice requirements for director nominations and stockholder
proposals, the length of time required to replace sufficient members of a
staggered Board of Directors to take control of the Company and the provisions
of Delaware law and the limitations on issuing further shares of Common Stock
could have the effect of delaying, deferring or preventing a change in control
of the Company, including, without limitation, discouraging a proxy contest or
making more difficult the acquisition of a substantial block of the Company's
Common Stock. See '--Control by and Relationship with Merck KGaA and
Merck-Lipha.'
 
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     A substantial number of statements contained in this Prospectus, including
without limitation, statements containing the words 'believes,' 'anticipates,'
'expects,' and 'intends' and words of similar import, may constitute
'forward-looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Dey, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the captions 'Risk Factors,' 'Business,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Prospectus Summary,' as well as elsewhere in this Prospectus.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
 
                                       13
USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be $            million ($
million if the Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $     per share (the mid-point of the price
range) and after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
 
     The Company expects to use all of the net proceeds to repay indebtedness of
the Company to an affiliate anticipated to be incurred in connection with the
payment of certain dividends declared by the Company and payable to Lipha
Americas. See 'Certain Transactions.'
 
                                DIVIDEND POLICY
 
     Except as described elsewhere in this Prospectus relating to dividends to
be paid to Lipha Americas (see 'Certain Transactions'), the Company does not
anticipate paying dividends in the foreseeable future. Payments of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including the Company's financial
condition, operating results, current and anticipated cash needs and plans for
expansion. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
 
                                       14
CAPITALIZATION
 
     The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, and (ii) such capitalization pro forma as
adjusted, after giving effect to (A) all dividends to Lipha Americas declared or
expected to be declared subsequent to March 31, 1998, in the aggregate amount of
$259,250,000, and (B) the sale by the Company of the 14,100,000 shares of Common
Stock offered hereby at an assumed public offering price of $     per share (the
mid-point of the price range) and, after deduction of underwriting discounts and
commissions and estimated expenses of the Offering, the application of the net
proceeds of the Offering to the repayment of indebtedness of the Company to an
affiliate anticipated to be incurred in connection with the payment of certain
of the dividends to Lipha Americas referred to above. See 'Use of Proceeds' and
'Certain Transactions.' This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
MARCH 31, 1998
                                                                                               --------------------
                                                                                                         PRO FORMA
                                                                                                             AS
                                                                                               ACTUAL     ADJUSTED
                                                                                               ------    ----------
                                                                                                  (IN MILLIONS)
Cash and cash equivalents...................................................................   $ 38.2     $
                                                                                               ------    ----------
                                                                                               ------    ----------
Long-term debt:
  Long-term related party debt(1)...........................................................   $ 22.0     $
                                                                                               ------    ----------
Stockholders' equity:
  Preferred Stock $1.00 par value; 10,000,000 shares authorized; none issued and
     outstanding, actual and pro forma as adjusted..........................................       --
  Common Stock, $.01 par value; 140,000,000 shares authorized, 72,885,000 shares issued and
     outstanding, actual; 86,985,000
     shares issued and outstanding, pro forma as adjusted...................................      0.7
  Additional paid-in capital................................................................     57.1
  Retained earnings.........................................................................     72.2
                                                                                               ------    ----------
     Total stockholders' equity.............................................................   $130.0     $
                                                                                               ------    ----------
       Total capitalization.................................................................   $152.0     $
                                                                                               ------    ----------
                                                                                               ------    ----------
------------------
(1) Note, dated July 31, 1997, issued to Lipha Americas in the amount of
    $22,000,000. See 'Certain Transactions.'
 
                                       15
DILUTION
 
     After giving effect to certain dividends to Lipha Americas declared or
expected to be declared by the Company subsequent to March 31, 1998, the pro
forma net tangible book value (deficit) of the Company at March 31, 1998 was
($               ), or ($     ) per share. Net tangible book value (deficit) per
share represents the amount of total tangible assets of the Company less total
liabilities divided by the number of shares of Common Stock outstanding upon the
completion of the Offering. After giving effect to the sale by the Company of
the 14,100,000 shares of Common Stock offered hereby and the use of proceeds
therefrom at an assumed public offering price of $     per share (the mid-point
of the price range), less estimated offering expenses and underwriting discounts
and commissions, the pro forma net tangible book value of the Common Stock as of
March 31, 1998 would have been approximately $        million or $     per share
of Common Stock. This represents an immediate increase in pro forma net tangible
book value per share of $     to existing holders and an immediate dilution in
pro forma net tangible book value of $     per share to new investors purchasing
shares in the Offering.
 
     The following table illustrates the per share dilution as of March 31,
1998:
Assumed public offering price per share.................................................   $        $
  Net tangible book value (deficit) per share as of March 31, 1998......................
  Increase in net tangible book value per share attributable to new investors...........
                                                                                           -----
Pro forma net tangible book value (deficit) per share after the Offering................
                                                                                                    -----
Dilution per share to new investors(1)..................................................            $
                                                                                                    -----
                                                                                                    -----
The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in the Offering (after giving effect to the 72,885 for 1 stock
split and before deduction of underwriting discounts and commissions and
estimated expenses of the Offering):
SHARES PURCHASED           TOTAL CONSIDERATION
                                   -------------------------    -----------------------    AVERAGE PRICE
                                      NUMBER        PERCENT       AMOUNT       PERCENT       PER SHARE
                                   ------------    ---------    ----------    ---------    -------------
Existing stockholders...........     72,885,000       83.8%     $                    %         $
New investors...................     14,100,000       16.2%     $                    %         $
                                   ------------    ---------    ----------    ---------
Total...........................     86,985,000(2)   100.0%     $               100.0%
                                   ------------    ---------    ----------    ---------
                                   ------------    ---------    ----------    ---------
------------------
 
(1) If the Underwriters' over-allotment option is exercised in full, dilution
    per share to new investors would be $     .
 
(2) Excludes 900,000 shares of Common Stock reserved for issuance of options
    which may be granted under the Company's 1998 Incentive Plan. See
    'Management.'
 
                                       16
SELECTED CONSOLIDATED FINANCIAL DATA
 
     The selected consolidated financial data presented below with respect to
the consolidated statement of income data, other data, and consolidated balance
sheet data for, and as of the end of, each of the years in the three-year period
ended December 31, 1997 are derived from the consolidated financial statements
of Dey, Inc. and subsidiaries, which financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1996 and 1997 and for each
of the years in the three-year period ended December 31, 1997, and the report
thereon, are included elsewhere in the Prospectus. The selected consolidated
financial data presented below with respect to the consolidated statement of
income data, other data, and consolidated balance sheet data for, and as of the
end of, each of the years in the two-year period ended December 31, 1994 are
derived from the Company's unaudited consolidated financial statements. The
selected consolidated statement of income data, and other data, presented below
for the three-month periods ended March 31, 1997 and 1998, and the consolidated
balance sheet data as of March 31, 1998 are derived from the unaudited
consolidated financial statements of Dey, Inc. and subsidiaries included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for the
periods presented. The operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
full fiscal year ending December 31, 1998 or for any subsequent period. The data
set forth below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Company's
consolidated financial statements and related notes included elsewhere in this
Prospectus.
THREE
                                                                                                                     MONTHS
                                                                                                                     ENDED
                                                                                                                     MARCH
                                                                     YEARS ENDED DECEMBER 31,                         31,
                                                    ----------------------------------------------------------       ------
                                                     1993         1994         1995         1996         1997         1997
                                                    ------       ------       ------       ------       ------       ------
                                                                (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.....................................      $ 90.1       $116.3       $136.7       $166.5       $219.8       $ 52.3
Cost of sales.................................        23.3         30.9         39.0         64.3         77.2         16.0
                                                ----------   ----------   ----------   ----------   ----------   ----------
Gross profit..................................        66.8         85.4         97.7        102.2        142.6         36.3
Selling, marketing and distribution...........         7.7          9.5         11.4         14.0         21.7          3.9
General and administrative expenses...........         5.9          6.6          8.5          9.6         11.3          2.4
Research and development......................         2.4          7.2         12.5         19.3         20.1          3.5
                                                ----------   ----------   ----------   ----------   ----------   ----------
Income from operations........................        50.8         62.1         65.3         59.3         89.5         26.5
Interest and other income, net................         2.5         (9.3)         0.7          1.5          1.7          0.3
                                                ----------   ----------   ----------   ----------   ----------   ----------
Income before taxes...........................        53.3         52.8         66.0         60.8         91.2         26.8
Income taxes..................................       (24.2)       (21.8)       (27.1)       (25.0)       (37.2)       (10.9)
                                                ----------   ----------   ----------   ----------   ----------   ----------
Net Income....................................      $ 29.1       $ 31.0       $ 38.9       $ 35.8       $ 54.0       $ 15.9
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
Net income per share (basic)..................      $ 0.40       $ 0.43       $ 0.53       $ 0.49       $ 0.74       $ 0.22
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
Weighted average common shares outstanding....  72,885,000   72,885,000   72,885,000   72,885,000   72,885,000   72,885,000
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ---------- 
Pro forma net income per share (basic)........
                                                                                                    ----------
                                                                                                    ----------
Pro forma weighted average common shares used
  to compute pro forma net income per share...
                                                                                                    ----------
                                                                                                    ----------
OTHER DATA:
Cash dividends per share......................      $ 0.13       $ 0.40       $ 0.43       $ 0.53       $ 0.34       $ 0.09
                                                ----------   ----------   ----------   ----------   ----------   ----------
                                                ----------   ----------   ----------   ----------   ----------   ----------
THREE
                                                     MONTHS
                                                     ENDED
                                                     MARCH
                                                      31, 
                                                    ------
                                                     1998
                                                    ------
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.....................................      $ 71.1
Cost of sales.................................        25.6
                                                ----------
Gross profit..................................        45.5
Selling, marketing and distribution...........         6.9
General and administrative expenses...........         3.0
Research and development......................         2.5
                                                ----------
Income from operations........................        33.1
Interest and other income, net................         0.4
                                                ----------
Income before taxes...........................        33.5
Income taxes..................................       (13.6)
                                                ----------
Net Income....................................      $ 19.9
                                                ----------
                                                ----------
Net income per share (basic)..................      $ 0.27
                                                ----------
                                                ----------
Weighted average common shares outstanding....  72,885,000
                                                ----------
                                                ----------
Pro forma net income per share (basic)........
                                                ----------
                                                ----------
Pro forma weighted average common shares used
  to compute pro forma net income per share...
                                                ----------
                                                ----------
OTHER DATA:
Cash dividends per share......................      $ 0.19
                                                ----------
                                                ----------
AT DECEMBER 31,                      AT MARCH 31, 1998
                                              ---------------------------------------------    -----------------------
                                              1993      1994      1995      1996      1997     ACTUAL     PRO FORMA(1)
                                              -----    ------    ------    ------    ------    -------    ------------
                                                        (IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................   $25.4    $  3.3    $  5.3    $  5.7    $ 18.6    $ 38.2       $   38.2
Working capital (deficit)..................    32.8      27.8      31.3      17.3      38.7      44.0         (215.2)
Total assets...............................    98.0     125.9     142.7     144.9     189.0     202.6          202.6
Total debt (due to affiliates).............      --      22.0      22.0      22.0      22.0      22.0           22.0
Total liabilities..........................     9.9      35.7      44.6      49.9      65.0      72.6          331.9
Total stockholders' equity (deficit).......    88.1      90.2      98.1      95.0     124.0     130.0         (129.2)
AT MARCH 31, 1998
                                             -----------------
                                                 PRO FORMA
                                             AS ADJUSTED(1)(2)
                                             -----------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................        $
Working capital (deficit)..................
Total assets...............................
Total debt (due to affiliates).............
Total liabilities..........................
Total stockholders' equity (deficit).......
------------------------
(1)   After giving effect to all dividends to Lipha Americas declared or 
      expected to be declared subsequent to March 31, 1998, in the 
      aggregate amount of $259,250,000. See 'Certain Transactions.'
(2)   Adjusted to give effect to the sale by the Company of the 14,100,000
      shares of Common Stock offered hereby at an assumed public offering
      price of $    per share (the mid-point of the price range) and, after
      deduction of underwriting discounts and commissions and estimated 
      expenses of the Offering, and the application of the net proceeds of
      the Offering to the repayment of indebtedness of the Company to an
      affiliate anticipated to be incurred in connection with the payment of
      certain dividends to Lipha Americas referred to in note (1) above. See
      'Use of Proceeds' and 'Certain Transactions.'
 
                                       17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto contained
elsewhere in this Prospectus. The following discussion may contain certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. See 'Special Note Regarding Forward-Looking Statements.'
 
OVERVIEW
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products.
 
     During the period from 1992 to 1997, the Company experienced significant
growth, with net sales increasing from $50 million in 1992 to $220 million in
1997. The increase in net sales was primarily due to the introduction of three
sterile, unit dose inhalation solution products: albuterol sulfate in 1992,
cromolyn sodium in 1994, and ipratropium bromide in 1997. In addition, Dey has
maintained annual gross margins of between 61.4% and 74.2% through the
introduction of new products and by capturing large market shares during such
period.
 
     The Company's resources are now directed toward branded and patented
products. This strategy requires a significant investment in research and
development. The Company has invested heavily in research and development
projects, including 1997 research and development spending of $20 million; the
Company plans to continue to invest significant amounts in research and
development. The Company has also begun to enhance its sales and marketing
infrastructure to support this strategy. In July 1997, a new clinical sales
force was established in connection with the acquisition of the exclusive
marketing rights for EpiPen(Registered) brand products. At the current time,
this sales force is dedicated primarily to the sale of EpiPen(Registered) brand
products, but the Company plans to expand this group to support new branded and
patented products.
 
     The Company's net sales and net income may vary significantly from period
to period, as well as in comparison to corresponding prior periods, as a result
of a variety of factors, including but not limited to, the timing of
introduction of new products, the number and timing of introductions of
competing products, pricing strategies adopted by the Company or its
competitors, the seasonal severity of respiratory diseases (which generally are
more pervasive during the first and fourth quarters of the calendar year), the
timing and amount of spending on research and development, the timing and extent
of the ongoing expansion of the Company's sales forces, product recalls,
litigation and costs relating to the integration of acquisitions.
 
                                       18
The following table sets forth, for the periods represented, the percentage
of net sales and percentage changes by certain line items in the Company's
Consolidated Statement of Income:
PERCENTAGE OF NET SALES
                                                                          -----------------------------------------
                                                                                                      THREE MONTHS
                                                                                YEARS ENDED              ENDED
                                                                               DECEMBER 31,            MARCH 31,
                                                                          -----------------------    --------------
                                                                          1995     1996     1997     1997     1998
                                                                          -----    -----    -----    -----    -----
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales..............................................................   100.0%   100.0%   100.0%   100.0%   100.0%
Cost of sales..........................................................    28.5     38.6     35.1     30.5     36.0
                                                                          -----    -----    -----    -----    -----
Gross profit...........................................................    71.5     61.4     64.9     69.5     64.0
Selling, marketing and distribution....................................     8.3      8.4      9.9      7.5      9.6
General and administrative expenses....................................     6.3      5.8      5.1      4.5      4.3
Research and development...............................................     9.2     11.6      9.1      6.8      3.5
                                                                          -----    -----    -----    -----    -----
Income from operations.................................................    47.7     35.6     40.8     50.7     46.6
Interest and other income, net.........................................     0.5      0.9      0.7      0.5      0.5
                                                                          -----    -----    -----    -----    -----
Income before taxes....................................................    48.2     36.5     41.5     51.2     47.1
Income taxes...........................................................   (19.8)   (15.0)   (16.9)   (20.8)   (19.1)
                                                                          -----    -----    -----    -----    -----
Net income.............................................................    28.4%    21.5%    24.6%    30.4%    28.0%
                                                                          -----    -----    -----    -----    -----
                                                                          -----    -----    -----    -----    -----
The following table summarizes the Company's operating results by quarter
for 1996 and 1997 and the first quarter of 1998:
THREE MONTHS ENDED
                                   -----------------------------------------------------------------------------------------------
                                                                              DECEMBER
                                    MARCH 31,     JUNE 30,      SEPTEMBER        31,        MARCH 31,     JUNE 30,      SEPTEMBER
                                      1996          1996        30, 1996        1996          1997          1997        30, 1997
                                   -----------   -----------   -----------   -----------   -----------   -----------   -----------
                                                           (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Net sales........................      $45.4        $44.0          $37.1         $40.0     $    52.3     $    51.6         $57.6
Cost of sales....................      16.4          15.1          15.5           17.3          16.0          14.9          22.2
                                      -----         -----         -----          -----         -----         -----         -----
Gross profit.....................      29.0          28.9          21.6           22.7          36.3          36.7          35.4
Selling, marketing and
 distributon.....................       3.6           4.0           2.5            3.9           3.9           4.1           5.8
General & administrative
 expenses........................       2.2           2.3           2.7            2.4           2.4           2.6           2.7
Research and development.........       2.2           5.1           4.2            7.8           3.5           5.0           3.6
                                      -----         -----         -----          -----         -----         -----         -----
Income from operations...........      21.0          17.5          12.2            8.6          26.5          25.0          23.3
Interest and other income, net...       0.3           0.3           0.2            0.7           0.3           0.3           0.6
                                      -----         -----         -----          -----         -----         -----         -----
Income before taxes..............      21.3          17.8          12.4            9.3          26.8          25.3          23.9
Income taxes.....................      (8.7)         (7.3)         (5.1)          (3.9)        (10.9)        (10.3)         (9.7)
                                      -----         -----         -----          -----         -----         -----         -----
Net Income.......................     $12.6         $10.5         $ 7.3          $ 5.4       $  15.9       $  15.0         $14.2
                                      -----         -----         -----          -----         -----         -----         -----
                                      -----         -----         -----          -----         -----         -----         -----
Net income per share (basic).....     $0.17         $0.14         $0.10          $0.07       $  0.22       $  0.21         $0.19
                                      -----         -----         -----          -----         -----         -----         -----
                                      -----         -----         -----          -----         -----         -----         -----
 Weighted average common shares
 outstanding.....................  72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000    72,885,000
                                   ----------    ----------    ----------    ----------    ----------    ----------    ---------- 
                                   ----------    ----------    ----------    ----------    ----------    ----------    ----------
THREE MONTHS ENDED
                                   -------------------------
                                    DECEMBER
                                       31,        MARCH 31,
                                      1997          1998
                                   -----------   -----------
Net sales........................      $58.3     $    71.1
Cost of sales....................      24.1           25.6
                                      -----          -----
Gross profit.....................      34.2           45.5
Selling, marketing and
 distributon.....................       7.9            6.9
General & administrative
 expenses........................       3.6            3.0
Research and development.........       8.0            2.5
                                      -----          -----
Income from operations...........      14.7           33.1
Interest and other income, net...       0.5            0.4
                                      -----          -----
Income before taxes..............      15.2           33.5
Income taxes.....................      (6.3)         (13.6)
                                      -----          -----
Net Income.......................     $ 8.9        $  19.9
                                      -----          -----
                                      -----          -----
Net income per share (basic).....     $0.12        $  0.27
                                      -----          -----
                                      -----          -----
Weighted average common shares
 outstanding.....................  72,885,000    72,885,000
                                   ----------    ----------
                                   ----------    ----------
19
RESULTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
 
     Net sales increased by 35.9%, from $52.3 million in the first quarter of
1997 to $71.1 million in the first quarter of 1998. The increase resulted
primarily from an increase in net sales of ipratropium bromide inhalation
solution which totaled $25.1 million during the first quarter of 1998, compared
to $10.8 million during the first quarter of 1997 when the product was
originally introduced. The first three months of 1998 also include $5.8 million
in net sales of EpiPen(Registered) and other new products which were not
introduced into the Company's product line until July 1997.
 
     Gross profit increased by 25.0%, from $36.3 million to $45.5 million. Gross
profit as a percentage of net sales decreased from 69.5% to 64.0%. The decline
in gross profit percentage was the net effect of the following factors. Several
of the Company's unit dose inhalation solution products experienced a decline in
gross profit margins. In addition, third party manufactured products with lower
gross profit margins than with self-manufactured products were added to the
product mix in the second half of 1997. Partially offsetting these factors were
increased net sales of ipratropium bromide inhalation solution which, as a new
product, had a relatively high gross profit margin.
 
     Selling, marketing and distribution expenses increased by 74.1%, from $3.9
million to $6.9 million. As a percentage of net sales, selling, marketing and
distribution expenses increased from 7.5% to 9.6%. This increase was primarily
due to an expanded sales force and related advertising expenses incurred to
introduce new products such as EpiPen(Registered) and tablets for the treatment
of hypothyroidism. Effective as of August 1, 1998, the Company expects to
transfer its hypothyroid product line to an affiliated company and, thereafter,
sales and related costs of such product line will no longer be reflected in the
results of operations of the Company.
 
     General and administrative expenses increased by 28.6%, from $2.4 million
to $3.0 million. As a percentage of net sales, general and administrative
expenses were 4.3% and 4.5% for the three months ended March 31, 1998 and 1997,
respectively.
 
     Research and development expenses decreased by 29.8%, from $3.5 million to
$2.5 million. The net decrease was a result of two NDA development projects
moving out of the costly clinical trial phase of development in early 1998. The
Company anticipates increased levels of research and development spending in
future quarters in order to support planned product development projects.
 
     Income from operations increased by 24.7%, from $26.5 million to $33.1
million, as a result of the above factors.
 
     Income taxes increased by 24.5%, from $10.9 million to $13.6 million. The
effective tax rate was 40.6% and 40.5% for the three months ended March 31, 1997
and 1998, respectively.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
 
     Net sales increased by 32.0%, from $166.5 million to $219.8 million. The
increase resulted primarily from the introduction of ipratropium bromide
inhalation solution in 1997, which generated $50.7 million in net sales, and the
acquisition of exclusive marketing rights for EpiPen(Registered) products, which
produced $19.2 million in net sales during 1997. This increase was partially
offset by a $15.1 million decrease in net sales of cromolyn sodium inhalation
solution due to a declining market and increased price competition.
 
     Gross profit increased by 39.5%, from $102.2 million to $142.6 million.
Gross profit as a percentage of net sales increased from 61.4% to 64.9% due to
the introduction of ipratropium bromide inhalation solution and due to an
improved gross profit margin on albuterol MDI.
 
     Selling, marketing and distribution expenses increased by 54.6%, from $14.0
million to $21.7 million. This increase was primarily attributable to increased
personnel and advertising costs associated with the addition of new products.
Advertising expenses and additional sales force required to market
EpiPen(Registered)and other new products in 1997 totaled approximately $1.9
million. The Company's line of hypothyroid products gave rise to additional
selling, marketing and distribution expenses totaling $1.8 million with minimal
related revenues.
 
                                       20
General and administrative expenses increased by 18.1%, from $9.6 million
to $11.3 million, due primarily to increased costs related to the continued
growth of the Company. As a percentage of net sales, general and administrative
expenses decreased from 5.8% to 5.1%.
 
     Research and development expenses increased by 4.1%, from $19.3 million to
$20.1 million. As a percentage of net sales, research and development decreased
from 11.6% to 9.1%.
 
     Income from operations increased by 50.9%, from $59.3 million to $89.5
million, as a result of the above factors.
 
     Income taxes increased by 48.6%, from $25.0 million to $37.2 million. The
effective tax rate was 41.1% and 40.8% for 1996 and 1997, respectively.
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
 
     Net sales increased by 21.8%, from $136.7 million to $166.5 million. The
increase resulted primarily from $14.0 million in net sales due to the
introduction of albuterol MDI, a $9.8 million increase in net sales of cromolyn
sodium inhalation solution and a $5.0 million increase in albuterol sulfate
inhalation solution net sales.
 
     Gross profit increased by 4.6%, from $97.7 million to $102.2 million. Gross
profit as a percentage of net sales decreased from 71.5% to 61.4%. The decrease
in gross profit percentage resulted primarily from the loss on albuterol MDI
products partially offset by a high gross margin on cromolyn sodium inhalation
solution. Because of the albuterol MDI losses, during 1996, the Company
renegotiated the supply agreements on terms more favorable to the Company.
Excluding albuterol MDI products, the 1996 gross profit percentage would have
been 69.3%, compared to 71.5% in 1995.
 
     Selling, marketing and distribution expenses increased by 23.5%, from $11.4
million to $14.0 million. As a percentage of net sales, selling, marketing and
distribution expenses were 8.4% and 8.3% in 1996 and 1995, respectively.
 
     General and administrative expenses increased by 12.0%, from $8.5 million
to $9.6 million, resulting primarily from increased costs related to the
continued growth of the Company. As a percentage of net sales, general and
administrative expenses decreased from 6.3% to 5.8%.
 
     Research and development expenses increased by 53.7%, from $12.5 million to
$19.3 million. This increase was primarily attributable to increased spending on
clinical trials.
 
     Income from operations decreased by 9.0%, from $65.2 million to $59.3
million, as a result of the above factors.
 
     Income taxes decreased by 7.6%, from $27.1 million to $25.0 million. The
effective tax rate was 41.0% and 41.1% for 1995 and 1996, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At March 31, 1998, the Company's working capital totaled $44.0 million,
compared to $38.7 million, $17.3 million and $31.3 million at December 31, 1997,
1996 and 1995, respectively. Cash and cash equivalents were $38.2 million at
March 31, 1998, compared to $18.6 million, $5.7 million and $5.3 million at
December 31, 1997, 1996 and 1995, respectively.
 
     The Company's primary source of cash has been from operating activities.
Net cash provided by operating activities during the three months ended March
31, 1998 totaled $28.5 million, consisting primarily of net income of $19.9
million and an increase in income taxes payable of $13.3 million. Net cash
provided by operating activities during 1997 was $56.0 million compared to $51.3
million and $48.4 million in 1996 and 1995, respectively. The increase in cash
provided by operating activities in 1997 was primarily the result of a
significant increase in net income, offset somewhat by increases in receivables
and inventory levels.
 
     During the three month period ended March 31, 1998, research and
development expenses totaled $2.5 million, compared to $3.5 million during the
three month period ended March 31, 1997. During 1997, research and development
expenses totaled $20.1 million, compared to $19.3 million and $12.5 million in
1996 and 1995, respectively. The Company plans to spend substantial amounts of
capital over the next several years to continue the research and development of
pharmaceutical products.
 
     The Company's primary uses of cash from operations to date have been for
the payment of dividends and the funding of expansion of manufacturing and other
facilities.
 
                                       21
During the three month period ended March 31, 1998, the Company paid cash
dividends to Lipha Americas, the Company's sole stockholder, totaling $13.9
million. During 1997, 1996 and 1995, the Company paid cash dividends to Lipha
Americas totaling $25.0 million, $38.9 million and $31.0 million, respectively.
On June 26, 1998, the Company declared a dividend of $24.45 million to Lipha
Americas, of which $24.43 million was paid on June 30, 1998. On June 30, 1998,
the Company declared a dividend of $4.9 million to Lipha Americas payable on
August 14, 1998 and on July 21, 1998, the Company declared a dividend of $225
million to Lipha Americas payable on August 14, 1998. The Company intends to
declare a further dividend of $4.9 million to Lipha Americas prior to September
30, 1998. Apart from the above, the Company does not anticipate declaring
additional dividends in the foreseeable future. See 'Dividend Policy' and
'Certain Transactions.'
 
     The Company invested $2.8 million in property, plant and equipment during
the three month period ended March 31, 1998, compared to $16.1 million, $18.0
million and $10.4 million in 1997, 1996 and 1995, respectively. The Company's
future capital expenditure plans include investing approximately $73.0 million
during the period 1998 through 2001 to expand its manufacturing facilities and
technologies.
 
     The Company expects that its available cash, cash generated from operations
and, as necessary, borrowing under its credit facility with its parent, Merck
KGaA (see 'Certain Transactions'), will be adequate to satisfy its anticipated
working capital and other capital requirements through the foreseeable future.
However, in the event the Company's capital and other expenditures exceed
internally generated funds, it may be necessary to raise funds through
additional external or related party borrowings or the issuance of debt or
additional equity securities. There can be no assurance, in such case, that
adequate funds, whether through the financial markets or from other sources,
will be available on terms acceptable to the Company or at all.
 
NEW ACCOUNTING STANDARD
 
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
 
YEAR 2000 COMPLIANCE
 
     The Company is reviewing its internal computer systems to ensure these
systems are adequately able to address the issues expected to arise in
connection with the Year 2000. These issues include the possibility that
software which does not have the capacity to recognize four digits in a date
field may no longer function properly when use of that date becomes necessary.
 
     The Company expects to implement the systems and programming changes
necessary to address Year 2000 issues on an enterprise-wide basis and is
currently reviewing the costs of such actions. The Company expects such
modifications to its internal systems will be made on a timely basis, and
presently believes that, with modifications to existing software or converting
to new software, the Year 2000 issue will not pose significant operational
problems for the Company's computer systems; however, there can be no assurance
there will not be a delay in, or increased costs associated with, the
implementation of such changes, and the Company's inability to implement such
changes could have an adverse effect on future results of operations.
 
     The Company has not fully determined the extent to which it may be impacted
by third parties' systems, which may not be Year 2000-compliant. The Year 2000
computer issue creates risk for the Company from third parties with whom the
Company deals on financial transactions worldwide. While the Company has begun
efforts to seek reassurance from its suppliers and service providers, there can
be no assurance that the systems of other companies that the Company deals with
or on which the Company's systems rely will be timely converted, or that any
such failure to convert by another company could not have an adverse effect on
the Company.
 
                                       22
BUSINESS
 
OVERVIEW
 
     Dey is a specialty pharmaceutical company focused on the development,
manufacturing and marketing of prescription drug products for the treatment of
respiratory diseases (such as COPD and asthma) and respiratory-related allergies
(such as anaphylaxis and rhinitis). Dey is particularly strong in the
development and high-volume manufacture of sterile, unit dose inhalation
solution products. The U.S. market in 1997 for inhalation therapy prescription
pharmaceutical products was estimated by IMS to have been approximately $3.4
billion, consisting of nebulizer inhalation solutions ($0.4 billion), metered
dose inhalers ($1.7 billion), intranasal products ($0.9 billion) and other
inhalation therapy products ($0.4 billion). Dey had net sales of $220 million in
1997.
 
     Dey is one of the largest U.S. manufacturers of sterile, unit dose
inhalation solution products for the treatment of respiratory diseases. Unit
dose solution products, because they are pre-measured, are convenient to use and
reduce the risk of dosage error, medication waste and cross-contamination. Dey's
sterile, unit dose inhalation solution products include albuterol sulfate and
cromolyn sodium for the treatment of asthma and ipratropium bromide for the
treatment of COPD. Dey also markets sterile sodium chloride solution products,
under the brand name Dey-Pak(Registered), used for diluting concentrated
inhalation solutions and in tracheal care for patients who require periodic
tracheal suctioning and cleaning. Dey also has the exclusive right to market
EpiPen(Registered) brand autoinjectors, which permit patients to self-administer
epinephrine for severe anaphylactic reactions. EpiPen(Registered) is currently
the only epinephrine autoinjector on the U.S. market.
 
     Dey is pursuing new product development through a combination of its own
research and development, sponsored research and development and the acquisition
or in-licensing of products developed by others. Dey currently has pending three
NDAs and two ANDAs before the FDA. These include two NDAs for sterile, unit dose
inhalation solution products for the treatment of asthma and COPD, one NDA for a
patented product for the treatment of IRDS and two ANDAs for mechanical pump
nasal spray products for the treatment of allergic rhinitis. Dey is also
developing a proprietary inhalation delivery system for dry powders; pivotal
studies on the first of a series of products using this delivery system are
scheduled to begin in late 1998 or early 1999.
 
     Dey has its own comprehensive U.S. marketing and distribution network,
which markets Dey's products to large institutional purchasers, wholesalers,
group purchasing organizations, chain pharmacies, HMOs and home health care
organizations, as well as directly to physicians, including allergists,
pulmonologists and pediatricians. Dey currently employs approximately 100 people
in marketing and sales, and expects that number to increase significantly as new
products are launched. Dey distributes its products throughout the United States
from two locations: its manufacturing and distribution facility in Napa,
California and its distribution center in Allen, Texas.
 
INDUSTRY
 
     Dey focuses on the segments of the pharmaceutical industry relating to
respiratory diseases, such as COPD, asthma, IRDS and cystic fibrosis, and
respiratory-related allergies, such as anaphylactic reactions and rhinitis.
 
  Respiratory Diseases
 
     Chronic Obstructive Pulmonary Disease.  Chronic bronchitis and emphysema
constitute the majority of COPD cases. The primary risk factor for the
development of COPD is cigarette smoking. In COPD, airflow limitation is chronic
due to the irreversible nature of the damage caused by the disease. COPD affects
about 5% of the U.S. population (12-15 million people) and is the fourth leading
cause of death in the United States. The number of COPD cases is expected to
increase through the end of the century as the population ages and as the number
of smokers increases in the critical ages associated with COPD (65-84 years).
Ipratropium bromide is increasingly the preferred first line method of treatment
for COPD and has replaced albuterol sulfate as the preferred treatment in recent
years. However, there are numerous new products in development for the treatment
of COPD, including new chemical entities, new corticosteroid compounds,
long-acting bronchodilators and biotechnology products. Dey is developing a
combination product for the treatment of COPD.
 
                                       23
Asthma.  Asthma is a chronic inflammatory disorder of the airways. Airway
inflammation contributes to airway hyperresponsiveness, airflow limitation,
respiratory symptoms and disease chronicity. Asthma affects nearly 15 million
people in the United States, including almost 5 million patients under 18 years
of age. The prevalence and severity of asthma have increased over the past two
decades, and the disease was responsible for more than 5,500 deaths in the
United States in 1996. The goals of asthma therapy are directed toward achieving
normal pulmonary function and preventing exacerbations. Currently, the leading
pharmaceutical therapies for asthma in the United States are short-acting
bronchodilators (principally albuterol sulfate) for relief of acute symptoms,
inhaled anti-inflammatory agents including corticosteroids, and long-acting
bronchodilators such as salmeterol. Leukotriene antagonist compounds have been
introduced recently in the U.S., but at the present time these do not replace
the need for short-acting bronchodilators or corticosteroids. It is too soon to
predict what part these newer compounds will play in the overall asthma market.
A chiral form of albuterol sulfate may be available on the U.S. market soon and
reportedly may give rise to reduced side effects as compared to the existing
albuterol sulfate compound. Dey is seeking to expand its coverage of the asthma
market by developing new formulations of the bronchodilator albuterol sulfate
and of corticosteroids, as well as novel delivery systems for a variety of drug
products.
 
     Infant Respiratory Distress Syndrome.  IRDS results from a deficiency in
pulmonary surfactant and is a major cause of acute morbidity and mortality in
infants born at less than 30 weeks gestation. IRDS may also cause long term
respiratory and neurological problems. It affects about 50,000 premature infants
born in the United States each year. Treatment consists of supplemental oxygen,
mechanical ventilation and replacement of lung surfactant. Lung surfactants are
expected to remain the preferred treatment for IRDS in infants. The majority of
lung surfactants currently used in the United States are bovine-derived, while
in Europe the porcine-derived surfactant, Curosurf(Registered), is the market
leader. Dey has the exclusive marketing rights for Curosurf(Registered) in the
United States and Canada.
 
     Cystic Fibrosis.  Cystic fibrosis is an obstructive airway disorder that
affected approximately 30,000 people in the United States in 1997, with
approximately 1,000 new cases diagnosed each year. Current treatment is aimed at
symptom management, including reducing airway obstruction and inflammation,
controlling airway infection and improving nutritional status. Medications for
cystic fibrosis includes mucolytics (including acetylcysteine) and antibiotics.
There are numerous new products in development to treat cystic fibrosis. Among
these are gene therapy treatments which are believed to be several years away
from approval.
 
  Respiratory Allergies
 
     Anaphylaxis.  Anaphylaxis is an acute, systemic allergic reaction with a
variety of manifestations, from a mild reaction which affects only the skin, to
the most severe reaction, affecting many organ systems in the body. A full
anaphylactic attack is a medical emergency and is potentially life-threatening.
During an anaphylactic attack, the immune system mounts a series of chemical
reactions leading to symptoms such as swelling, particularly in the throat and
airways, as well as a sudden drop in blood pressure. Medications are the primary
cause of anaphylactic reactions, with more than 2,000 deaths each year in the
United States attributed to such reactions. Other common triggers of anaphylaxis
include insect stings, latex allergy and food allergies. It is estimated that up
to 4% of the U.S. population suffer from insect sting anaphylaxis, up to 6% of
the U.S. population are latex sensitive and up to 1.5% of U.S. adults and 5% of
U.S. children under 3 years of age experience food-related anaphylaxis.
Injectable epinephrine is recognized as the first line treatment for
anaphylaxis. Patients at risk are recommended to carry epinephrine on their
person, for use immediately to reverse symptoms when an attack occurs. The
EpiPen(Registered) line of products, which are marketed exclusively by the
Company and its licensees, are the only epinephrine products currently on the
U.S. market available in autoinjector form. Epinephrine is also available in the
United States in pre-filled syringes and in multi-dose vials.
 
     Allergic Rhinitis.  Allergic rhinitis can be perennial (caused by dust,
mold or animal allergens) or seasonal (caused by pollen). Exposure to allergens
(seasonal or perennial) causes the release of histamines and other chemical
mediators, which in turn causes rhinitis, the inflammation of the mucous
membrane lining the nasal passages. The resulting inflammation causes
congestion, a runny nose, sneezing and itching. In 1994, there were 26.1 million
cases of hay fever or allergic rhinitis reported. Pharmaceutical treatments for
allergic rhinitis include antihistamines, nasally-administered corticosteroids
and non-steroidal anti-inflammatory agents. Numerous new products have been
launched over recent years including combinations of oral antihistamines and
decongestants, 
 
                                       24
new longer-acting corticosteroids and other products. In addition,
over-the-counter non-prescription products are widely used to treat this
disease. Dey is developing several products for use with its mechanical pump
delivery system, including novel formulations of corticosteroids to treat the
underlying inflammation.
 
  Inhalation Drugs and Delivery Systems
 
     In respiratory therapy for lung and airway diseases, drugs are administered
through inhalation, orally in capsule, tablet or liquid form or through
intravenous injection. The primary method of delivering pharmaceuticals to
patients with lung or airway diseases is through inhalation. The advantages of
inhalation therapy include delivery of the medication directly to the desired
site and a rapid onset of effect. The U.S. retail market for inhalation
pharmaceuticals used in the treatment of respiratory diseases was estimated by
IMS to be approximately $2.8 billion in 1997. The U.S. hospital market for such
inhalation pharmaceuticals was estimated by IMS to be approximately $612 million
during such period.
 
     There are four distinct categories of inhalation delivery systems
available:
 
     Metered dose inhalers ('MDIs'), which consist of pressurized canisters
containing drug and propellant, represent the most common method of delivering
inhaled medications due to convenience. MDIs rely on pressurized gas which
aerosolizes a drug through a metering valve which dispenses a specified amount
of drug. MDIs are small, portable and convenient and can be breath-activated.
However, the pressurized gas propellant used in most MDIs relies on the use of
chlorofluorocarbons ('CFCs'). The use of CFCs is expected to be substantially
phased out in the United States and prohibited as a propellent worldwide in the
coming years under international agreements that address concerns about ozone
destructive characteristics of CFC propellants. Accordingly, new propellants are
being developed as substitutes for CFCs. In 1997, the total U.S. market for
pharmaceuticals delivered by MDIs was estimated by IMS to be approximately $1.7
billion.
 
     Nebulization devices (using unit dose and multi-dose inhalation solutions)
are used to deliver aerosolized medication by compressing air to make vapor or
mist. Inhalation pharmaceuticals for nebulizers are packaged either in
multi-dose containers, from which each dose must be measured by bulb dropper and
transferred to the nebulizer, or unit doses, in which each dose is separately
packaged and can be poured directly into the nebulizer. Unit doses are
consistently accurate and more convenient than the multi-dose measuring process.
Nebulizers are popular with patients who have difficulty using MDIs because of
the coordination required to inhale and activate the MDI simultaneously. In
1997, the total U.S. market for pharmaceuticals delivered using nebulizers was
estimated by IMS to be approximately $400 million, with multi-dose solutions
accounting for approximately $52 million and unit dose solutions accounting for
approximately $348 million.
 
     Dry powder inhalers ('DPIs') are the newest inhalation delivery systems and
are being developed as alternatives to MDIs. DPIs deliver inhalation
pharmaceuticals in dry powder form and do not use environmentally harmful
propellants. In 1997, the total U.S. market for inhalation pharmaceuticals
delivered using DPIs was estimated by IMS to be approximately $9.0 million. This
delivery system is expected to grow in popularity as more DPI devices are
approved by the FDA as efficacious and cost effective alternatives to MDIs.
 
     Intranasal delivery systems are used to treat allergic rhinitis which is
primarily treated by delivering nasal corticosteroids, through either
pressurized or mechanical pump nasal sprays or by taking oral antihistamines and
decongestant drugs. In 1997, the total U.S. market for nasal sprays was
estimated by IMS to be approximately $885 million.
 
  Other Trends in Respiratory Care
 
     Current trends in the segments of the respiratory disease markets in which
Dey competes include the following two FDA proposals. In 1997, the FDA proposed
that all inhalation solutions marketed in the United States be sterile, as
opposed to preserved, which means that the markets for Dey's sterile, unit dose
inhalation solutions could expand if such proposal becomes law. Also in 1997,
the FDA proposed eliminating CFC propellants in MDIs and nasal sprays. Companies
are developing various products, including DPIs, to replace CFC propelled MDIs
and companies are increasingly developing nasal spray products that utilize
mechanical pump nasal spray delivery technology.
 
                                       25
STRATEGY
 
     Dey's objective is to be a specialty pharmaceutical company focused on
respiratory diseases. The key elements of Dey's strategy to achieve this
objective are as follows:
 
     o  Focus on products for respiratory diseases.  The Company intends to
        continue its focus on developing, manufacturing and marketing
        prescription drugs for the treatment of respiratory diseases and
        allergies and the marketing of associated medical devices. The Company
        believes that this area of the pharmaceutical market constitutes an
        attractive and growing niche market. Through continued specialization
        and by continuing to refine its capabilities in research, development,
        manufacturing and marketing, the Company believes it can enhance its
        already strong market position.
 
     o  Enhance leadership of sterile, unit dose market.  The Company believes
        it is one of the leading U.S. manufacturers of sterile, unit dose
        inhalation products, which it manufactures at its facility in Napa,
        California using advanced aseptic form-fill-seal technology. The Company
        believes that sterile, unit dose inhalation products, because of their
        attractiveness in hospitals and other settings as a result of their
        decreased risk of contamination and dosage errors, will continue to have
        a prominent role in the specialty market for respiratory prescription
        drugs. The Company believes that each of its Key Products occupies a
        number one or two market share position in the U.S. Dey is actively
        engaged in developing new sterile, unit dose inhalation products.
 
     o  Develop additional and novel drug delivery technologies for use in the
        treatment of respiratory diseases. Following its success in respiratory
        care products based on sterile, unit dose technology, Dey has developed,
        and is continuing to invest significantly in, mechanical pump nasal
        spray and dry powder inhaler technologies as delivery systems for
        respiratory care drugs. Nasal spray technology capitalizes on the
        Company's strengths in the development of liquid and suspension
        formulations and provides a logical extension to its respiratory care
        product line. Dey believes that dry powder inhaler delivery systems will
        potentially replace a substantial portion of the market for MDI aerosols
        for existing as well as new compounds. Dey is currently developing a dry
        powder inhaler delivery system for use with a series of important
        respiratory drugs.
 
     o  Aggressively expand product line.  The Company intends to develop,
        in-license and acquire new products that treat respiratory diseases,
        represent unique market opportunities, offer some form of market
        protection (including patent rights, marketing exclusivity or orphan
        drug designation) and/or complement Dey's existing product lines.
 
     o  Leverage existing strengths in respiratory marketing, distribution and
        sales.  The Company has a comprehensive distribution and marketing
        network in its market niches. The Company intends to capitalize on its
        strong reputation with hospitals, physicians, pharmacists and
        distributors to expand its customer base and to introduce new products.
        Dey currently employs approximately 100 people in marketing and sales
        and expects that number to increase significantly as new products are
        launched.
 
                                       26
DEY'S CURRENT PRODUCTS
 
     All information set forth below concerning the definition and size of the
various U.S. product markets in which Dey participates is based on figures
published by IMS for 1997. Data audited and reported by IMS does not include
sales to all markets in which Dey competes; most notably, with respect to Dey's
products, IMS does not audit and report sales to the home health care market and
the mail order market. Prospective investors are, accordingly, urged to review
such market data reported by IMS with caution, and should recognize that the
market share of any particular product marketed by Dey may be overstated or
understated when comparing such product's actual sales solely with the market
data reported by IMS.
 
     The table below provides information on significant products currently
marketed by Dey:
1997 NET SALES
PRODUCT               DOSAGE FORM                                 PRINCIPAL INDICATIONS    (IN MILLIONS)
--------------------  -----------------------------------------   ----------------------   --------------
Albuterol sulfate     Unit dose inhalation solution               Asthma                       $ 82.7
                      CFC propelled inhalation aerosol            Asthma                       $ 12.7
                      Inhalation solution concentrate             Asthma                       $  7.0
Ipratropium bromide   Unit dose inhalation solution               COPD                         $ 50.7(1)
Cromolyn sodium       Unit dose inhalation solution               Asthma                       $ 30.8
EpiPen(Registered)    Autoinjector                                Anaphylaxis                  $ 19.2(2)
brand epinephrine
Dey-Pak(Registered)   Unit dose inhalation solutions              Nebulization diluents        $  8.3
sodium chloride
Acetylcysteine        Vial solution                               Cystic fibrosis              $  4.3
(Mucosil(Trademark))
Metaproterenol        Unit dose inhalation solution               Asthma                       $  2.6
sulfate
------------------
(1) 1997 net sales represents sales commencing in February 1997 when the product
    was introduced by Dey.
 
(2) 1997 net sales represents sales commencing in July 1997 when Dey acquired
    the exclusive right to market this product.
 
     Albuterol Sulfate.  This product is a beta-adrenergic bronchodilator
indicated for relief of bronchospasm in patients with asthma. It is classified
as a quick-relief rescue medication. It works on the sympathetic pathway and
stimulates adrenergic receptors which result in relaxation of bronchial smooth
muscle. In 1997, the total U.S. market for all forms of albuterol sulfate
inhalation products to treat respiratory diseases was estimated by IMS to be
$549.7 million. Dey markets three separate albuterol sulfate products:
 
     o  Sterile, unit dose inhalation solution.  The FDA approved Dey's ANDA for
        this product in 1992. IMS reported that the U.S. albuterol sulfate unit
        dose market was approximately $119.2 million in 1997.
 
     o  MDI aerosol.  This product is an MDI form of albuterol that uses CFC
        propellant and is manufactured for the Company by Glaxo Wellcome, the
        manufacturer of the brand version of the product. IMS reported that the
        U.S. albuterol sulfate MDI market was approximately $381.2 million in
        1997.
 
     o  Inhalation solution concentrate.  This product is a multi-dose
        concentrate form of albuterol. It is also manufactured for the Company
        by Glaxo Wellcome. IMS reported that the U.S. market for albuterol
        sulfate inhalation solution concentrate was approximately $49.3 million
        in 1997.
 
     Ipratropium bromide sterile, unit dose inhalation solution.  This product
is an anticholinergic bronchodilator indicated as maintenance treatment for
bronchospasm associated with COPD. It works on the parasympathetic pathway and
blocks the bronchoconstrictive effects of acetylcholine primarily in the large
airways. Ipratropium is used as first-line therapy in COPD and is often
co-prescribed with albuterol because the combined therapy produces greater
improvements in lung function than either ipratropium or albuterol alone. 
 
                                       27
This product is manufactured by Dey using aseptic form-fill-seal technology.
Dey's ANDA for this product was approved by the FDA in early 1997. IMS reported
that the U.S. ipratropium unit dose market was approximately $129.2 million in
1997.
 
     Cromolyn sodium sterile, unit dose inhalation solution.  This product is a
nonsteroidal, inhaled anti-inflammatory agent. It is a prophylactic agent
indicated for the management of bronchial asthma and exercise-induced
bronchospasm. Cromolyn is considered first line therapy in mild persistent
asthma and is frequently prescribed for children. The FDA approved Dey's ANDA
for this product in 1994. IMS reported that the U.S. cromolyn sodium unit dose
market was approximately $69.2 million in 1997.
 
     EpiPen(Registered) brand epinephrine autoinjectors.  In July 1997, Dey
acquired the exclusive rights to market the EpiPen(Registered) brand of products
from EM Industries, Inc. (a wholly-owned subsidiary of Merck KGaA). See 'Certain
Transactions.' The EpiPen(Registered) and EpiPen(Registered) Jr. brands of
epinephrine autoinjector, for self-administration of epinephrine in the event of
an anaphylactic reaction, are manufactured for the Company by Meridian. These
are currently the only epinephrine autoinjectors in the U.S. market, and
EpiPen(Registered) Jr. is the only epinephrine product in the United States
specifically for use by pediatric patients. Their automatic function is of great
importance during an anaphylactic attack, making them, the Company believes, the
leading products in the category. IMS reports the total U.S. market for
self-administered epinephrine injectors in 1997 to be approximately $41.2
million. See 'Risk Factors--Potential Product Liability; Risk of Product Recall'
and '--Competition.'
 
     Sodium chloride sterile, unit dose solutions.  Marketed under the brand
name Dey-Pak(Registered), Dey's sterile sodium chloride solutions are available
in a wide variety of concentrations and sizes, providing clinicians with
treatment flexibility. Sterile, unit dose sodium chloride solutions are used for
diluting concentrated inhalation solutions in nebulization therapy and in
tracheal care for patients who need periodic tracheal suctioning and cleaning.
Dey currently manufactures 3% and 10% sodium chloride solutions and the
remaining line of Dey-Pak(Registered) products of 0.9% and 0.45% sodium chloride
solutions and sterile water are manufactured for Dey by Automatic Liquid
Packaging, Inc. IMS reported that the total U.S. market for unit dose sodium
chloride inhalation solutions was approximately $7.1 million in 1997.
 
     Mucosil(Trademark) acetylcysteine inhalation solutions.  This product is a
mucolytic agent indicated as adjuvant therapy to break down mucous in patients
with chronic bronchopulmonary disease, pulmonary complication or cystic
fibrosis. It is also indicated for use as an antidote to acetaminophen
poisoning. The FDA approved Dey's initial ANDA for this product in 1985.
Mucosil(Trademark) is manufactured by Bayer for Dey and is marketed in 4ml, 10ml
and 30ml bottles in 10% and 20% concentrations and in 100ml bottles in 20%
concentration only. IMS reported that the U.S. acetylcysteine solutions market
was approximately $12.8 million in 1997.
 
     Metaproterenol sulfate sterile, unit dose inhalation solution.  This
product is a bronchodilator for use in bronchial asthma and for reversible
bronchospasm which may occur in association with bronchitis and asthma. This
product is similar to albuterol sulfate but has declined in use due to
replacement by newer products. IMS reported that the U.S. market for
metraproterenol sulfate inhalation solution was approximately $6.9 million in
1997.
 
     Other products.  Dey's other products, which complement its respiratory
product line, but contributed less than 0.6% to the Company's 1997 net sales,
include the following: the Astech(Registered) Peak Flow Meter, for which Dey
acquired the exclusive rights to market in July 1997 and which is used by asthma
patients to monitor lung function as part of an overall asthma management plan;
the ACE(Registered) Holding Chamber, a device for use with MDIs, permitting
better patient compliance when using pressurized MDI canisters for drug
delivery; and the EasiVent(Trademark) Holding Chamber introduced by Dey in May
1998 as an alternative to the ACE(Registered) Holding Chamber in the
non-hospital market.
 
PRODUCTS IN DEVELOPMENT
 
     The Company's approach to product development has permitted it to grow
rapidly while self-funding its research and development expenses through cash
generated from operations. The Company now has in development a variety of
products which require regulatory approval through different pathways,
including:

(i) generic products which do not require bioequivalency testing in connection
with seeking approval from the FDA through the ANDA process; (ii) generic
products which do require bioequivalency testing in connection with seeking
approval from the FDA through the ANDA process; (iii) products consisting of new
dosages, new 
 
                                       28
formulations or combinations of currently marketed pharmaceutical ingredients,
which must be approved by the FDA through the NDA process but which may not
require certain preclinical data because the effects of the active ingredients
are well known and documented; and (iv) products which consist of new
formulations and/or new chemical entities which have never before been marketed,
which must be approved by the FDA through the NDA process.
 
     The Company is currently developing products in three dosage forms:
 
     Sterile, unit dose inhalation products.  Utilizing its core technology, the
Company has four sterile, unit dose inhalation solution products in various
stages of development. One of these products is subject to the ANDA approval
process. The remaining three products are subject to the NDA approval process.
Two of these NDA submissions were filed with the FDA in 1998. The other NDA
product in development utilizes patented formulations from LDS Technologies,
Inc., licensed exclusively to Dey.
 
     Mechanical pump nasal sprays.  The Company has five products in development
using mechanical pump nasal spray technology. Four products are subject to the
ANDA process, two of which are the subject of ANDAs filed with the FDA and two
of which are in development. One product will be subject to the NDA process and
uses the patented formulations of LDS Technologies, Inc., licensed exclusively
to Dey.
 
     Dry powder inhalers.  The Company is developing a series of products using
a proprietary dry powder inhaler delivery system being licensed from its
affiliate, Lipha. The first proposed product, albuterol sulfate, is scheduled to
begin pivotal clinical trials late in 1998 or early 1999. All DPI products will
be subject to the NDA approval process.
 
     Dey conducts its own formulation and product development work on new
products and may also fund such work by others on its behalf. All animal and
human studies are performed through other entities under contract with Dey. The
Company's research and development costs have increased from approximately $2
million in 1992 to approximately $20 million in 1997. The Company believes that
the amount it spends on research and development will continue to grow
significantly over the next several years.
 
                                       29
The table below lists and describes material products Dey currently has in
development and the status of each such product:
PRODUCT                     DOSAGE FORM            PRINCIPAL INDICATIONS     STATUS
------------------------    -------------------    ---------------------     ---------------------------------
Accuvent(Trademark)         Sterile, unit dose     Pediatric Asthma          NDA filed
                            inhalation
                            solutions
DuoNeb(Trademark)           Sterile, unit dose     COPD                      NDA filed
                            inhalation solution
Albuterol Mini-             Sterile, unit dose     Asthma                    Pre-ANDA filing
Dose(Trademark)             inhalation solution
LDS Technologies, Inc.      Sterile, unit dose     Asthma and COPD           In development
Product No.1                inhalation solution
Corticosteroid              Nasal spray            Rhinitis                  ANDA filed
suspension No.1
Nasal solution No.1         Nasal spray            Rhinitis                  ANDA filed
Nasal solution No.2         Nasal spray            Rhinitis                  Pre-ANDA filing
Corticosteroid              Nasal spray            Rhinitis                  In development
suspension No.2
Corticosteroid solution,    Nasal spray            Rhinitis                  In development
LDS formulation
Albuterol sulfate No.1      Dry powder inhaler     Asthma                    Pivotal clinical trial
                                                                             scheduled
Corticosteroid No.1         Dry powder inhaler     Asthma                    In development
Combination                 Dry powder inhaler     Asthma and COPD           In development
Curosurf(Registered)        Sterile vial           IRDS                      NDA filed
Sterile, unit dose inhalation solution products
 
     Using its expertise in sterile, unit dose solutions, Dey is developing
novel and proprietary formulations of certain products that will be manufactured
using aseptic form-fill-seal manufacturing technology. Pending completion of
development and NDA approval from the FDA, these products will be marketed by
Dey as branded drugs. Dey believes that the market for pharmaceuticals in
sterile, unit dose inhalation solution products could increase if FDA proposals
for such products to be sterile, as opposed to preserved, become law.
 
o  Accuvent(Trademark).  These products are new dosages of albuterol sulfate
   solution indicated for the prevention and relief of bronchospasms in patients
   with asthma and acute attacks of bronchial spasm in pediatric patients aged
   two and above. Three clinical studies have been conducted with respect to
   these products, including a pivotal study in over 300 pediatric patients. Dey
   filed an NDA for these products with the FDA in 1998.
 
o  DuoNeb(Trademark).  This product is a combination sterile, unit dose solution
   of albuterol sulfate and ipratropium bromide in premixed form. It is
   indicated for the prevention and relief of bronchospasm in patients with COPD
   who require more than one bronchodilator. Two clinical studies have been
   conducted in relation to this product, including a pivotal study in over 800
   patients. Dey filed an NDA for this product with the FDA in 1998.
 
o  Albuterol Mini-Dose(Trademark).  Dey is developing a new dosage of albuterol
   sulfate inhalation solution as an extension of the Company's existing
   albuterol sulfate product line. The product will be manufactured by a third
   party under the technical direction of Dey. Dey anticipates that it will file
   an ANDA for this product in 1999.
 
o  New products using formulations from LDS Technologies, Inc.  In 1997, Dey
   entered into an exclusive license agreement with LDS Technologies, Inc., the
   owner of certain patented formulation technology for difficult-to-solubilize
   drugs. Dey is currently developing a number of sterile, unit dose inhalation
   solutions  
                                       30
and one nasal spray using this technology. The principal indications for 
   these products will be the treatment of asthma, COPD and rhinitis. Under
   the terms of the license agreement, Dey will have worldwide rights to
   manufacture and market any such products developed by Dey and also to
   sublicense third parties to manufacture and market such products outside
   the United States. Dey expects that extensive animal toxicology studies,
   human dose response studies and large safety and efficacy studies will be
   required prior to any NDA submissions to the FDA.
 
  Nasal spray products
 
     As part of its respiratory strategy, the Company has recognized and
targeted a niche market for mechanical pump nasal spray products for the
treatment of rhinitis in allergy patients. Although many existing nasal spray
products on the market are not protected by patents, there are presently no
competitive generic equivalents being marketed. Dey now has the technology to
manufacture nasal sprays in suspension and solution formulations and currently
has several nasal spray products in development, including the following:
 
     o  Corticosteroid suspension No. 1.  This product contains a
        corticosteroid, which is an anti-inflammatory indicated for the
        treatment of seasonal, perennial and allergic rhinitis and is a generic
        version of a branded nasal spray currently on the U.S. market. Dey filed
        an ANDA for this product with the FDA in 1996; however, the FDA has yet
        to produce guidelines on what requirements must be met to determine
        bioequivalency for nasal sprays for the treatment of rhinitis.
 
     o  Nasal solution No. 1.  This product is an anti-inflammatory indicated
        for the treatment of seasonal, perennial and allergic rhinitis and is a
        generic version of a currently marketed product. Dey filed an ANDA for
        this product with the FDA in 1996. As a nasal spray solution,
        bioequivalency studies will not be required for Dey to obtain FDA
        approval for this product pursuant to its ANDA.
 
     o  Nasal solution No. 2.  This product is indicated to treat rhinitis and
        is a generic version of a currently marketed product. Dey anticipates
        that it will file an ANDA for this product with the FDA in late 1998. As
        a nasal spray solution, bioequivalency studies will not be required for
        Dey to obtain FDA approval for this product pursuant to its ANDA.
 
     o  Corticosteroid suspension No. 2.  This product contains a corticosteroid
        which is an anti-inflammatory agent indicated for the treatment of
        seasonal, perennial and allergic rhinitis and is a generic version of a
        currently marketed product. Dey is currently developing the formulation
        of this product in preparation for bioequivalency studies.
 
     o  Corticosteroid solution, LDS formulation.  This product is a solution of
        an existing corticosteroid being developed using the patented
        formulations licensed from LDS Technologies, Inc. The product is
        indicated for the treatment of seasonal, perennial and allergic
        rhinitis. Dey has not yet filed an IND application to begin clinical
        trials for this product. This product will be the subject of an NDA
        because the formulation has not been marketed previously.
 
  Dry powder inhaler products
 
     Dey believes that MDIs that rely on CFC propellants will be phased out in
the United States, and worldwide, because of the international agreements
concerning the elimination of CFC propellants. Accordingly, the Company has
elected not to develop drugs delivered by CFC propelled MDIs and instead has
focused on the development of DPI technology, which the Company believes will
capture a significant portion of the market for respiratory drugs administered
by inhalation.
 
     In conjunction with Lipha, the Company is engaged in a development project
for a DPI to deliver drugs to the bronchial tubes and lungs (the 'Dey/Lipha
DPI'). Lipha owns the patent rights on which the Dey/Lipha DPI is based; Dey and
Lipha are currently negotiating a license agreement whereby Dey would have an
exclusive license from Lipha to use such patent rights in the United States and
Canada to develop and market respiratory and broncho-pulmonary prescription
drugs for humans. Dey would also have the right to sublicense its rights under
the exclusive license. Two U.S. patents have been registered and two additional
patent applications have been filed in the United States relating to the
Dey/Lipha DPI. Patent applications have also been filed in Canada. It is
contemplated that additional patent applications may be filed.
 
                                       31
The Dey/Lipha DPI consists of a patented drug-carrier with multiple,
pre-measured individual doses, hermetically sealed and protected from the
environment. This device opens each individual dose compartment and delivers the
dose through inspiratory force created by the patient (breath-actuated on
demand). The Company expects the Dey/Lipha DPI to be compatible with nearly all
current bronchodilators, corticosteroids and non-steroidal anti-inflammatories
used in respiratory therapy. Dey believes that the Dey/Lipha DPI will have
certain advantages over MDIs and other DPIs currently being marketed or that are
under development, including the following:
 
     o  Convenience of operation.  The Dey/Lipha DPI is designed to deliver
        drugs to the bronchial tubes and lungs without the need for patient
        coordination between inhalation and activation of the drug delivery
        device. In contrast, MDIs require patient coordination to simultaneously
        activate the MDI and inhale.
 
     o  Accurate and consistent dosing.  The Dey/Lipha DPI is designed to
        deliver accurate and consistent drug doses over a wide range of
        inspiratory flow rates.
 
     o  Familiarity of design.  The Dey/Lipha DPI is similar to the size and
        shape of traditional MDIs for familiarity to patients, physicians and
        pharmacists.
 
     o  Dose-counting.  The Dey/Lipha DPI has an integral dose-counting
        mechanism which displays the quantity of remaining doses in the unit and
        indicates to the patients when it is time to get their prescriptions
        refilled.
 
     o  Disposability.  The Dey/Lipha DPI is disposable, which eliminates the
        time and risk associated with maintenance, reloading and cleaning to
        avoid contamination and any build-up of medication.
 
     Dey plans to develop a number of drug products for use in the Dey/Lipha DPI
that the Company intends to manufacture at its facility in Napa, California and
market itself or with others. These new products under development include the
following:
 
     o  Albuterol sulfate.  This is a product for relief of bronchoconstriction
        associated with asthma. The Company contemplates that numerous clinical
        studies for this product, including dose-ranging studies in adults and
        in children as well as safety and efficacy studies in adults and
        children, will be required for FDA approval of this product via the NDA
        process. Pivotal studies are scheduled to begin in late 1998 or early
        1999.
 
     o  Corticosteroids (multiple products).  As first-line therapy in asthma,
        these products would treat asthma with an anti-inflammatory agent
        delivered using the Dey/Lipha DPI. FDA guidelines will require a
        clinical study program over a 52-week period for each of these products.
 
     o  Combination products.  The Company believes combination therapy will
        play an important role in the future treatment of asthma, COPD and other
        respiratory diseases and has dedicated a portion of its development
        program to selected combination formulations. The Company has one such
        product in the formulation stage. However, because of the complexities
        associated with clinical studies of combination products, it is expected
        the filing of an NDA for a first product developed by Dey would not
        occur for at least several years.
 
  Other
 
     Curosurf(Registered).  In 1994, Dey obtained an exclusive license to market
Curosurf(Registered) in the United States and Canada from Chiesi Farmaceutici,
S.p.A., of Parma, Italy. Curosurf(Registered) is a porcine-derived lung
surfactant and is the leading lung surfactant on the European market indicated
for the prevention and cure of IRDS. Under the terms of the license agreement,
Dey submitted an NDA for Curosurf(Registered) to the FDA in 1996.
Curosurf(Registered) will be manufactured for Dey by Chiesi Farmaceutici, S.p.A.
at its facility in Italy.
 
MARKETING AND SALES
 
     The Company believes that its marketing and sales capabilities are among
its core competencies. Dey markets its products by emphasizing the advantages of
its unit dose and other products over competitive products. These product
features are communicated through advertising and promotion and through its
support of consumer advocacy groups. The Company believes that its marketing
expertise and the personal relationships of its sales force in the respiratory
marketplace are essential to the Company's business. By marketing a range of
respiratory care products to its audience, Dey has established its identity as a
specialty respiratory company.
 
                                       32
The Company's track record of successes has demonstrated that it can sell
its products across a broad range of distribution channels. Dey currently
employs 13 people in marketing and 91 in sales and expects this number to
increase to over 250 in total marketing and sales staff in the next several
years. It is anticipated that most of the planned growth in marketing and sales
staff will come in the clinical specialty sales group, which the Company intends
to expand to over 130 field representatives as new branded products are approved
by the FDA. Substantially all of the Company's sales are in the United States.
 
     Dey's specialty sales organization is structured to maximize coverage at
all levels of its target audience in the distribution and physician marketplace.
The Company focuses its marketing efforts on three target markets:
institutional/retail, managed care and clinical sales. The Company believes it
has developed a competitive advantage by focusing sales coverage at multiple
levels in the U.S. distribution chain as well as targeting specialty prescribers
such as allergists, pediatricians and pulmonologists. Following is a brief
description of each of Dey's three selling groups:
 
  Institutional/Retail Sales Group
 
     Dey's institutional/retail sales group has 44 representatives marketing its
respiratory products to hospital, retail and long term care accounts through
direct field contact and telephone account sales. This group markets Dey's
products to respiratory, pharmacy and emergency room departments of the hospital
market and small regional buying groups in the retail market.
 
     There are approximately 5,400 hospitals in the United States, nearly all of
which are regularly serviced by Dey through direct coverage by its sales force.
The Company believes that it has secured a strong position in the institutional
market through direct contact and contracting of all hospital group purchasing
organizations. This position in turn materially assists the Company in its
relationships with hospital pharmacists and respiratory therapists.
 
  Managed Care Sales Group
 
     Dey has dedicated six specialists to service its products directly to the
larger managed care organizations and HMOs throughout the United States. The
Company believes it is focusing on those accounts which represent the majority
of the potential for its current products. In addition, this group is
responsible for coverage of larger national chain pharmacies, home health care
and wholesaler accounts such as Walgreens, CVS, McKesson, Rite-Aid and Apria.
 
     Dey has built strong name recognition through this distribution system
because of its success with respiratory drugs and sodium chloride solutions. The
Company believes that this strong name recognition will enhance Dey's ability to
market its new products successfully in the future through the same network.
 
  Clinical Specialty Sales Group
 
     Dey's clinical specialty sales group consists of 33 sales persons, who
became employees of Dey in July 1997 when Dey acquired the rights to market the
EpiPen(Registered), Astech(Registered) peak flow meter and
ACE(Registered)/EasiVent(Trademark) holding chamber line of products. The
clinical specialty sales group is trained to promote the EpiPen(Registered),
Astech(Registered) peak flow meter and ACE(Registered)/EasiVent(Trademark)
holding chamber line of products to a physician base that includes allergists,
pulmonologists and pediatricians. The Company believes these relatively small
groups of physicians write a significant portion of respiratory prescriptions
for its current product line. The Company believes that marketing directly to
physicians creates prescriptions for Dey's products throughout its distribution
network.
 
     The clinical specialty sales group has an established reputation with
allergists, and Dey believes it has built strong name recognition with its
EpiPen(Registered) product line. The Company believes that this reputation,
together with the expansion of this selling force to pulmonologists and
pediatricians in anticipation of future new product approvals, will enhance
Dey's ability to market new products in the future. It is anticipated that this
sales group will be the platform sales force for new products in development
which are going through or will go through the NDA approval process. The Company
anticipates that this sales group will be increased to at least 130 positions
over the next several years.
 
                                       33
MANUFACTURING
 
     The Company's principal manufacturing facility is located in Napa,
California, where in 1997 it manufactured approximately 76% (in dollar volume)
of the products that it marketed. See '--Properties.' The Napa facility is
constructed on a 25 acre plot owned by Dey and is registered with and licensed
by various regulatory authorities and complies with current Good Manufacturing
Practices ('cGMP') requirements prescribed by the FDA. The Napa facility
includes highly automated state-of-the-art equipment for manufacturing of
sterile pharmaceutical products, as well as associated laboratory testing
equipment and systems. The Company operates its manufacturing facility 24 hours
a day, 7 days a week.
 
     Dey believes it is a high-quality, low-cost provider of sterile, unit dose
inhalation solutions. The manufacture of high volumes of any sterile
pharmaceutical product requires state-of-the-art facility, equipment and testing
controls as well as expertise. Many of Dey's employees have extensive experience
in a variety of pharmaceutical companies and manufacturing applications for
sterile products. The Company believes that its Quality Control, Quality
Assurance and Regulatory Affairs systems are among the best in the industry for
the control and compliance of all operations with applicable compendia,
regulatory guidelines and the laws governing prescription drug development,
manufacture and marketing.
 
     Company-wide training and re-training programs are designed to ensure
compliance with procedures and regulations with particular emphasis on cGMP, FDA
guidelines, Occupational Safety and Health Act ('OSHA') and internal Company
policies.
 
GOVERNMENT REGULATION
 
     The FDA regulates the development, testing, formulation, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, marketing,
advertising and promotion of the Company's products. Product development and
approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources.
 
     To obtain NDA approval for a drug, the FDA requires each of the following
steps and possibly others to be conducted: (i) preclinical testing (laboratory
and possibly animal tests), (ii) the submission to the FDA of an Investigational
New Drug ('IND') Application, which must become effective before human clinical
trials may commence, (iii) adequate and well-controlled human clinical trials to
establish safety and efficacy, (iv) the submission to the FDA of an NDA and (v)
FDA approval of the NDA prior to any commercial sale or shipment.
 
     Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and stability of the
product and its formulation. The results of the preclinical tests are submitted
to the FDA as part of an IND Application and, unless the FDA objects, the IND
Application will become effective 30 days following its receipt by the FDA, and
the product is then permitted to be tested in humans.
 
     Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA (as part of the IND Application) that
detail the objectives of the study, the parameters used to monitor safety and
the efficacy criteria evaluated. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ('IRB') at the institution
at which the study is conducted. The IRB considers, among other things, the
design of the study, ethical factors, the safety of the human subjects and the
possible liability risk for the institution.
 
     Clinical trials for new products are typically conducted in three
sequential phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. Phase II involves studies in a limited patient
population to determine the initial efficacy of the pharmaceutical for specific
targeted indications, to determine dosage tolerance and optimal dosage and to
identify possible adverse side effect and safety risks. Once a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to more fully evaluate clinical
outcomes. The FDA reviews both the clinical plans and the results of the trials
and may require the study to be discontinued at any time if there are
significant safety issues.
 
                                       34
The results of the preclinical and clinical trials and all manufacturing,
chemistry, quality control and test methods data are submitted to the FDA in the
form of an NDA for marketing approval. FDA approval can take several months to
several years, or approval may be denied. The approval process can be affected
by a number of factors, including the severity of the side effects and the risks
and benefits demonstrated in clinical trials. Additional animal studies or
clinical trials may be requested during the FDA review process and may delay
marketing approval. After FDA approval for the initial indication, further
clinical trials are necessary to gain approval for the use of the product for
any additional indications. The FDA may also require post-marketing testing and
surveillance to monitor for adverse effects, which can involve significant
additional expense.
 
     ANDA approval is required for most drug products that are duplicates or
generic versions of 'original' drug products that have already been the subject
of FDA review and approval. The applicant is generally required to demonstrate
that its version is properly manufactured and labeled, is bioequivalent to the
original product and is stable after manufacture. ANDA approvals typically take
up to two years to obtain from the date of the initial application, although the
time required varies greatly depending upon the particular drug product and
dosage form involved. Furthermore, there can be no assurance that the FDA will
approve a particular ANDA at all, or that the FDA will agree that an ANDA is a
suitable vehicle through which to secure approval rather than an NDA, which
requires the conduct of lengthy clinical trials prior to submission.
 
     In the case of medical devices, often all that is required by the FDA to
approve a medical device is that a notification submission be filed prior to
marketing, demonstrating that the device is substantially equivalent to other
products already on the market. In other cases, involving more complex medical
devices of a type with which the Company is not currently involved, a premarket
approval application for a particular medical device, demonstrating that it is
both safe and effective for its intended uses, would have to be reviewed and
approved by the FDA prior to marketing. Typically, products which do not require
premarket approval take at least 60 days to receive FDA review and marketing
clearance.
 
     In addition to obtaining FDA approval for each product, each domestic drug
and device manufacturing facility must be registered with and approved by the
FDA. Dey's manufacturing facilities are subject to biennial (or more frequent)
inspections by the FDA and inspections by other jurisdictions and must comply
with cGMP for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP, and other
requirements, and are subject to periodic inspection by the FDA or by regulatory
authorities in such countries under reciprocal agreements with the FDA. The
Company has no foreign manufacturing facilities, but it does rely on foreign
manufacturers for the supply of certain products.
 
     For both currently marketed and future products, failure to comply with
applicable regulatory requirements after obtaining regulatory approval can,
among other things, result in the suspension of regulatory approval, as well as
possible civil and criminal sanctions. In addition, changes in regulations could
have a material adverse effect on the Company. See 'Risk Factors--Uncertainty of
New Product Development and Approvals.'
 
     In addition to regulations enforced by the FDA, the manufacturing and
marketing of the Company's products are also subject to regulation under OSHA,
the Environmental Protection Act and other federal, state and local regulations.
 
COMPETITION
 
     The pharmaceutical market is highly competitive, and the Company is
required to compete with a number of substantially larger companies that have
greater financial, sales, marketing, regulatory and scientific resources. The
Company believes that the principal factors on which it competes are marketing
ability, product development capability, product quality, product manufacturing,
price and customer service. However, there can be no assurance that new product
developments by others will not render the Company's products uncompetitive or
obsolete. Certain hospitals, pharmacies and other groups seeking to control
costs through the formation of purchasing cooperatives have entered or may enter
into multi-year agreements with a single manufacturer. There can be no assurance
that the Company can successfully bid to become such a single source
manufacturer or can continue to offer its products at prices attractive to these
important customers. In addition, competitors may be able to complete the
regulatory processes for new products sooner than, and may begin to market their
products in advance of, the Company. There can be no assurance that the Company
will be able to develop successfully and introduce new products in order to
maintain its competitive position.
 
                                       35
In the U.S. inhalation solution product markets for the treatment of
respiratory disease, the Company directly competes with several other companies
which are currently engaged in developing, marketing and selling inhalation
solution products. For example, in the U.S. albuterol sulfate solutions market,
the Company's principal competitors are Glaxo Wellcome with its
Ventolin(Registered) brand solutions and Schering-Plough with its
Proventil(Registered) brand solutions and the generic versions thereof marketed
by Schering-Plough's Warrick division; in the U.S. ipratropium bromide
inhalation solution market, the Company's principal competitor is Boehringer
Ingelheim with its Atrovent(Registered) brand solution and the generic version
thereof marketed by Boehringer Ingelheim's Roxane division; in the U.S. cromolyn
sodium inhalation solution market, the Company's principal competitor is
Rhone-Poulenc Rorer with its Intal(Registered) brand solution and the generic
version thereof marketed by Rhone-Poulenc Rorer's Arcola division; in the U.S.
market for sterile sodium chloride solutions, the Company's principal competitor
is Automatic Liquid Packaging, Inc.; in the U.S. market for acetylcysteine
solutions, the Company's principal competitor is Bristol-Myers Squibb with its
Mucomyst(Registered) brand solutions and the generic versions thereof marketed
by Bristol-Myers Squibb's Apothecon division; and in the U.S. market for
metaproterenol sulfate inhalation solutions, the Company's principal competitor
is Boehringer Ingelheim with its Alupent(Registered) brand solutions and the
generic versions thereof marketed by Boehringer Ingelheim's Roxane division.
 
     In the market for anaphylactic reaction products, the Company's principal
competitor is Bayer. However, Bayer's competitive product is a pre-filled
syringe containing epinephrine, while Dey's EpiPen(Registered) brand products
are the only epinephrine autoinjectors currently on the U.S. market. The Company
is aware of one other company that is developing an epinephrine autoinjector,
which may be a future competitor to Dey's products if it receives FDA approval.
 
     Dey is aware of other companies in the United States which are attempting
to develop generic versions of mechanical pump nasal spray products. Currently
there are no such generic products marketed for the treatment of rhinitis. Dey
believes its products may be among the first such generic products approved for
the U.S. market. The major branded products available in the United States
include the following: Glaxo Wellcome's Beconase(Registered) AQ
(beclomethasone); Schering-Plough's Vancenase(Registered) AQ DS (beclomethasone
double-strength); Glaxo Wellcome's Flonase(Registered) (fluticasone);
Rhone-Poulenc-Rorer's Nasacort(Registered) AQ (triamcinolone); and Boehringer
Ingelheim's Atrovent(Registered) (ipratropium).
 
     The Company is aware of at least 10 companies worldwide currently involved
in the development, marketing or sales of DPIs for the treatment of respiratory
diseases. There are two types of DPIs currently in commercial use worldwide,
individual dose DPIs and multiple dose DPIs. In the United States, individual
dose DPIs currently marketed include the Spinhaler(Registered) (marketed by
Rhone-Poulenc-Rorer). The Turbuhaler(Registered), a multiple dose DPI marketed
in the United States and worldwide by Astra, is considered the current industry
standard. Dey anticipates that the Dey/Lipha DPI will be highly competitive with
the DPIs on the market now as well as those it is aware of in development.
 
LITIGATION
 
     The Company is not a party to any material litigation.
 
EMPLOYEES
 
     As of March 31, 1998, the Company employed 663 persons, of whom 15 were in
research and development; 104 in sales and marketing (excluding 25 people
involved in the sale and marketing of the Company's hypothyroid product line,
which the Company anticipates transferring to an affiliate as of August 1,
1998); 429 in manufacturing; 40 in distribution; and 50 in general and
administrative positions. The Company considers its employee relations to be
good.
 
PROPERTIES
 
     The principal corporate office and manufacturing facilities of the Company
are in Napa, California. These facilities currently include a total of
approximately 267,900 square feet. In 1997, the Company initiated construction
of an additional 68,800 square feet of manufacturing and laboratory space which
will be dedicated to products employing mechanical pump nasal sprays and the
Dey/Lipha DPI. This expansion, which is scheduled for completion early in 1999,
will increase the total size of the Napa facility to approximately 336,700
square feet. Upon completion, the total facility will comprise approximately
103,600 square feet of office space, 125,400 
 
                                       36
square feet of manufacturing space, 16,300 square feet of laboratory space and
91,400 square feet of warehouse space. These facilities are owned by the
Company. See '--Manufacturing.'
 
     The Company has a distribution facility in Allen, Texas. This facility has
109,800 square feet of warehouse space and 14,200 square feet of office space.
This facility is leased under an agreement expiring in 2003 with provisions for
renewals.
 
INTELLECTUAL PROPERTY
 
     The Company holds licenses from third parties for certain patents, patent
applications and technology utilized in some of its products and products in
development. The generic, sterile, unit dose inhalation solution products
currently manufactured by the Company are not protected by patents.
 
     The branded products sold by Dey are sold under a variety of trademarks.
While the Company believes that it has valid proprietary interests in all
currently used trademarks, only Dey-Pak(Registered) is registered with the
United States government as a trademark in the name of the Company. However, Dey
has filed applications with the United States government to register the
trademarks EasiVent(Trademark), Accuvent(Trademark) and DuoNeb(Trademark). The
Company in-licenses the trademarks EpiPen(Registered), Astech(Registered),
ACE(Registered) and Curosurf(Registered).
 
     The Company also relies upon trade secrets, unpatented proprietary know-how
and continuing technological innovation to develop its competitive position. The
Company enters into confidentiality agreements with certain of its employees
pursuant to which such employees agree to assign to the Company any inventions
relating to the Company's business made by them while in the Company's employ.
See 'Risk Factors--Uncertainty of Enforceability of Patents, Proprietary Rights
and Trademarks.'
 
COMPANY STRUCTURE
 
     Dey, Inc. has two subsidiaries that were formed in 1993. Dey Limited
Partner, Inc. is a Delaware corporation and is wholly-owned by Dey, Inc. Dey,
L.P. is a Delaware limited partnership in which Dey, Inc. is the general partner
with a 1% partnership interest and Dey Limited Partner, Inc. is a limited
partner with a 99% partnership interest. All of Dey's business is conducted, and
all of Dey's assets are held, by Dey, L.P.
 
COMPANY HISTORY
 
     In 1977, Dey Laboratories, Inc. was incorporated as a California
corporation and established a successful business manufacturing and marketing
sterile, unit dose bronchodilators for inhalation, packaged in plastic vials,
and unit dose sodium chloride solution.
 
     In 1988, Dey Laboratories, Inc. was acquired by Lipha Pharmaceuticals,
Inc., a wholly-owned subsidiary of Lipha. Lipha Pharmaceuticals, Inc. was
incorporated as a Delaware corporation in 1987. In 1988, Dey Laboratories, Inc.
and Lipha Pharmaceuticals, Inc. were merged with the surviving entity being
Lipha Pharmaceuticals, Inc., whose name was changed to Dey Laboratories, Inc. In
1991, E. Merck, a German partnership that now controls Merck KGaA (see
'Principal Shareholders'), acquired a majority interest in Lipha and
subsequently increased its interest (through Merck KGaA) to essentially all of
the shares of Lipha. In June 1998, the name of Dey Laboratories, Inc. was
changed to Dey, Inc.
 
     In 1998, Lipha transferred all of its shares in Lipha Americas to
Merck-Lipha, a 99.53% owned subsidiary of Merck KGaA.
 
                                       37
MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
     The executive officers and directors of the Company, and their ages as of
July 15, 1998, are as follows:
NAME                          AGE    POSITION
---------------------------   -----  ------------------------------------------------------------------
Charles A. Rice............    47    Director, President and Chief Executive Officer
Pamela R. Marrs............    44    Director, Executive Vice President and Chief Financial Officer
Robert F. Mozak............    57    Executive Vice President, Sales & Marketing
Gary L. Michaud............    50    Executive Vice President of Operations
Bernhard Scheuble..........    44    Director
Jean-Noel Treilles.........    53    Director
Peter A. Wriede............    54    Director
Charles A. Rice has been a director of the Company since January 1990 and
has been President and Chief Executive Officer of Dey since August 1992. Prior
to that, he served as Chief Operating Officer of Dey from 1991 to 1992, as Vice
President of Operations from 1988 to 1991 and as Vice President of Quality
Assurance from 1987 to 1988. Prior to joining Dey, Mr. Rice worked for
Kendal-McGaw (formerly American-McGaw) in a variety of corporate and local
quality assurance and quality control positions.
 
     Pamela R. Marrs has been a director of the Company since July 1998 and has
been Executive Vice President and Chief Financial Officer since February 1997.
Prior to that, she was Vice President of Finance and Chief Financial Officer
from 1989 to 1997. Prior to joining Dey, Ms. Marrs worked for Ernst & Young as a
Senior Manager.
 
     Robert F. Mozak has been Executive Vice President, Sales and Marketing
since February 1997. Prior to that, he served as Vice President, Sales and
Marketing of Dey from 1989 to 1996. Prior to joining Dey, from 1971 to 1989, Mr.
Mozak worked for 3M Company and held various executive positions, including
Director, Group Business Development (Healthcare Group), General Business Unit
Manager (Personal Care Products Division) and Director, Sales and Marketing
(Personal Care Products Division).
 
     Gary L. Michaud has been Executive Vice President of Operations since July
1998. Prior to that, he was Vice President of Operations of Dey from 1993 to
1997, Director of Manufacturing from 1991 to 1993 and Director of Engineering
from 1988 to 1991. Prior to joining Dey, Mr. Michaud worked for Baxter in a
variety of engineering positions.
 
     Prof. Dr. Bernhard Scheuble has been a director of Dey since July 1998.
Prof. Dr. Scheuble is President and Chief Executive Officer of the
Pharmaceutical Division of Merck KGaA and a General Partner and Member of the
Executive Board of Merck KGaA and E. Merck. Prior to that, he was Deputy Member
of the Executive Board of Merck KGaA in 1997, Senior Vice President and Head of
the Ethical Pharmaceutical Division from 1996 to 1997, Vice President, Pharma
International Business from 1995 to 1996 and General Manager, Liquid Crystals
Unit, from 1993 to 1994. Prof. Dr. Scheuble is a member of the Board of
Directors of Pharmaceutical Resources, Inc., an affiliate of Merck KGaA.
 
     Jean-Noel Treilles has been a director of the Company since June 1991. Mr.
Treilles has been Chairman, President and CEO of Merck-Lipha S.A. and of Lipha
S.A. (formerly Laboratoires Albert Rolland), both French pharmaceutical
companies, since 1993. He has been a Director of Lipha Americas since 1991 and
Chairman and CEO of Lipha Americas since 1993.
 
     Dr. Peter A. Wriede has been a director of the Company since July 1998. He
is presently President and CEO of EM Industries, Inc., an affiliate of Merck
KGaA, as well as the Regional Manager, North America for Merck KGaA. From 1994
to 1998 Dr. Wriede held the position of Divisional Director and Vice President
for Merck KGaA in charge of the worldwide pigments and cosmetics division and,
from 1987 to 1994, he was Group Vice President in charge of the specialty
chemicals division of EM Industries, Inc.
 
                                       38
BOARD COMMITTEES
 
     The Board of Directors has two standing committees, a Compensation
Committee and an Audit Committee, each of which was formed in             .
 
     Audit Committee.  The Audit Committee will meet with the Company's
independent public accountants to discuss the scope and results of their
examination of the books and records of the Company. It will also meet with the
independent public accountants to discuss the adequacy of the Company's
accounting and control systems. The Committee will review the audit schedule and
consider any issues raised by any member of the Committee, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. The Audit
Committee consists of Messrs.            (Chairman),            and            .
 
     Compensation Committee.  The Compensation Committee will establish overall
employee compensation policies and recommend major compensation programs to the
Board. The committee will also administer the Company's incentive plan (see
'Employee Plans') and will review and approve compensation of directors and
corporate officers, including bonus compensation and stock option and other
stock awards. The Compensation Committee consists of Messrs.            ,
           and            .
 
DIRECTOR COMPENSATION
 
     Outside directors will receive a meeting fee of $3,000 for each meeting of
the Board attended and a meeting fee of $1,000 for each meeting attended as a
member of a Board committee at a time other than at a regular Board meeting.
 
EXECUTIVE OFFICER COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
     The following table sets forth the aggregate cash compensation paid to the
Company's chief executive officer and the four other most highly compensated
executive officers (the 'Named Officers') by the Company or its subsidiaries
during 1997:
ANNUAL COMPENSATION                          LONG-TERM COMPENSATION AWARDS
                              ------------------------------------------------    --------------------------------------------
                                                                                    PAYOUTS
                                                                                  (PAYMENT OF
NAME AND                                                        OTHER ANNUAL      VESTED PRIOR                    ALL OTHER
PRINCIPAL POSITION            YEAR    SALARY($)    BONUS($)    COMPENSATION($)    AWARDS) ($)     AWARDS($)    COMPENSATION($)
---------------------------   ----    ---------    --------    ---------------    ------------    ---------    ---------------
Charles Rice
  President and CEO........   1997     244,583      165,632         10,250(2)           --            --             127
Alan Kaplan
  Vice President of
  Research and
  Development(1)...........   1997     188,102       91,000        202,732(3)           --            --             245
Robert Mozak
  Executive Vice President
  of Sales and Marketing...   1997     174,316       91,000         10,250(2)           --            --             224
Pamela Marrs
  Executive Vice President
  and CFO..................   1997     163,750       91,000         10,250(2)           --            --              47
Gary Michaud
  Vice President of
  Operations...............   1997     149,460       91,000         10,250(2)           --            --              72
(Footnotes on next page)
 
                                       39
(Footnotes from previous page)

------------------
(1) Dr. Kaplan resigned in February 1998. Since resigning, Dr. Kaplan has served
as a consultant to Dey in a research and development capacity.
 
(2) Represents car allowance.
 
(3) Represents $10,250 car allowance and $192,482 in relocation compensation.
 
EMPLOYEE PLANS
 
     Lipha Americas Employees' Retirement Plan. The Lipha Americas Employees'
Retirement Plan (the 'Retirement Plan') is a defined benefit plan for the
benefit of eligible employees, including employees of the Company. A
participant's normal retirement benefit is equal to 32% of the participant's
average pay up to the participant's covered compensation level plus 45% of such
pay above the participant's covered compensation level, provided the participant
has completed 20 years of service upon reaching his or her normal retirement
date. The Retirement Plan defines normal retirement date as the later of age 65
or 5 years of participation. A participant may receive an actuarially reduced
benefit once he or she attains age 55 and has completed 10 years of service. If
a participant retires after his or her normal retirement date, his or her
benefit is computed under the Retirement Plan's pension formula based on the
participant's covered compensation, average pay and service as determined on the
participant's actual retirement date. The Retirement Plan provides that a
participant is not vested prior to his or her completion of 3 years of service,
at which time the benefit becomes 20% vested. The participant continues to vest
at a rate of 20% per year, becoming fully vested after the seventh year of
service. If a participant is discharged or resigns before qualifying for
retirement or disability benefits, he or she will be entitled to a vested
benefit equal to a percentage of his or her accrued pension benefit, payable as
of the first day of the month following his or her normal retirement date,
provided he or she has completed 3 full years of service. Benefits may also be
payable upon the death of a participant who has earned a vested percentage of
his or her accrued pension. Amounts contributed under the Retirement Plan are
invested and distributed by the plan's trustee, currently State Street Bank and
Trust Company. The normal form of distribution for a single participant under
the Retirement Plan is a pension payable for life. In the event of the
participant's death before he or she receives 120 monthly payments, the same
income will be payable to the participant's beneficiary for the balance of the
120 month period. If the participant is married and has a spouse living when he
or she retires, the participant's retirement income will automatically be
adjusted and paid under the joint and 50% survivor option with the participant's
spouse as the beneficiary, although a participant may also elect the joint and
100% survivor option. A participant may also elect to waive the payment of
retirement income to his or her spouse under the joint and survivor options by
naming a beneficiary other than his or her spouse or by electing one of the
alternative optional forms of payment available under the Retirement Plan. The
Company made a contribution to the Retirement Plan in 1997 in the amount of
$549,000.
 
     Lipha Americas Savings and Investment Plan.  The Lipha Americas Savings and
Investment Plan (the '401(k) Plan') is a defined contribution plan maintained by
Lipha Pharmaceuticals, Inc. for the benefit of its eligible employees and the
employees of its affiliates, including the Company. Employees eligible to
participate may elect to contribute, on a before-tax basis, an amount not to
exceed 10% of their compensation, up to statutorily prescribed limits, to the
401(k) Plan as a savings contribution. The Company currently matches 50% of the
pre-tax contributions made by a participant, up to 6% of the participant's
compensation. The Company's contribution to the 401(k) Plan for the 1997 year
was $300,000. A participant's interest in his or her pre-tax contributions,
after-tax contributions and rollover contributions to the 401(k) Plan are 100%
vested when contributed to the plan. A participant's interest in the Company's
matching contributions generally vests at the rate of 25% per year commencing
after the participant's completion of one year of service with the Company or
with certain affiliates of the Company.
 
     1998 Incentive Plan. The Company will adopt, effective as of the date of
the Offering and subject to the approval of shareholders of the Company, the
Dey, Inc. 1998 Incentive Plan (the 'Incentive Plan') for the benefit of eligible
employees of the Company and its subsidiaries. Employees (including officers
and, if not members of the Compensation Committee appointed to administer the
Incentive Plan, directors) of the Company and its subsidiaries will be selected
to participate in the Incentive Plan by the Compensation Committee of the 
 
                                       40
Board of Directors of the Company. Under the Incentive Plan, participants may be
awarded stock options, stock appreciation rights, restricted shares, stock units
and performance awards payable in cash or property.

     Subject to the terms of the Incentive Plan, the Compensation Committee has
the sole discretion to administer the plan, including the discretion to make
awards, and to determine the number of shares to be covered by an option, stock
appreciation right, restricted shares or restricted stock unit awards, the
exercise price with respect to options, the length of the restricted period with
respect to restricted shares, the performance goals to be achieved with respect
to performance awards and the form of payment thereof, vesting requirements and
other terms and conditions of the awards. The Incentive Plan provides that the
aggregate number of shares of the Company's Common Stock which will be available
under the Incentive Plan for award to participants will be 900,000. The number
of shares with respect to which awards may be granted to any participant during
any calendar year under the plan may not exceed            shares. The maximum
number of shares available for restricted stock awards under the plan is
           . In the event of any approved transaction, board change or control
purchase (each as defined in the plan), all outstanding awards held by
participants will vest fully, become immediately exercisable or payable or have
all restrictions removed, as applicable.
 
     The Compensation Committee is expected to grant, effective as of the date
of the Offering and with an exercise price equal to the initial public offering
price, option awards under the Incentive Plan to            , with respect to
       shares, to            , with respect to        shares, and to
           , with respect to        shares each, for a total option award to
executives with respect to                   shares. In addition, the
Compensation Committee is expected to grant, effective as of the date of the
Offering and with an exercise price equal to the initial public offering price,
option awards to managers with respect to approximately        shares.
 
                                       41
CERTAIN TRANSACTIONS
 
FINANCIAL TRANSACTIONS WITH AFFILIATES
 
     On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to $220
million over a three year period (the 'Merck KGaA Credit Facility'). For this
Facility, the Company would pay Merck KGaA an establishment fee of $100,000 and
a commitment fee of 0.08% per annum on the undrawn balance. Amounts drawn on the
Facility would bear interest payable quarterly in arrears at an interest rate of
LIBOR plus 1% and would be repayable three years from the date of establishment
of the Facility.
 
     On June 26, 1998, the Company declared a dividend of $24,450,000 to Lipha
Americas and paid $24,426,544 of such amount to Lipha Americas on June 30, 1998.
On June 30, 1998, the Company declared a dividend of $4,900,000 to Lipha
Americas payable on August 14, 1998. On July 21, 1998, the Company declared a
dividend of $225,000,000 to Lipha Americas, payable on August 14, 1998. The
Company intends to draw down on the Merck KGaA Credit Facility in order
partially to fund the unpaid amount of the aforesaid dividends. The Company
intends to declare an additional dividend of approximately $4,900,000 to Lipha
Americas before September 30, 1998. The Company intends to apply the proceeds of
the Offering to pay certain of the indebtedness of the Company under the Merck
KGaA Credit Facility. See 'Use of Proceeds.'
 
     On June 24, 1998, the Company advanced Lipha Americas $1,200,000, which
advance bears interest at the applicable federal rate. The Company expects this
advance to be repaid prior to August 14, 1998.
 
     On December 17, 1997, the Company advanced Lipha Pharmaceuticals, Inc. (an
affiliate of Lipha Americas) $750,000, which advance bears interest at the
applicable federal short-term rate provided by the Internal Revenue Code for
loans between related taxpayers. On March 31, 1998 this interest rate was 5.29%.
The Company expects this advance to be repaid prior to August 14, 1998.
 
     On May 22, 1997, the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free, L.P. (an affiliate of Lipha
Americas) under a lease for 40,982 square feet of office and manufacturing space
in Houston, Texas occupied by Allergy Free, L.P. The total rental obligation of
Allergy Free, L.P. under such lease is $984,000. The lease expires on June 30,
2002.
 
     On July 2, 1996, the Company advanced Allergy Free, L.P. $7,000,000, which
advance bore interest at 5.88%. The advance was repaid on March 27, 1998. From
June 1997 through February 1998, the Company advanced working capital loans to
Allergy Free, L.P. totaling $1,550,000, which loans bore interest at the
applicable federal rate. These loans were repaid on March 27, 1998.
 
     On April 13, 1995, the Company advanced EM Industries, Inc. (an affiliate
of Merck KGaA) $18,000,000, which advance bears interest at the applicable
federal rate. EM Industries repaid $13,000,000 of the amount during 1996,
leaving a remaining balance of $5,000,000, which the Company expects to be
repaid prior to August 14, 1998.
 
     On July 26, 1994, Lipha Americas, the Company's sole stockholder, loaned
$22,000,000 to the Company. This loan is evidenced by a Note dated July 31, 1997
which is due and payable on July 31, 1999 and bears interest payable quarterly
in arrears at the applicable federal rate.
 
OTHER AGREEMENTS WITH AFFILIATES
 
     Prior to the consummation of the Offering, the Company intends to enter
into a license agreement with Lipha to obtain the exclusive right and license to
manufacture and sell the Dey/Lipha DPI, under Lipha's patent rights, in the
United States and Canada. The Company will undertake to pay Lipha a royalty of
up to 3% on net sales until the expiration of Lipha's patent rights. See
'Business--Products in Development.'
 
     The Company is currently, and after the Offering will be (so long as Lipha
Americas beneficially owns at least 80% of the total voting power and value of
the Company's outstanding Common Stock), included in Lipha Americas's
consolidated group for federal income tax purposes. Prior to the consummation of
the Offering, the Company intends to enter into a tax sharing agreement with
Lipha Americas which, among other things, would require the Company to bear the
federal, state, local and foreign income, franchise and similar taxes which
would
 
                                       42
be payable, subject to certain adjustments, by the Company were it not
affiliated with Lipha Americas. As the parent company of its consolidated group,
Lipha Americas will have the exclusive authority to make most federal income tax
elections and tax filings for, and deal with tax controversies concerning, all
members of its consolidated group, including the Company. Moreover, each member
of a consolidated group is jointly and severally liable to the Internal Revenue
Service for the consolidated group's federal income tax liability (for any
period such member was a member of such group).
 
     The Company pays certain management fees to Lipha. Such fees totaled
$286,000 in 1995, $271,000 in 1996 and $173,000 in 1997. Prior to consummation
of the Offering, the Company intends to enter into a Management Services
Agreement with each of Lipha Americas, Allergy Free, L.P. and EM Pharma, Inc.,
pursuant to which the Company would provide certain accounting and
administrative services to such companies for a quarterly fee. All such
Management Services Agreements would be terminable by the Company on thirty
days' notice.
 
     The Company intends to sell its line of hypothyroid products to EM Pharma,
Inc. (an affiliate of Lipha Americas in process of formation) effective August
1, 1998, in consideration of the assumption by the purchaser of all liabilities
and contractual obligations associated with this product line.
 
     As of July 1, 1997, the Company purchased from EM Industries, Inc. all of
EM Industries, Inc.'s rights to distribute worldwide the EpiPen(Registered)
autoinjector, the Astech(Registered) Peak Flow Meter and the ACE(Registered)
Holding Chamber. The Company's rights to distribute the EpiPen(Registered)
autoinjector terminate on December 31, 2010. In consideration thereof, the
Company has agreed to pay EM Industries a royalty at the rate of 16.5% on net
sales of EpiPen(Registered), up to $31.5 million in any calendar year. The
Company has also agreed to pay a royalty of 7% of net sales of the
Astech(Registered) Peak Flow Meter. See 'Business--Dey's Current Products' and
'Business--Products in Development.'
 
     On December 19, 1995, the Company entered an agreement with Genpharm Inc.
and Alphapharm Parties Ltd. (affiliates of the Company) to co-develop a number
of pharmaceutical products which were to be marketed in the United States by the
Company. This agreement was terminated effective July 23, 1998.
 
     The Company currently participates in two group insurance programs with
other companies in the Merck KGaA group. The Company's properties are insured
against certain risks of property damage and business interruption under such
programs, for which the Company paid $242,000 in 1997. Risks of product
liability above $6,000,000 of the Company are covered under an umbrella policy
arranged by Lipha, for which the Company paid $446,000 in 1997.
 
                                       43
PRINCIPAL STOCKHOLDERS
 
     Prior to the Offering, all 72,885,000 outstanding shares of Common Stock of
the Company will be owned by Lipha Americas. After the Offering, Lipha Americas
will continue to own such 72,885,000 shares of the Common Stock of the Company,
or approximately 84% of the Common Stock outstanding (or approximately 82% of
the Common Stock outstanding, if the Underwriters' over-allotment option is
exercised in full).
 
     Lipha Americas is a wholly-owned subsidiary of Merck-Lipha which, in turn,
is a 99.53%-owned subsidiary of Merck KGaA. Merck KGaA is a publicly traded
German pharmaceuticals, laboratory supplies and chemicals company. Merck KGaA is
controlled by E. Merck, a German partnership, which holds approximately 74% of
the shares of Merck KGaA.
 
     The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. See 'Underwriting.'
 
                                       44
DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
     Pursuant to the Company's Certificate of Incorporation, the Company's
authorized capital stock consists of 140,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $1.00
per share (the 'Preferred Stock'), of which 72,885,000 shares of Common Stock
and no shares of Preferred Stock were outstanding immediately prior to the
Offering. Upon completion of the Offering, there will be 86,985,000 shares of
Common Stock outstanding (89,100,000 shares if the Underwriters' over-allotment
option is exercised in full). The Company's Certificate of Incorporation
provides that the Company may not issue more than an aggregate of 90,000,000
shares of Common Stock (including, without limitation, any shares of Common
Stock reserved and/or in respect of options, warrants or other rights or in
respect of any securities convertible into or exchangeable for Common Stock)
without first receiving the consent in writing of any person who, directly
and/or through any direct or indirect over fifty percent-owned subsidiary, owns
over fifty percent of the Company's outstanding Common Stock.
 
     The Certificate of Incorporation and By-laws contain certain provisions
that are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in control of the Company.
 
     The following summary of certain provisions of the Company's capital stock
describes provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Certificate of Incorporation and the
By-laws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law.
 
COMMON STOCK
 
     Each holder of Common Stock is entitled to one vote for each share held on
all matters on which holders of Common Stock are entitled to vote and, except as
otherwise required by law and except for any voting rights applicable to any
outstanding series of Preferred Stock, the holders of Common Stock possess all
voting power held by stockholders of the Company. All holders of shares of
Common Stock, subject to any preferences that may be applicable to any
outstanding series of Preferred Stock, are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock would be entitled to share
ratably in the Company's assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of shares of Common Stock have no
preemptive or other subscription rights. In addition, there are no cumulative
voting rights with respect to the election of directors. The rights, preferences
and privileges of the holders of shares of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate in the future.
 
PREFERRED STOCK
 
     The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series, each of
such series to have such terms, rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as may be determined by the Board of Directors. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible financing, acquisitions and other corporate purposes, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Board of Directors has no present
plans to issue any shares of Preferred Stock. The Board of Directors will make
any determination to issue shares of Preferred Stock based on its judgment as to
the best interests of the Company and its stockholders.
 
                                       45
CERTAIN CHARTER, BY-LAW AND DELAWARE LAW PROVISIONS
 
     Certain provisions of the DGCL and the Company's Certificate of
Incorporation and By-laws, summarized below, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
 
     Number of Directors; Staggered Board.  The Certificate of Incorporation
provides that there be between five and ten directors, the exact number of
directors to be determined from time to time by the Board of Directors. The
Certificate of Incorporation and By-laws divide the Board of Directors into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. Any vacancy on
the Board of Directors, including those created by an increase in the size of
the Board, may be filled by the vote of a majority of the directors in office,
even if less than a quorum. Any director elected to fill a vacancy will hold
office for a term coincident with the term of the class to which he or she was
elected which will not necessarily be the next annual stockholders' meeting.
Directors may be removed from office with or without cause by the affirmative
vote of the holders of more than fifty percent of the outstanding stock of the
Company then entitled to vote generally for the election of directors,
considered as one class. The provision of the Certificate of Incorporation
providing for a staggered Board could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the Board of
Directors until the fourth annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. This provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.
 
     Special Stockholder Meetings.  The Certificate of Incorporation and By-laws
provide, subject to the rights of holders of any class or series of stock having
a preference as to dividends or upon liquidation, that special meetings of
stockholders may be called by the Board of Directors, the Chairman or the
President. Thus, stockholders, in their capacity as such, are not entitled to
call a special meeting of stockholders.
 
     Advance Notice Procedures.  The Certificate of Incorporation and By-laws
also establish a 30-day advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before a meeting of stockholders of the Company, stockholders may only consider
proposals or nominations brought before the meeting in accordance with this
procedure or by the Board of Directors. Although the Board of Directors has no
power to approve or disapprove stockholder nominations of candidates or
stockholder proposals regarding other business to be conducted at a
stockholders' meeting, the advance notice procedure may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures
are not followed or may discourage or deter a potential acquiror from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company.
 
     Indemnification.  The Certificate of Incorporation provides that the
Company will indemnify, to the full extent authorized or permitted by the DGCL,
any person made, or threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Company or by reason of the fact that such director or officer,
at the request of the Company, is or was serving any other corporation,
partnership, joint venture, trust or other enterprise as a director, officer,
employee or agent.
 
     Limitation of Liability.  The Certificate of Incorporation provides that no
director of the Company will be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such a
director, as a director, other than for: (i) any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) authorization of illegal dividends or (iv) any transaction from which
such director derived an improper personal benefit.
 
     Delaware Anti-Takeover Law.  The Company is subject to Section 203 of the
DGCL which, subject to certain exceptions, prohibits a publicly held Delaware
corporation from engaging in a broad range of 'business combinations' with any
'interested stockholder' (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for a period of three years from the
date of the transaction in which the
 
                                       46
person became an interested stockholder, unless: (i) prior to such date, the
Board of Directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
 
TRANSFER AGENT AND REGISTRAR
 
     The Transfer Agent and Registrar for the Company's Common Stock is American
Stock Transfer & Trust Company. Its telephone number is (212) 936-5100.
 
                                       47
SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of the Offering, the Company will have 86,985,000 shares of
Common Stock outstanding. Of these shares, the 14,100,000 shares sold in the
Offering (16,215,000 shares, if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
'affiliate' of the Company as that term is defined in Rule 144 under the
Securities Act. Persons who may be deemed to be affiliates generally include
individuals or entities that control, are controlled by, or are under common
control with, the Company and may include directors and executive officers of
the Company. Shares purchased by affiliates of the Company may generally be sold
in compliance with the resale limitations of Rule 144.
 
     The 72,885,000 shares of Common Stock which continue to be held by Lipha
Americas upon completion of the Offering, will be 'restricted securities' within
the meaning of Rule 144 and may not be sold in the absence of registration under
the Securities Act or unless an exemption from registration is available,
including the exemptions contained in Rule 144 under the Securities Act.
 
     In general, under Rule 144, persons such as Lipha Americas who hold
restricted securities and who have beneficially owned restricted securities for
at least one year would be entitled to sell within any three-month period a
number of restricted securities that does not exceed the greater of 1% of the
then outstanding shares of Common Stock or the average weekly trading volume on
the NYSE during the four calendar weeks preceding such sale, provided that the
seller files a Form 144 with respect to such sale, that certain public
information concerning the Company is available and that the seller complies
with certain requirements concerning the manner of sale. A person who is deemed
to be an affiliate of the Company, including members of the Board of Directors
and executive officers of the Company, would also need to comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock that are not
restricted securities, unless such sale is registered under the Securities Act.
 
     Prior to consummation of the Offering, there has been no public market for
the Common Stock, and no prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, or the availability of such shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sales of substantial amounts of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the then-prevailing market prices for the Common Stock.
 
                                       48
UNDERWRITING
 
     The Underwriters named below, represented by Bear, Stearns & Co. Inc.,
Hambrecht & Quist LLC, J.P. Morgan Securities Inc. and Lehman Brothers Inc. (the
'Representatives'), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the 'Underwriting Agreement') by and
among the Company, Merck KGaA and the Underwriters, to purchase from the Company
the aggregate number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.
NUMBER
UNDERWRITER                                                                                            OF SHARES
----------------------------------------------------------------------------------------------------   ----------
Bear, Stearns & Co. Inc.............................................................................
Hambrecht & Quist LLC...............................................................................
J.P. Morgan Securities Inc..........................................................................
Lehman Brothers Inc.................................................................................
                                                                                                       ----------
     Total..........................................................................................   14,100,000
                                                                                                       ----------
                                                                                                       ----------
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
 
     The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $     per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $   per share to certain
other dealers. After the initial public offering, the offering price and other
selling terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
 
     The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 2,115,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 14,100,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the initial public offering.
 
     The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
 
     The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority.
 
     The Company and Merck KGaA have agreed that the Company will not, and Merck
KGaA will cause Lipha Americas not to, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, pledge or otherwise
dispose of or encumber and, in the case of Lipha Americas, otherwise create a
put equivalent position in any shares of Common Stock (or any securities
convertible into or exercisable or exchangeable for shares of Common Stock) for
a period of 180 days from the date of this Prospectus without the prior written
consent of Bear, Stearns & Co. Inc.
 
     Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be negotiated between the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price of the
Common Stock will be prevailing market and economic conditions, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
 
                                       49
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the Underwriters
may stabilize or maintain the price of the Common Stock by bidding for or
purchasing shares of Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the Offering are reclaimed if shares of Common
Stock previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
NYSE or otherwise and, if commenced, may be discontinued at any time.
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered hereby will be passed upon for the
Company by Coudert Brothers, New York, New York. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York.
 
                                    EXPERTS
 
     The consolidated financial statements and schedule of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The Company has filed with the Commission a Registration Statement (File
No. 333-      ) under the Securities Act, with respect to the Common Stock
offered hereby. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules filed therewith. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus regarding the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained at prescribed rates from the Commission's Public Reference Section
at such addresses. Also, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
 
     As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish holders of the Common Stock with annual reports containing,
among other information, audited financial statements certified by an
independent public accounting firm. The Company also intends to furnish such
other reports from time to time as it may determine or as may be required by
law.
 
                                       50
DEY, INC.
                       CONSOLIDATED FINANCIAL STATEMENTS
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                                                                              ----
Independent Auditors' Report...............................................................................    F-2
 
Consolidated Balance Sheets................................................................................    F-3
 
Consolidated Statements of Income..........................................................................    F-4
 
Consolidated Statements of Stockholder's Equity (Deficit)..................................................    F-5
 
Consolidated Statements of Cash Flows......................................................................    F-6
 
Notes to Consolidated Financial Statements.................................................................    F-7
F-1
When the filing of the Amended and Restated Certificate of Incorporation
and the stock split referred to in Note 11 of the Notes to the consolidated
financial statements have been consummated, we will be in a position to render
the following report, assuming that no other events will have occurred which
would affect the consolidated financial statements.
 
                                          KPMG PEAT MARWICK LLP
 
                          INDEPENDENT AUDITORS' REPORT
 
Board of Directors
Dey, Inc.:
 
We have audited the accompanying consolidated balance sheets of Dey, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholder's equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dey,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
 
San Francisco, California
January 16, 1998, except as to Note 11,
  which is as of            , 1998
 
                                      F-2
DEY, INC.
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,              MARCH 31, 1998
                                                                  --------------------    --------------------------
                                                                    1996        1997      HISTORICAL      PRO FORMA
                                                                  --------    --------    -----------    -----------
                                                                                          (UNAUDITED)    (UNAUDITED)
ASSETS
Current assets:
  Cash and cash equivalents....................................   $  5,728    $ 18,615     $  38,189      $  38,189
  Accounts receivable, less allowances for doubtful accounts of
     $1,100, $983 and $1,058 for 1996, 1997 and 1998,
     respectively..............................................      9,497      17,354        23,932         23,932
  Inventories..................................................     10,680      21,445        15,529         15,529
  Prepaids and other assets....................................      1,058         701         1,181          1,181
  Related party notes receivable and advances..................     12,000      14,000         6,200          6,200
  Related party receivables....................................         27         402           429            429
  Deferred income taxes........................................      4,760       7,318         7,318          7,318
                                                                  --------    --------    -----------    -----------
Total current assets...........................................     43,750      79,835        92,778         92,778
 
Property, plant and equipment, net.............................     47,746      57,441        58,589         58,589
Goodwill, net..................................................     53,396      51,678        51,249         51,249
                                                                  --------    --------    -----------    -----------
Total assets...................................................   $144,892    $188,954     $ 202,616      $ 202,616
                                                                  --------    --------    -----------    -----------
                                                                  --------    --------    -----------    -----------
        LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.............................................   $  1,327    $    834     $   1,918      $   1,918
  Accrued liabilities..........................................     11,594      17,633        12,096         12,096
  Accrued Medicaid rebate......................................      2,001       3,759         4,189          4,189
  Accrued liabilities to related parties.......................      1,982       3,703         2,120          2,120
  Income taxes payable.........................................      9,582      15,166        28,421         28,421
  Dividends payable............................................         --          --            --        259,250
                                                                  --------    --------    -----------    -----------
Total current liabilities......................................     26,486      41,095        48,744        307,994
Deferred income taxes..........................................      1,440       1,871         1,871          1,871
Long-term related party debt...................................     22,000      22,000        22,000         22,000
                                                                  --------    --------    -----------    -----------
Total liabilities..............................................     49,926      64,966        72,615        331,865
                                                                  --------    --------    -----------    -----------
Commitments and contingencies
 
Stockholder's Equity (Deficit):
  Preferred Stock, $1 par value; 10,000,000 shares authorized;
     none issued and outstanding for 1996, 1997 and 1998,
     respectively..............................................
  Common stock, $0.01 par value; 140,000,000 shares authorized;
     72,885,000 issued and outstanding for 1996, 1997 and 1998,
     respectively..............................................        729         729           729            729
  Additional (negative) paid-in capital........................     57,094      57,094        57,094       (129,978)
  Retained earnings............................................     37,143      66,165        72,178             --
                                                                  --------    --------    -----------    -----------
Total stockholder's equity (deficit)...........................     94,966     123,988       130,001       (129,249)
                                                                  --------    --------    -----------    -----------
Total liabilities and stockholder's equity (deficit)...........   $144,892    $188,954     $ 202,616      $ 202,616
                                                                  --------    --------    -----------    -----------
                                                                  --------    --------    -----------    -----------
See accompanying notes to consolidated financial statements.
                                      F-3
DEY, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,                MARCH 31,
                                               ----------------------------------      --------------------
                                                 1995         1996         1997         1997         1998
                                               --------     --------     --------      -------      -------
                                                                                           (UNAUDITED)
Net sales..................................    $136,685     $166,461     $219,810      $52,327      $71,112
Cost of sales..............................      38,999       64,255       77,204       15,955       25,631
                                               --------     --------     --------      -------      -------
     Gross profit..........................      97,686      102,206      142,606       36,372       45,481
Selling, marketing and distribution........      11,366       14,032       21,698        3,940        6,861
General and administrative expenses........       8,549        9,573       11,307        2,363        3,039
Research and development...................      12,535       19,266       20,056        3,537        2,484
                                               --------     --------     --------      -------      -------
     Income from operations................      65,236       59,335       89,545       26,532       33,097
Interest expense--related parties..........      (1,371)      (1,237)      (1,267)        (310)        (299)
Interest income--related parties...........         863          940          754          181          196
Interest income--other.....................         649          578        1,403          145          414
Other income, net..........................         543        1,164          747          263           66
                                               --------     --------     --------      -------      -------
     Income before taxes...................      65,920       60,780       91,182       26,811       33,474
Income taxes...............................     (27,055)     (24,999)     (37,160)     (10,896)     (13,561)
                                               --------     --------     --------      -------      -------
Net income.................................    $ 38,865     $ 35,781     $ 54,022      $15,915      $19,913
                                               --------     --------     --------      -------      -------
                                               --------     --------     --------      -------      -------
Net income per share (basic)...............    $   0.53     $   0.49     $   0.74      $  0.22      $  0.27
                                               --------     --------     --------      -------      -------
                                               --------     --------     --------      -------      -------
Weighted average common shares
  outstanding..............................  72,885,000   72,885,000   72,885,000   72,885,000   72,885,000
                                             ----------   ----------   ----------   ----------   ----------
                                             ----------   ----------   ----------   ----------   ----------
Pro forma net income per share (basic)
  (unaudited)..............................                              $                          $
                                                                         --------                   -------
                                                                         --------                   -------
Pro forma weighted average common shares
  used to compute net income per share
  (unaudited)..............................
                                                                         --------                   -------
                                                                         --------                   -------
See accompanying notes to consolidated financial statements.
                                      F-4
DEY, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL                    TOTAL
                                                         COMMON STOCK        (NEGATIVE)                STOCKHOLDER'S
                                                     --------------------     PAID-IN      RETAINED       EQUITY
                                                       SHARES      AMOUNT     CAPITAL      EARNINGS      (DEFICIT)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1994...................   72,885,000     $729     $   57,094    $ 32,362      $  90,185
  Net income......................................           --       --             --      38,865         38,865
  Dividends paid (0.43 per share).................           --       --             --     (31,000)       (31,000)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1995...................   72,885,000      729         57,094      40,227         98,050
  Net income......................................           --       --             --      35,781         35,781
  Dividends paid (0.53 per share).................           --       --             --     (38,865)       (38,865)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1996...................   72,885,000      729         57,094      37,143         94,966
  Net income......................................           --       --             --      54,022         54,022
  Dividends paid (0.34 per share).................           --       --             --     (25,000)       (25,000)
                                                     ----------    ------    ----------    --------    -------------
Balance as of December 31, 1997...................   72,885,000      729         57,094      66,165        123,988
                                                     ----------    ------    ----------    --------    -------------
  Net income (unaudited)..........................           --       --             --      19,913         19,913
  Dividends paid (0.19 per share)(unaudited) .....           --       --             --     (13,900)       (13,900)
                                                     ----------    ------    ----------    --------    -------------
Balance as of March 31, 1998 (unaudited)..........   72,885,000     $729     $   57,094    $ 72,178      $ 130,001
                                                     ----------    ------    ----------    --------    -------------
                                                     ----------    ------    ----------    --------    -------------
Pro forma balance as of March 31, 1998
  (unaudited).....................................   72,885,000     $729     $ (129,978)   $     --      $(129,249)
                                                     ----------    ------    ----------    --------    -------------
                                                     ----------    ------    ----------    --------    -------------
See accompanying notes to consolidated financial statements.
                                      F-5
DEY, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
THREE MONTHS ENDED
                                                              YEARS ENDED DECEMBER 31,             MARCH 31,
                                                          --------------------------------    --------------------
                                                            1995        1996        1997        1997        1998
                                                          --------    --------    --------    --------    --------
                                                                                                  (UNAUDITED)
Cash flows from operating activities:
  Net income...........................................   $ 38,865    $ 35,781    $ 54,022    $ 15,915    $ 19,913
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization.....................      6,011       6,512       8,111       1,935       2,099
     Provision for excess and obsolete inventory.......          7         678        (599)       (126)        193
     Loss on sale of property, plant and equipment.....         47          25           6          --           4
     Deferred income taxes.............................     (1,203)       (436)     (2,127)         --          --
  Changes in operating assets and liabilities:
     Accounts receivable...............................     (2,458)      4,858      (7,857)    (10,031)     (6,578)
     Inventories.......................................       (872)     (3,540)    (10,166)     (1,157)      5,723
     Prepaids and other assets.........................       (209)         51         357      (1,217)       (480)
     Accounts payable..................................        105         174        (493)      1,958       1,084
     Accrued liabilities...............................        923       5,136       7,797      (2,224)     (5,107)
     Related party receivables.........................       (782)      2,561        (375)       (348)        (27)
     Accrued liabilities to related parties............      4,277      (3,645)      1,721      (1,038)     (1,583)
     Income taxes payable..............................      3,659       3,126       5,584      10,874      13,255
                                                          --------    --------    --------    --------    --------
Net cash provided by operating activities..............     48,370      51,281      55,981      14,541      28,496
                                                          --------    --------    --------    --------    --------
Cash flows from investing activities:
  Proceeds from related party notes receivable
     and advances......................................     46,200      14,525       1,000         250       8,550
  Issuance of related party notes receivable
     and advances......................................    (51,200)     (8,525)     (3,000)     (1,000)       (750)
  Purchase of property, plant and equipment............    (10,362)    (18,013)    (16,095)     (2,222)     (2,827)
  Proceeds from sale of property, plant equipment......          4          23           1          --           5
                                                          --------    --------    --------    --------    --------
Net cash provided by (used in) investing activities....    (15,358)    (11,990)    (18,094)     (2,972)      4,978
                                                          --------    --------    --------    --------    --------
Cash flows from financing activities:
  Dividends paid.......................................    (31,000)    (38,865)    (25,000)     (6,250)    (13,900)
                                                          --------    --------    --------    --------    --------
Net cash used in financing activities..................    (31,000)    (38,865)    (25,000)     (6,250)    (13,900)
                                                          --------    --------    --------    --------    --------
Net increase in cash and cash equivalents..............      2,012         426      12,887       5,319      19,574
Cash and cash equivalents at beginning of the period...      3,290       5,302       5,728       5,728      18,615
                                                          --------    --------    --------    --------    --------
Cash and cash equivalents at end of the period.........   $  5,302    $  5,728    $ 18,615    $ 11,047    $ 38,189
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
Supplemental cash flow disclosures:
  Cash paid during the year for:
     Interest paid to related parties..................   $  1,371    $  1,237    $  1,267    $    310    $    299
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
     Income taxes......................................   $ 24,600    $ 22,309    $ 33,703    $     22    $    306
                                                          --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------
See accompanying notes to consolidated financial statements.
                                      F-6
DEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 1. BUSINESS AND COMPANY STRUCTURE
 
     Dey, Inc. (the Company) is a Delaware corporation which manufactures and
markets pharmaceutical products through Dey, L.P. primarily in the U.S.
 
     Dey, Inc. is a wholly-owned subsidiary of Lipha Americas, Inc. (Lipha
Americas), which is a wholly-owned subsidiary of Merck-Lipha S.A., a French
corporation. Merck-Lipha S.A. is a 99.53% owned subsidiary of Merck KGaA (Merck
KGaA) of Germany.
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
Dey, Inc., its wholly-owned subsidiary Dey Limited Partner, Inc., and a
partnership, Dey, L.P.  Dey, Inc. has a 1% general partnership interest, and Dey
Limited Partner, Inc., has a 99% limited partnership interest, in Dey, L.P. All
significant intercompany balances and transactions have been eliminated in
consolidation.
 
  Cash and Cash Equivalents
 
     The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents. Cash
equivalents consist primarily of commercial paper and are held to maturity.
 
  Inventories
 
     Inventories are recorded at the lower of cost or market using the first-in,
first-out method. Costs include material, labor, and applicable factory
overhead. Provision for potentially obsolete or slow moving inventory is made
based upon management's analysis of inventory levels and forecasted sales.
 
  Property, Plant and Equipment
 
     Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the respective estimated useful lives of the
assets, which range from three to thirty years. Leasehold improvements are
amortized over the shorter of the respective lease terms or the respective
estimated useful lives of the assets.
 
  Long-Lived Assets
 
     The Company accounts for long-lived assets under SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
In accordance with this standard, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment loss to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
 
                                      F-7
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  Goodwill
 
     The Company was acquired in January 1988. Goodwill represents the excess of
the purchase price over the fair value of the identifiable assets and
liabilities of the Company at the date of acquisition. Goodwill is being
amortized over 40 years.
 
  Fair Value of Instruments
 
     In management's opinion, financial assets and liabilities have carrying
values which approximate fair values due to their short-term nature and variable
interest rates.
 
  Concentration of Market, Credit and Suppliers Risk
 
     The Company has three product lines that accounted for 60%, 26% and 0% of
net sales in 1995, 53%, 28% and 0% of net sales in 1996, 38%, 14% and 23% of net
sales in 1997, respectively.
 
     The Company sells its products to a diverse group of pharmaceutical
distributors and retailers across broad geographic areas. Accounts receivable
from customers are uncollateralized. One of the Company's customers accounted
for 11% and 13% of net sales for the years ended December 31, 1995 and 1996,
respectively. The Company's top three customers accounted for 12%, 12% and 11%,
respectively, of net sales for the year ended December 31, 1997. The Company's
top two customers accounted for an aggregate of 24% and 25% of accounts
receivable as of December 31, 1996 and 1997.
 
     Certain of the raw materials used in the manufacture of the Company's
products are subject to FDA approval. The Company currently purchases some of
these raw materials from single-source FDA-approved suppliers. Any additional
supply sources for these materials must be approved by the FDA before the
materials can be used by the Company.
 
     Concentration of credit risk principally consists of cash and cash
equivalents and accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectible accounts.
 
  Income Taxes
 
     The Company is included in the consolidated federal income tax return of
Lipha Americas. Income taxes in the Company's financial statements have been
determined on a separate-return basis.
 
     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
                                      F-8
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
  Revenue Recognition
 
     The Company recognizes sales upon shipment of products to its customers.
Allowances for estimated discounts, chargebacks, rebates, and returns are
recognized in the same period as the related sales. Accounts receivable are
presented net of such allowances, which totaled $11,412,000 and $15,059,000 at
December 31, 1996 and 1997, respectively.
 
  New Accounting Standard
 
     In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivatives instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Earlier application of all provisions of this
Statement is encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement. The Company
anticipates that adoption of this Statement will not be material to the
consolidated financial statements.
 
  Unaudited Interim Consolidated Financial Information
 
     The unaudited interim consolidated financial information as of March 31,
1998 and for the three months ended March 31, 1997 and 1998 has been prepared on
the same basis as the audited consolidated financial statements and the
requirements of Regulation S-X. In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of this interim information.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998.
 
  Unaudited Pro Forma Consolidated Financial Data
 
     Subsequent to March 31, 1998, the Company has declared or intends to
declare dividends to Lipha Americas totaling $259,250,000, including a
$225,000,000 dividend declared on July 21, 1998 which is payable on August 14,
1998. The Company plans to partially fund payment of the aforementioned
dividends by utilizing a revolving credit facility of $220 million expected to
be provided by Merck KGaA.
 
     The information presented in the unaudited pro forma consolidated balance
sheet as of March 31, 1998 was prepared as if the aforementioned dividends were
declared as of March 31, 1998.
 
     The amount reported in the unaudited pro forma consolidated balance sheet
and statement of stockholder's equity (deficit) of negative paid-in capital of
$129,978,000 is the excess of the sum of all the aforementioned dividends which
amounted to $259,250,000 over the additional paid-in capital and retained
earnings as of March 31, 1998 which totaled $129,272,000.
 
     The pro forma net income per share amounts are calculated by dividing the
historical net income amounts by the sum of (1) the historical weighted average
common shares outstanding during the periods presented and (2) the number of
common shares issued to the public in connection with Company's initial public
offering which would generate sufficient net proceeds to pay the aforementioned
dividends subject to a maximum equal to the number of shares issued in the
offering.
 
                                      F-9
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 3. INVENTORIES
 
     Inventories consisted of the following (in thousands):
DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
Raw materials.........................................................   $ 4,132    $ 4,219     $ 3,402
Work in process.......................................................     1,065      2,290       2,561
Finished goods........................................................     5,483     14,936       9,566
                                                                         -------    -------    ---------
                                                                         $10,680    $21,445     $15,529
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
NOTE 4. PROPERTY AND EQUIPMENT, NET
 
     Property and equipment, net consisted of the following (in thousands):
DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
Land..................................................................   $ 3,309    $ 3,309     $ 3,309
Equipment and machinery...............................................    42,075     48,511      51,891
Buildings and improvements............................................    17,946     18,805      19,645
Equipment deposits, construction in progress..........................     6,060     14,308      12,850
                                                                         -------    -------    ---------
                                                                          69,390     84,933      87,695
Less accumulated depreciation.........................................   (21,644)   (27,492)    (29,106)
                                                                         -------    -------    ---------
                                                                         $47,746    $57,441     $58,589
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
NOTE 5. INTANGIBLE ASSETS, NET
 
     Intangible assets, net consisted of the following (in thousands):
DECEMBER 31,
                                                                         ------------------    MARCH 31,
                                                                          1996       1997        1998
                                                                         -------    -------    ---------
Goodwill..............................................................   $66,185    $66,185     $66,185
Less accumulated amortization.........................................   (12,789)   (14,507)    (14,936)
                                                                         -------    -------    ---------
                                                                         $53,396    $51,678     $51,249
                                                                         -------    -------    ---------
                                                                         -------    -------    ---------
NOTE 6. RELATED PARTY TRANSACTIONS
 
     Related party notes receivable and advances of $12,000,000, $14,000,000 and
$6,200,000 at December 31, 1996 and 1997 and March 31, 1998, respectively,
represents amounts due from affiliated companies. Related party receivables of
$27,000, $402,000 and $429,000, at December 31, 1996 and 1997 and March 31,
1998, respectively, represents amounts due from affiliated companies for accrued
interest on the aforementioned note receivables and costs incurred on behalf of
other affiliates. The amounts are due on demand.
 
     With the exception of the $7,000,000 related party note receivable, all
loans bear interest at the monthly applicable federal rate, which was 5.60%,
5.54% and 5.26% for the month ended December 31, 1996, 1997 and March 31, 1998,
respectively. The $7,000,000 related note party receivable is at a fixed rate of
5.88% for the years ended December 31, 1996 and 1997. This note was repaid on
March 27, 1998.
 
     The long-term related party debt of $22,000,000 at December 31, 1996, 1997
and March 31, 1998, respectively, represents a note payable to an affiliated
company, due on July 31, 1999, and bearing interest at the
 
                                      F-10
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 6. RELATED PARTY TRANSACTIONS--(CONTINUED)
quarterly applicable federal rate, which was 5.63%, 5.56% and 5.29% for the
quarters ended December 1996, 1997 and March 31, 1998, respectively.
 
     The Company's expenses include charges from affiliates for expenses
incurred on behalf of the Company. These expenses were $3,141,000, $2,425,000
and $4,785,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Approximately $2,500,000, $1,800,000 and $4,100,000 of those
expenses in 1995, 1996 and 1997, respectively, related to clinical trial
services performed in exchange for certain marketing rights in the U.S. of any
approved products developed pursuant to an agreement which the Company entered
into with Genpharm, Inc. and Alphapharm Parties Limited (the Genpharm
Agreement), affiliated companies, in 1995. The accrued liabilities to related
parties of $1,982,000 and $3,703,000 at December 31, 1996 and 1997,
respectively, primarily related to the aforementioned expenses. The accrued
liabilities to related parties of $2,120,000 at March 31, 1998 primarily relates
to the aforementioned expenses, and licensing fees due to an affiliate.
 
     The Company's expenses also include licensing fees due to an affiliate.
Effective July 1, 1997, the Company agreed to pay a royalty on a licensed
product of 16.5% of annual net sales up to $15.75 million for 1997 and up to
$31.5 million for 1998 through 2010. In the event the Company does not achieve
certain minimum net sales or gross margins on the licensed product, both parties
agree to negotiate in good faith to determine a new royalty percentage which
should be applicable. Minimum net sales and gross margins were achieved in 1997.
Total licensing fees relating to this agreement were $-0-, $-0- and $2,600,000
for the years ended December 31, 1995, 1996, and 1997, respectively.
 
NOTE 7. INCOME TAXES
 
     Income tax expense (benefit) for the years ended December 31, 1995, 1996
and 1997, consisted of (in thousands):
1995                            1996                            1997
                         ----------------------------    ----------------------------    ----------------------------
                         CURRENT   DEFERRED    TOTAL     CURRENT   DEFERRED    TOTAL     CURRENT   DEFERRED    TOTAL
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
Federal...............   $22,990   $ (1,071)  $21,919    $20,466   $   (208)  $20,258    $32,020   $ (1,907)  $30,113
State.................     5,268       (132)    5,136      4,969       (228)    4,741      7,267       (220)    7,047
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
                         $28,258   $ (1,203)  $27,055    $25,435   $   (436)  $24,999    $39,287   $ (2,127)  $37,160
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
                         -------   --------   -------    -------   --------   -------    -------   --------   -------
The total income tax expense differed from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as a result
of the following (in thousands):
DECEMBER 31,
                                                                          -----------------------------
                                                                           1995       1996       1997
                                                                          -------    -------    -------
Computed tax expense at federal statutory rate of 35%..................   $23,072    $21,273    $31,914
State taxes............................................................     3,338      3,081      4,581
Amortization of goodwill and other permanent differences...............       645        645        665
                                                                          -------    -------    -------
                                                                          $27,055    $24,999    $37,160
                                                                          -------    -------    -------
                                                                          -------    -------    -------
F-11
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 7. INCOME TAXES--(CONTINUED)
     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
DECEMBER 31,
                                                                           ------------------
                                                                            1996       1997
                                                                           -------    -------
Deferred tax assets:
  Accounts receivable, principally due to allowance for doubtful
     accounts and chargebacks...........................................   $ 2,823    $ 4,380
  Inventories, principally due to reserves and additional costs
     capitalized for tax purposes.......................................       389        172
  Other accrued liabilities.............................................     1,548      2,766
                                                                           -------    -------
     Total gross deferred tax assets....................................     4,760      7,318
Deferred tax liabilities:
  Property, plant and equipment.........................................    (1,440)    (1,871)
                                                                           -------    -------
     Total gross deferred tax liabilities...............................    (1,440)    (1,871)
                                                                           -------    -------
     Net deferred tax asset.............................................   $ 3,320    $ 5,447
                                                                           -------    -------
                                                                           -------    -------
NOTE 8. LEASES
 
     As part of its operations, the Company enters into various leasing
arrangements. The Company currently leases two facilities under noncancellable
operating leases.
 
     Aggregate rent expense was $247,000, $196,000 and $212,000 for the years
ending 1995, 1996 and 1997, respectively.
 
     The future minimum payments with an initial term in excess of one year, for
the years ending December 31 are as follows:
MINIMUM
                                                                RENTALS
                                                               ----------
1998........................................................   $  495,000
1999........................................................      723,000
2000........................................................      695,000
2001........................................................      685,000
2002........................................................      685,000
Thereafter..................................................    1,763,000
                                                               ----------
                                                               $5,046,000
                                                               ----------
                                                               ----------
NOTE 9. EMPLOYEE BENEFIT PLANS
 
     The Lipha Americas Employees' Retirement Plan is a defined benefit pension
plan for the benefit of eligible employees of Lipha Americas and its affiliates,
including the Company, who meet age and service requirements. Benefits are
generally based on average salary and years of service. Lipha Americas funds its
pension plans in accordance with federal laws and regulations. Plan assets are
invested primarily in cash and cash equivalents, government securities, stocks
and bonds.
 
     The Company recognizes as net pension expense, its allocated total
contributions for the period. With respect to this plan, the Company funded and
recorded expenses of $365,000, $410,000 and $549,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
 
                                      F-12
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 9. EMPLOYEE BENEFIT PLANS--(CONTINUED)
     In addition, the Company sponsors a contributory 401(k) savings and
investment plan in which employees meeting the minimum service requirements are
eligible to participate. Participants may contribute up to 10% of their basic
pay annually. Through September 1997, the Company contributed an amount of
33-1/3% of the participants' contribution up to 6% of the participants' base
annual pay. The Company contribution increased to 50% of the participants'
contribution up to 6% of the participants' base annual pay as of October 1,
1997. The Company's contribution to the plan was $119,000, $156,000 and $300,000
for the years ending December 31, 1995, 1996 and 1997, respectively.
 
NOTE 10. COMMITMENTS AND CONTINGENCIES
 
     In December 1996, the Company entered into a ten year agreement with a
pharmaceutical company whereby the Company was granted exclusive selling,
marketing, and distribution rights for a product in the United States, excluding
Puerto Rico and the Virgin Islands (the Territory). Under the terms of the
agreement, the Company is required to make minimum payments of forty percent
(40%) of the contribution margin resulting from sales of the Product within the
Territory. For purposes of this contract, contribution margin is defined as
sales less cost of sales, marketing, selling, distribution, clinical testing and
administrative expenses. Pursuant to the agreement, the Company made an initial
payment of $500,000 in 1996 and made a minimum payment of $500,000 in 1997 and
is required to make an additional $1,000,000 minimum payment each subsequent
calendar year during the term of the agreement. The agreement may be terminated
by the Company if for three consecutive calendar years, the annual contribution
margin is lower than $1,000,000.
 
     On May 22, 1997 the Company issued an unconditional guaranty of the
performance of obligations of Allergy Free L.P., an affiliated company, under a
lease of office and manufacturing space in Houston, Texas occupied by Allergy
Free, L.P. The total rental obligation of Allergy Free, L.P. under such lease is
$984,000. The lease expires on June 30, 2002.
 
     Commitments for the expansion of the Napa facilities and purchase of
capital equipment over the next year are approximately $4,800,000 and
$10,198,000 as of December 31, 1997 and March 31, 1998.
 
     A number of pharmaceutical companies, including the Company, have received
federal subpoenas in connection with an ongoing investigation of the reporting
of 'wholesale acquisition cost' data. Six states use such data to determine the
rate at which they reimburse pharmacies for pharmaceuticals dispensed under
Medicaid programs. The Company is not able to predict what relief, if any, any
federal or state authority may assert as a result of this investigation.
 
NOTE 11. AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND STOCK SPLIT
 
     Prior to the effective date of the Company's initial public offering, the
Company plans to file an Amended and Restated Certificate of Incorporation,
pursuant to which the Company will be authorized to issue up to 140,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock, par value $1.00 per share, and to effect a 72,885 for 1 split
of the Common Stock. All common share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to reflect
the aforementioned amendments and stock split.
 
                                      F-13
DEY, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(EXCEPT AS TO NOTE 11, INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND AS OF AND
        FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
 
NOTE 12. SUBSEQUENT EVENTS (UNAUDITED)
 
  Initial Public Offering
 
     On July 23, 1998, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission to register
for sale shares of common stock in a proposed initial firm commitment
underwritten public offering of approximately 18% of the total outstanding
shares of the Company's common stock.
 
  Financing
 
     On July 20, 1998, the Company and Merck KGaA entered into a commitment
letter under which, subject to the execution of a definitive agreement, Merck
KGaA would provide the Company with a revolving credit facility of up to
$220,000,000 over a three year period. For this facility, the Company would pay
Merck KGaA an establishment fee of $100,000 and a commitment fee of 0.8% per
annum on the undrawn balance. Amounts drawn on the facility would bear interest
payable quarterly in arrears at LIBOR plus 1% and would be repayable three years
from the date of establishment of the facility.
 
     Dividends
 
     Subsequent to March 31, 1998, the Company declared or intends to declare
dividends to Lipha Americas totaling $259,250,000, including a $225,000,000
dividend declared on July 21, 1998 which is payable on August 14, 1998. The
Company plans to partially fund payment of the aforementioned dividends by
utilizing a revolving credit facility of $220,000,000 to be provided by Merck
KGaA.
 
     1998 Incentive Plan
 
     The Company plans to adopt the 1998 Incentive Plan for the benefit of
eligible employees of the Company and its subsidiaries. Under the Incentive
Plan, participants may be awarded stock options, stock appreciation rights,
restricted shares, stock units and performance awards payable in cash or
property. The aggregate number of common shares available for award to
participants would be 900,000.
 
     Genpharm Agreement
 
     The Genpharm Agreement referred to in Note 6 has been terminated effective
July 23, 1998. As a result of the termination of this agreement, the Company is
no longer required to fund research and development related to this agreement
and no longer has rights to the products included in the agreement.
 
                                      F-14
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                        
     NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
 
                            ------------------------
 
                               TABLE OF CONTENTS
PAGE
                                                     ----
Prospectus Summary.................................    3
Risk Factors.......................................    6
Special Note Regarding Forward-Looking
 Statements........................................   13
Use of Proceeds....................................   14
Dividend Policy....................................   14
Capitalization.....................................   15
Dilution...........................................   16
Selected Consolidated Financial Data...............   17
Management's Discussion and Analysis of
 Financial Condition and Results of
 Operations........................................   18
Business...........................................   24
Management.........................................   39
Certain Transactions...............................   43
Principal Stockholders.............................   45
Description of Capital Stock.......................   46
Shares Eligible for Future Sale....................   49
Underwriting.......................................   50
Legal Matters......................................   51
Experts............................................   51
Additional Information.............................   51
Index to Consolidated Financial Statements.........  F-1
------------------------
 
     UNTIL                 , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

 
                               14,100,000 SHARES

                                     [LOGO]

 
                                   DEY, INC.

                                  COMMON STOCK

                             ----------------------
                                   PROSPECTUS 
                             ----------------------

                            BEAR, STEARNS & CO. INC.

                               HAMBRECHT & QUIST

                               J.P. MORGAN & CO.

                                LEHMAN BROTHERS

                                                , 1998

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II.
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for                                   .
SEC registration fee.......................................................................   $     67,850
NASD filing fee............................................................................         23,500
New York Stock Exchange listing fee........................................................
Blue Sky fees and expenses.................................................................
Printing and engraving expenses............................................................
Legal fees and expenses....................................................................
Accounting fees and expenses...............................................................
Miscellaneous expenses.....................................................................
                                                                                              ------------
     TOTAL.................................................................................   $
                                                                                              ------------
                                                                                              ------------
All of such expenses are to be borne by the Company.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the DGCL authorizes, inter alia, a corporation generally to
indemnify any person ('indemnitee') who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation in a similar
position with another corporation or entity, against expenses (including
attorney's fees), judgements, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. With respect to actions or suits by or in the right of the
corporation, however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorneys' fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that indemnification is appropriate. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) board of
directors by a majority voted of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs, that indemnification of the
indemnitee is proper because he has met the applicable standard of conduct.
Section 145 provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
 
     The Certificate of Incorporation provides that the registrant will
indemnify, to the full extent authorized or permitted by law, any person made,
or threatened to be made, a party or witness to any action, suit or proceeding,
whether civil or criminal or otherwise, by reason of the fact that he or she is
or was a director or officer of the registrant or by reason of the fact that
such director or officer, at the request of the registrant, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, in any capacity.
 
     The Certificate of Incorporation also provides that no director of the
registrant will be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty by such a director as a
director other than for: (i) any breach of the director's duty of loyalty to the
registrant or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
 
                                      II-1
authorization of illegal dividends or (iv) any transaction from which such
director derived an improper personal benefit.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     The registrant has not issued any securities within the past three years.
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits.
EXHIBIT
   NO.      DESCRIPTION
---------   -----------------------------------------------------------------------------------------------------------
1.1     --   Underwriting Agreement*
     3.1     --   Amended and Restated Certificate of Incorporation of the Company*
     3.2     --   Amended and Restated By-laws of the Company*
     4.1     --   Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
     4.2     --   Credit facility dated                 between Merck KGaA and the Company*
     5.1     --   Opinion of Coudert Brothers*
    10.1     --   Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated as of May 26,
                  1998**
    10.2     --   License Agreement dated          , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
    10.3     --   Tax Sharing Agreement dated          , 1998 between the Company and Lipha Americas, Inc.*
    10.4     --   Management Services Agreement dated          , 1998 between the Company and Lipha Americas, Inc.*
    10.5     --   Management Services Agreement dated          , 1998 between the Company and Allergy Free L.P.*
    10.6     --   Management Services Agreement dated              , 1998 between the Company and EM Pharma, Inc.*
    10.7     --   Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
    10.8     --   Acquisition Agreement dated          , 1998 between Dey, L.P. and EM Pharma, Inc.*
    10.9     --   Dey, Inc. 1998 Incentive Plan*
    21.1     --   Subsidiaries of the Company
    23.1     --   Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
    23.2     --   Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
    24.1     --   Power of Attorney (contained on signature page)
    27.1     --   Financial Data Schedule
------------------
 * To be filed by amendment
 
** Confidential material omitted and filed separately with the Commission
   pursuant to the Company's Application Requesting Confidential Treatment under
   Rule 406 under the Securities Act.
 
     (b) Financial Statements and Schedules.
 
          Schedule II     Valuation and Qualifying Accounts
 
ITEM 17. UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the
 
                                      II-2
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance of Rule 430A and contained in a
     form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
     of this Registration Statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     Prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at the
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-3
DEY LABORATORIES
                  SCHEDULE II-VALUATION & QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
ADDITIONS
                                                                  ------------------------
                                                   BALANCE AT     CHARGED TO                                  BALANCE AT
                                                  BEGINNING OF    COSTS AND     CHARGED TO                      END OF
                  DESCRIPTION                        PERIOD        EXPENSES     NET SALES      DEDUCTIONS       PERIOD
-----------------------------------------------   ------------    ----------    ----------    ------------    -----------
Year Ended 1995:
  Allowance for Doubtful Accounts..............         458           182              0            (108)           532
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................       3,463           200         37,638         (37,286)         4,015
                                                  ------------        ---       ----------    ------------    -----------
Year Ended 1996:
  Allowance for Doubtful Accounts..............         532           635              0             (67)         1,100
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................       4,015           (28)        55,224         (47,799)        11,412
                                                  ------------        ---       ----------    ------------    -----------
Year Ended 1997:
  Allowance for Doubtful Accounts..............       1,100           300              0            (417)           983
  Allowance for Chargebacks, Rebates Returns
     and Discounts.............................      11,412           489         62,452         (59,294)        15,059
                                                  ------------        ---       ----------    ------------    -----------
SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NAPA, STATE OF
CALIFORNIA, ON JULY 24, 1998.
 
                                      DEY, INC.

                                      By:         /s/ CHARLES A. RICE
                                          -------------------------------------
                                                      Charles A. Rice
                                          President and Chief Executive Officer
 
                               POWER OF ATTORNEY
 
     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles A. Rice and Pamela R. Marrs, severally,
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to this Registration Statement and filed pursuant to Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES                                       TITLE                               DATE
-----------------------------------------  -----------------------------------------------   ------------------
/s/ CHARLES A. RICE             President, Chief Executive Officer and Director        July 24, 1998
-----------------------------------------  (Principal Executive Officer)
             Charles A. Rice             
 
           /s/ PAMELA R. MARRS             Executive Vice President, Chief Financial              July 24, 1998
-----------------------------------------  Officer and Director (Principal Financial and
             Pamela R. Marrs               Accounting Officer)
 
          /s/ BERNHARD SCHEUBLE            Director                                               July 24, 1998
-----------------------------------------
            Bernhard Scheuble
 
         /s/ JEAN-NOEL TREILLES            Director                                               July 24, 1998
-----------------------------------------
           Jean-Noel Treilles
 
           /s/ PETER A. WRIEDE             Director                                               July 24, 1998
-----------------------------------------
             Peter A. Wriede
EXHIBIT INDEX
EXHIBIT                                                                                                    SEQUENTIAL
  NUMBER     DESCRIPTION                                                                                     PAGE NO.
----------   --------------------------------------------------------------------------------------------   -----------
1.1       --   Underwriting Agreement*
    3.1       --   Amended and Restated Certificate of Incorporation of the Company*
    3.2       --   Amended and Restated By-laws of the Company*
    4.1       --   Note dated July 31, 1997, issued by the Company to Lipha Americas, Inc.*
    4.2       --   Credit facility dated                 between Merck KGaA and the Company*
    5.1       --   Opinion of Coudert Brothers*
   10.1       --   Master Agreement between EM Industries, Incorporated and Dey Laboratories, L.P., dated
                   as of May 26, 1998**
   10.2       --   License Agreement dated          , 1998 between Dey Laboratories, L.P. and Lipha S.A.*
   10.3       --   Tax Sharing Agreement dated          , 1998 between the Company and Lipha Americas,
                   Inc.*
   10.4       --   Management Services Agreement dated          , 1998 between the Company and Lipha
                   Americas, Inc.*
   10.5       --   Management Services Agreement dated          , 1998 between the Company and Allergy
                   Free L.P.*
   10.6       --   Management Services Agreement dated              , 1998 between the Company and EM
                   Pharma, Inc.*
   10.7       --   Lease between Dey Laboratories, L.P. and EBP 2, Ltd.*
   10.8       --   Acquisition Agreement dated          , 1998 between Dey, L.P. and EM Pharma, Inc.*
   10.9       --   Dey, Inc. 1998 Incentive Plan*
   21.1       --   Subsidiaries of the Company
   23.1       --   Consent of Coudert Brothers (filed as Exhibit 5.1 hereto)*
   23.2       --   Report on Schedule and Consent of KPMG Peat Marwick LLP, Independent Auditors
   24.1       --   Power of Attorney (contained on signature page)
   27.1       --   Financial Data Schedule
------------------
 * To be filed by amendment
 
** Confidential material omitted and filed separately with the Commission
   pursuant to the Company's Application Requesting Confidential Treatment under
   Rule 406 under the Securities Act.