<PAGE>

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

                               _________________

                                   FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended July 3, 1999

                        Commission File Number 1-10827


                        PHARMACEUTICAL RESOURCES, INC.
            (Exact name of registrant as specified in its charter)


NEW JERSEY                                                           22-3122182
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                            Identification Number)


One Ram Ridge Road, Spring Valley, New York                               10977
     (Address of principal executive offices)                         (Zip Code)


      Registrant's telephone number, including area code: (914) 425-7100



     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X   No______
                                              -----


                                  29,530,003
      Number of shares of Common Stock outstanding as of August 12, 1999.

         This is page 1 of 18 pages.  The exhibit index is on page 17.
<PAGE>

                         PART I. FINANCIAL INFORMATION
                         ITEM 1. FINANCIAL STATEMENTS

                        PHARMACEUTICAL RESOURCES, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                              July 3,    December 31,
                          ASSETS                                               1999          1998
                          ------                                               ----          ----
<S>                                                                        <C>        <C>
Current assets:
  Cash and cash equivalents                                                $  1,280       $  6,424
  Accounts receivable, net of allowances of
   $2,948 and $2,226                                                         14,614         14,513
  Inventories                                                                17,246         15,611
  Prepaid expenses and other current assets                                   2,642          2,597
                                                                           --------       --------
    Total current assets                                                     35,782         39,145

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                   22,561         22,789

Deferred charges and other assets                                             1,759          1,405

Non-current deferred tax benefit, net                                        14,608         14,608
                                                                           --------       --------

   Total assets                                                            $ 74,710       $ 77,947
                                                                           ========       ========

             LIABILITIES AND SHAREHOLDERS' EQUITY
             ------------------------------------
Current liabilities:
  Current portion of long-term debt                                        $    213       $    225
  Accounts payable                                                            8,298         10,411
  Accrued salaries and employee benefits                                      1,751          1,705
  Accrued expenses and other current liabilities                              1,655          2,596
                                                                           --------       --------
     Total current liabilities                                               11,917         14,937

Long-term debt, less current portion                                          1,090          1,102

Accrued pension liability                                                       874            717

Shareholders' equity:
  Common Stock, par value $.01 per share; authorized 90,000,000 shares;
    issued and outstanding 29,441,231 and 29,322,659 shares                     294            293
  Additional paid in capital                                                 88,536         88,036
  Accumulated deficit                                                       (27,613)       (26,920)
  Additional minimum liability related to defined benefit pension plan         (388)          (218)
    Total shareholders' equity                                               60,829         61,191
                                                                           --------       --------

    Total liabilities and shareholders' equity                             $ 74,710       $ 77,947
                                                                           ========       ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -2-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
         CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
                   (In Thousands, Except Per Share Amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                  Six Months Ended     Three Months Ended
                                                --------------------  --------------------
                                                 July 3,   June 27,    July 3,   June 27,
                                                  1999       1998       1999       1998
                                                ---------  ---------  ---------  ---------
<S>                                             <C>        <C>        <C>        <C>
Net sales                                       $ 41,125   $ 31,460   $ 20,961   $ 17,886
Cost of goods sold                                33,100     28,795     16,852     15,850
                                                --------   --------   --------   --------

   Gross margin                                    8,025      2,665      4,109      2,036

Operating expenses:
 Research and development                          2,467      1,761      1,281        900
 Selling, general and administrative               6,466      5,971      3,244      3,247
                                                --------   --------   --------   --------

   Total operating expenses                        8,933      7,732      4,525      4,147
                                                --------   --------   --------   --------

   Operating loss                                   (908)    (5,067)      (416)    (2,111)

Other income, net                                    161      3,598         44      3,587

Interest income (expense)                             54       (374)         7       (176)
                                                --------   --------   --------   --------

Net (loss) income                                   (693)    (1,843)      (365)     1,300

Accumulated deficit, beginning of period         (26,920)   (12,522)   (27,248)   (15,665)
                                                --------   --------   --------   --------

Accumulated deficit, end of period              $(27,613)  $(14,365)  $(27,613)  $(14,365)
                                                ========   ========   ========   ========

Net (loss) income per share of common stock:
   Basic                                        $   (.02)  $   (.10)  $   (.01)  $    .07
                                                ========   ========   ========   ========
   Diluted                                      $   (.02)  $   (.10)  $   (.01)  $    .06
                                                ========   ========   ========   ========
Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                          29,387     18,890     29,421     18,896
                                                ========   ========   ========   ========
   Diluted                                        29,387     18,890     29,421     20,732
                                                ========   ========   ========   ========
 </TABLE>

       The accompanying notes are an integral part of these statements.

                                      -3-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                                     ------------------
                                                                     July 3,   June 27,
                                                                      1999       1998
                                                                     -------   --------
<S>                                                                  <C>        <C>
Cash flows from operating activities:
  Net loss                                                           $  (693)   $(1,843)

  Adjustments to reconcile net loss to net
    cash (used in) provided by operating activities:
     Depreciation and amortization                                     1,265      1,408
     Allowances against accounts receivable                              722        589
     Write-off of inventories                                            528      1,079
     Other                                                               116         20

 Changes in assets and liabilities:
      Increase in accounts receivable                                   (823)    (4,612)
    (Increase) decrease in inventories                                (2,163)     3,853
    (Increase) decrease in prepaid expenses and other assets            (399)     1,537
    (Decrease) increase in accounts payable                           (2,113)       235
    (Decrease) increase in accrued expenses and other liabilities       (908)       369
                                                                     -------    -------
        Net cash (used in) provided by operating activities           (4,468)     2,635
Cash flows from investing activities:
      Capital expenditures                                            (1,069)      (614)
      Proceeds from sale of fixed assets                                  45         33
                                                                     -------    -------
        Net cash used in investing activities                         (1,024)      (581)
 Cash flows from financing activities:
    Proceeds from issuances of Common Stock                              372         68
    Proceeds from issuances of other debt and
      net payments from revolving credit line                            120     (1,960)
    Principal payments under long-term debt and other borrowings        (144)      (127)
                                                                     -------    -------
        Net cash provided by (used in) financing activities              348     (2,019)

Net (decrease) increase in cash and cash equivalents                  (5,144)        35
Cash and cash equivalents at beginning of period                       6,424         52
                                                                     -------    -------
Cash and cash equivalents at end of period                           $ 1,280    $    87
                                                                     =======    =======
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      -4-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 3, 1999
                                  (Unaudited)


   Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in one
business segment, the manufacture and distribution of generic pharmaceuticals.
Marketed products are principally in solid oral dosage form (tablet, caplet and
capsule).  The Company also distributes products in the semi-solid form of a
cream and reconstituted suspensions/solutions.


Basis of Preparation:

   The accompanying consolidated financial statements at July 3, 1999 and
December 31, 1998 and for the six-month and three-month periods ended July 3,
1999 and June 27, 1998 are unaudited; however, in the opinion of the  management
of PRI, such statements include all adjustments (consisting of normal recurring
accruals) necessary to a fair statement of the information presented therein.

   Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for audited financial statements.  Accordingly,
these statements should be read in conjunction with PRI's most recent annual
financial statements.

   Results of operations for interim periods are not necessarily indicative of
those to be achieved for a full fiscal year.  Certain items on the consolidated
financial statements of the prior year have been reclassified to conform to the
current year financial statement presentation.

   In December 1998, the Company changed its annual reporting period to a fiscal
year ending December 31 from a fiscal year ending September 30.  Accordingly,
the current fiscal year began on January 1, 1999 and will end on December 31,
1999, and subsequent fiscal quarters will end on October 2, 1999 and December
31, 1999.  Comparative results in this Form 10-Q include amounts from the
corresponding three-month and six-month calendar periods of last year.

Strategic Alliance:

   On June 30, 1998, the Company completed a strategic alliance with Merck KGaA,
a pharmaceutical, laboratory and chemical company located in Darmstadt, Germany
("Merck KGaA").  Pursuant to a Stock Purchase Agreement, dated March 25, 1998,
Merck KGaA, through its subsidiary  Lipha Americas, Inc. ("Lipha"), purchased
10,400,000 newly issued shares of the Company's Common Stock for $20,800,000.
In addition, the Company issued to Merck KGaA and Genpharm, Inc. ("Genpharm"), a
Canadian subsidiary of Merck KGaA, five-year options to purchase an aggregate of
1,171,040 additional shares of the Company's Common Stock at an exercise price
of $2.00 per share in exchange for consulting services.  The options expire in
April 2003 and become exercisable commencing in July 2001.  As part of the
alliance, the Company obtained the exclusive United States distribution rights
to a portfolio of products covered by a distribution agreement with Genpharm
(see "--Distribution and Supply Agreements-Genpharm, Inc.").  Merck KGaA also
purchased 1,813,272 shares of the Company's Common Stock from Clal
Pharmaceutical Industries Ltd. ("Clal"), PRI's largest shareholder prior to the
transaction.  Clal has the right to cause Merck KGaA and/or the Company to
purchase an additional 500,000 shares of Common Stock from Clal at a price of
$2.50 per share in July 2001.

Research and Development Agreement:

   The Company, Israel Pharmaceutical Resources L.P. ("IPR"), a subsidiary of
PRI, and Generics (UK) Ltd. ("Generics"), a subsidiary of Merck KGaA, have
entered into an agreement (the "Development Agreement"), dated as of August 11,
1998, pursuant to which Generics agreed to fund one-half the costs of the
operating budget of IPR, the Company's research and development operation in
Israel, in exchange for the exclusive distribution rights outside of the United
States to products developed by IPR after the date of the Development Agreement.
In addition, Generics agreed to pay IPR a perpetual royalty for all sales of the
products by Generics or its affiliates outside the United States.  The
Development Agreement has an initial term of five years and automatically renews
for additional periods of one year subject to earlier termination upon six
months' notice in certain circumstances.  Pursuant to the Development Agreement,
Generics paid the Company an initial fee of $600,000 in August 1998 and has
fulfilled their funding requirements through July 3, 1999.  Under the
Development Agreement, Generics is not required to fund more than $1,000,000 in
any one calendar year.

                                      -5-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 3, 1999
                                  (Unaudited)


Profit Sharing Agreement:

   In January 1999, the Company entered into a profit sharing agreement with
Genpharm (the "Genpharm Profit Sharing Agreement") pursuant to which PRI will
receive a portion of the profits and will bear a portion of the expenses
resulting from a separate agreement between Genpharm and an unaffiliated United
States based pharmaceutical company in exchange for a non-refundable fee of
$2,500,000.  The date on which PRI will be required to pay Genpharm the fee is
currently being negotiated.  The agreement between Genpharm and the unaffiliated
third party covers fifteen products which are not included as part of the
Genpharm Distribution Agreement (see "--Distribution and Supply Agreements-
Genpharm, Inc.").

Lease Agreement:

   On March 17, 1999, Par Pharmaceutical, Inc. ("Par"), the Company's wholly-
owned operating subsidiary, entered into an agreement to lease (the "Lease
Agreement") its manufacturing facility and related machinery and equipment
located in Congers, New York (the "Congers Facility") to Halsey Drug Co., Inc.
("Halsey"), a manufacturer of generic pharmaceutical products.  The Lease
Agreement has an initial term of three years, subject to an additional two-year
renewal period and contains a purchase option permitting Halsey to purchase the
Congers Facility and substantially all the equipment thereof at any time during
the lease terms for a specified amount.  The Lease Agreement provides for annual
fixed rent during the initial term of $500,000 per year and $600,000 per year
during the renewal period.  Pursuant to the Lease Agreement, Halsey paid the
purchase option of $100,000 in March 1999.  Under the Halsey Supply Agreement
(as hereinafter defined), Halsey will perform certain manufacturing operations
for the Company at the Congers Facility.  Pursuant to the Lease Agreement, Par
agreed that if its purchases are less than $1,150,000 worth of the products
during the initial eighteen months of the Halsey Supply Agreement, the amount of
the deficiency will be credited against rent payments due under the Lease
Agreement  (see "--Distribution and Supply Agreements-Halsey Drug Co., Inc.").

Distribution and Supply Agreements:

Halsey Drug Co., Inc.

   On March 17, 1999, Par entered into a Manufacturing and Supply Agreement with
Halsey (the "Halsey Supply Agreement").  The Halsey Supply Agreement requires
Halsey to manufacture exclusively for Par certain products previously
manufactured by Par at the Congers Facility prior to the agreement. The Halsey
Supply Agreement has an initial term of three years subject to earlier
termination upon the occurrence of certain events as provided therein.  Pursuant
to the Lease Agreement, Par agreed to purchase not less than $1,150,000 worth of
the products during the  initial eighteen months of the Halsey Supply Agreement,
subject to Par's agreement to credit any deficiency under the Lease Agreement.
Halsey cannot manufacture, supply, develop or distribute the products for anyone
other than Par for a period of three years.

Genpharm, Inc.

   The Company has a distribution agreement with Genpharm (the "Genpharm
Distribution Agreement") pursuant to which Genpharm granted exclusive
distribution rights to the Company within the United States and certain other
United States territories with respect to approximately 40 generic
pharmaceutical products currently being developed or identified for development,
some of which have obtained U.S. Food and Drug Administration ("FDA") approval
and others of which have been or will be submitted to the FDA for approval.
Products may be added to or removed from the Genpharm Distribution Agreement by
mutual agreement of the parties.  Genpharm is required to use commercially
reasonable efforts to develop the products, which are subject to the Genpharm
Distribution Agreement, and is responsible for the completion of product
development and for obtaining all applicable regulatory approvals.  The Company
will pay Genpharm a percentage of the gross profits attributable to the sales of
such products by the Company.

BASF Corporation

   In April 1997, Par entered into a Manufacturing and Supply Agreement (the
"BASF Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of
pharmaceutical products.  Under the BASF Supply Agreement, Par agreed to
purchase certain minimum quantities of certain products manufactured by BASF at
one of its facilities, and to phase out Par's manufacturing of those products.
BASF agreed to discontinue its direct sale of those products.  The

                                      -6-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 3, 1999
                                  (Unaudited)


agreement has an initial term of three years (subject to earlier termination
upon the occurrence of certain events as provided therein) and thereafter renews
automatically for successive two-year periods until December 31, 2005, if Par
has met certain purchase thresholds. In each of the first three years of the
initial term of the BASF Supply Agreement, Par agreed to purchase an aggregate
of at least $24,500,000 worth of three products. Further, if Par does not
purchase at least $29,000,000 worth of one of those products in the third and
final year of the agreement, BASF has the right to terminate the agreement with
a notice period of one year.

Elan Corporation

   On September 29, 1998, the Company and Elan Transdermal Technologies, Inc.,
formerly known as Sano Corporation, and Elan Corporation, plc (collectively
"Elan") entered into a termination agreement (the "Termination Agreement") with
respect to their prior distribution agreement.  Pursuant to the Termination
Agreement, Par's exclusive right to distribute in the United States a
transdermal nicotine patch manufactured by Elan ended on May 31, 1999.  Par paid
Elan a certain percentage of gross profits from the sale of the nicotine patch
through the termination date.  In exchange for relinquishing long-term
distribution rights for the nicotine patch and a nitroglycerin patch, PRI
received a cash payment of $2,000,000 in October 1998 and will receive an
additional payment of $2,000,000, less any gross profit generated by sales of
the product subject to a minimum payment of $1,000,000, in the third quarter of
1999.  Pursuant to the Termination Agreement, Elan agreed to pay Par a perpetual
royalty on all non-prescription sales of the transdermal nicotine patch by Elan
in the United States and Israel.

Short-Term Debt:

   In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC") which provided
Par with a three-year revolving line of credit.  Pursuant to the Loan Agreement,
as amended, Par is permitted to borrow up to the lesser of (i) the borrowing
base established under the Loan Agreement or (ii) $20,000,000.  The borrowing
base is limited to 85% of eligible accounts receivable plus 50% of eligible
inventory of Par, each as determined from time to time by GECC.  The interest
rate charge on the line of credit is based upon a per annum rate of 2 1/4% above
the 30-day commercial paper rate for high-grade unsecured notes adjusted
monthly.  The line of credit with GECC is secured by the assets of Par and PRI
other than real property and is guaranteed by PRI.  In connection with such
facility, GECC can require the Company and its affiliates to establish a cash
management system pursuant to which all cash and cash equivalents received by
any of such entities are deposited into a lockbox account over which GECC has
sole operating control.  On June 30, 1998, the Company paid all remaining
outstanding revolving credit advances pursuant to the Loan Agreement with GECC
with a portion of the proceeds from Merck KGaA's equity investment and GECC
relinquished operating control over the Company's cash receipts.  As of July
3,1999, the borrowing base was approximately $14,800,000 and no amounts were
outstanding under the line of credit.  The revolving credit facility is subject
to covenants based on various financial benchmarks.  In August 1999, GECC waived
events of default related to financial covenants and amended the financial
covenants of Par.

Income Taxes:

   Based on the Company's recent performance and uncertainty of the generic
business in which it operates, management believes that future operating income
might not be sufficient to recognize fully the net operating loss carryforwards
of the Company.  Therefore, the Company did not recognize a benefit for its
operating losses in any of the six-month and three-month periods ended July 3,
1999 or June 27, 1998.  If the Company is unable to generate sufficient taxable
income in the future, the Company expects that increases in the valuation
allowance will be required through a charge to expense.

Earnings Per Share:

   In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
("SFAS 128"), which is effective for financial statements for periods ending
after December 15, 1997, and requires replacement of primary and fully diluted
earnings per share with basic and diluted earnings per share including
retroactive restatement of all prior earnings per share data. Under SFAS 128,
the dilutive effect of stock options is excluded from the calculation of basic
earnings per share but included in diluted earnings per share. The Company
adopted the new accounting standard during the quarter ended December 27, 1997
and, accordingly, has presented or restated all earnings per share data to
conform to the requirements of SFAS 128. The following table is a reconciliation
of the numerators and denominators used to calculate basic and diluted earnings
per share:

                                      -7-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 3, 1999
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                    Six Months Ended      Three Months Ended
                                                  ---------------------  --------------------
                                                   July 3,    June 27,    July 3,    June 27,
                                                    1999        1998        1999       1998
                                                  ---------  ----------  ----------  --------
                                                   (In Thousands, Except Per Share Amounts)
<S>                                               <C>        <C>         <C>         <C>
Net (loss) income (numerator)                      $  (693)    $(1,843)    $  (365)   $ 1,300
Basic:
Weighted average number of common
  shares outstanding (denominator)                  29,387      18,890      29,421     18,896
Net (loss) income per share of common stock        $  (.02)    $  (.10)    $  (.01)   $   .07
                                                   =======     =======     =======    =======
Assuming dilution:
Weighted average number of common
  shares outstanding                                29,387      18,890      29,421     18,896
Effect of dilutive options                               -           -           -      1,836
                                                   -------     -------     -------    -------
Weighted average number of common and common
   equivalent shares outstanding (denominator)      29,387      18,890      29,421     20,732
Net (loss) income per share of common stock        $  (.02)    $  (.10)    $  (.01)   $   .06
                                                   =======     =======     =======    =======

</TABLE>

   Outstanding options and warrants of 287,500 and 262,500 at the end of the
six-month and three-month periods ended July 3, 1999, respectively, and 779,700
and 548,700 at the end of the corresponding periods of the prior year were not
included in the computation of diluted earnings per share because their exercise
prices were greater than the average market price of the Common Stock in the
respective periods.  In addition, incremental shares from assumed conversions of
1,145,825 and 1,222,841 at the end of the current six-month and three-month
periods, respectively, and 1,169,210 at the end of the six-month period of last
year were excluded from diluted earnings per share because they were non-
dilutive.

Comprehensive Income:

   The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during the period ended December
31, 1998, which establishes standards for the reporting and display of
comprehensive income and its components.  There was no impact on the financial
statements as a result of the adoption of SFAS 130 in the six-month and three-
month periods ended July 3, 1999.

Commitments, Contingencies and Other Matters:

Retirement Plans:

   The Company has a defined contribution, social security integrated Retirement
Plan (the "Retirement Plan") providing retirement benefits to eligible employees
as defined in the Retirement Plan.  The Company suspended employer contributions
to the Retirement Plan effective December 30, 1996.  Consequently, participants
in the Retirement Plan will no longer be entitled to any employer contributions
under such plan for 1996 or subsequent years.  The Company also maintains a
Retirement Savings Plan (the "Retirement Savings Plan") whereby eligible
employees are permitted to contribute from 1% to 12% of pay to the Retirement
Savings Plan.  The Company contributes an amount equal to 50% of the first 6% of
the pay contributed by the employee.  In fiscal year 1998, the Company merged
the Retirement Plan into the Retirement Savings Plan.


Legal Proceedings:

   The Company is involved in certain litigation matters, including certain
product liability actions and actions by a former officer for, among other
things, breach of contract.  Such actions seek damages from the Company,
including compensatory and punitive damages.  The Company intends to defend
these actions vigorously.  The Company believes that these actions are
incidental to the conduct of its business and that the ultimate resolution
thereof will not have a material adverse effect on its financial condition or
liquidity.

                                      -8-
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 3, 1999
                                  (Unaudited)


Asset Impairment/Restructuring:

   Following previously announced measures to reduce costs and increase
operating efficiencies, the Company has discontinued the sale of certain
unprofitable products, eliminated approximately 40 positions in January 1999,
primarily in manufacturing and various manufacturing support functions, and
reduced certain related operating expenses.  These measures resulted in a charge
of $1,906,000 in the three-month transition period ended December 31, 1998,
which included approximately $1,200,000 for write-downs related to the
impairment of assets affected by the discontinuance of the products and a
provision of $706,000 for severance payments and other employee termination
benefits.  Additionally, the Company established inventory reserves of $630,000
relating to the discontinued products which was recorded as part of cost of
goods sold during the transition period.  At July 3, 1999, the remaining
provisions for the severance payments and other employee termination benefits
and discontinued product inventory amounted to $176,000 and $342,000,
respectively.  The Company expects the remaining reserves to be sufficient and
to be fully utilized.

   The Company recorded a charge of $1,212,000 in the fiscal year ended
September 30, 1998 for asset impairment of its Congers Facility as a result of
outsourcing the manufacture of most of the products from such facility.  The
charge was based on the difference between the appraised value of the property
less its net book value at September 30, 1998.  In March 1999, the Company
entered into an agreement with Halsey to lease, with an option to purchase, the
Congers Facility and related machinery and equipment.

                                      -9-
<PAGE>

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

   Certain statements in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including those concerning management's expectations with respect to
future financial performance and future events, particularly relating to sales
of current products as well as the introduction of new manufactured and
distributed products.  Such statements involve known and unknown risks,
uncertainties and contingencies, many of which are beyond the control of the
Company, which could cause actual results and outcomes to differ materially from
those expressed herein.  Factors that might affect such forward-looking
statements set forth in this Form 10-Q include, among others, (i) increased
competition from new and existing competitors and pricing practices from such
competitors, (ii) pricing pressures resulting from the continued consolidation
by the Company's distribution channels, (iii) the amount of funds continuing to
be available for internal research and development and research and development
joint ventures, (iv) research and development project delays or delays and costs
in obtaining regulatory approvals, (v) continuation of distribution rights under
significant agreements, (vi) the effectiveness of restructuring measures to
reduce losses and increase efficiencies and (vii) the continued ability of
distributed product suppliers to meet future demand.  Any forward-looking
statements included in this Form 10-Q are made as of the date hereof, based on
information available to the Company as of the date hereof, and the Company
assumes no obligation to update any forward-looking statements.


RESULTS OF OPERATIONS

General

   The Company reduced its operating losses in the six-month and three-month
periods ended July 3, 1999 to $908,000 and $416,000, respectively, from
$5,067,000 and $2,111,000 in the corresponding periods of the prior year.  The
improvement in both periods was due primarily to volume increases on sales of
certain existing products, a more favorable pricing environment in the market
and additional sales of products introduced during the last year, including four
new products in 1999.  The improved results were achieved despite increased
spending on product development and sales and marketing, as described below. The
Company incurred net losses of $693,000 and $365,000 for the six-month and
three-month periods ended July 3, 1999, respectively, compared to a net loss of
$1,843,000 and net income of $1,300,000 in the corresponding periods of the
prior year.  Prior year net results included non-recurring income of
approximately $3,600,000 in both periods from the sale and release of product
rights to Elan (see "Notes to Financial Statements-Distribution and Supply
Agreements-Elan Corporation").

   In an attempt to lower costs, increase operating efficiencies and reduce
operating losses, the Company has recently reduced its work force, discontinued
certain unprofitable manufactured products and leased an under-utilized facility
(see "Notes to Financial Statements-Commitments, Contingencies and Other
Matters-Asset Impairment/Restructuring").  The Company plans to continue to
search for additional measures to improve results in addition to continue
seeking new products through joint ventures, distribution and other agreements
with pharmaceutical companies located throughout the world.  If current sales or
gross margin levels are not increased by sales of substantially more profitable
new distributed or manufactured products or continued volume increases and
favorable pricing on existing products, the Company will continue to experience
losses.

   In an effort to improve the Company's growth prospects through the
introduction of new products at profitable pricing and strengthen its financial
condition, PRI entered into a strategic alliance with Merck KGaA, which was
completed on June 30, 1998.  As part of the alliance, the Company sold stock to
a subsidiary of Merck KGaA and received the sole rights to the portfolio of
products covered by the Genpharm Distribution Agreement, granting the Company
exclusive United States distribution rights for up to approximately 40 generic
pharmaceutical products currently being developed or identified for development,
some of which have obtained FDA approval and others of which have been or are
expected to be submitted to the FDA for approval.  Genpharm pays the research
and development costs associated with the products and PRI will pay Genpharm a
certain percentage of the gross margin on sales of the products (see "Notes to
Financial Statements-Strategic Alliance" and "--Distribution and Supply
Agreements-Genpharm, Inc.").  The alliance provides the Company with a
significant number of potential products for its development pipeline without
the substantial resource commitment, including financial, it would normally take
to develop such a pipeline, working capital for possible business expansion,
improved financial condition through elimination of certain significant
outstanding debt and access to Merck KGaA's expertise and experience in the
industry.  To date, six products introduced under the Genpharm Distribution
Agreement have had only a minimal positive effect on the Company's operating
results.

   The generic drug industry in the United States continues to be highly
competitive. The factors contributing to the intense competition and affecting
both the introduction of new products and the pricing and profit margins of the
Company, include, among other things; (i) introduction of other generic drug
manufacturer's products in direct competition with the Company's significant
products, (ii) consolidation among distribution outlets, (iii) ability of
generic competitors to quickly

                                      -10-
<PAGE>

enter the market after patent expiration, diminishing the amount and duration of
significant profits, (iv) willingness of generic drug customers, including
wholesale and retail customers, to switch among pharmaceutical manufacturers,
and (v) competition from brand name drug manufacturers selling generic versions
of their branded drugs.

   Critical to any significant improvement in the Company's financial condition
is the introduction and acquisition of new manufactured and distributed products
at selling prices that generate significant gross margin.  In addition to new
product introductions expected as part of the strategic alliance with Merck
KGaA, the Company plans to continue to invest in research and development
efforts, subject to liquidity concerns, and pursue additional products for sale
through new and existing distribution agreements.  The Company is engaged in
efforts, subject to FDA approval and other factors, to introduce new products as
a result of its research and development efforts and distribution and
development agreements.  No assurance can be given that the Company will acquire
any additional products for sale or that sales of additional products will
reduce losses or return the Company to profitability.  Continuing losses will
adversely affect the Company's liquidity and, accordingly, its ability to fund
research and development or ventures relating to the sale of new products and
market existing products (see "--Financial Condition-Liquidity and Capital
Resources").

Net Sales

   Net sales of $41,125,000 for the six-month period ended July 3, 1999 grew
$9,665,000, or 31%, from net sales of $31,460,000 for the six-month period ended
June 27, 1998.  The sales increase was primarily attributable to volume
increases on several existing products combined with a more favorable pricing
environment and additional sales from new products.  Net sales of distributed
products, which consist of products manufactured under contract and licensed
products, increased to approximately 67% of the Company's total net sales for
the most recent six-month period compared to approximately 40% of the total for
the same period of the prior year, continuing the Company's trend of greater
reliance upon sales of distributed product.  The increased percentage of
distributed product is primarily due to increased sales of products manufactured
under the BASF Supply Agreement.  The Company is substantially dependent upon
distributed products for its sales and, as the Company introduces new
distributed products under its distribution agreements, it is expected that this
trend will continue.  Any inability by suppliers to meet expected demand could
adversely affect future sales.  Pursuant to the Termination Agreement with Elan,
the Company ceased distributing Elan's transdermal nicotine patch after May 31,
1999.  As a result of the continued evaluation of its existing product line, the
Company discontinued certain unprofitable products during 1999 and will attempt
to sell off all remaining inventory for those products.  It is expected that the
termination of the transdermal nicotine patch distribution rights, and to a
lesser extent the discontinued manufactured products, will adversely affect the
Company's annual net sales.  Although there can be no assurance, it is
anticipated that new product introductions and the effect of recent volume
increases on certain products and the current pricing environment can offset
somewhat these expected net sales decreases.

   Second quarter 1999 net sales of $20,961,000 increased $3,075,000, or 17%,
compared to $17,886,000 for the corresponding quarter of 1998 following volume
increases of certain products, a more favorable pricing environment and sales of
new products.  Net sales of distributed products for the most recent quarter
increased to approximately 67% of the Company's total net sales versus
approximately 50% of the total for the same quarter of last year.

   Levels of sales of the Company's products are principally dependent upon,
among other things, (i) pricing levels and competition, (ii) market penetration
for the existing product line, (iii) the continuation of existing distribution
agreements, (iv) introduction of new distributed products, (v) approval of
abbreviated new drug applications ("ANDAs") and introduction of new manufactured
products, and (vi) the level of customer service.

Gross Margin

   The gross margin of $8,025,000 (20% of net sales) for the six-month period
ended July 3, 1999 increased $5,360,000 from $2,665,000 (8% of net sales) in the
corresponding period of the prior year.  Significant gross margin gains were
attained principally through increased volumes on certain products, a more
favorable pricing environment, additional contributions from new products and
lower inventory write-offs.  Unfavorable manufacturing variances due to excess
capacity caused by outsourcing or discontinuing manufactured products in prior
periods continued to adversely affect the gross margin in the six-month period.
The Company has attempted to address its excess capacity by leasing its under-
utilized Congers facility in March 1999, through layoffs of manufacturing
personnel in January 1999 and by the write-down of certain assets under-utilized
as a result of discontinuing certain products (see "Notes to Financial
Statements-Asset Impairment/Restructuring").

   The Company's gross margin for the second quarter ended July 3, 1999 was
$4,109,000 (20% of net sales) compared to $2,036,000 (11% of net sales) in the
corresponding quarter of the prior year.  Increased pricing or volumes on
certain products, additional contributions from new products and lower inventory
write-offs were partially offset by unfavorable manufacturing variances due to
excess manufacturing capacity.

                                      -11-
<PAGE>

   Inventory write-offs amounted to $528,000 and $293,000 for the six-month and
three-month periods ended July 3, 1999, respectively, compared to $1,079,000 and
$877,000 in the corresponding periods of the prior year.  The decrease in both
periods was primarily attributable to the magnitude of the write-offs in the
prior year related to obsolete inventory from the discontinuance of certain
products.  Inventory write-offs taken in the normal course of business are
related primarily to the disposal of finished products due to short shelf life.

   In addition to having a negative impact on net sales, the termination of the
transdermal nicotine patch distribution rights, discussed above, will also
negatively affect the Company's gross margin.  Although there can be no
assurance, it is anticipated that the gross margins generated by sales of new
products and the effect of recent price and volume increases on certain products
can offset somewhat this expected decrease.

Operating Expenses

Research and Development

   Research and development expenses of $2,467,000 for the six-month period
ended July 3, 1999 increased $706,000, or 40%, from $1,761,000 in the
corresponding period of the prior year.  The increase was primarily due to
payments for development work and patent research performed for PRI by
unaffiliated companies.  The payments were partially offset by recording the
funding of certain expenses by Generics and Genpharm.  The Company conducts a
significant part of its research and development in Israel through IPR.
Following the acquisition of the remaining interests of IPR in 1997, the
Company's domestic research and development program was integrated with that of
IPR.  Research and development expenses at IPR of $972,000 in the current period
were partially offset by $443,000 in funding from Generics compared to expenses
of $772,000 in the prior year.  Generics, a subsidiary of Merck KGaA, the
Company and IPR have an agreement pursuant to which Generics  shares one-half of
the costs of IPR's operating budget in exchange for the exclusive distribution
rights outside of the United States to the products developed by IPR after the
date of the agreement (see "Notes to Financial Statements-Development
Agreement").

   In the three-month period ended July 3, 1999 research and development
expenses of $1,281,000 increased $381,000, or 42%, from $900,000 for the same
period of last year.  The increase, primarily due to payments to unaffiliated
development companies, was partially offset by the funding of certain expenses,
as described above.  Second quarter 1999 research and development expenses  of
$488,000 for IPR, before funding from Generics, were comparable to $485,000 in
the corresponding quarter of the prior year.

   The Company has ANDAs for four potential products pending with and awaiting
approval from, the FDA.  The Company expects to commence biostudies for six
additional product submissions in 1999.  In 1999, PRI has received FDA approval
of its ANDAs for two products which the Company is currently marketing.

   As part of the Genpharm Distribution Agreement, Genpharm pays the research
and development costs associated with the products covered by the Genpharm
Distribution Agreement.  Currently, there are ANDAs for seven potential products
which are covered by the Genpharm Distribution Agreement pending with and
awaiting approval from, the FDA.  To date, the Company began marketing six
products under the Genpharm Distribution Agreement and anticipates marketing
several more in 1999 (see "Notes to Financial Statements-Distribution and Supply
Agreements-Genpharm, Inc.").

Selling, General and Administrative

   Selling, general and administrative costs of $6,466,000 (16% of net sales)
for the six months ended July 3, 1999 increased from $5,971,000 (19% of net
sales) in the corresponding period ended June 27, 1998.  The higher costs in the
current period were primarily attributable to strengthening the sales force and
expanding marketing efforts in anticipation of product introductions and
increasing market share of the existing product line, and to a lesser extent,
higher shipping costs associated with the increased sales levels.

   For the three months ended July 3, 1999, selling, general and administrative
costs of $3,244,000 (15% of net sales) were comparable to $3,247,000 of such
costs (18% of net sales) for the corresponding three-month period of last year.
The effect of higher costs related to the sales force and distribution of
products was offset by additional costs in the prior year associated with Merck
KGaA's equity investment in the Company.

Other Income

   Other income decreased  $3,437,000 and $3,543,000 for the six-month and
three-month periods ended July 3, 1999, respectively, from the corresponding
1998 periods.  Prior year amounts included a one time receipt of approximately
$3,600,000 of income in the second quarter of 1998 from the sale and release of
product rights to Elan (see "Notes to Financial Statements-Distribution and
Supply Agreements-Elan Corporation").

                                      -12-
<PAGE>

Income Taxes

   Management has determined, based on the Company's recent performance and
uncertainty of the generic business in which the Company operates, that future
operating income might not be sufficient to recognize fully the net operating
loss carryforwards of the Company.  Therefore, the Company did not recognize a
benefit for its operating losses in any  of the six-month and three-month
periods ended July 3, 1999 or June 27, 1998 (see "Notes to Financial Statements-
Income Taxes").

FINANCIAL CONDITION

Liquidity and Capital Resources

   Working capital at July 3, 1999 was $23,865,000 compared to $24,208,000 at
December 31, 1998.  The working capital ratio of 3.00x in the most recent period
improved from 2.62x at December 31, 1998.

   The Company, from time to time, enters into agreements with others with
respect to the development of new products and technologies.  To date, the
Company has entered into agreements and advanced funds to several companies for
products in various stages of development.  The payments are expensed as
incurred and included in research and development costs.  Total research and
development expenses, including these types of payments, are expected to be
approximately $6,000,000 in each of the twelve-month periods ended December 31,
1999 and 2000.

   On March 17, 1999, the Company entered into an agreement to lease its
manufacturing facility in Congers, New York to Halsey.  Halsey paid the Company
a purchase option of $100,000 in March 1999 and is obligated to pay rent of
$500,000 annually during the initial three-year term of the lease.  The rent is
expected to cover the Company's fixed costs of the facility.  Under the purchase
option, Halsey may purchase the facility and substantially all the machinery and
equipment at any time during the lease for a specified amount (see "Notes to
Financial Statements-Leasing Agreement").

   In January 1999, the Company entered into the Genpharm Profit Sharing
Agreement pursuant to which PRI will receive a portion of the profits and will
bear a portion of the expenses resulting from a separate agreement between
Genpharm and an unaffiliated United States based pharmaceutical company in
exchange for a non-refundable fee of $2,500,000.  The date on which PRI will be
required to pay Genpharm the fee is currently being negotiated (see "Notes to
Financial Statements-Profit Sharing Agreement").

   The Company, IPR and Generics have entered into an agreement, dated August
11, 1998, pursuant to which Generics will fund one-half of the costs of IPR's
operating budget in exchange for the exclusive distribution rights outside of
the United States to the products developed by IPR after the date of the
agreement.  In addition, Generics agreed to pay IPR a perpetual royalty for all
sales of the products by Generics or its affiliates outside the United States.
Under the Agreement, Generics commenced funding in the three-month period ended
December 31, 1998 and had fulfilled their requirements through July 3, 1999.
Generics is not required to fund more than $1,000,000 in any one calendar year
(see "Notes to Financial Statements-Development Agreement").

   On September 29, 1998, the Company and Elan entered into the Termination
Agreement pursuant to which the Company's exclusive distribution rights in the
United States to a transdermal nicotine patch ended on May 31, 1999.  Pursuant
to the Termination Agreement, PRI received a cash payment of $2,000,000 in
October 1998 and will receive an additional $2,000,000, less any gross profit
generated by sales of the product subject to a minimum payment of $1,000,000, in
the third quarter of 1999.  In future periods, the Company will not receive any
additional funds from the sale of product rights to Elan (see "Notes to
Financial Statements-Distribution Agreements-Elan Corporation").

   The Company expects to fund its operations, including research and
development activities and its obligations under the existing distribution and
development arrangements discussed herein, out of its working capital and if
necessary with borrowings against its line of credit, if and to the extent then
available (see "Financing:).  If, however, the Company continues to experience
losses over the next year, its liquidity and, accordingly, its ability to fund
research and development or ventures relating to the distribution of new
products would likely be materially and adversely affected.

Financing

   At July 3, 1999, the Company's total outstanding long-term debt, including
the current portion, amounted to $1,303,000.  The amount consists primarily of
an outstanding mortgage loan with a bank and capital leases for computer
equipment.

                                      -13-
<PAGE>

   In December 1996, Par entered into the Loan Agreement with GECC which
provided Par with a three-year revolving line of credit.  Pursuant to the Loan
Agreement, as amended, Par is permitted to borrow up to the lesser of (i) the
borrowing base established under the Loan Agreement or (ii) $20,000,000.  The
borrowing base is limited to 85% of eligible accounts receivable plus 50% of
eligible inventory of Par, each as determined from time to time by GECC.  The
interest rate charge on the line of credit is based upon a per annum rate of
2 1/4% above the 30-day commercial paper rate for high-grade unsecured notes
adjusted monthly. The line of credit with GECC is secured by the assets of Par
and PRI other than real property and is guaranteed by PRI. In connection with
such facility, GECC can require the Company and its affiliates to establish a
cash management system pursuant to which all cash and cash equivalents received
by any of such entities are deposited into a lockbox account over which GECC has
sole operating control. On June 30, 1998, the Company paid all remaining
outstanding revolving credit advances pursuant to the Loan Agreement with a
portion of the proceeds from the equity investment by Merck KGaA and GECC
relinquished operating control over the Company's cash receipts. As of July 3,
1999, the borrowing base was approximately $14,800,000 and no amounts were
outstanding under the line of credit. The revolving credit facility is subject
to covenants based on various financial benchmarks. In August 1999, GECC waived
events of default related to financial covenants and amended the financial
covenants of Par.

Year 2000

   The Company has completed an assessment of its internal systems related to
Year 2000 ("Y2K") compliance and has implemented a plan it believes will enable
its computerized information systems, manufacturing equipment, physical plant
and computerized processes to be Y2K compliant without any material disruption
in business.  As of this Form 10-Q filing, the Company's internal efforts are
approximately 90% complete and are expected to be completed by December 31,
1999.  These efforts include a pilot room testing of all critical computerized
systems, remedial action or replacement of systems which are not Y2K compliant,
evaluation of the Company's suppliers, customers and banks regarding their Y2K
readiness, and contingency plans for addressing complications as they may arise.
The costs of addressing this issue have consisted primarily of internal
personnel costs which have been expensed as incurred and have not, and the
Company believes will not, have a materially adverse effect on its financial
condition.  However, a material financial risk could result if third parties
upon which the Company relies are unable to address this issue in a timely
manner.  The Company anticipates devoting all resources necessary to resolve any
additional significant Year 2000 issues in a timely manner.

   The raw materials essential to the Company's manufacturing business are
purchased primarily from United States distributors of bulk pharmaceutical
chemicals manufactured by foreign companies.  The federal drug application
process requires specification of raw material suppliers.  If raw materials from
a specified supplier were to become unavailable, FDA approval of a new supplier
would be required.  While a new supplier becomes qualified by the FDA and its
manufacturing process is judged to meet FDA standards, a delay of six months or
more in the manufacture and marketing of the drug involved could result, which
could in turn have an adverse effect on the Company's financial condition.
Generally the Company attempts to minimize the effects of any such situation by
specifying, where economical and feasible, two or more suppliers for its drug
approvals.  A Y2K compliance survey directed to all suppliers, which consist
primarily of domestic distributors, resulted in a 95% response rate with 58% of
those vendors currently compliant while the remaining vendors have projected to
be compliant during the fourth quarter 1999.  In addition, an internal study was
conducted to determine the adequacy of raw material and finished goods inventory
projected to be on hand at the end of 1999, including a contingency plan to
build inventory on certain key products.

   A Y2K compliance survey was sent to all of the Company's customers and
financial institutions to identify issues which could develop as a result of
Y2K.  Certain customers have inquired about obtaining additional inventory
during the last four months of 1999.  Customer ordering restrictions will be
established to prevent stockpiling of products, however the Company anticipates
filling additional orders where possible which could effect sales levels in the
fourth quarter of 1999 and the early part of 2000.  The Company has been
contacted by its key financial institutions which reported that they expect to
be Y2K compliant in a timely manner.


      ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   Not applicable.

                                      -14-
<PAGE>

                          PART II. OTHER INFORMATION



Item 4.  Submission of Matters to a Vote of Security Holders.
-------  ---------------------------------------------------

   An Annual Meeting of Shareholders of the Company was held on July 30, 1999.
The following matters were voted on and approved by the holders of shares of the
Company's Common Stock:

   The proposal presented to the shareholders was to elect two Class III members
   of the Company's staggered Board of Directors, which consists of seven
   members, to serve for a three-year term and until their respective successors
   have been duly elected and qualified.  There were 26,109,075 and 26,112,602
   shares of Common Stock cast in favor of electing Klaus H. Jander and Francis
   Michael J. Urwin, respectively, as Class III Directors which represented a
   plurality of the shares of the Company's Common Stock cast for such proposal,
   and 267,363 and 263,836, shares were withheld, respectively.  There were no
   broker non-votes.

Item 6.  Exhibits and Reports on Form 8-K.
------   --------------------------------

   (a)  Exhibits:

          27 -  Financial Data Schedule.

   (b)  Reports on Form 8-K:

          None.

                                      -15-
<PAGE>

                                   SIGNATURE



   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                 PHARMACEUTICAL RESOURCES, INC.
                                 -------------------------------------
                                 (Registrant)



August 17, 1999                  /s/ Kenneth I. Sawyer
                                 --------------------------------------
                                 Kenneth I. Sawyer
                                 Chief Executive Officer and Chairman of
                                 the Board of Directors
                                 (Principal Executive Officer)



August 17, 1999                  /s/ Dennis J. O'Connor
                                 --------------------------------------
                                 Dennis J. O'Connor
                                 Vice President - Chief Financial
                                 Officer and Secretary (Principal
                                 Accounting and Financial Officer)

                                      -16-
<PAGE>

                                 EXHIBIT INDEX
                                 -------------


Exhibit Number           Description                   Page Number
--------------           -----------                   -----------
     27                  Financial Data Schedule           18


                                      -17-